Amendments to Commonwealth Sea Dumping legislation to facilitate CO2 export and geological sequestration

The Environment Protection (Sea Dumping) Amendment (Using New Technologies to Fight Climate Change) Bill 2023 (Cth) (Bill) was passed by both Houses of Parliament on 13 November 2023.

The Bill amends the Environment Protection (Sea Dumping) Act 1981 (Cth) (Sea Dumping Act) to enable the grant of a permit relating to export and geological sequestration of CO2. This amendment represents a step towards unlocking commercial trade of CO2 between Australia and overseas countries, and also makes minor consequential and technical changes to the Act.

Snapshot:

• Changes to the Sea Dumping Act, as proposed in the Bill, were passed by the Senate on 13 November 2023.
• Upon commencement, the approved amendments will permit the Minister to grant a permit for the export and geological sequestration of CO2.
• Introducing a framework permitting the export and geological storage of CO2 is an early step towards facilitating international CO2 transactions, however further regulatory processes need to be developed in both host and receival nations before these projects can be defined and commercial terms agreed.

Amendment to Australian sea dumping legislation

On 13 November 2023, the Australian Parliament passed the Bill. The Bill amends the Sea Dumping Act which gives effect to the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter 1972 (London Convention) and the 1996 Protocol to the Convention (London Protocol). In short, the Bill amends the Sea Dumping Act to enable the grant of a permit for the export outside of Australia of CO2 sourced and captured in Australia for the purpose of sequestration into a seabed geological formation. A proponent seeking to export CO2 from Australia will be able to apply to the federal Minister for Environment (Minister) for such export permit, provided that certain criteria are satisfied relating to bilateral agreements or arrangements, stream composition and intent for offshore geological storage. The amendment is also relevant for bilateral arrangements involving the import of CO2 and its storage offshore. Where the injection sites are located onshore Australia or in Australia’s coastal waters, the Bill does not operate and relevant state laws will need consideration.

Whilst the Bill represents an important step forward for prospective carbon capture and storage (CCS) project proponents, further regulatory initiatives and inter-government agreements are required before international CO2 transactions can occur. This need for further establishment of regulatory frameworks for CCS projects is not unique to Australia, with many countries also facing this particular barrier to unlocking international commercial participation in CCS related activity ^[1].

Background to the London Protocol and Australia’s sea dumping regime

Australia’s power to regulate activities in offshore waters has its source in international treaties. Among other things, Australia is a party to the London Protocol which aims to prevent pollution of the sea by imposing strict regulation for the dumping of wastes at sea. The Sea Dumping Act brings Australia’s international commitments under the London Protocol into enforceable domestic legislation.

Under the original form of the London Protocol, CO2 could not be disposed of at sea and, in 2006, the parties to the London Protocol (Contracting Parties) agreed to remedy this prohibition by amending Annex 1 to permit the disposition of ‘carbon dioxide streams from carbon dioxide capture processes’. Australia gave effect to this domestically through the 2008 amendment to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA Act), which confirmed a licensing regime to dispose of indigenously sourced CO2 offshore.

While this legislative amendment allowed the disposal of CO2 by injection into the seabed, the London Protocol still prohibited the export of CO2 from one country to another. The Contracting Parties sought to address this by resolving to insert an exception in Article 6 permitting such export. As this exception to the London Protocol has not yet been ratified by a sufficient majority and thus is not in force, the Contracting Parties developed an interim solution to permit provisional application of the Article 6 Amendment on a voluntary basis. Accordingly, until now, the ability for Australian proponents to engage in international CO2 trade has hinged on the Australian government enacting legislation to this end.

The Path to Net-Zero & why CCS is important  

CCS is a process by which CO2 is captured and compressed for transfer by various means, including by way of pipeline, ship or rail, for reinjection and permanent storage in subsurface geological formations. Critically, CCS has been used on a commercial scale for some time and is recognised as one of a number of options for addressing emissions and meeting climate targets arising under the Paris Agreement ^[2].

In light of the global push for net-zero, the importance of CCS technology and its application has grown considerably, with a number of CCS related projects emerging in places such as Europe ^[3], the United States and now Australia. A report by the International Energy Agency entitled “Special Report on Carbon Capture Utilisation and Storage: CCUS in clean energy transitions” (Report), which focuses on the similar concept of carbon capture, utilisation and storage (CCUS), suggests that reaching net-zero will be virtually impossible without using such technologies to assist in the clean energy transition ^[4]. The Report highlights the importance of CCS in reaching net-zero targets and, under its Sustainable Development Scenario, predicts that CCUS will account for nearly 15% of the cumulative reduction in CO2 emissions with 10.4Gt of CO2 being captured across the energy sector ^[5]. Underpinned by global projections of clean energy, the Report forecasts that the contribution of CCUS technology to emissions abatement will grow over time as technology improves, costs fall, and cheaper alternative abatement options are exhausted ^[6]. Accordingly, CCS (and CCUS) technology offers significant strategic value in the context of net-zero emissions targets and climate mitigation. This appeals as a solution to CO2 emissions from natural gas and LNG processing, given that CO2 is often contained within natural gas deposits, and which is already being separated (or the levels of reservoir CO2 reduced) prior to the natural gas being sold or being processed for LNG production. Rather than venting this CO2 into the atmosphere, CCS provides for disposition by way of geological sequestration.

Industries that generate significant emissions, such as cement production, will also benefit from the availability of CCS technologies until less emissions-heavy means of production are identified and implemented ^[7].

Facilitation of international CO2 transactions

The amendment to the Sea Dumping Act facilitates international transactions concerning import and export of CO2 between Australia and overseas countries by introducing a framework under which Australian proponents can engage with overseas participants for the purposes of CO2 export and injection into seabed formations, either:

• via ship or pipeline into Australia from an overseas location; or
• by way of export from Australia to an overseas location.

The amendment is a precursor step to facilitate CO2 export from Australia to an overseas location, such as the Santos led Bayu-Undan CCS project, which captures carbon dioxide in Darwin and proposes its export into a reservoir within Timor-Leste controlled waters ^[8]. By enacting the Bill, Australia provides a complementary permitting system that facilitates export of CO2 and is the first step in creating a vehicle to export Australian sourced CO2.

Australia is well placed with appropriate geology to facilitate CCS activities in the Asia Pacific region. As noted in the report of the Inquiry into the Environment Protection (Sea Dumping) Amendment (Using New Technologies to Fight Climate Change) Bill 2023, a number of countries in the region possess limited CO2 storage potential within their domestic borders, and are also the subject of emission reduction targets resulting from their commitments under the Paris Agreement. Accordingly, countries such as Japan, South Korea and Singapore may face challenges to meet their emissions reduction targets without alternative storage solutions. Energy intensive businesses, like cement and steel, will continue to produce CO2 and will need to investigate carbon capture and export processes for sequestration. It follows that these countries are driving increased interest for an international CO2 storage market, which Australia is well positioned to meet. Namely, Australia’s natural geological advantage, coupled with appropriate government support and pre-existing infrastructure suitable to be repurposed, will enable it to facilitate CCS activities in the Asia Pacific region and support the geological sequestration of CO2 by neighbouring countries.

International agreements and arrangements to sequester CO2

The Bill does not set out to regulate the import of CO2 into Australia, however, regulation of imported CO2 injection and storage in Australia will be the subject of the same permitting requirements that apply to domestically sourced CO2. It can be expected that that any Australian based CO2 sequestration projects that sequester internationally originated CO2 will have the following components:

• Government-to-government agreement or arrangement: Pursuant to the Bill, an ‘agreement or arrangement’ between Australia and the other relevant country is a precondition of the Minister’s grant of a permit to export of CO2 ^[9]. The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has noted that such agreements must be consistent with the London Protocol and the “2012 Specific Guidelines for the assessment of Carbon Dioxide for disposal into sub-seabed geological formations”, the purpose of which is to ensure that appropriate regulatory frameworks and safeguards are in place ^{[10] [11]}. The Bill does not define what form an ‘agreement or arrangement’ may take, however there is guidance concerning the form of an ‘agreement or arrangement’ ^[12], which sets out as follows:

 3.1 The amendment allows what was otherwise prohibited under article 6.1, that is, the export of carbon dioxide streams for disposal in accordance with annex 1 of the Protocol, provided that an agreement or arrangement has been entered into by the countries/States concerned. This is true in all cases, whether the export is to a Contracting Party or to a non-Contracting Party.

 3.2 The word “agreement” refers to a legally binding agreement, which between States could take the form, for example, of a memorandum of agreement or a treaty. An “arrangement” between States refers to something non-binding, such as a memorandum of understanding (MoU). 

So the countries concerned are not limited to single type of ‘agreement or arrangement’ and, instead, may enter into such agreement or arrangement based on its internal appetite and regulatory preferences. We note that European country-to-country arrangements concerning CCUS have been cast in relatively general terms in MOU form and do little more than allocate and confirm primary regulatory responsibilities ^[13], although few have been finalised to date. In other words, entry into a binding agreement (eg, a bilateral treaty with all the need to agree an appropriate level of detail and associated formality) is not necessary to comply with the requirement for an in force agreement or arrangement ^[14].

If a country is not a party to the London Protocol, that agreement or arrangement must house provisions at a minimum equivalent to those contained in the London Protocol.

• Commercial arrangements between project proponents and emitters: Further to the requirement for government-to-government ‘agreements and arrangements’, proponents of a CCS project and relevant emitters will need to agree to commercial arrangements to facilitate international trading of CO2.

There are relatively novel aspects to these arrangements and parallels can be seen with the long-term gas transportation and storage arrangements utilising multi-user infrastructure. The nature of the service can be expected to involve an emitter agreeing to provide compliant CO2 in agreed quantities and pressure at a delivery point where custody is taken by the CCS project proponent who transports and injects that product into the subsurface formation. Encouragingly, Yara and the Northern Lights Project announced in August 2022 that they have agreed on the main commercial terms to transport CO2 captured from Yara Sluiskil, an ammonia and fertilizer plant in the Netherlands, for permanent storage under the seabed off the coast of western Norway. In Yara’s announcement, it is claimed that this is the world’s first commercial agreement on cross border CO2 transport and storage.

The basis of the service can be expected to evolve as the projects are scaled and industry norms develop. International projects will obviously involve a transportation component (pipeline or ship) with similar discharge and receipt facilities that have been established for the LNG trade. It is expected that Australian CCS projects will typically establish a receival facility and jetty where CO2 will be discharged, stabilised, pressurised and exported by pipeline to an injection point for permanent storage.

• Compliance with necessary permit and approvals requirements: An Australian based CCS project proponent will need to secure necessary permitting and approvals to permit the development of receival and injection facilities and offshore injection. It can be expected to include permits for dumping of controlled wastes under the Sea Dumping Act, OPGGSA injection licences for projects in Commonwealth waters and Environment Protection and Biodiversity Conservation Act 1999 (Cth) assessment and approvals.

In relation to the offshore sequestration of CO2, there is an apparent overlap between the sea dumping regime and the greenhouse gas storage system of licensing under the OPGGSA. The Sea Dumping Act provides a person commits an offence if it disposes of CO2 without a permit to do so under that Act. Understandably, that regime is premised on an objective to control and minimise the disposition of CO2 into the seabed consistent with CO2 being viewed as a “waste” under that law and for instance, mandates permittees to advise what steps that they are taking to minimise such disposal. Contrast this with the regulatory drivers under the OPGGSA which proactively seeks to create an investible regime to underpin and facilitate the investment in these offshore facilities with a release of liability upon final site closure. It is to be noted that injection of fluids and gases into reservoirs is something that has occurred in the petroleum industry for many decades. The licensing regime set up in the OPGGSA meets the requirements of the London Protocol requiring a permit to be issued by the host country to permit the injection of product with the applicable London Protocol prudential controls.

It is not easy to reconcile how the two regimes interact as both seem to regulate the same activity in a similar way. We understand from public statements that steps are underway to streamline the two regimes and the status of these initiatives is not known, with the details of the permitting regime that is to apply still to be settled.

In addition, to execute these projects, regulatory regimes at both a Federal and State level will need to be navigated, with some interaction(s) between the two required. There has been commentary that some overseas jurisdictions are further advanced in this respect. From a State perspective, primary legislation to facilitate the collection and distribution of CO2 is required, and pleasingly, the State of Western Australia very recently introduced a comprehensive regime to facilitate this industry into parliament ^[15]. In addition further refinements and clarifications to the Federal environmental permitting and treatment of carbon abatement are anticipated.  An important commercial consideration will be how to account for the emissions abatement and which can be expected to be addressed in legislation as well as in the Government to Government agreements or arrangements alluded to above.

Self-evidently, for projects of this complexity, and long life, a high level of regulatory stability is essential.

Conclusion

The passage of the Bill in Parliament is an important step forward, although proponents will continue to be restricted from commencing actual international movement of CO2 until further progress is made in respect of government-to-government ‘agreements and arrangements’.

As noted above, the Bill sets out (among other things) that an agreement or arrangement between relevant countries must be in force before the Minister can grant a permit for the export of controlled material to another country for dumping. By the operation of the London Protocol the converse is true and countries with emissions must “agree” these matters with Australia in order for their CO2 to be exported for ultimate sequestration. If an agreement or arrangement is not in place as described, then the Minister cannot be satisfied of all conditions required to grant a permit. Accordingly, and irrespective of the status of the commercial negotiation between emitters of CO2 and CO2 injectors, Australian proponents will not be able participate in the international movement of CO2 until that the Australian Government has put into place government-to-government agreements or arrangements with the emitting country to facilitate CO2 export, import and its geological sequestration.

We expect that initially most offshore CCS projects will involve the disposition of Australian sourced CO2. As those projects demonstrate that the reservoir and injection processes operate effectively, and assuming that they are scalable to a size to support the incremental investment required here and overseas to sustain a long-lifed (20+ years) project, the international movement of CO2 can be expected to start under firm longer term contracts. In the meantime while the CCS projects mature and enter the development and operational phases, regional governments can be expected to refine and enter into the appropriate international agreements or arrangements to support the transfer of CO2 for subsurface injection.

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If you would like to explore what the policy framework will mean for your project, or if we can assist with a submission, please do not hesitate to get in touch.

By Stuart Barrymore, Senior Advisor and Braydon Ryan, Solicitor.

Footnotes

[1] For example, the Asia Pacific Cross Border Accreditation Study aims to build a consensus on Asia-Pacific regulatory and policy framework to guide CO2 emissions reduction certification and support cross-border transportation of CO2.

[2] See the Global CCS Institute’s publication entitled “The Role of CCS in the Paris Agreement and its Article 6” <The Role of CCS in the Paris Agreement and its Article 6 - Global CCS Institute>.

[3] For example, see the Northern Lights project <Northern Lights (norlights.com)>, which is currently under development and expected to commencement in 2024. This project will involve the transport of CO2, captured in various countries across Europe, to a central hub for offshore storage in Norway.

[4] See the International Energy Agency publication entitled “Special Report on Carbon Capture Utilisation and Storage: CCUS in clean energy transitions” (2020), 13.

[5] Ibid, 44.

[6] Ibid, 44.

[7] Ibid, 23.

[8]  For example, see Santos’ announcement on partnering with TIMOR GAP with respect to CCS hub opportunities <Bayu-Undan joint venture and TIMOR GAP sign MOU to cooperate on carbon capture and storage | Santos>.

[9] Environment Protection (Sea Dumping) Amendment (Using New Technologies to Fight Climate Change) Bill 2023 (Cth) s 19(7B).

[10] See DCCEEW’s submission on the Bill to the Senate Environment and Communications Legislation Committee <Submissions – Parliament of Australia (aph.gov.au)>.

[11] Per the DCCEEW’s submission above at [10], it expects that as part of discussion between countries, consideration of requests for export or import of CO2 for sequestration will address matters relating to responsibilities for maintaining the stored CO2 and for any emissions, impact on Australia’s Paris Agreement target compliance and emissions inventory reporting, the capacity of partner countries to accurately monitor emissions impacts and any leakage, and consistency with the global effort to achieve the Paris Agreement temperature goals.

[12] Such as the complementary document entitled Guidance on the Implementation of Article 6.2 on the Export of CO2 Streams for Disposal in Sub-seabed Geological Formations. See Annex 6 of LC 35/15 entitled “Report of the Thirty-fifth Consultative Meeting and the Eight Meeting of Contracting Parties”.

[13] As published online by the Danish Ministry of Climate, Energy and Utilities <Denmark, Flanders and Belgium sign groundbreaking arrangement on cross-border transportation of CO2 for geological storage (kefm.dk)>. Relevantly, Project Greensand (backed by a consortium of Danish and international partners) initiated the world’s first cross-border offshore CO2 storage on 8 March 2023 <First Carbon Storage | Project Greensand>.

[14] A preference for stronger, legally binding agreements will be impactful on Australian proponents seeking to develop a CO2 sequestration project, particularly where export of CO2 is in mind, as forming a bilateral treaty or similar between countries is typically a lengthy and drawn out process. The onerous nature of forming a treaty, which includes Parliamentary scrutiny and securing Ministerial and Executive Council approval, may result in drawn out permitting processes and impact on project timelines. Australia’s preferred position concerning ‘agreements or arrangements’ may also be influenced by geopolitical circumstances and pre-existing trade/commerce relations. Despite the initial drawbacks surrounding development and entry into legally binding, government-to-government agreements, such agreements may ultimately offer the most long term commercial security.

[15] See the Petroleum Legislation Amendment Bill 2023 (WA)and Petroleum and Geothermal Energy Safety Levies Amendment Bill 2023 (WA).