The Greenhouse Gas Storage Act 2009 (Qld) - Implications for the resources industry – Part One

By James Minchinton, Special Counsel, Clayton Utz

This announcement follows the recent passage of the Greenhouse Gas Storage Act 2009 (Qld) (GGS Act) as a significant legal step in the evolution of carbon capture and storage mechanisms in Queensland. The GGS Act provides the legal framework for the storage of carbon dioxide (or geosequestration) in natural underground reservoirs once that product is captured from an emission source, e.g. a power station.
As well as establishing a new regime for carbon storage, the GGS Act establishes a regime for the interrelationship of the GGS Act with the Mineral Resources Act 1989 (Qld) (MRA) and the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act).
This article outlines key issues for participants in any emerging carbon storage industry and to discuss the implications of the GGS Act on the mining and petroleum industries.

Overview of the GGS Act
The GGS Act permits the grant of new types of tenements in Queensland. These include GHG permits, which allow exploration for GHG storage reservoirs1, and GHG leases, which authorise storage of a GHG stream2 in the GHG storage reservoirs. GHG permits are broadly equivalent to exploration permits under the MRA and authorities to prospect for petroleum under the P&G Act. GHG leases are broadly equivalent to mining leases under the MRA and petroleum leases under the P&G Act.
The GGS Act manages pipelines for GHG stream transportation by providing that pipeline licences and survey licences under the P&G Act will also apply to GHG streams.

Issues for Carbon Storage Industry
While the GGS Act facilitates a carbon storage industry, the legislation raises a number of issues that would be of concern to anyone proposing to embark upon carbon storage in Queensland. The main issues are in relation to the duration of GHG leases and the long term liability exposure of industry participants.

Duration of GHG Leases
GHG leases are not granted for a particular term but will remain in force until surrendered or otherwise expire under the GGS Act3. The surrender of a GHG lease requires the approval of the Minister4. Prerequisites for surrender are that all injection activities must have ceased and all GHG wells must have been decommissioned.
While these are necessary conditions, they are not necessarily sufficient as the Minister retains ultimate discretion as to whether or not to accept a surrender application. There are no prescribed circumstances in which the Minister is obliged to accept a surrender application. Further, the Minister may require additional work to be undertaken prior to accepting any surrender.
The absence of a known term could affect pricing and cost structures relating to carbon storage. Customers may be reluctant to pay an ongoing storage fee for the duration of a GHG lease when the term of that lease is potentially indefinite. Similarly a GHG lease holder will need to ensure an ongoing source of income to discharge any liabilities during the entire term of the GHG lease including after injection of a GHG stream has ceased.

Liability Issues
A significant risk associated with carbon dioxide storage is the risk of leakage and the consequent liability for any such leak. The GGS Act does not firmly resolve the position (unlike the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) which specifically provides that 15 years after site decommissioning, the Commonwealth will indemnify the lease holder against further liability5) and leaves open the real possibility that a GHG lease holder will remain liable even after the GHG lease has been surrendered. The potential liability exists because compliance with the GGS Act does not necessarily discharge all civil obligations and liabilities6 and will potentially continue to exist notwithstanding that ownership of the GHG stream will transfer to the State upon surrender of a GHG lease7.
The potential for unlimited liability for an indeterminate period will factor into insurance issues, commercial pricing structures and, indeed, the decision whether or not to proceed with a carbon dioxide storage project at all. The speed with which a carbon dioxide storage industry develops will no doubt be influenced by these long term liability issues.

Interrelationship with Mining and Petroleum Legislation
The GGS Act has introduced a regime for managing competing mining tenements, petroleum tenements and GHG authorities in Queensland. The regime is partly found in the GGS Act and partly in new provisions in both the MRA and P&G Act.
Like the Queensland regime for competing mining and petroleum tenements, the grant of any mining lease or petroleum lease will need to follow a process where there is an overlapping GHG authority. Similarly, the grant of a GHG lease requires the applicant to follow particular processes where there are overlapping mining or petroleum tenements.
The regime for the grant of GHG authorities where there are overlapping mining and petroleum tenements seems to following the same general principles that exist in the MRA and P&G Act for the coal seam gas regime, namely, the legislation seems, as a general rule to favour those tenements which are first in time and also favours production activities (or storage in the case of GHG authorities) over exploration activities.
The GGS Act sets out the process for obtaining a GHG lease over competing exploration tenements. Unlike the coal seam gas regime, there is no referral of the application to the Land Court for a recommendation on the competing uses. Instead, the Minister is required to make a resource management decision as to whether preference should be given to the GHG development or to the mining or petroleum development (as the case may be). Similarly, where a mining lease or petroleum lease is sought over an overlapping GHG permit, the Minister is also required to make an equivalent resource management decision.
The legislation also makes provision for GHG coordination arrangements where a GHG lease overlaps a mining lease or petroleum lease. This is similar to the coordination arrangements established for overlapping mining and petroleum leases.
The new types of tenements created under the GGS Act therefore create an additional layer of regulation that will need to be managed as part of an application process for the grant of mining or petroleum tenements in Queensland. It applies to all petroleum tenements and all mining tenements, not merely those in respect of coal or oil shale.  However, the new regime only arises where there are overlapping GHG authorities and, as the GGS Act has only recently been passed, no GHG authorities have yet been granted.

Going Forward
The impacts of the GGS Act on mining and petroleum projects in Queensland will be a function of how quickly a carbon storage industry emerges. That in turn depends upon whether such a proto-industry can be comfortable with the risks associated with indefinite GHG lease terms and the uncertainty of long term liability issues. In addition, the uptake will depend on how quickly carbon capture technologies are implemented (which will no doubt be influenced by the role of the Global Carbon Capture and Storage Institute). It will also depend on how quickly commercially significant GHG streams are created. Clearly, while the GGS Act is a significant step towards implementing a carbon storage scheme, there is a considerable amount of technological and commercial activity that needs to occur before a carbon storage industry will emerge.

Footnotes:
1. GGS Act section 13 - A GHG storage reservoir is defined as the spatial extent of an underground geological formation or structure that is suitable to store a GHG stream
2. GGS Act section 12 – A GHG stream is defined as a stream of carbon dioxide or a substance that overwhelmingly consists of carbon dioxide
3. GGS Act section 134
4. GGS Act section 174
5. Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) section 400
6. GGS Act section 9
7. GGS Act section 181