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Focus: Climate Change – November 2007

Carbon capture and storage – development of legislative framework

In brief: With climate change issues being one of the key agenda items for the newly elected ALP Federal Government, Partners Anna Collyer (view CV) and Scott Langford (view CV) and Senior Associate Hayley McNamara review the current status of the development of a legislative framework for the implementation of carbon capture and storage technologies in the Australian energy sector.

How does it affect you?

  • The Commonwealth Department of Tourism Industry and Resources (DITR) is developing a regulatory regime for the injection and storage of greenhouse gases (GHG) in offshore Commonwealth waters. Draft legislation is being prepared and is expected to be released soon for consultation, with supporting regulations and guidelines to follow.
  • The draft legislation will comprise the introduction of three new GHG titles in the Offshore Petroleum Act 2006 (Cth). Key issues to be addressed by the legislation are:
    • balancing the interests of carbon capture and storage (CCS) activities and petroleum exploration and production activities in common geological settings; and
    • the safety of CCS activities and long-term liability for GHG injected into a site under a GHG title.
  • The House of Representatives Standing Committee on Science and Innovation has reported on its inquiry into CCS and made specific recommendations on the liability regime to be established by the new regulatory framework.

Status of the draft legislation

Over the past 18 months, the Department of Industry, Tourism and Resources has been working with industry to prepare draft legislation for the regulation of carbon capture and storage in Australian offshore waters. The legislation, which will involve amending the Offshore Petroleum Act 2006 (Cth), will be based upon the guiding principles for CCS that were endorsed by the Ministerial Council on Mineral and Petroleum Resources in November 2005. The proposed legislative amendments to establish the CCS regulatory regime were discussed in the September 2006 paper by DITR entitled Implementing a Legislative and Regulatory Framework for Carbon Capture and Geological Storage.

The report prepared by the House of Representatives Standing Committee on Science and Innovation of its inquiry into the science and application of CCS, Between a Rock and a Hard Place, which was tabled in August 2007, referred to this process that is being undertaken by DITR. The report is generally supportive of the work that has been done to date, but recognises the challenge of translating the guiding principles into a practical working model.

The preparation of draft legislation for consultation will be a significant step in the development of such a model. While no date has been provided by DITR, it did advise at the AMPLA national conference in October 2007 that draft legislation would be released as soon as possible, regardless of the outcome of last Saturday's federal election. DITR also advised that there will be an extensive period for review of the draft by industry and stakeholders.

There are currently no international examples of uniform or consolidated guidelines regulating CCS. As such, the framework adopted in the draft legislation will be under close scrutiny both in Australia and internationally.

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Legislative model

DITR has explained that the draft legislation will deal with the injection and storage of greenhouse gases only and not the capture of GHG. This is because the legislative framework will deal with CCS activities in offshore Commonwealth waters, whereas the capture of the GHG will generally occur as part of an industrial process onshore.

The desirability of complementary state legislation has been noted, and it has been suggested that the Commonwealth legislation and Ministerial Council's guiding principles would ideally provide a basis for the states to proceed with their own CCS legislation. A number of states have already taken steps in this regard, and these state initiatives will be examined in future AAR Focus articles.

The purpose of the Commonwealth's draft legislation will be to provide industry with the opportunity to take up offshore acreage to identify potential storage sites, and provide a mechanism for long-term injection and storage of GHG.

DITR has advised that the legislation will be skeletal in form, with further work being undertaken to underpin and enhance the legislative framework through the development of subordinate legislation and guidelines. While DITR has not confirmed a timetable for the preparation and review of any these regulatory provisions, it is expected that the process would commence shortly after the draft of the legislation has been produced.

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GHG titles

It is proposed that three new titles will be introduced into the Offshore Petroleum Act dealing specifically with GHG.

Assessment permit

The current acreage release program, as it applies to petroleum permits, will be adapted to apply to GHG titles. Accordingly, the access to potential sites will be granted via a GHG Assessment Permit in a competitive acreage release tender process. A GHG Assessment Permit will provide the successful tenderer with the exclusive right to undertake CCS exploration activities and a priority right to apply for either a GHG Holding Licence or GHG Injection Licence over the relevant area. It is proposed that a GHG Assessment Permit will have an initial term of three years, after which it may be extended for an additional three years. Importantly, a GHG Assessment Permit will not give the holder any rights or interest in petroleum in the relevant area. If petroleum is discovered in the course of exploration/assessment under a GHG Assessment Permit, the holder will not have any priority right to a petroleum title in respect of the discovery.

Holding lease

When a GHG Assessment Permit holder has established the appropriateness of the area for GHG storage, but further time is required before commercial storage operations can commence, the holder can apply for a GHG Holding Lease. It is proposed that a GHG Holding Lease will be granted for five years (with an option to extend for a further five years). It is anticipated that the legislation will provide that, once a GHG stream is available and the required infrastructure is in place, a GHG Holding Lease holder would move to a GHG Injection Licence.

Injection licence

The third title in the GHG regime will be the GHG Injection Licence. A GHG Injection Licence will allow the holder to inject and store GHG in an identified storage site. It is proposed that it will be granted for an indefinite term but, as is the case with petroleum production licences, there will be a provision exposing the licence to cancellation if no storage operations are carried on for a continuous period of five years. Prior to granting a GHG Injection Licence, an injection and storage plan will need to be approved. The plan will be required to cover all phases of the project, from the source to storage of the GHG, including all safety and environmental considerations.

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Co-existence of petroleum activities and GHG storage activities

Given that the geological settings that are appropriate for CCS are often also either covered by existing petroleum permits or prospective for petroleum, one of the key regulatory issues to be managed by the legislation is the interaction between CCS development with petroleum exploration and production.

It is proposed that, where there is a pre-existing petroleum title holder, the onus will be on the applicant for a GHG title to show there would be 'no significant impact' on that petroleum title holder. When making this assessment, the regulator (which, in issues relating to the GHG regime, will be the Federal Government and not the Joint Authority, which is the regulator for the petroleum regime) will take into account undiscovered areas. As such, the test will not be restricted to known hydrocarbon accumulations.

If the applicant for a GHG title cannot establish that there will be no significant impact on an existing petroleum title holder, the regulator may, on 'public interest grounds', elect to determine which of the potentially mutually exclusive activities can proceed.

In determining whether there would be a significant impact on an existing petroleum title holder, a number of factors would be taken into account, including any agreements proposed to be entered into between the petroleum title holder and the holder of the GHG title.

Conversely, in cases where there is an existing GHG title, and no underlying petroleum permit, a petroleum permit applicant will have to demonstrate no significant impact on the storage activities being carried on, or to be carried on, under the GHG title.

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Safety and liability

Two further issues that are of critical importance for both investor certainty and the public acceptance of CCS will be:

  • establishing the safety of CCS, both in the short and long term; and
  • the question of liability for GHG that is injected pursuant to a GHG Injection Licence.

DITR has recognised that monitoring and verification of the behaviour of injected GHG is critically important to the successful introduction of CCS in Australia. DITR has advised that the planned monitoring and verification activities of each CCS project will be a key feature of CCS approvals and assessment criteria. While this may not appear in the draft legislation, it is expected to be addressed in subordinate legislation and guidelines, and to form a significant part of any conditions attached to GHG titles.

The arrangements proposed to date by DITR in respect of potential liability associated with leakage and migration of GHG from a storage site are similar to those for the petroleum industry. That is, the liability for any GHG injected into a site will remain with the title holder until the regulator issues a 'site closure certificate'. A site closure certificate will only be issued once the regulator is satisfied that the GHG reservoir is behaving as predicted, and in such a way that it poses no significant threat of possible damage or nuisance. Such a certificate would, in effect, constitute permission for the holder of a GHG Injection Licence to leave the area. After such time, the holder will only be liable under common law for the GHG stored.

These issues were the focus of some of the recommendations in the recent House of Representatives Standing Committee Report. In particular, the Committee recommends a three-phase approach to post-closure financial liability and responsibility for site safety and monitoring. The approach is similar to the DITR proposal, contemplating that liability and responsibility would ultimately be transferred from the titleholder to government, but also incorporating an intermediate period of shared liability and responsibility.

Under either model, it can be expected that the titleholder under the GHG regime would have a significant onus to discharge before it would be absolved of liability in respect of a site.

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Conclusion

CCS is a key enabling technology for the low emissions utilisation of fossil fuels. The release of draft legislation will be the first step in the implementation of a CCS legislative regime that is effective and encourages the development of CCS, while balancing the interests of the petroleum industry and seeking to ensure the protection of the environment.

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