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Carbon capture and storage (CCS) is in the news. With the COP26
Climate Change Conference fast approaching (31 October to 12
November 2021), governments and businesses are under pressure to
convert their climate pledges into practical action. If climate
targets are to be met, CCS is sure to be an important piece of the
jigsaw. Australia and the US are two of the countries at the global
cutting edge of CCS.
Which country has made the faster progress so far in
developing its CCS industry?
Australia has the largest single commercial CCS project in the
world, the Gorgon project, at Barrow Island in Western Australia.
The US has the largest number of operational commercial CCS
facilities in the world (14) and the largest number under
construction or in the development phase (19).
Although many factors, including geology and existing
infrastructure, are important, the legal/regulatory regime
governing CCS is crucial in determining the viability and speed of
CCS projects within a country.
Key legal/regulatory areas include:
A specific legislative framework for CCS, clearly setting out
rights and duties of project developers
A licensing system which efficiently awards promising
geological formations for CCS
A fiscal regime which makes CCS projects commercially
attractive, through, for example:
carbon credits
tax incentives
How are the contrasting regulatory approaches of the
governments of Australia and the US driving the industry forward
(or holding it back)?
Australian approach
Legislative framework
A detailed legislative framework for CCS in the Commonwealth
offshore (beyond three nautical miles of the territorial sea
baseline) is contained in the main upstream petroleum framework
act, the Offshore Petroleum and Greenhouse Gas Storage Act
2006 (the States of Queensland and Victoria have also passed
substantial CCS-specific framework legislation).
Acreage licensing
The Commonwealth legislation establishes a sophisticated licensing
system for CCS for the Commonwealth offshore. Greenhouse Gas
Assessment Permits are awarded through bidding rounds. The third
such round, the Greenhouse Gas Acreage Release 2021, is expected to
open in December 2021, with five areas on offer.
Commercial incentives
The Emissions Reduction Fund lets companies earn Australian Carbon
Credit Units for each tonne of carbon stored. The units may then be
sold to the government or on the secondary market to provide
revenue.
At present, there are no significant income tax incentives for
CCS in Australia.
US approach
Legislative framework
CCS is covered in various pieces of Federal and State legislation,
including tax legislation (see Commercial incentives below), but
there is not yet a Federal CCS framework act.
Acreage licensing
The system for licensing acreage is more complicated in the US than
Australia, partly because ownership of many of the country's
geological formations vests in private landowners rather than the
government.
Awarding CCS rights to geological structures under State or
Federal land or in State or Federal waters, should be relatively
simple. However, where land ownership is fragmented among numerous
private landowners, the difficulty in obtaining CCS rights in the
underlying geology is daunting.
Commercial incentives
There is no US national carbon credit system but some States have
carbon pricing programmes, the largest being in California.
The key measure by the US Federal Government to incentivise CCS
is through a tax credit (1986 Internal Revenue Code,
Section 45Q) (some US States also provide tax incentives).
Conclusion
The table below highlight some of the differences between the
Federal CCS legal regimes in Australia and the US.
On the basis of the table, the Commonwealth government of
Australia appears to be ahead of the Federal government of the
United States in terms of CCS regulation.
However, it is early days, and the CCS legal/regulatory regimes
of both countries are a work in progress. It is also worth
reiterating that the CCS regulatory environment at State level may
hold as much weight as that at the Federal level.
In addition, as mentioned, there are several other important
factors which will dictate which countries forge ahead in the new
CCS industry and which lag behind, including geology,
infrastructure, the carbon price and long-term liability
issues.
A new CCS starting gun will fire at COP26; who will win the
race?
Posted 20 October 2021 by Alexander Macgregor, Senior Legal Analyst, Petroleum Economics and Policy Solutions, E&P Terms and Above-Ground Risk, S&P Global Commodity Insights
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