13 November 2008

Senate passes Commonwealth CCS Bill and provides certainty on long-term liability

At the beginning of this week, the Senate passed the long awaited Offshore Petroleum Amendment (Greenhouse Gas Storage) Bill (Cth).  The Bill amends the Offshore Petroleum Act 2006 (Cth) and establishes a regulatory framework for greenhouse gas (GHG) capture and long-term geological storage (CCS).

The Senate has accepted a Coalition-instigated amendment to the Bill which has the effect of transferring long-term liabilities from CCS licence-holders to the Commonwealth.  Such transfer could happen as early as 20 years from the date of project closure.  This is a significant departure from the original AGS position that common law liabilities should lie where they fall.    

The Coalition amendment provides that long-term liability may be transferred via an indemnity from the Commonwealth in favour of an existing person where:

  • a site closing certificate is in force that specifies the particular storage formation referred to in the licence (note that the Minister must determine an application for such a certificate within five years),
  • there is a Closure Assurance Period (see below for explanation) in relation to that formation and
  • the following conditions are satisfied in relation to a "liability" acquired by an existing person who is or has been at any time the registered licence-holder:
    • the liability is for damages
    • the liability is attributable to an act or omission of a party carrying out operations authorised by the licence for that formation
    • the liability accrued at the end of the Closure Assurance Period (see below for explanation) in relation to that formation; and
    • such other conditions (if any) specified in the regulations.

The responsible Commonwealth Minister may grant a "Closure Assurance Period" declaration which runs from the "Cessation Day" (ie. when injection operations cease) until the "Decision Day" which is at least 15 years after the issue of the site closure certificate for the storage formation, provided the Minister is satisfied that:

  • the greenhouse gas injected into the formation is behaving as predicted in the approved site plan
  • there is no significant risk that the greenhouse gas will have a significant adverse impact on: (a) the environment; (b) human health or safety; and (c) the geotechnical integrity of the whole or part of a geological formation or geological structure; and
  • no injection operations have occurred since the Cessation Day.

The Coalition amendment also requires the Commonwealth to assume long-term liability of any licence-holder who has ceased to exist.

What next?

The Bill now returns to the House of Representatives for its formal acceptance of the Senate changes.

Martin Ferguson, Minister for Resources and Energy, has announced that the CCS Task Force is undertaking a national mapping project to match key industrial hubs with prospective geological storage sites and infrastructure requirements for carbon dioxide. 

The Minister is also calling on the States and Northern Territory to introduce nationally consistent legislation both onshore and offshore as a matter of urgency.  Although it is expected that the State and Territory Governments will enact legislation that mirrors the Commonwealth Bill in respect of territorial waters it is currently not clear whether they will also adopt the Commonwealth's position on critical issues such as the transfer of long-term liability, financial security, land tenure, licensing issues and third party access rights in respect of onshore storage formations.

To date, different States have adopted different regulatory models in respect of onshore legislation. The Victorian Government has introduced stand-alone legislation, the Greenhouse Gas Geological Sequestration Act 2008 (Vic), which received assent last week.  Although the Act makes provision for long-term monitoring and verification cost refunds to the licence-holder upon surrender of an injection or a monitoring licence,  it does not expressly address the issue of common law liability. Queensland is also proposing a standalone legislative regime but other States have taken a different approach.  South Australia, like the Commonwealth, has amended its existing petroleum legislation while Western Australia has proceeded on a project-specific basis and enacted legislation to govern CCS activities associated with the Gorgon Gas Project.

Companies interested in progressing CCS technologies or securing exploration permits need to be aware of the differing regimes regulating onshore CCS operations in different states and in offshore waters.  In particular, potential project participants will need to carefully review how different legislative regimes address potential conflicts between incumbent petroleum operators and carbon storage operators.

Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
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