The Federal regulatory framework for offshore CCS activities is unique in Australia in that it provides mandatory indemnification by the Commonwealth Government for specified long-term liabilities.
Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGS Act) History: Received Royal Assent on 21 November 2008 and entered into force on 22 November 2008 Current Status:IN FORCE
The OPGGS Act regulates offshore CCS activities through a series of greenhouse gas (GHG) titles. The main title for injection and storage activities is a GHG injection licence.
Liability under the common law and statutory law will rest with the holder of an injection licence during the course of the licensed injection and storage activities. Other GHG titleholders may be potentially liable depending on the stage of the GHG operations, such as the holder of a GHG assessment permit (for exploration of storage formations) or a GHG holding lease (for injection within 15 years). For an overview of the OPGGS Act see Offshore CO2 Storage - Australia.
There are three main parts to the liability regime under the OPGGS Act.
1. Obtaining a site closure certificate
Following cessation of injection and storage activities, the licensee must apply for a 'site closure certificate'. A site closure certificate must also be applied for when:
there is a ground for cancellation of the licence, such as non-compliance with the OPGGS Act; or
the injection licence is tied to a petroleum retention lease or production licence that has ceased to be in force.
An application for a site closure certificate initiates the site closure procedure.
The Minister can issue site closure directions on receipt of a site closure application (or where there has been a failure to apply for site closure). The directions include requirements to:
remove all property from the licensed area;
plug and close wells;
provide for the conservation and protection of natural resources;
'make good' any damage to the seabed or subsoil; and
undertake activities to prevent, manage or remediate any risks to navigation, fishing, pipeline operations, the enjoyment of native title rights or the conservation or exploitation of natural resources.
The Minister has up to five years to approve applications for a site closure certificate.
Assuming the Minister is prepared to issue a site closure certificate, the licensee will be issued with a pre-certificate notice. This notice sets out the security that must be paid, equivalent to the estimated total costs and expenses to be incurred by the Commonwealth in carrying out long-term monitoring of the storage formation.
A site closure certificate must be issued following a pre-certificate notice and full payment of security.
If a site closure certificate is in force, the injection licensee is entitled to apply for a surrender of the licence but this is not a mandatory requirement. An application for surrender of the licence should not be unreasonably refused provided all criteria have been met, such as payment of fees and compliance with all licence conditions.
Following site closure, the licensee will continue to remain at risk for liabilities arising from its operations. The OPGGS Act does not provide for a transfer of liability at this stage.
2. Declaration of a closure assurance period
At least 15 years after the grant of a site closure certificate, the Minister may declare that a 'closure assurance period' has been reached.
Similar to a site closure application, there is no guarantee that a Minister will declare a closure assurance period. Based on the 15 year period of monitoring, the Minister must be satisfied that:
the injected GHG substance is behaving as predicted in the approved site plan;
there is 'no significant risk' that the substance will have a 'significant adverse impact' (SRSAI) on the geotechnical integrity of whole or part of the storage formation, the environment, or on human health and safety; and
no injection operations have taken place since the recorded cessation date.
Once there is a valid site closure certificate and a declared closure assurance period, the Commonwealth is required to indemnify the injection licensee against specified liabilities. This indemnity occurs whether or not the licence is in force.
The scope of the Commonwealth's liability is limited by the following four conditions:
the liability is a liability for damages;
the liability is attributable to an act done or omitted to be done in the carrying out of operations authorised by the licence in relation to the formation;
the liability is incurred or accrued after the end of the closure assurance period in relation to the formation; and
such other conditions (if any) as are specified in the regulations.
The OPGGS Act also provides for a transfer of long-term liability if the licensee ceases to exist (whether or not the licence is in force). Provided the above conditions are otherwise met, liability will be taken to be a liability of the Commonwealth.
The effect of the four conditions above is that the licensee will continue to be at risk of incurring liabilities that fall outside of the scope of the transfer. For example, the licensee will continue to be liable for acts or omissions in carrying out activities that were not authorised under the OPGGS Act.
Comparison between the OPGGS Act and the EU Storage Directive
Both the OPGGS Act and the EU Storage Directive provide for a transfer of long-term liabilities from the operator to the government. However, the two regimes differ in respect of requirements prior to the transfer and in relation to the scope of long-term liabilities transferred.
Requirements prior to a transfer
Interestingly, the EU Storage Directive goes further than the OPGGS Act in terms of the requirements before there can be a transfer of liability. The EU Storage Directive requires the following conditions to be met:
all available evidence indicates that the stored CO2 will be "completely and permanently contained";
a minimum period, as determined by the competent authority, must have elapsed and shall be no less than 20 years;
a financial contribution must be paid to cover "at least the anticipated cost of monitoring for a period of 30 years"; and
the site has been sealed and injection facilities removed.
Under the OPGGS Act, "complete and permanent containment" is not an explicit requirement, but permanent storage may arguably be implicit in the requirements for the injected substances to be behaving as predicted and that there is no significant risk to the geotechnical integrity of the site.
The minimum closure period prior to a transfer of liability is potentially at least five years longer in the EU. If in practice the Minister takes up to five years to determine a site closure certificate in Australia, then the minimum period may be equivalent depending on whether competent authorities in EU Member States determine a period higher than 20 years.
Finally, the 'financial contribution' required at the point of transfer of responsibility under the EU Storage Directive is broader in scope. The contribution is towards at least 30 years of monitoring costs and can include provision for ensuring permanent storage of the injected streams. It also occurs at a later point. During the period between site closure and the transfer of responsibility (at least 20 years), the operator remains responsible for monitoring of the storage formation.
Under the OPGGS Act, the Commonwealth takes over monitoring operations from site closure onwards. The Commonwealth is entitled to the costs of long-term monitoring of the storage formation. This amount is capped at the initial estimate the Commonwealth made of the monitoring costs at the time of issuing a pre-certificate notice (and equals the security paid by the operator). There is no provision for the Commonwealth to recover expenses in the event of a leakage, or for any further amount to be recovered at the time liability is transferred.
Limitations on liability
Liability under the EU Storage Directive differs in that the transfer is for all legal obligations relating to:
monitoring and corrective measures under the Directive;
the surrender of allowances under the EU Emissions Trading Directive; and
preventative and remedial action under the EU Environmental Liability Directive.
The EU Storage Directive expressly excludes liability in cases of 'fault' on the part of the operator, such as deficient data, concealment of relevant information, negligence, wilful deceit or a failure to exercise due diligence. In the event of such fault, the competent authority is entitled to recover its costs incurred from the operator following the transfer of responsibility.
To a certain extent, the limitations on liability under the OPGGS Act operate to protect against the Commonwealth incurring liability for the types of fault scenarios contemplated under the EU Storage Directive. This is because the Commonwealth does not assume liability for unauthorised activities carried out by the operator or for liability incurred or accrued before the closure assurance period.
In relation to liability for leakages under the EU Emissions Trading Directive, there is currently no equivalent provision under the OPGGS Act because the Commonwealth has not adopted an emissions trading scheme (see below).
State Examples
The following section sets out examples of the different approaches taken to long-term liabilities in the Australian states. It does not cover all jurisdictions.
Victoria
Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Victoria Offshore Act)
History: Passed on 11 March 2010, received Royal Assent and entered into force on 23 March 2010. Current status:IN FORCE
The Victoria Offshore Act largely adopts the main requirements of the OPGGS Act. It applies to GHG activities within the coastal waters of Victoria (3 nautical miles from the coast). Relevantly, the provisions in relation to site closure, and the issue of a pre-certificate notice mirror the OPGGS Act. This includes the requirement for security to be paid to meet the State's costs of conducting ongoing monitoring post-closure. It also sets the same requirements for surrender of an injection licence following the issue of a site closure certificate.
The crucial difference between the two jurisdictions is that there is no equivalent provision for the transfer of responsibilities to the Victorian Government. Under the Victoria Offshore Act, all liabilities remain with the operator. This is consistent with the approach to liability under the onshore regulatory framework in Victoria pursuant to the Greenhouse Gas Geological Sequestration Act 2008 (Vic).
The Victoria Offshore Act explicitly confirms that the Crown owns all underground geological storage formations below the surface of the submerged land in the coastal waters. It provides that "the Crown is not liable to pay any compensation in respect of a loss caused by the operation of this section". The Crown also becomes the owner of any GHG substance injected in the underground formation following cancellation or surrender of a GHG injection licence. The operator will still be at risk of potential liability claims, but it is not clear whether the Crown assumes any liability resulting from its ownership of the CO2 streams.
Queensland
Greenhouse Gas Storage Act 2009 (Queensland Act)
History: Received Royal Assent on 23 February 2009 and effective on 18 December 2009 Current status:IN FORCE
The Queensland Act is similar to the Victorian regulatory framework in respect of liability - there is no provision for transfer of liability to the State. Ownership of the geological storage formation vests in the State. The Queensland Act sets specific requirements in relation to decommissioning. The State also has broad powers to ensure its decommissioning requirements with respect to wells, pipelines and removal of property are met. This includes access to land and undertaking remedial works.
Security can be required at any time by the State, with powers for additional security and replenishment. Although there is no express transfer of liability under the Queensland Act, security can be used for "any liability under this Act that the State incurs because of an act or omission of the holder". The security can also be used for unpaid rents amongst other purposes.
Following the end of a GHG authority
, security can be retained for one year. If there is a pending claim against the security, an 'appropriate amount' is held until assessment of the claim has occurred. The State also has powers to recover its costs of carrying out remedial works. The State can recover any compensation payable to the owner or occupier of land in the course of carrying out the remedial works or alternatively, use the security to pay that compensation.
Following decommissioning, the well is transferred to the State and the injected streams become the property of the State. As with the Victorian Onshore Act, the operators will still remain liable for potential claims arising from the GHG operations.
Western Australia
Barrow Island Act 2003 (WA)
History: Received Royal Assent on 20 November 2003 Current Status:IN FORCE
This is a project-specific piece of legislation. It was introduced to regulate the Gorgon CO2 Injection Project, which will inject and store CO2 produced from offshore gas processing operations. The Act does not expressly provide for the transfer of liability from the operators, but agreement was subsequently reached for indemnification with apportionment between the Commonwealth and Western Australian Governments.
Key legal issues
Differing treatment of long-term liability in Australia
The original bill for the Commonwealth offshore regulatory framework did not include provision for the transfer of long-term liability. In this regard, the approach to liability was consistent with the Victorian Acts and the Queensland Act. The Commonwealth bill was amended to incorporate provisions on a transfer of long-term liability in order to secure passage by the Parliament.
In the case of the Gorgon Project, indemnity has been extended by the Commonwealth and Western Australian Governments based on the specific circumstances of the project.
Overall the approach to liability for CCS activities in Australia reinforce that the regime is developing but is still at an early stage.
Calculating financial securities
Considerable uncertainties are likely to be involved in estimating the long-term monitoring costs of a storage formation. The amount the Commonwealth can recover is limited to the initial estimate of the long-term monitoring costs made at the time of issuing a pre-certificate notice. A possible result is that the government may seek higher than necessary levels of security prior to the issue of a site closure certificate to ensure adequate funds are available. Conversely, it is possible the initial estimate will turn out to be insufficient to cover monitoring costs. Further guidance and transparency is likely to be needed in assessing this amount.
Furthermore, there is no express provision for the Commonwealth to recover expenses in the event of a serious situation, such as leakage, following the transfer of responsibility. This contrasts to the EU position and may be a potential issue if difficulties arise with respect to the permanency of storage formations in the future.
Liability for an increase in emissions in the event of leakage
It is not yet clear how this issue will be determined in Australia. The OPGGS Act does not address this issue and the Commonwealth government is still in the process of developing its policy on the appropriate regulatory framework to reduce emissions in Australia.