While the United States grapples with its design of a regulatory framework for carbon capture and storage (CCS) under its existing Safe Drinking Water Act authority, Australia has forged ahead to develop national legislation to support aggressive CCS development.  Australia, a heavily-coal dependent nation, last week passed the Offshore Petroleum Amendment (Greenhouse Gas Storage) Act 2008 (Act) which establishes a national regime for the capture and burial of carbon emissions under Australian sea beds.  The Act will commence on a day to be proclaimed by the Governor-General, which is a legal pre-requisite in the Australian law-making process.  This presents a unique opportunity for the US to garner important lessons as Australia experiences the inevitable teething problems in implementing its regime.

As the CCS provisions constitute an amendment to Australia’s key oil and gas legislation, the Offshore Petroleum Act 2006, there are three key features of that regime which must be understood.  Firstly, the Crown (i.e. the Federal Government) owns virtually all land containing minerals and petroleum and grants rights to miners to explore for and produce the resource (this contrasts with the ownership regime in the US, where most mineral land is privately held).  Secondly, the oil and gas regulation reflects Australia’s federal system.  The Offshore Petroleum Act at the Commonwealth level applies beyond State coastal waters (which are nominally within 3 nautical miles of the coast).  Although this is Commonwealth legislation, it is administered by joint authority of the Commonwealth and State.  Mirror legislation in each State applies to State coastal waters, with the aim that the same rules apply, regardless of jurisdiction.  Separate State petroleum legislation applies in each state to the onshore area and islands.  Finally, it is worth mentioning that health, safety and environmental issues relating to the oil and gas industry are dealt with under regulations made under the Act, and therefore CCS operators will also inherit that existing system.

The Act establishes access and property rights through a system of titles, which largely mirror the existing system of petroleum titles required for oil and gas exploration and production in the Commonwealth, including:

1. a greenhouse gas assessment permit, which is similar to an exploration licence;
2. a greenhouse gas holding lease, similar to a retention lease;
3. an injection licence, which corresponds with a production licence and authorizes injection and storage of greenhouse gas in an identified greenhouse gas storage formation; and
4. other ancillary licenses: prospecting and access authorities, and infrastructure and pipeline licenses. 

In addition, the Act deals with two controversial issues: overlapping tenements and long-term liability.  Paramount of title is critical to a functioning oil and gas regime, and there were concerns expressed by industry because CCS titles often overlap with existing petroleum reserves.  The Act generally gives primacy to the rights of the petroleum tenement holder through the “significant risk of a significant adverse impact” test.  In terms of long-term liability, the Act provides for the transfer of long-term liability to the Commonwealth within 20 years of the completion of a storage project.  The 20-year period gives the Minister five years to make a decision whether to grant a site closure certificate and a 15-year “assurance” period during which the Minister must be satisfied that the stored gas is behaving as expected. Also required is an assessment of risks to the geotechnical integrity of the storage structure, the environment or human health or safety-no significant risks can be found if the Commonwealth is to assume liability.

The passage of this legislation indicates Australia’s commitment to CCS commercialization and its Kyoto obligations.  It follows the Government’s pledge to invest AUD$100 million per year to establish an international institute in Australia to accelerate development of large-scale CCS demonstration projects. The Treasury has also made statements that CCS was key to emissions reduction mitigation in Australia in its October 30 Australia’s Low Pollution Future Report.  This new legislation serves to show how even deeply fossil fuel dependent nations can take important steps and provide global leadership on climate issues.

For further information about this topic, please contact Akin Gump.