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Wednesday, 24 September 2008
Page: 5463

Senator MARK BISHOP (11:39 AM) —At the outset, I would like to acknowledge the thoughtful contribution to the discussion just made by Senator Johnston from Western Australia. I note that he has been of assistance to the government in the preparation of these bills. It is only proper to put that on the record. I would also like to acknowledge at the outset the significant work done in this area by the responsible minister in the previous government and the continuation of that work to almost completion by Minister Martin Ferguson in the current government. Also, whilst giving acknowledgements, I think it only appropriate to place on the record the fine work done in respect of the examination of these bills by both the House of Representatives Standing Committee on Primary Industries and Resources, chaired by Dick Adams from Tasmania, and yourself, Acting Deputy President Hurley, in chairing the Senate Standing Committee on Economics which similarly examined this particular piece of legislation, which, as was indicated at the outset, is quite groundbreaking. It will have a significant impact many years into the future. It is quite necessary for the establishment of a long-term, viable, commercially productive industry in this area and it is also quite critical to our government’s plans for carbon storage as we go into future years.

With those introductory remarks, I rise in support of the Offshore Petroleum Amendment (Greenhouse Gas Storage) Bill 2008 and three like bills and note for the record that the bills seek to achieve a number of purposes. Firstly, they establish a system of offshore title for the storage of carbon, and these titles will be similar to the offshore petroleum titles that already exist under the act. The legislation will authorise the transportation, injection and storage of greenhouse gas submersion in deep geological formations under the seabed but also make changes to the existing regime of petroleum titles that are needed to accommodate new types of activities authorised by the legislation.

We all know that 80 per cent of Australia’s electricity is generated by coal. No serious response to climate change can ignore the pressing need to clean up the harmful emissions that come from the use of coal. The establishment of a carbon capture and geological storage, or CCS, framework represents a major step towards making low-emission coal a reality now and into the future. CCS is essential for the long-term sustainability of coal fired electricity generation.

The coal industry is highly significant not only to Australia’s economic prosperity but also to the world’s current and future energy supply. Coal currently provides almost 80 per cent of Australia’s electricity generation capacity. Surprisingly, when I was doing some reading I found coal also supplies 40 per cent of the world’s electricity needs. Clearly, for the foreseeable future, coal will remain critical to Australia’s and the world’s electricity needs. Indeed, the International Energy Agency forecasts that coal will provide around 44 per cent of world electricity needs in 2030. So in just over 20 years electricity generated by coal will further increase by four per cent.

Accordingly, it is critical that domestic policies support the development and deployment of low-emission coal technology. Considering this by way of background, it would be hugely irresponsible for the Australian government to in any way close down the Australian coal industry. To do so would be to forsake the economic opportunity that global demand for coal represents for all Australians. It is Australia’s largest single source of export earnings. It will generate an estimated $43 billion in export income in 2008-09. It is the lifeblood of many rural and regional communities and it employs some 30,000 people around Australia. If Australia were to stop mining and exporting coal, countries like China and India would simply find other suppliers to meet their demand because they have no choice if they are going to maintain their progress in terms of economic transformation. Therefore, any response to climate change pressures must also take into account the need to maintain adequate and reliable energy supplies by making the use of fossil fuel cleaner.

The government recognises that new clean energy technologies, including both fossil fuels and renewable energy sources, are the key to a sustainable climate change solution. The Rudd government is providing leadership and policies that reduce or eliminate greenhouse gas emissions but at the same time ensure that we continue to prosper from our abundant energy resources. In this context, and as a fossil fuel dependent economy, the Australian government has a pivotal role to play—a pivotal role in driving technology outcomes that reduce or eliminate greenhouse gas emissions. A key part of this effort is the need to establish a framework to allow for the capture and geological storage of greenhouse gases emitted from fossil fuel use, both domestically and in countries which purchase and use Australian coal.

The centrepiece of the government’s climate change policy is its commitment to establish a Carbon Pollution Reduction Scheme in 2010, and this scheme will establish a forward price for carbon within the Australian economy. Placing a cost on carbon will encourage industry to develop and deploy low-emission technologies over time. The government’s legislation establishes access and, more importantly, property rights for the safe and secure injection and storage of greenhouse gases into stable, subsurface geological reservoirs in Commonwealth waters more than three nautical miles offshore.

The legislation aims to provide project developers with the certainty required to commit to major low-emission energy projects involving CCS. It also allows for the establishment of an effective regulatory framework to ensure that projects meet health, safety and environmental requirements. The legislation will create an environment in which industry can invest in CCS projects with confidence and will encourage the commercialisation of technologies which will have the potential to play a vital role in reducing global greenhouse gas emissions in the future. The legislation provides for appropriate consultation and multiple use rights with other marine users, including the fishing and petroleum industries, and ensures that pre-existing property and use rights are properly reserved.

So far I have discussed in passing the significance of the coal industry and then given an overview of the government’s legislative framework. I want to now turn to the issue of liability, which is addressed in some detail in both the House report and the Senate report that I discussed at the commencement of my remarks. Put simply, the government proposes to establish a regime for the injection of CO2, carbon dioxide, into underground geological storage. As a matter of sheer logic, this proposal raises issues of leakage for the storage structure and the shifting of CO2 away from the storage structure.

The proposed legislation is silent on the question of long-term liability. Indeed, liability could be anywhere from generations to hundreds or even thousands of years hence. There are, when one reads the relevant chapters in both reports, quite cogent arguments both for and against the acceptance of long-term liability by the government. Those arguments go to issues of risk, incentive, cost and legal responsibility. Risk involves the lack of precedent, which can create investment uncertainty and impede commercial development. Why? Because carbon capture and storage is an up-and-coming industry; it is not yet a mature industry. This lack of maturity is reflected in industry’s inability to mitigate risk from common-law liability. Similarly, risk uncertainty through lack of precedent may prevent long-term insurance for projects because of the lack of actuarial data and the long-term nature of the risk.

The issue around incentive relates to the formal transfer of long-term liability from the operator of the project to the government. Such transfer would ideally be conditional upon strict adherence to prescribed site closure criteria. Arguably, this complexity and ongoing liability will be a disincentive to investment in a particular project or projects. The concerns around cost again relate to the uncertainty over long-term liabilities. By this, as I said, I mean over periods of up to hundreds of years or more and responsibility for actual remediation if damage should occur. Is this a cost to current shareholders or is it an embedded liability which might become real for future owners? This is not an insignificant issue, because structural damage, either through negligence or malfeasance, could be a company breaker in the future.

The final concern relates to legal certainty. This is clearly critical to significant large capital investment, which is going to be required to fund these projects and was referred to by the previous speaker. One only has to look at the raft of consolidations, acquisitions and project transfers that occur in oil and gas related industries to understand the sheer volume of commercial activity in these areas. In the last 10 years alone dozens and dozens of major companies have been taken over, have gone out of business, have been restructured or have simply been absorbed into larger enterprises. One only has to look at the significance of BHP Billiton or Rio in this country to understand how many other separate companies no longer exist in a legal sense in Australia. I raise this because it relates to long-term legal responsibility for liabilities incurred by companies that no longer exist. These are all significant issues.

As I said earlier, the legislation has been examined by the two respective committees. On the issue of liability, the House committee recommended that a process for the formal transfer of long-term liability from the operator to the government be established within the proposed legislation. Interestingly, the relevant Senate committee had an opposite recommendation: it recommended that the government reject calls for it to assume explicitly long-term liability for any leakage from carbon storage projects. Presumably the Senate committee was of the view that there was currently adequate legal protection in the common law. The latter situation is the intent of the current set of bills before the chair because this set of bills is silent on the question of long-term liability—that is, once the licensee’s statutory obligations cease when the site-closing certificate is issued, future issues of liability would be in the domain of the common law. It is all well and good to leave things to the common law, arguably evolving from litigation around disused coal mines and the like in the United Kingdom. However, in the longer term the risk, in a sense, does and will pass to the community because project participants may cease to exist or because of some time-related factors such as the unavailability of witnesses.

This is indeed a quite a complex bill. It has within it a lot of balancing, addressing the concerns of different regions around Australia. Major issues do need further discussion, particularly around the issues of risk and liability. One should also observe that this is a groundbreaker in the sense that one of the reports identifies this as the first piece of legislation for CCS anywhere in the world, so not only are the deliberations going to be observed in this country but, because most of the key participants are subsidiaries of international companies, it is going to have a lot of impact into the future in other parts of the world when those countries have to address the issue of carbon storage.

I would like to make a few remarks on an announcement by the Prime Minister and Minister Ferguson—I think on Monday of this week—concerning the government’s global carbon capture and storage initiative, where the Prime Minister announced a $100 million global institute to speed up the development of carbon capture and storage technology. Through this institute, the Rudd government intends to work cooperatively with other countries to help reduce the amount of CO2 released into the atmosphere. The government is offering to host that institute in Australia and will continue to contribute up to $100 million per annum towards its operation. So we have not only groundbreaking legislation before the chair for discussion which is going to impact on this emerging industry around the world into the future but also a clear, firm commitment from our government of a sizeable amount of money to give intellectual support to research and development in a range of projects attached to this issue. That is indeed a most worthy development.

Finally, the minister has asked me to advise the Senate that negotiations are underway with various parties in the Senate. The government will listen to the debate closely and give detailed consideration to any proposals to improve the legislation. The government will come back with any proposals in the committee stage.