Public / private collaboration is the key to unlocking Australia's CCS potential 9 min read
Carbon capture and storage (CCS), through its ability to both reduce greenhouse gas emissions and provide negative emissions solutions, will play a critical role in the global transition to net zero by 2050. Australia, thanks to its geological storage potential and proximity to high-emitting countries that have limited storage capacity, has an opportunity to be a world leader in CCS.
However, CCS in Australia seems to be in something of a policy and funding drift. With the push to net zero ever more challenging, we look at what might be done to reinvigorate CCS in Australia, looking at policy and funding initiatives on offer in the US, the UK and the EU.
What is CCS and why is it important in Australia's transition to net-zero?
CCS refers to capturing carbon dioxide, transporting it to a storage location and permanently storing it (typically through injection into an underground geological formation).
CCS includes three broad categories of project (that rely on various technologies and capture processes):
- Direct air capture (DAC) or direct air carbon capture and storage (DACCS): extracting carbon dioxide directly from the atmosphere (eg by using certain solids or liquids to absorb molecules of carbon dioxide).1
- Bioenergy with carbon capture and storage (BECCS): using biomass feedstocks (eg agricultural residue) to produce energy (whether through direct burning, biofuels or hydrogen) and capturing carbon dioxide released as part of that process before it is released into the atmosphere.2
- Point source carbon capture and storage: industrial separation of carbon dioxide from a large point source of carbon dioxide before it is released into the atmosphere, including from power stations, natural gas processing facilities, ammonia production facilities, certain hydrogen production facilities and steel mills.3
Modelling from independent organisations has consistently demonstrated that CCS is essential to achieve global net-zero targets by 2050.4 In addition, CCS has the potential to be a crucial component of Australia's future energy and resources sector in its dual role as both a standalone industry and a means for the sector more generally to reduce its carbon emissions.
What is the Federal Government's position on CCS?
The Federal Government has provided mixed signals on CCS. Australia does not currently have a national CCS strategy, or any policy specifically aimed at encouraging or facilitating the development of a CCS industry in Australia.
At the most recent Australian Labor Party (ALP) National Conference, the ALP endorsed a platform that effectively downplayed the role of CCS in Australia's energy transition, by acknowledging that CCS 'may provide opportunities to reduce carbon pollution'; a clear retreat from the ALP's earlier platform which recognised the role that CCS 'will play in abating carbon pollution'.5
This retreat in support at a policy level has been accompanied by a reduction in Federal Government funding for CCS-associated programs. An initial $250 million in funding under the 'Carbon Capture, Use and Storage Hubs and Technologies Program' announced in 2021, was replaced in the 2022-23 Federal Budget with $141.1 million for the 'Carbon Capture Technologies for Net Zero and Negative Emissions' program, which was removed from the 2023-24 Federal Budget.6
At the same time, the Federal Resources Minister, Madeleine King, recently endorsed CCS at an industry event, stating that CCS is a key mechanism in fighting climate change '[a]nd I think we need to do more to educate the public about its importance'.
Despite this uncertainty, the private sector is spearheading the development of Australia's CCS industry, with a number of CCS projects currently being progressed, including the Moomba CCS Project and South East Australia CCS Hub.
What can Australia learn from other countries?
The US is at the forefront of CCS project development in a number of ways. CCS is a key component of the broader strategy for decarbonising the US economy and achieving net-zero targets, and it is central to the emerging blue hydrogen and blue ammonia industries.
Federal tax credits
The Inflation Reduction Act, which introduced US$370 billion in investments in renewable energy, CCS, manufacturing and innovation, also significantly expanded the scope and application of federal tax credits for CCS projects.7 The credits, which range from US$12 per metric tonne up to a maximum of US$180 per metric tonne, comprise a base credit and a bonus credit (subject to satisfaction of certain conditions), and differ based on the capture technology employed. Credits are transferable between taxpayers, and tax-exempt entities (such as state and local governments) can receive their credits as cash payments.8
DACCS hub funding
In addition to the funding and tax credits delivered under the Inflation Reduction Act, the Infrastructure Investment and Jobs Act created the 'Four Regional Direct Air Capture Hubs' program, which provides up to US$3.5 billion in funding towards the development of four DACCS hubs.9 These hubs must, among other things, have the capacity to capture one million metric tonnes of carbon dioxide equivalent greenhouse gas per year through DACCS.10 This policy aims to achieve DACCS capacity that is 1000 times the capacity of the largest currently operating DACCS project.11 By way of comparison, it is currently not possible for a DACCS project in Australia to generate Australian Carbon Credit Units, which is clearly a significant barrier to investment in, and the development of, this technology in Australia.12
The UK has recently released the 'CCUS Net Zero Investment Roadmap', which outlines the critical role CCS will play in the transition to net zero by 2050, including through the development of:
- four CCS hubs that capture 20 to 30 million metric tonnes of carbon dioxide per year by 2030, and will support 50,000 jobs; and
- DACCS capacity of at least five million metric tonnes of carbon dioxide per year by 2030.13
This strategy is backed by meaningful government funding structures that not only provide contributions to upfront capital costs, but seek to minimise 'first-mover' risk in the industry.
T&S Regime
The Energy Bill 2022-23 (UK), which is currently progressing through Parliament, introduces a number of measures to support and promote development of the CCS industry in the UK, including:
- a licensing regime for, and economic regulation of, carbon dioxide transport and storage, including how the UK Government is to administer a regulated business model for carbon capture points (Capture Regime) and transport and storage (T&S Regime); and
- an ability for the Secretary of State for Energy Security and Net Zero to provide financial assistance to any person for the purpose of encouraging, supporting or facilitating the transport and storage of carbon dioxide or CCS facilities associated with the transport and storage of carbon dioxide.14
The Capture Regime involves a capital grant and ongoing revenue support and supports the deployment of capture technology by industrial facilities.15
The T&S Regime seeks to create and regulate the transport and storage network as a regulated utility in a manner consistent with other regulated utilities (such as gas networks), while recognising the infancy of this market.16 The T&S Regime provides that infrastructure will be developed by private companies (T&SCo) with the following forms of 'governmental support':
- direct financial assistance: including payments if commercial insurance is unavailable or there is a shortfall in actual revenues earned compared with the revenue that T&SCo is allowed to charge under its licence, and compensation if certain events occur (such as infrastructure becoming a stranded asset);
- a regulated tariff for use; and
- capital funding during construction.17
The governmental support is intended to compliment and support the private investment that is necessary for the UK to deliver the proposed CCS hubs, including the approximately £15 billion investment required to be made in transport and storage infrastructure.18
Public funding
The 'UK Infrastructure Bank' was established in 2021 to increase infrastructure investment in pursuit of two objectives: 'to tackle climate change' (and in, particular, meet the UK's net-zero target) and to support economic growth across the UK.19 The bank has £22 billion in funding and its mandate to invest in clean energy includes investments in CCS projects (including CCS projects that are integrated with petroleum operations, if these projects significantly reduce emissions over the lifetime of an asset).20
As part of the 'Mobilising Green Investment: 2023 Green Finance Strategy', the UK Government has also committed up to £20 billion for 'early deployment of [CCS]…to help meet the government's climate commitments',21 with more detailed information about this funding to be released.
There is significant recognition in EU policy that 2050 targets cannot be achieved without carbon removal—with CCS being a key technology to enable that removal. As with the UK and the US, there is also recognition that CCS provides the ability to transition to net zero in a cost-competitive manner, particularly in hard to abate industries.
Again, these policies and strategies are supported by wide-ranging funding programs that can be accessed by CCS projects.
European Green Deal / Net Zero Industry Act
The EU legislated the 'European Green Deal', which sets a legally binding objective of net zero by 2050 and negative emissions after 2050 and specifically acknowledges the role that CCS plays in decarbonisation.22
The 'Net Zero Industry Act' (NZIA) is one of the many policies supportive of CCS that have been adopted by the European Commission and it is currently undergoing the legislative process.23 The NZIA sets a legally binding target of 50 million metric tonnes of carbon dioxide removal per year by 2030 through geological storage (superseding the current policy of five million metric tonnes per year by 2030), requires member states to publicly release data on potential geological formation sites within their territory and recognises certain CCS projects as 'net-zero strategic projects', which provides these projects with benefits such as a maximum of 18 months for permitting processes.24 The truncation of lengthy permitting processes is particularly welcome, and is an example of non-financial assistance that governments and regulatory bodies can provide that has a meaningful impact on project delivery.
Innovation Fund
The 'Innovation Fund' is a €38 billion behemoth funding program to deliver the European Green Deal by decarbonising the EU and supporting its transition to climate neutrality.25 The Innovation Fund is accessible by a range of sectors, including energy-intensive industries, renewable energy, energy storage, CCS and carbon capture and utilisation. This approach of providing funding to a broad range of emissions reduction technologies and projects is consistent with both the US and the UK, with Australia seemingly the outlier in adopting a narrower approach.
Final thoughts
Australia is in a unique position to establish itself as a global leader in CCS. Whilst in Australia this industry is currently spearheaded by the private sector, the breadth of policy and funding initiatives on offer in the US, the UK and the EU suggests a collaborative approach between the private sector and government is needed to provide the fiscal and regulatory certainty required to really supercharge development of these projects. It is this collaboration between the private sector and government that will ultimately unlock Australia's CCS potential.
Allens, together with our alliance partner Linklaters, is at the forefront of CCS both in Australia and internationally. We are committed to supporting the development of Australia's CCS industry and, through our alliance, we are uniquely positioned to leverage our combined experience and expertise across multiple jurisdictions and projects to assist our clients.
Please reach out to one of our key contacts below if you have any queries, or would like to discuss CCS further.
Footnotes
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See, eg Commonwealth Scientific and Industrial Research Organisation, Australia's Carbon Sequestration Potential (Report, November 2022) 170–171.
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See, eg Ibid 158.
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See, eg Ibid 170–171; International Energy Agency, 'About CCUS', International Energy Agency (Web Page) <https://www.iea.org/reports/about-ccus>.
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See, eg Net Zero Australia, How to Make Net Zero Happen: Mobilisation Report (Report, July 2023) 33.
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See Australian Labor Party, ALP National Platform: As adopted at the 2021 Special Platform Conference (Report, March 2021) 39 [21]; Australian Labor Party, ALP Draft National Platform: 49th National Conference (Report, 2023) 35 [16].
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Department of Climate Change, Energy, the Environment and Water, 'Funding launched for carbon capture, use and storage hubs and technologies', News and media (Web Page, 30 September 2021) <https://www.dcceew.gov.au/about/news/funding-launched-for-carbon-capture-use-and-storage-hubs-and-technologies>; Department of the Treasury, Budget Measures: Budget Paper No 2 (Budget October 2022-23, 25 October 2022) ('2022-23 Budget'); Department of the Treasury, Budget Measures: Budget Paper No 2 (Budget 2023-24, 9 May 2023) ('2023-24 Budget').
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See, eg The White House, Building a Clean Energy Economic: A Guidebook to the Inflation Reduction Act's Investments in Clean Energy and Climate Action (Report, January 2023) 5.
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Ibid 67–69.
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See, eg The White House, A Guidebook to the Bipartisan Infrastructure Law for State, Local, Tribal, and Territorial Governments, and Other Partners (Report, May 2022) 160.
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Ibid.
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Department of Energy, 'Biden-Harris Administration Announces up to $1.2 billion for Nation's First Direct Air Capture Demonstrations in Texas and Louisiana' (Press Release, 11 August 2023) <https://www.energy.gov/articles/biden-harris-administration-announces-12-billion-nations-first-direct-air-capture>.
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Carbon Credits (Carbon Farming Initiative-Carbon Capture and Storage) Methodology Determination 2021 (Cth) s 7(3); Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth).
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HM Government, CCUS Net Zero Investment Roadmap: Capturing Carbon and a Global Opportunity (Report, April 2023) 2 and 4.
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Energy Bill 2022-23 (UK) long-title, s1, s2, s7, s11(3), s56, s57 and s128, as at 11 July 2023; Parliament of the United Kingdom, 'Energy Bill', Parliamentary Bills (Web Page) <https://bills.parliament.uk/bills/3311>.
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Department of Business, Energy & Industrial Strategy, Carbon Capture, Usage and Storage: Industrial Carbon Capture Business Models Summary (Report, December 2022).
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Department of Business, Energy & Industrial Strategy, Carbon Capture, Usage and Storage: An Update on the Business Model for Transport and Storage (Report, January 2022) ('T&S Regime 2022 Report'); Department of Business, Energy & Industrial Strategy, Carbon Capture, Usage and Storage: An Update on the Business Model for Transport and Storage – Indicative Heads of Terms: Explanatory Note (Report, June 2023) ('T&S Regime 2023 Report').
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T&S Regime 2022 Report (n 16); T&S Regime 2022 Report (n 16).
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T&S Regime 2022 Report (n 16) 15); T&S Regime 2023 Report (n 16)
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UK Infrastructure Bank, Strategic Plan (Report, 23 June 2022) 4 and 14.
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Ibid 45.
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Chancellor of the Exchequer, Spring Budget 2023 (Report, 15 March 2023) 64–65.
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Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 Establishing the Framework for Achieving Climate Neutrality and Amending Regulations (EC) No 401/2009 and (EU) 2018/1999 [2021] OJ L 243/1, preamble (20) and art 2(1).
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See, eg European Commission, Proposal for a Regulation of the European Parliament and of the Council on Establishing a Framework of Measures for Strengthening Europe's Net-Zero Technology Products Manufacturing Ecosystem, COM(2023) 161, 16 March 2023 ('Net Zero Industry Act'); Publications Office of the European Union, '2023/0081/COD', Procedure 2023/0081/COD (Web Page) <https://eur-lex.europa.eu/procedure/EN/2023_81>.
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Net Zero Industry Act (n 23) art 16–17, art 10(2) and art 13; European Commission, Communication from the Commission to the European Parliament and the Council on Sustainable Carbon Cycles, COM(2021) 800, 15 December 2021, 17.
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European Commission, Innovation Fund Progress Report (Report, August 2022) 5.