INSIGHT

Are diversification leases the answer?

By Jodi Reinmuth, Jacqui Rowell, Hussein Al Asedy
Energy Hydrogen Property & Development Renewables

A new form of non-exclusive land tenure in WA for hydrogen and other renewable energy projects 7 min read

Not a day goes by without a new announcement in the hydrogen sector, and WA has been the suggested location for some of the largest proposed projects. However, many prospective sites in WA for hydrogen and renewable energy projects are covered by pastoral leases or mining tenements (or are on vacant Crown land).

To seek to address this, the WA Government has proposed to introduce a new form of non-exclusive land tenure. These proposed diversification leases would be suitable for hydrogen and other renewable energy projects. While this proposal appears to permit a more streamlined process for securing tenure over pastoral lease areas and vacant Crown land, it appears project developers will still need to negotiate the surrender of the relevant area with pastoral lease holders and consider native title 'future act' requirements. Furthermore, there is currently insufficient detail regarding the proposed legislative reforms to determine the WA Government's position on the development of hydrogen and renewable energy projects on mining tenements, including where these projects would be unrelated to mining.  

Key takeaways 

  • The WA Government has announced the introduction of a new form of land tenure – diversification leases.
  • These diversification leases will be suitable for the development of infrastructure required to support hydrogen and other renewable energy projects. It is hoped this will assist in facilitating the development of a Western Australian hydrogen industry.
  • In addition to renewable energy projects, diversification leases may also be granted for a number of other purposes, including carbon farming, horticulture, cultural tourism and environmental conservation.
  • Diversification leases are a non-exclusive form of tenure, so activities associated with hydrogen and renewable energy projects can co-exist with other activities such as grazing or mining.
  • While this proposal appears to address some gaps in the existing tenure regime, project developers will still need to negotiate the surrender of the relevant area with pastoral leaseholders (which invariably will lead to issues such as compensation), and native title 'future act' requirements may require negotiation of an Indigenous Land Use Agreement with the relevant native title party. It is also unclear how the WA Government proposes to address the development of hydrogen or renewable energy projects (unrelated to mining) on mining tenements.

Who in your organisation needs to know about this?

Any entity considering the development, funding or investment in, a renewable energy or hydrogen project in WA should be aware of this important legislative change to the existing tenure regime. It is also relevant to existing pastoral leaseholders whose leasehold may be a suitable site for renewable energy or hydrogen projects.

Why are diversification leases being introduced?

It is important to consider the context in which diversification leases are being introduced. The nature of hydrogen production, specifically green hydrogen production, requires large sites to accommodate the renewable energy infrastructure required for the electrolysis process needed to produce hydrogen. Where the proposed site is freehold land, project proponents will typically enter into commercial arrangements to purchase or lease the land, with easements or licences obtained for any associated infrastructure (eg pipelines, transmission lines etc). This can be a drawn-out process, particularly when there are multiple landholders affected. However, a large proportion of the land suitable to support hydrogen production in WA is covered by pastoral leases granted under the Land Administration Act 1997 (WA) (LAA) (which can only be used for pastoral purposes except where a diversification permit is granted to the pastoral lessee by the Pastoral Lands Board), or mining tenements covered by the Mining Act 1978 (WA) (Mining Act) (where infrastructure can only be developed for a purpose directly connected with a mining activity).

What is a diversification lease?

On 18 November 2021, the WA Lands Minister announced proposed changes to the LAA and the Public Works Act 1905 (WA) (PWA) which will be included in a bill to be introduced in early 2022. Amongst other changes to the LAA and the PWA, the Government proposed the introduction of a new form of tenure, known as 'diversification leases', under the LAA.

Currently, a pastoral lease can only be used for pastoral purposes, which includes the commercial grazing of stock, and any supplementary and ancillary purpose to facilitate that. While a pastoralist may apply for a diversification permit to undertake activities for non-pastoral purposes, these are only granted in limited circumstances and would not allow for the development of hydrogen and other renewable projects. 

Specifically, a diversification lease is currently proposed to allow proponents to:

  • develop the wind and solar farms required for hydrogen production;
  • pursue carbon farming projects;
  • pursue horticulture projects;
  • develop cultural tourism businesses; and
  • preserve or rehabilitate biodiversity.

In order for a diversification lease to be granted over an area already covered by a pastoral lease, the pastoral leaseholder will need to surrender that portion of the pastoral lease. The proponent seeking the diversification lease (either the pastoralist or a renewable energy developer) would then need to go through all the approvals processes for the grant of the diversification lease. It is unclear what impact the surrender of part of a pastoral lease would have upon the requirements of the remaining portions of the lease, including any impact to stocking numbers and whether the remaining footprint is sustainable.

Nonetheless, the requirement for a pastoralist to surrender a portion of their lease would mean any project proponent will need to negotiate with existing pastoral leaseholders to achieve the surrender of the relevant site so that it is available for a diversification lease - the Government has explicitly provided that a pastoral leaseholder will not be compelled to surrender their tenure, notwithstanding it may have been identified as a prospective site for a hydrogen or renewable energy project. It is also worth noting that the proposed reforms include the potential for the Minister to approve the extension of the term of a pastoral lease for up to 50 years. This means that prospective areas may well be unavailable for longer periods of time.

One area where there is no further clarity in these proposed reforms is the interaction between the proposed diversification leases and existing mining tenements.

These reforms have not removed the existing avenue available to pastoralists to seek diversification of their activities (diversification permits). A pastoralist can apply to the Government for a diversification permit to conduct non-pastoralist activities on a pastoral lease. The proposed reforms will focus on streamlining approvals processes for diversification permits, and allowing for a diversification permit to be transferred at the same time as a pastoral lease. However, despite these proposed reforms and as flagged above, diversification permits would likely remain unsuitable for proponents of hydrogen and other renewable energy projects.

One area where there is no further clarity in these proposed reforms is the interaction between the proposed diversification leases and existing mining tenements. There are currently potential sites for hydrogen and renewable energy projects located on mining tenements, and in many cases the use case for these projects may not be a purpose directly connected with mining. It will be necessary to carefully review the proposed legislation to determine how the interaction between mining tenure and these new diversification leases will be managed, including whether there will be any changes to the Mining Act processes.

Other Considerations

  • The WA Government may consider it prudent to address how these reforms will interact with section 91 licences under the LAA. We are aware that s91 licences have been used for preliminary investigations by renewables developers in Western Australia.
  • The WA Government has noted that the introduction of diversification leases and other planned reforms will not impact existing native title requirements. As such, the grant of a diversification lease (whether over vacant Crown land or a pastoral lease) will constitute a 'future act' under the Native Title Act 1993 (Cth) and will likely require an applicant to enter into an Indigenous Land Use Agreement (ILUA) with the relevant native title party. This will need to occur prior to the state granting a diversification lease.
  • The reform package will also make amendments to streamline the process for obtaining, amending and transferring diversification permits issued by the Pastoral Lands Board, to make it easier for pastoral lessees to unlock the economic potential of land subject to a pastoral lease.

Actions you can take now

The Department of Planning, Lands and Heritage will be holding an information session on the proposed reforms at 12.30pm on Wednesday 15 December in Perth. You can register to attend this session by emailing laa2022@dplh.wa.gov.au.