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Focus: Climate Change – October 2008

Progress of the Commonwealth Greenhouse Gas Storage Bill

In brief: Partner Anna Collyer (view CV) and Senior Associate Cate Barlow look at the progress of an important piece of Commonwealth carbon capture legislation.

How does it affect you?

  • The Offshore Petroleum Amendment (Greenhouse Gas Storage) Bill 2008 (the Bill) has been considered by the House of Representatives Standing Committee on Primary Industry and Resources and the Senate Standing Committee on Economics.
  • Both committees were generally supportive of the Bill. A number of amendments have been made in response to the House of Representatives Committee's recommendations addressing, in particular, key issues of acreage release and the interaction between actual or potential overlapping petroleum and greenhouse gas titles.
  • The House of Representatives Committee also recommended that the Bill provide a process for the transfer to the Federal Government of long-term liability for greenhouse gas storage operations. However, this proposal was not supported by the Government, or by the Senate Committee, which recommended instead that the Government should look to the greenhouse gas operators to contribute to any future costs associated with leakage and site upkeep.

Overview

The House of Representatives passed the Offshore Petroleum Amendment (Greenhouse Gas Storage) Bill 2008 on 18 September 2008 and it has now gone to the Senate for its approval. This Bill amends the Offshore Petroleum Act 2006 (Cth) to provide a framework for a greenhouse gas storage regime in Commonwealth offshore waters.

In response to the recommendations from the House of Representatives Standing Committee on Primary Industry and Resources, various amendments have now been incorporated into the Bill.

The Senate Standing Committee on Economics also reported its conclusions and recommendations in relation to the Bill on 23 September 2008.

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Amendments to the Bill

As previously reported (see Allens Focus: Climate Change – May 2008), the Bill was introduced into the House of Representatives earlier this year and was referred to the House of Representatives Standing Committee on Primary Industry and Resources, which tabled its report in the House on 1 September.

Overall, the Government supported 15 of the committee's 19 recommendations, and a further two recommendations were partially supported. The key recommendations and related amendments are discussed below.

Access and property rights

Criteria for assessing work bid applications: The committee noted that assessment of applicants for greenhouse gas acreage based on work program expenditure, alone, may not result in an optimal uptake of greenhouse gas operations.

In response, the Government proposed and passed an amendment to the Bill, which specifies that, in addition to work and exposure proposals, the criteria for assessing respective applicants may include economic, commercial and public interest matters. The Government also supported the committee's recommendation that the availability of a carbon dioxide stream, for imminent injection, should be a criterion when assessing bids for the award of acreage. No specific amendment was made in relation to this issue, on the basis that it was adequately covered by the expanded categories of criteria.

Right of renewal for greenhouse gas assessment permit: The committee recommended that a greenhouse gas assessment permit should be renewable, for a single maximum period of three years.

The Government's amendments give effect to this recommendation. However, to remove the risk that a renewal will be used to 'warehouse' areas, the renewal will be subject to conditions (for example, proposed work programs having been fully met, or work programs being subject to delays).

Existing rights of petroleum production licensees to inject carbon dioxide: To maintain legal certainty, the committee recommended the preservation of the existing rights of petroleum production licensees to inject and store carbon dioxide.

In response, the Government has included amendments which clarify that the provisions of the Offshore Petroleum Act relating to injection and storage of greenhouse gases do not imply that such activities are not authorised by the existing incidental powers provisions of the Act. However, greenhouse gas licences will still be available to petroleum production licence holders in respect of these incidental activities.

Development of integrated petroleum projects: The committee also recommended that the Bill be expanded to provide for the development of integrated petroleum projects. It suggested that this should include the injection and storage of greenhouse gas which is derived from areas outside the production areas.

Although the Government recommended amending the Bill to allow activities across different petroleum title areas, it considered that the injection of greenhouse gas from multiple sources, outside the petroleum title boundaries, should require a separate greenhouse gas title.

Managing interactions

Ministerial intervention in negotiations: The committee made a number of recommendations in response to concerns that petroleum titleholders would be able to block greenhouse gas operations by claiming that those operations would give rise to a 'significant risk of a significant adverse impact' on their operations. In particular the committee recommended that the responsible Federal Commonwealth Minister be empowered to direct greenhouse gas and petroleum operators to negotiate in good faith where there are potential or actual overlapping greenhouse gas storage and petroleum titles and, ultimately, to direct an outcome to such negotiations.

The Government noted that the Bill already gives the Minister the power to decide the outcome in the public interest in the case of 'post-commencement' petroleum titles, and expressed concern that such powers would be a substantial encroachment on the rights of 'pre-commencement' petroleum titleholders.

To address this issue, the Government recommended that the definition of 'significant risk of a significant impact' be well defined in regulations. The Bill was also amended to provide the responsible Federal Minister with powers to:

  • establish expert advisory committees to provide technical advice;
  • request parties to report on any negotiations that have taken place in relation to overlapping greenhouse gas storage and petroleum titles; and
  • request information or documents that may assist the Minister to make certain decisions where there is the potential for interaction between petroleum and greenhouse gas operations. The provisions include protection for confidential information, but also expressly allow the Minister to disclose non-confidential information to a party involved in the negotiations.
Investment certainty and liability issues

One-off offer of greenhouse gas assessment permit to incumbent petroleum operators: The committee noted that conflict between existing petroleum title holders and new greenhouse gas operators could cause long delays in the implementation of offshore commercial gas storage. On this basis, it recommended that incumbent petroleum operators should be offered a one-off opportunity to incorporate a greenhouse gas permit over an existing exploration or production licence.

The Government did not support this recommendation, on the basis that:

  • granting these titles to incumbent operators could delay implementation of some greenhouse gas storage projects by excluding those 'early mover' greenhouse gas operators which do not have existing petroleum titles; and
  • greenhouse gas storage sites are unlikely to have the same boundaries as petroleum titles.

However, the Government did support the extension of existing petroleum titleholder rights for retention leases, by introducing amendments that allow retention titleholders to apply for greenhouse gas holding leases over the same areas. A greenhouse gas title that is granted in this manner is not able to be sold separately from an associated petroleum title. In addition, any eventual greenhouse gas injection licence, which is granted via this route, will only permit the injection of greenhouse gas which originates from the area of the associated petroleum title.

Long-term liability: The committee recommended that there be a process for transfer of long-term liability from the greenhouse gas operator to the Government on a project-by-project basis.

The Government rejected this recommendation, noting that the acceptance of liability could possibly lengthen the closure period and increase the complexities of the closure process, which, in turn, could lead to increased uncertainty for greenhouse gas operators. The Government recommended that the Bill remain unchanged on this issue of liability – with the common law determining liability after the issue of a closure certificate.

Support for R&D

The committee made a number of high-level recommendations, which were also supported by the Government but did not have any impact on the Bill, including that the Government consider further financial incentives for the earliest movers in the industry.

In terms of industry assistance, the Government has announced a proposal for a global institute, to be hosted in Australia, to work cooperatively on the development of carbon capture and storage technology. The Government would contribute up to $100 million per year towards the operation of the institute, which will aim to accelerate international carbon projects by facilitating demonstration projects and supporting research. Australia is seeking support for this initiative from foreign governments and corporations – so far, it is reported that Great Britain and Norway are interested in the proposal.

In addition, the Government has established the National Low Emissions Coal Initiative, a $500 million program to support the development and implementation of clean coal technology.

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Senate committee recommendations

The Senate Standing Committee on Economics published its report in relation to the Bill on 23 September. The report noted that the House of Representatives Standing Committee on Primary Industries and Resources' report had already covered a wide range of issues and, therefore, the Senate report provided a closer examination of a few key issues.

The Senate report considered acreage release and lease timeframes, and also the general administrative framework for regulating the market. In particular, the Senate report specifically considered the issue of the potential long-term liability associated with any leakage of carbon dioxide from the geological storage. It set out a range of stakeholder views, but ultimately supported the Government's approach on this issue.

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Next steps

The Bill has now been sent to the Senate, where it is expected that further amendments will be moved before the Bill is finally passed.

The government has predicted that the first acreage release will occur in early 2009. The 'untested' nature of this legislation means stakeholders may initially find the acreage application process a difficult one. It is reasonable to assume there will be quite a few teething problems as the first applicants move through this process.

If you would like some assistance with this or any other carbon trading or climate change matter, please contact one of our advisers.

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