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Wednesday, 24 September 2008
Page: 5459


Senator JOHNSTON (11:19 AM) —I commence by recording my thanks to the Minister for Resources and Energy, Mr Martin Ferguson, and his staff for the courtesies and engagement they have afforded the opposition on this very important greenhouse gas storage legislation. I also want to compliment and thank the former Minister for Industry, Tourism and Resources, Ian Macfarlane. These bills had their genesis back in 2005. The primary objective of this legislation is the capture and geosequestration of carbon predominantly produced by large emitters. I put it in those terms because the entirety of the cycle is what is required to be considered for the commercial viability of this framework. Carbon capture and geosequestration is acknowledged by Geoscience Australia and all of those interested in the future of coal fired energy generation in Australia as arguably the best option to continue to provide to Australian households and Australian businesses reasonably cost-effective energy.

The legislation is predominantly focused on the Latrobe Valley in Victoria, where approximately 85 to 90 per cent of Victoria’s energy is generated through the mining and firing of brown coal. The Latrobe Valley has quite a magnificent history of providing reliable baseload power to not just Victoria but a very large region, including southern New South Wales and parts of South Australia. The kilowatt hour rate has varied over the years but currently is around 10c to 12c. The foundation stone upon which many people’s standard of living in this part of Australia is built is cheap, reliable baseload power coming from brown coal in the Latrobe Valley. The problem, of course, is that these power stations are very large emitters of carbon dioxide.

What this legislation seeks to do, in anticipation of capture, compression, transportation and then storage of greenhouse gas in subterranean repositories in the Bass Strait, is to provide a framework that commercial interests—namely, the emitters—can use in a practical way to plan their future capital expenses to mitigate their emissions. This is a very, very difficult task because we have to reconcile and balance the competing interests of petroleum titleholders with the titles that this legislation provides to the emitters or their agents who seek to sequester the carbon. Some of the very important issues in providing this user-friendly framework are, of course, surrounding areas of risk, given the very substantial tonnage of carbon that is likely to need to be stored and sequestered—in short, the question confronting legislators is: who shall bear the overall liability, responsibility and risk for this material? The time frames for the resolution of disputation between the petroleum titleholders and the sequestration title applicants are crucial to having a cost-effective framework. The last thing that the emitters, or those who seek to sequester carbon, require is a lawyers’ feast with QCs taking matters to the High Court in disputation with the petroleum licence holders. I will have some more to say about that in a minute.

The principal task of this framework is to reconcile the competing interests of the petroleum titleholders and the coal fired electricity generators predominately in the Latrobe Valley. I should pause to mention that there are another set of interests that also need to be considered. Those are the interests of the North West Shelf gas explorers and producers. Gorgon and Woodside, for example, both have very substantial issues with respect to the sequestration of carbon dioxide emitted by their plants as part of the process of producing liquid natural gas.

Can I also say that I think we do have some distance to go. I do not want to be seen to be critical at all of the department or the minister, but this is a very complex and difficult set of rules and regulations—a difficult balancing act—for different regions of Australia that have different requirements. This legislation is good. It is a tremendously admirable first step, but there are some fuzzy areas in it that I think are going to take a little longer to work through. I will deal with those in a moment.

What we want from the legislation is the starting point, Madam Acting Deputy President Hurley. I pause to acknowledge that, as chair of the committee dealing with this, you have an interest in how this matter pans out. I suppose it is timely that, by coincidence, you are in the chair when we are talking about this matter. What this legislation has to do is provide a commercially workable, viable framework that has as its primary consideration a cost-effective, user-friendly capacity. We anticipate that the science will be there in the next 10 years. We trust that it will, given the amount of money we are spending on it. The aim is to capture the carbon pre-combustion, post-combustion, chemically or through any of the other methods that may well be available. We will then have a product that we require to store—a product that must be taken away from the site of generation and sequestered into a repository at 1,000, 2,000 or 3,000 feet below the surface and, in this instance, because it is Commonwealth legislation, beyond the three-mile limit in the Bass Strait and in an area geophysically that will accommodate this material. By obvious coincidence and logic, that area is also the focus of oil and gas exploration and production.

That brings us to the competing interests aspect. Carbon, once captured, is more than likely—and we are surmising as to how this will take place because I suspect that this legislation will not actually see any real use for some considerable time, probably five to 10 years at the earliest—to be compressed to minus 161 degrees Celsius, forming a liquid sludge that will comprise predominately carbon dioxide but possibly a number of other chemicals including sulfur, maybe a bit of mercury and those sorts of things. This product will then require to be conveyed across the land surface into the sea via a pipeline, out to a site, potentially looking a bit like a drilling rig, and then injected into an area that is suitably explored, tested and evaluated to sequester the material. Thereafter, the challenge for the emitter is to maintain a high level of surveillance upon that site to ensure that there is no leakage.

That all sounds very technical and it is quite a significant undertaking. It is being carried out successfully right around the world and has been carried out in many forms for probably 25 or 30 years with respect to oil and gas production. Enhanced oil recovery has been a recognised science for a very long time in oil and gas technology. That is where the oil and gas producer injects, adjacent to the production well, a drill hole and, under pressure, inserts a product—it could be salt water, carbon dioxide or another form of gas; it could be methane; it could be anything—to increase and enhance the pressure of the geophysical repository such that the production of oil or gas as the case may be is enhanced.

That has been happening for a very long time and has been a very successful methodology. What we are saying is that that methodology has obvious uses with respect to the sequestration of carbon. There are a number of very important examples. I pause to acknowledge the work of both this government and the previous government with respect to the Otway site in south-western Victoria where, as we stand and talk here now, there are 100,000 tonnes being slowly injected into a subterranean repository and being measured and monitored by the CSIRO and a very capable international corporation with experience in this area called Schlumberger. It is a very exciting prospect to see how long it will take for the gas injected approximately 400 metres from the detection site to seep across through the subterranean repository to be recorded. This is a great experiment for Australia and somewhat of a world leading example of the technology.

The legislation does have some areas that need clarification. One of the principal problems in providing the commercially usable framework is that the sequestrators will not know much about the site. They will have to employ consultants to take the geophysical data from Geoscience Australia. I think an area that is important is their free and ready access to this. The oil and gas producers will more than likely be unwilling to provide their exploration data and their research data. However, given that these generators and emitters are providing electricity to our communities, there is a national interest involved here and I expect that the legislation would streamline access to data so that the emitters could, in a cost-effective way, receive assistance in identifying sites.

Again, if the emitters were to drill their own sites in greenfields areas that are beyond the oil and gas petroleum titles and were to encounter hydrocarbons, an interesting event arises: an electricity generator may suddenly become an oil and gas producer. But that remains to be seen, and I think we need to be clear as to what the eventualities are, were that to happen. I am sure the department has an answer for that. I am not entirely sure that this permit completely prohibits a proprietary interest in anything discovered whilst undertaking such drilling. Having said that, we then turn to the principal area of concern and that is the reconciliation of the petroleum permit rights with the rights of the applicant to sequester; namely, the rights of the emitter through this sequestration entitlement.

Personally speaking from some experience in mining legislation in Western Australia, the most important thing is that oil and gas permit holders who are investing very large sums of money now and into the future have security of title. That is the first step. Without that we inadvertently undermine the financial valuation of the resources and assets that these companies hold. That is the starting point from the opposition’s perspective—certainly from my perspective. Oil and gas petroleum title holders must be assured and confident, as their financiers and boards must be, that this is not an assailment or an attack upon their titles. They should be able to say and prove, as this legislation seeks to provide for, that if there is adverse effect to their present or future legitimate operations as anticipated through their exploration work they should be able to successfully object to sequestration applications.

I think that is a very important starting point and, of course, there needs to be adjudication of that on a basis whereby we have firstly established the legitimate bona fides of someone requiring to sequester carbon. That is, it must be a strategically financially viable operation that is producing carbon which seeks to acquire the tenement. By establishing that, we eliminate the potential for anybody to want to speculate in these tenements. That would entirely defeat the purpose of what we are about here. So we have to have a legitimate applicant and we have to have a bona fide petroleum title holder who can show that that corporation’s future prospects are adversely affected by this application. Then we have to have a proper adjudication.

Thereafter, we have to have an adjudication that is essentially very fast but fair. There is absolutely no point in having a framework that wraps the parties up in a long bureaucratic process. We are talking several cents, or potentially dollars, per tonne per kilometre in moving this material offshore; dollars per tonne in injecting it into the surface. That is attacking the bottom line of the generators and that flows directly into Australian domestic households and into businesses.

I note that the Senate said that the framework should be successful and it should therefore translate into a smaller increase in household electricity bills. May I say, I think we all hope for that. The chances of that are very minimal. If you consider that the bolt-on capture mechanisms for these emitters are probably not even tax deductible and run at hundreds of millions of dollars, the transportation costs alone—the energy to drive the material 50 to 60 to 70 kilometres offshore—are going to be very expensive. There is absolutely no way that these costs could not be passed on to domestic households and to business.

Having said all of those things, I think the history of this technology is very, very good. It is evolving; it is new. At the Archer Daniels plant in Illinois in the United States they are injecting three million tonnes of carbon dioxide from an ethanol plant. I anticipate that that will be a very successful model as a project carried out in a quite densely populated region of the United States. I think and hope that it will be a great example and reassurance to those who have some doubts.

I pause to say that the states have been dragging the chain on these models. South Australia is leading the way, which is good for them because they have a large oilfield and a gas field in the central part of their state. I give them credit for that. But the point is that other states have failed to grasp the nettle of how a framework for this could work. I come back to my original proposition: if it is going to be viable, it has to be cost-effective. Therefore, the sites have to be adjacent to where the gas is emitted.

In doing any net present value calculations of what type of plant equipment and structures are needed to inject this material into the subterranean repositories that I have talked about, we must have frameworks that are commensurate with and complementary to the Commonwealth framework—and I compliment the minister again—but which have as a priority a cost-effective, user-friendly, nonbureaucratic series of mechanisms so that people can know where they stand very quickly and get on with the job of moving from site to site if things do not go as planned. Having said all of that, I think this is a great first step. I see some shortcomings, but I think they will work themselves out over some time. I think it is a step in the right direction.