Chapter 3
Provisions for regulating the market
Process of awarding acreage
3.1
It is intended that the process for selection and awarding
acreage will be based upon the model utilised for petroleum acreage in
Commonwealth offshore waters. The Department of Resources, Energy and Tourism
explained:
By notice published in the Gazette, applications will be invited
for the grant of a work-bid or cash-bid GHG assessment permit over a block or
blocks specified in the notice. The work bidding allocation process invites
applicants to submit proposals for specific exploration activities and
expenditure to be undertaken. Applications are assessed against publicly
available criteria and areas offered to the applicant who best meets the
criteria. While the extent and quality of an applicant's bid will form the
basis of the selection criteria, other criteria may also be considered to
reflect the public interest.[1]
3.2
Section 249CR allows existing petroleum producers to utilise
suitable storage formations within their production licence area to store permanently
CO2 that has been produced as a result of petroleum production. They
do not have to go through the competitive bid process to obtain the right to
use the storage formation.
3.3
The committee received numerous submissions which argued that the
proposed legislation gives advantage to existing petroleum title holders over
prospective greenhouse gas storage (GGS) title holders. Claiming that petroleum
producers who hold pre-existing site and technological knowledge have a natural
advantage when it comes to acquiring acreage, a number of submitters suggested
that the awarding of acreage should be subject to a more transparent, equitable
and competitive process. Alternatively, it was suggested that it should be allocated
according to 'public interest'.[2]
3.4
Dr Geoffrey Ingram, Schlumberger Carbon Services, outlined the
position of new entrants to the industry:
Our position is that of a new industry, a new entrant into the
carbon storage business that does not have any existing acreage over the oil
and gas tenements. So, in terms of being able to build, grow and develop our
business, we would need access to acreage for the large-scale storage projects.
If the existing tenement holders have an option to convert, then essentially
the easiest thing to do is to wait until the very last minute before you decide
whether you would convert or whether you would relinquish the acreage. If it is
set out as Victoria is proposing, with overlapping tenements from the start,
then let the existing tenement holders in the oil and gas industry apply for it
if they are serious about considering the business, rather than giving them a
free kick...[3]
3.5
In its submission, BP Australia suggested that under the proposed
legislation there are two types of project which are likely to be developed in
the near term, but that the bill facilitates the latter:
...one involves CO2 from an emission source such as a
power station, i.e. with no link to a petroleum project, and the other is CO2
from an emission source which is an integral part of an associated petroleum
operation such as an LNG plant.[4]
3.6
Some submitters went further and argued that existing
titleholders, the large oil companies, would have almost a right of veto over
the use of some of the high quality potential CCS sites.[5]
3.7
Because of the strategic advantage held by the petroleum
industry—and that the technical expertise for injection and storage rests
almost entirely within the petroleum industry—new CCS projects may need to form
partnerships with petroleum companies.
3.8
This may also result from the fact that GHG storage proponents,
who wish to take up and assess areas where future storage activities may have
the potential to affect established petroleum activities, may have additional
operational considerations and constraints placed upon their activities. For in
order for the relevant minister to approve an activity, the GHG title holder
would need to pass a 'no significant impact test', demonstrating either:
- that their activities will have no significant adverse impact on these
pre‑commencement petroleum operations; or
- that an agreement has been reached between the two parties in
relation to the activities.
3.9
In its submission, Monash Energy suggesteds
that offshore gas producers may have a vested interest in discouraging CCS in
their sites as it would be making coal a more viable competitor with gas:
The rather hopeful expectations on the part of Government
officials which accompanied release of the Bill seem to reflect a view that
given an emissions trading scheme (ETS) and a CO2 price, CO2
storage could be an attractive business for a petroleum tenement holder. Please
keep in mind that the dominant product from such tenements is in fact natural gas,
which is held by few parties and competes with coal to provide energy to Australian
consumers. As their economic interests are against facilitating CCS for third
parties this may push out the timing for introduction of CCS past 2030 (if at
all). Blithe expectations for the formation of 'commercial agreements' between
incumbents and GHG injection applicants gloss over the reality that the
commercial interests of the incumbent will go way beyond 'non-interference'
with petroleum extraction.[6]
3.10
By contrast, the committee also received representations seeking
to protect further the rights of current petroleum licence holders. In its
submission, Woodside Energy suggested that 'enforcing a bid process onto
projects of this type creates a new and unnecessary risk to cost and schedule
not faced by our international competitors'.[7]
3.11
Such a view was supported by ExxonMobil who suggested 'issuing
overlapping access leases or licenses should be carefully considered as
simultaneous CCS operations and oil and gas production can create potentially
significant safety and operational risk'.[8]
3.12
Upon commencement of the legislation all future titles grants for
petroleum and GHG activities will be given an equal level of protection, where
there is the potential for adverse impacts. If the two activities cannot occur
at the same time the relevant Minister may make a decision based upon public
interest as to whether the petroleum or GHG activity should proceed.
3.13
Woodside also suggest that integrated petroleum developments 'be
able to sequester greenhouse gases arising from that development without being
required to bid for the right to undertake that activity'.[9]
This seems to be a logical step for offshore petroleum operations, and it seems
unlikely that any decision would jeopardise this form of integrated operation.
However, it may be useful for this to be clarified.
3.14
Schlumberger raised concerns about the regulatory framework for
managing the interaction between GHG injection and storage operators and those
with pre‑existing or co-existing rights, particularly as this related to
an 'information asymmetry':
...the information asymmetry that currently exists between
existing oil and gas producers and any new storage project proponent makes it
difficult to envisage how a storage project could get up without extremely deep
pockets and a huge appetite for risk. The Bill recognizes that existing property
rights must be protected and that any overlapping projects must have a commercial
agreement between the respective promoters. If the onus is on the storage
proponent to show no adverse impact on existing oil and gas operations then
they must have access to data held by the oil and gas operator to prove this.
The Government should be able to set and enforce a strict timeline on when an
agreement must be reached by two parties otherwise it will apply the 'public
interest' clause. We envisage most of the potential conflicts to come from
overlapping storage and hydrocarbon operations as opposed to storage and
fishing operators. One suggestion might be for all exploration and production
data to be placed on open file within 1 or 2 years of acquisition.[10]
3.15
Acknowledging that the legislation offers no incentive for
petroleum title holders to make their data available, the Cooperative Research Centre
for Greenhouse Gas Technologies commented, 'access to
data could represent a significant hurdle to the development of offshore
storage'.[11]
Proposed administrative model— – ministerial
discretion
3.16
Many submitters to the inquiry considered that the proposed
legislation allows excessive ministerial discretion.
3.17
Under the proposed legislative model, the Australian government
and ultimately the relevant minister will be responsible for administering the
regulation of GHG transport injection and storage in Commonwealth offshore
waters. The proposed legislation confers upon the minister a number of
discretionary decision-making powers in an effort to balance competing
activities and associated needs.
3.18
The discretionary ministerial powers contained within the
legislation deal with specific situations such as public interest assessments,
the analysis of significant impacts or to give directions in a 'serious
situation', and as such are very narrow in their application. Given the
objective-based nature of the legislation and recognising the lack of decision-making
precedents, the ability to make decisions on a case by case basis for these
specific issues was considered to offer the most efficient option.
3.19
The committee notes that a number of submitters call for more
explicit definition of terms to which the minister is to have regard in
exercising discretion, these included: 'public interest', 'significant impact
criteria', 'significant risk', and 'no significant adverse impact'.[12]
These terms may need to be further defined in order to provide clear guidance.
3.20
Some submitters questioned whether the discretionary powers held
by the minister will provide sufficient regulatory protection, while others
suggested an alternative administrative model, such as a committee or advisory
panel.
Designated authority—/ committee or panel
of experts
3.21
In Chapter 2 it was suggested that a panel of experts could be
established to make recommendations to the minister on a variety of matters
relevant to administration and regulation of the legislation. Members of such a
committee might include representatives from Geoscience Australia, accredited
scientific experts, representatives from the states and territories,
technological and policy experts and members of the community.
3.22
A committee, or panel of experts, might have
designated authority and could be involved in a range of activities including:
- assessing anyissuing
environmental impact statements prior to approving any CCS operations;
- site selection;
- providing advice on monitoring and
regulation of licence holders;
- resolving disputes between petroleum licence holders and GHG proponents;
and
- approving site closure certificates.
3.23
The Victorian suggested the following model:
...the responsible Commonwealth minister should be assisted by an
expert panel, including representatives from the states and territories. The
expert panel should be able to advise the minister and make recommendations.
The expert panel should be able to hold hearings to take formal submissions
from government, industry and community groups. The recommendations of the
expert panel should be made publicly available. An assessment of competing
resource impacts should be required for any resource operations proposed under
the legislation. This assessment process should include considerations of
impacts, both positive and negative, on other resources and entitlements
including, in the Victorian context, onshore groundwater resources.[13]
3.24
Some form of expert panel was also supported by the World
Wildlife Fund and the Australian Network of Environmental Defenders' Offices.[14]
3.25
There are a number of ways the roles of such a panel
could be structured, Ddepending on views on the
preferred degree and nature of transparency and accountability, there are
a number of ways such a panel could be structured:;
- Giving advice in private to a minister, which could be accepted
or rejected at the minister's discretion;
- Giving advice publicly to a minister, which may involve some
political cost if to rejected;
or even
- Delegating to the panel the power to make decisions, with the
minister needing parliamentary approval to override the panel's decision.
Lease timeframes
3.26
The duration of the GHG permit and licences will be significant
to the success of the CCS industry. They must be sufficiently long to
facilitate GHG operations, but not be so long as to delay the development of a
new industry.
3.27
In the proposed legislation, the duration of a GHG assessment
permit is 6 years. It cannot be renewed. A holding lease lasts for 5 years and
can be renewed once. A GHG injection licence has no fixed term but is subject
to certain conditions. For example, if no injection has occurred during the
first 5 years of issue the licence can be revoked.
3.28
In its submission, BP Australia argued that an injection license
has a 5 year duration but there may be very valid technical reasons why a
legitimate proponent cannot commence injection activity within 5 years,
particularly if they are planning to inject into an hydrocarbon reservoir which
must be depleted first.[15]
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