Transboundary CCUS projects a step closer for Australia

What you need to know

• Recent amendments to federal legislation introduce a new permit regime that will allow companies to export captured carbon dioxide (CO2) emissions from Australia for permanent storage in offshore reservoirs in other countries.
• This paves the way for companies to participate in cross-border CCUS transport and storage networks involving CO2 import to or export from Australia.
• The federal government will first need to take further steps at the international level before the amendments take effect and companies can seek permits for cross-border CCUS projects.
• Several State and Territory governments in Australia are exploring the potential development of CCUS hubs and networks, some of which may involve the import and export of CO2 from other countries.

What you need to do

• Companies interested in CCUS projects in Australia and the region should watch for further information to be released by the federal government about the timeline for commencement of the amendments and how the permit regime will be implemented in practice.
• Companies will also need to consider the emissions accounting implications of imports and exports of CO2.
• The Climate Change Authority is currently reviewing the National Greenhouse and Energy Reporting (NGER) legislation, and is due to report by the end of this year. Reporting entities should keep track of any amendments recommended by the review, including any which seek to clarify the treatment of cross-border movements of CO2.

Amendments pave the way for cross-border CCUS projects

The federal government has recently passed legislation that will help facilitate carbon capture, utilisation and storage (CCUS) projects, by allowing carbon dioxide to be exported from Australia for the purposes of offshore geological storage in other countries. Export of CO2 from Australia for storage at sea was previously banned under the Environment Protection (Sea Dumping) Act 1981 (Cth) (Sea Dumping Act).

The Environment Protection (Sea Dumping) Amendment (Using New Technologies to Fight Climate Change) Bill 2022 (Bill) was finally passed on 13 November 2023, after considerable debate in the Senate. This is an important milestone, signalling the federal government's recognition of the opportunities presented for Australia by the emerging market for cross-border CCUS projects.

CCUS momentum is growing

CCUS is increasingly seen as a critical technology to help meet the Paris Agreement climate targets. As part of a suite of emissions-reduction technologies, CCUS is recognised as an important option, particularly for hard-to-abate industrial sectors where other decarbonisation options are limited.

Policy support from governments around the world has scaled up significantly in recent years. This has contributed to a rapid escalation in the development of CCUS projects globally, although relatively few have yet advanced to operation. The global pipeline of CCUS projects currently stands at more than 41 projects in operation, 26 under construction and 325 in development, according to the Global Status of CCUS Report 2023 by the Global Carbon Capture and Storage Institute (GCCSI).

New CCUS business models are emerging

With this rapid growth, "network and hub" models are fast becoming the dominant mode of CCUS deployment, replacing early "integrated project" models. A typical network/hub model involves one company (or multiple companies in joint venture) investing in the development of CO2 transport and/or storage infrastructure to link to an industrial cluster of businesses that require CO2 management services for a fee. This model creates economies of scale that would not be available to any individual CCS project, reducing costs and commercial risks.

Cross-border networks, where emissions are captured at industrial facilities in one country and transported by pipeline or ship for storage in another country, are at various stages of development around the world. Countries looking to import CO2 are driven by the revenue potential of selling access to geological storage in their jurisdiction. Countries looking to export CO2 are driven by a need to meet emission reduction targets set in their NDCs under the Paris Agreement coupled with challenges for reducing emissions through technology or other means (e.g. geographical limitations, hard-to-abate industrial sectors and so on).

Europe leads the way

The Northern Lights project is one example of a cross-border CCUS network currently under development. Expected to commence in 2024, this project will involve the capture of CO2 in multiple countries across Europe, to be transported to a central hub and stored offshore in Norway.
Another example is Project Greensand, which in early 2023 successfully commenced its pilot stage with the world’s first cross-border transportation of CO2 from Belgium for injection and storage offshore in Denmark.

An emerging market in Asia

The World Bank Group, in its 2023 analysis Decarbonizing Natural Gas Through Carbon Capture, Utilization, and Storage, found that regional cooperation and networks are likely to be of greatest value in Southeast Asia, out of all regions examined. A number of countries in the region are actively pursuing plans for CCUS storage hubs that may import CO2 from other countries, including Timor-Leste's Bayu-Undan project, Indonesia's Arun project and Malaysia's Kasawari project.

The lack of clear legislative and regulatory frameworks for CCUS projects in many countries remains a significant barrier to commercial-scale CCUS deployment in the region. However, there have been a number of positive developments in this regard recently. CCS-specific legislation has been introduced in Indonesia and the State of Sarawak in Malaysia, and is under consideration in Thailand and Timor-Leste. See our March 2023 alert Indonesia Regulates CCS and CCUS.

A number of recent initiatives in the Asian region seek to encourage greater understanding and cooperation in relation to CCUS deployment. This includes the announcement on 15 November 2023 of an Asia Pacific Cross Border Carbon Accreditation Study commissioned by Singapore-based Asia Natural Gas and Energy Association. This study will seek to build consensus towards an Asia Pacific regulatory and policy framework that will guide how emission reductions are accredited and certified across region in the context of cross-border movements of captured CO2.

CCUS hubs under consideration in Australia

A number of Australian CCUS hubs have been proposed. This includes the Santos-led Bayu-Undan CCS project, which is nearing completion of its Front End Engineering Design phase. This project would transport CO2 by pipeline from Darwin for storage in Timor-Leste's Bayu-Undan reservoir. The CO2 would be sourced from domestic emitters (such as the Darwin LNG facility) and from international customers (via shipments into Darwin). Others include the INPEX-led Bonaparte CCS Assessment Joint Venture, which is assessing the potential for storage in Commonwealth waters in the Petrel Sub-Basin off north-western Northern Territory, and the Woodside-led joint venture which is exploring the potential for a large-scale, multi-user hub near Karratha in Western Australia. The CarbonNet project, funded by the federal and Victorian governments, is working towards establishing a commercial-scale CCUS hub in Gippsland Victoria, targeting FID in 2024.

Other State and Territory governments are also actively exploring the potential development of CCUS hubs. The proposed Northern Territory Low Emissions Hub, envisaged as part of the Middle Arm Sustainable Development Precinct in Darwin, will potentially involve the import and export of CO2 streams from other countries, including the proposed Bayu-Undan and Bonaparte CCS projects. CSIRO is leading the development of a business case for this hub, in collaboration with the Northern Territory Government and industry participants. The Western Australian government is also exploring the potential for developing CCUS hubs, commissioning a study by CSIRO and GCSSI which modelled two potential CCUS hubs - in the Pilbara region and Perth region (see key findings of the study). The WA Government has now announced it will invest $4.3 million to establish a world-leading CCUS industry in WA and is in the process of developing CCS specific legislation.

International context –cross-border movement of CO2 permitted under amendments to the London Protocol

The Bill will allow Australia to implement its international obligations under the London Protocol – an international treaty to prevent marine pollution caused by dumping of waste at sea. Article 6 of the London Protocol contains a general prohibition on parties exporting waste (including CO2) to other countries for dumping or storage at sea. In 2009, parties agreed to an amendment to Article 6 to allow the cross-border transportation of CO2 for sub-seabed storage, provided that the exporting and importing countries enter into a bilateral agreement or arrangement (Article 6.2 Amendment).

The Article 6.2 Amendment is not yet in force at the international level, as it has not been ratified by a sufficient number of parties. To get around this problem, parties agreed in 2019 to allow for the provisional application of the amendment. This means that two or more countries can agree to export CO2 for geological storage if they deposit a formal instrument of provisional application with the International Maritime Organisation (IMO), and enter into a bilateral agreement or arrangement that meets the London Protocol requirements. The agreement or arrangement must be notified to the IMO. Only a few of these have been finalised to date (for example, MOUs between The Netherlands and Belgium; the Netherlands and Denmark; and Denmark and Belgium).

Australia’s obligations under the London Protocol are implemented under Environment Protection (Sea Dumping) Act 1981 (Cth) (Sea Dumping Act) and the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGS Act) which provides the legislative framework for carbon storage in Commonwealth offshore waters. In addition to approvals under the OPGGS Act, the Sea Dumping Act requires a permit for the injection of CO2 into sub-bed formations from an offshore platform or facility.

The Sea Dumping Act also prohibited the export of CO2 from Australia for storage at sea in other countries. The amendments made by the Bill will implement the Article 6.2 Amendment to the London Protocol in Australia, by allowing for the export of CO2 from Australia under a new permit regime under the Sea Dumping Act.

A permit will be required to export CO2 for storage in another country

When the amendments made by the Bill commence, an entity wishing to export CO2 from Australia by pipeline or ship can apply to the federal Minister for Environment for an export permit.
The Minister may only grant an export permit if satisfied of specified criteria. These criteria are intended to ensure that exports are only allowed with the agreement of the importing country and in accordance with the risk assessment processes required under the London Protocol. The criteria reference requirements under the Protocol and effectively require the following:

• Offshore geological storage - the carbon dioxide stream must be intended for disposal into a sub-seabed geological formation;
• Stream composition - the stream must consist "overwhelmingly of carbon dioxide", with no wastes or other matter added for the purpose of disposal. It may contain incidental associated substances derived from the source material and the capture and sequestration processes used, as specified in the Protocol;
• Bilateral agreement with importing country – Australia must have in place an agreement or arrangement with the importing country that includes the matters required by the Article 6.2 Amendment to the London Protocol. The criteria differ according to whether or not the importing country is a party to the London Protocol;
• Compliance with London Protocol minimum requirements – the Minister must be satisfied that the grant of an export permit by Australia would be in accordance with Annex 2 of the London Protocol, which sets out minimum requirements for assessment and permitting.

What about importing CO2 for storage in Australia?

The Bill does not regulate the import of CO2 per se. However, permits to inject and store imported CO2 in Australia will be required in the same way as they are for domestically- sourced CO2. The injection and storage of imported CO2 in Australian waters will likely require:

• a permit under the Sea Dumping Act for the dumping of controlled wastes;
• referral and assessment under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act);
• approvals under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) for CCUS projects involving Commonwealth waters;
• approvals under applicable State/Territory regulatory regimes for projects involving State coastal waters. A number of States have introduced specific legislation for CCUS, notably Victoria, South Australia, and Queensland, with legislation proposed in Western Australia. In other jurisdictions, general environmental and planning laws will apply.

Bilateral agreements first need to be negotiated before cross-border movements of CO2 are permitted

The amendments under the Bill will not commence until Australia has ratified the Article 6.2 Amendment to the London Protocol and deposited a formal instrument of provisional application with the IMO.

Australia will also first need to enter into bilateral agreements or arrangements with countries involved in the import or export of CO2 from Australia in accordance with the London Protocol. The details of these agreements will be negotiated on a case by case basis between the federal government and the partner country. No agreements or arrangements have been finalised to date by the Australian Government. There is little guidance at the international level about what such agreements or arrangements must contain, and only a few bilateral arrangements have been agreed by other countries to date (in the form of high-level MOUs between existing Contracting Parties in the EU).

The federal government has indicated that its bilateral agreements will need to be consistent with the 2012 Specific Guidelines issued under the London Protocol, to ensure that appropriate regulatory frameworks and safeguards are in place between countries before any movement of CO2 can occur. It expects that as part of discussions 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 (see the submission on the Bill by the Department of Climate Change, Energy, the Environment and Water to the Senate Environment and Communications Legislation Committee (10 July 2023)).

Insights: Detailed rules for implementation of the permit regime need to be further developed

Before the amendments can be implemented, the federal government will need to develop the detail of the permit regime under the Sea Dumping Act through regulations, policies and guidelines. Further clarity on a range of issues will be needed, including:

• the criteria against which the Minister will assess whether the grant of an export permit would be in accordance with the minimum requirements of Annex 2 of the London Protocol;
• the types of conditions that the Minister will impose on both export permits and permits to store in Australian waters, including the circumstances in which financial assurances may be required;
• interaction with other legal frameworks and clarification of overlapping regulatory roles and responsibilities, including under the OPGGS Act, the EPBC Act and State/Territory environmental regimes; and
• the implications for emissions accounting and reporting requirements, both at the country-level under the Paris Agreement, and at the entity-level under the National Greenhouse and Energy Reporting Act (NGER Act). The Climate Change Authority is currently conducting a legislated review of the NGER Act, with a report due by the end of this year. It may be that amendments will be proposed to the NGER scheme to include additional detail on emissions reporting for emerging models of CCUS projects, including where CO2 is imported from or exported to other countries, or transferred to other facilities as feedstock for other industrial processes. The government has noted that technical amendments will be required to the NGER Scheme to facilitate entity-level reporting of the amounts of CO2 imported into Australia or captured for export. Currently, the NGER scheme does not allow CO2 captured for permanent storage in another country to be deducted from a facility's emissions total for Australian emission accounting purposes.

Key takeaways

Companies interested in CCUS projects proposed in Australia and the region should watch for further information to be released about how the federal government's permit regime for cross-border movement of carbon dioxide will be implemented. Details are likely to be included in implementing regulations or guidelines yet to be developed.

There will also be emissions accounting implications for companies considering the export and import of CO2. Reporting entities under the NGER scheme should consider any proposed changes to the scheme following the Climate Change Authority's current review, which is due to report by the end of this year.

Ashurst has extensive experience in advising on CCUS project development, and legal and regulatory frameworks for carbon capture and storage globally. Please contact us to learn more about the opportunities.

Authors: Jeff Lynn, Partner; and Lisa Moore, Senior Associate.