Upcoming Mallesons seminarsEnergy industry and holders of petroleum tenements.
What do you need to do?Consider how the Commonwealth and Victorian Greenhouse Gas Storage Acts will affect your business.
Lachlan McMurtrie
Solicitor
Sheranga Fernando
Solicitor
James Fahey
Partner
T +61 3 9643 4331
Louis Chiam
Partner
T +61 3 9643 4086
Australia took a significant step towards enabling large-scale commercial carbon capture and storage (CCS) in the last two weeks, with separate legislation establishing regimes for greenhouse gas storage in the Commonwealth offshore jurisdiction and Victorian onshore jurisdiction passed in the Commonwealth and Victorian parliaments respectively. While both Acts provide for similar CCS titles regimes, the Commonwealth and Victorian Acts differ on the critical issues of long term liability and overlapping petroleum tenements.
Overview
CCS is a major potential abatement measure for reducing Australia’s emissions of greenhouse gases. However, to date, the absence of general CCS legislation has imposed a hurdle to the development of large-scale commercial CCS projects.
The Greenhouse Gas and Geological Sequestration Act 2008 (Vic) was passed Wednesday, 5 November 2008 and the Offshore Petroleum Amendment (Greenhouse Gas Storage) Act 2008 (Cwlth) was passed Tuesday, 11 November 2008. The main provisions of both Acts will come into effect on dates to be proclaimed, but no later than 1 January 2010.
These Acts establish landmark regimes for acreage release and the award of greenhouse gas storage titles and remove a significant hurdle to the development of large-scale commercial CCS projects in the Commonwealth offshore and Victorian onshore jurisdictions. However, although the Victorian and Commonwealth Acts establish similar greenhouse gas title regimes which will facilitate greenhouse gas storage, the manner in which the Acts deal with the key issues of long-term liability and interaction of CCS operations with petroleum tenement rights may create further practical hurdles and provide potentially competing legislative models for the other States to follow.
New greenhouse gas titles
In a previous alert we described the new greenhouse gas titles established under the Commonwealth Act which largely mirror the current system of offshore petroleum titles. The Victorian Act establishes a similar system of greenhouse gas titles based on the current Victorian onshore petroleum titles.
Interaction with petroleum tenement rights
CCS titles can be controversial because they often overlap with (and can adversely affect) existing petroleum reserves. In our previous alert we described how the Commonwealth Act generally gives primacy to the rights of petroleum tenement holders via the “significant risk of a significant adverse impact” test. The Victorian Act adopts a similar position - the Minister must not allow certain greenhouse gas operations where those operations present a “significant risk of contaminating or sterilising other resources in the permit area”.
However, unlike the Commonwealth Act, the Victorian Act includes an exception that allows the Minister to prioritise greenhouse gas storage operations over petroleum operations where this is in the public interest. The rights of petroleum tenement holders are limited to receiving compensation for loss in relation to deprivation of access to the resource and the loss of opportunity to recover or use that resource.
In this way, compared to the Commonwealth Act, the Victorian Act is more favourable to CCS operations. However, this position may change depending on how the Regulations under the Commonwealth Act deal with this issue.
Long term monitoring and liability
The Commonwealth and Victorian Acts take different approaches to long-term liability of a CCS operator for migration or escape of an injected greenhouse gas.
Although earlier drafts of the Commonwealth legislation were silent on long-term liability, Senate amendments provide for the transfer of long-term liability to the Commonwealth. The amendments (which were subsequently passed by the House of Representatives) give effect to the recommendations of the House of Representative’s Standing Committee on Primary Industries and Resources Final Report in relation to long-term liability (see our previous alert).
Under the amendments, the Commonwealth will effectively take on long-term liability from greenhouse gas storage operators within 20 years of the completion of a storage project. The 20 year period comprises the Minister having five years to make a decision in relation to granting a site closure certificate coupled with a 15 year “assurance” period during which the Minister must be satisfied that the stored gas is behaving as expected and that there are no significant risks in relation to geotechnical integrity of the storage structure, the environment or human health or safety.
In contrast, the Victorian Act is silent on long-term liability meaning that long-term liability stays with the greenhouse gas storage site operator. However, because the State assumes responsibility for monitoring and verification activities after a licence has been surrendered, there is some uncertainty in relation to where long-term liability will fall in practice.
As a consequence of these liability positions, the Commonwealth Act is more favourable to CCS operators compared to the Victorian Act in this respect.