Carbon Capture and Storage Draft method released
26 July 2021
What you need to know
- The Clean Energy Regulator is inviting comments on the Carbon Credits (Carbon Farming Initiative – Carbon Capture and Storage) Methodology Determination 2021 (Method).
- The method will allow those undertaking carbon capture and storage (CCS) projects to earn Australian Carbon Credit Units (ACCUs) for the greenhouse gas emissions they abate, monetising CCS for the first time in Australia.
- The Federal Government has recognised the importance of developing low emissions technologies in Australia, investing a further $263.7 million in CCS projects in its Federal 2021-2022 Budget.
What you need to do
- Read the draft Method and lodge a submission before 27 July 2021.
- If considering a CCS project, familiarise yourself with the applicable regulatory framework, as the law can differ between jurisdictions.
The work of the Clean Energy Regulator
Under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CFI Act) and its subordinate legislation, the Clean Energy Regulator (CER) issues ACCUs for carbon abatement activities undertaken as part of the Australian Government’s Emissions Reduction Fund. Each ACCU represents one tonne of greenhouse gas (GHG) equivalent net abatement.
In late 2020, the Minister for Energy and Emissions Reduction tasked the CER with developing a CCS methodology under the Emission Reduction Fund to enable registered parties to generate ACCUs from CCS projects. This will effectively provide an avenue to monetise CCS for the first time in Australia, kickstarting the investment necessary to bring costs down and grow scale in the industry.
The CER has released a draft Method for consultation and feedback.
What does the Method cover?
The Methodology covers "CCS Projects", which capture greenhouse gas emissions that would otherwise be released into the atmosphere and transports them for injection into an underground geological formation for permanent storage. The Method defines CCS Project as an "offset project that:
- captures, from one or more capture points, greenhouses gases that would otherwise be released into the atmosphere; and
- transports the greenhouse gases to one or more storage sites; and
- injects the greenhouse gases into a storage site, at one or more injection points, so that they are permanently stored in the storage site or any part of it; and
- could reasonably be expected to result in eligible carbon abatement."
Importantly, the Method currently excludes both projects that involve greenhouse gas injection for the purpose of enhanced oil or gas recovery, and projects that involve direct air capture and storage (ie capture of greenhouse gases that would otherwise reside in the atmosphere).
Carbon capture and storage – key considerations
If you are considering CCS as a potential investment opportunity, you should be aware of the following key considerations arising from CCS regulatory frameworks around Australia and the draft Method:
Regulatory framework in Australian jurisdictions
There are a number of ways in which CCS is regulated across Australian jurisdictions, including:
specific legislation for offshore CCS projects under Commonwealth (Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth)) and Victorian (Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Vic)) legislation;
specific legislation for onshore CCS projects in Victoria (Greenhouse Gas Geological Sequestration Act 2008 (Vic)), Queensland (Greenhouse Gas Storage Act 2009 (Qld)) and South Australia (Petroleum and Geothermal Energy Act 2000 (SA)); and
a patchwork of general law provisions in jurisdictions without any specific CCS legislation.
The Method seeks to address these jurisdictional differences, while ensuring that there are sufficient requirements in place to provide assurance around the safety and permanence of the stored greenhouse gases.
The Method requires that CCS Projects are approved and regulated by either CCS specific legislation, in those jurisdictions where such a law exists (ie those laws listed in (1) and (2) above), or a "recognised law of a State or Territory".
The Method specifies that a "recognised law of a State or Territory" must meet particular criteria relating to:
- assessments of the proposed storage reservoir to ensure it is appropriate to permanently store greenhouse gas;
- the technical specification of the composition, injection rate and volume of greenhouse gases;
- monitoring and reporting;
- assessment of potential greenhouse gas migration and loss;
- assessments of risks to public health and the environment;
- public consultation and notification; and
- regular review of site plans by a regulatory authority.
The Method does not duplicate existing requirements governing how CCS sites should be selected, operated, monitored, or closed. However, in order to maintain the integrity of the ACCUs issued for a CCS project, the Method builds on the existing regulatory frameworks to ensure CCS projects are operated and regulated safely and appropriately for permanent abatement of greenhouse gas.
Eligibility for ACCUs – Newness
For a project to be eligible for registration with the CER under the Emissions Reduction Fund, it must meet certain requirements. The project must:
- not have begun to be implemented before it has been registered with the CER (unless the method covering the project specifies otherwise) (the "newness" requirement);
- not be required to be carried out by or under a Commonwealth, State or Territory law (the "regulatory additionality" requirement); and
- not be likely to be carried out under another Commonwealth, State or Territory government program in the absence of registration under the Emissions Reduction Fund (the "government program" requirement).
In preparing the Method, the CER acknowledges that CCS projects have lengthy lead times, requiring significant investments in preliminary exploration and assessment of potential storage sites, prior to operation commencing.
As such, the Method creates a "substitute newness requirement", in-lieu of the provision under s 27(4A)(a)(ii) of CFI Act.
The substitute newness requirement hinges on whether a final investment decision has been made on the project. Importantly, the final investment decision does not include a decision to proceed with an offsets project that is contingent on the project being declared to be an eligible offsets project.
This means that the following activities can be undertaken for a proposed CCS project, without breaching the "newness" requirement:
- identifying and assessing a storage site;
- obtaining environmental approvals under State, Territory or Commonwealth laws;
- putting in place the required commercial agreements that will govern the project, contingent on the project being approved;
- completing the engineering and design for the required facilities; and
- procuring equipment.
Crediting period
ACCUs are granted under the CFI Act for the "crediting period" of the project. Many emissions avoidance projects are entitled to a seven year crediting period only. That is, once the project has commenced, the proponent is only entitled to earn ACCUs for the first seven years.
In acknowledgement of the high upfront and ongoing costs of CCS projects, and the possibility that CCS projects will not generate revenue other than through ACCUs, the Method creates a 25 year crediting period for CCS projects.
Long term risk of GHG loss
CCS projects are eligible for ACCUs under the Method for the "permanent" storage of GHGs. However, there is a risk that captured GHG may inadvertently be released back into the atmosphere.
The CER acknowledges that the risk of GHG loss is low, particularly in Australia due to the specific geological formations where CCS projects are likely to be located.
Risk minimisation is dealt with in all jurisdictions with CCS specific legislation, largely through provision of technical assessments prior to project approval being granted and ongoing monitoring and reporting requirements. In addition, the CCS specific legislation may impose long-term liability on project proponents for loss of GHG or harm resulting from the CCS project.
The Method also addresses loss of GHG, seeking to ensure ACCUs are not granted for GHG that is later released back into the atmosphere. The Method provides for loss that occurs during the crediting period to be accounted for in net abatement calculations. Importantly, the Method also creates an "extended accounting period" to address loss of GHG that occurs after the crediting period has ceased. Three per cent of ACCUs will be withheld from issuing to the proponent, refundable on evidence of successful site closure issued by the regulating authority in the relevant jurisdiction. The proponent will be required to report to the CER on any fugitive emissions from the site that occur between the end of the crediting period and the site closure.
Site closure processes differ across jurisdictions, and may require project proponents to demonstrate that GHG is behaving as predicted, and there is no ongoing risk of significant adverse impact on the environment or human health. Depending on the jurisdiction, the extended accounting period may extend for more than 15 years after injection has ceased.
Looking forward
The development of the Method supports the Australian Federal Government commitment to support the development and use of CCS in Australia. In the Federal 2021-2022 Budget, the Government indicated that it will invest a further $263.7 million in CCS projects (as well as $275.5 million on four hydrogen production hubs) over the next 10 years, with a view to support local industry and cut fossil fuel emissions.
The Government is seeking to potentially develop CCS hubs in Moomba (South Australia), Gladstone (Queensland), the Darling Basin (New South Wales), Darwin (Northern Territory), and the North West Shelf, Bonaparte Basin and south western regions of Western Australia.
The Method is open for public comment until 27 July 2021. The CER has indicated that it seeks to finalise the method by September 2021.
Authors: Jeff Lynn (Partner), Caroline Lindsey (Partner), Anna Seddon (Lawyer), Abbie Wiltshire (Lawyer).
