Draft Report. Coal Seam Gas Review. November 2013

Transcription

1 Draft Report Coal Seam Gas Review November 2013

2 The QCA wishes to acknowledge the contribution of the following staff to this report: Justin Carpenter, Tom Cunningham, James Keating, Linda O Mullane, Ravi Prasad and Russell Silver Thomas Queensland Competition Authority 2013 The Queensland Competition Authority supports and encourages the dissemination and exchange of information. However, copyright protects this document. The Queensland Competition Authority has no objection to this material being reproduced, made available online or electronically but only if it is recognised as the owner of the copyright and this material remains unaltered.

3 Submissions SUBMISSIONS The Queensland Competition Authority (the QCA) has been directed by the Queensland Government to investigate and report on the State s regulation of the coal seam gas industry. A copy of the Ministerial Direction is at Appendix A. Public involvement is an important element of the decision making processes of the QCA. Therefore submissions are invited from interested parties concerning this investigation. The QCA will take account of all submissions received within the stated timeframes. Submissions, comments or inquiries regarding this paper should be directed to: Queensland Competition Authority GPO Box 2257 Brisbane QLD 4001 Telephone: (07) Fax: (07) csg.investigation@qca.org.au The closing date for submissions is 18 December Confidentiality In the interests of transparency and to promote informed discussion, the QCA would prefer submissions to be made publicly available wherever this is reasonable. However, if a person making a submission does not want that submission to be public, that person should claim confidentiality in respect of the document (or any part of the document). Claims for confidentiality should be clearly noted on the front page of the submission and the relevant sections of the submission should be marked as confidential, so that the remainder of the document can be made publicly available. Where it is unclear why a submission has been marked confidential, the status of the submission will be discussed with the person making the submission. While the QCA will endeavour to identify and protect material claimed as confidential as well as exempt information and information disclosure of which would be contrary to the public interest (within the meaning of the Right to Information Act 2009 (RTI)), it cannot guarantee that submissions will not be made publicly available. As stated in s187 of the Queensland Competition Authority Act 1997, the QCA must take all reasonable steps to ensure the information is not disclosed without the person s consent, provided the QCA believes that disclosure of the information would be likely to damage the person s commercial activities and that the disclosure of the information would not be in the public interest. Notwithstanding this, there is a possibility that the QCA may be required to reveal confidential information as a result of a RTI request. Public access to submissions Subject to any confidentiality constraints, submissions will be available for public inspection at the Brisbane office of the QCA, or on its website at If you experience any difficulty gaining access to documents please contact the office (07) Information about the role and current activities of the QCA, including copies of reports, papers and submissions can also be found on the QCA s website. i

4 Table of Contents Table of Contents SUBMISSIONS Confidentiality Public access to submissions I i i 1 EXECUTIVE SUMMARY The importance of the industry The QCA's review The regulatory framework Cost recovery Benefits of recommended reforms A foundation for further reforms 4 2 INTRODUCTION Ministerial direction Scope of the investigation Consultation and submissions Key dates 11 3 INDUSTRY BACKGROUND Significance of the coal seam gas industry to Queensland What is coal seam gas? The production life cycle The CSG industry Liquefied natural gas (LNG) Overseas production 21 4 THE REGULATORY FRAMEWORK The need for regulation The CSG regulatory regime Problems of the regulatory regime Good regulatory design Other reviews of CSG regulation Priorities for review 30 5 ENVIRONMENTAL REGULATION Introduction Standard conditions for production Model conditions Financial assurance Regulated dams that hold CSG water Environmentally sensitive areas Category C and buffers Notification requirements for environmental incidents Commonwealth and State regulation and offset policies 49 ii

5 Table of Contents 5.9 Improving offset arrangements 54 6 WATER REGULATION Introduction CSG water for drinking purposes CSG water as a waste Waste tracking certificates Data requirements Baseline assessment plans Well and bore construction Consolidation of CSG water responsibilities 70 7 RESOURCE ASSESSMENT AND PLANNING Introduction Health and safety Plant registration Plant definition CSG well survey requirements Certification of type B devices Pressure vessel registration Exploration activity definitions Tenement administration Cross agency accountability for performance 85 8 COEXISTENCE AND COMMUNITY ISSUES Introduction Protecting high value agricultural land from CSG development Land access negotiation Public notification requirements 92 9 COST RECOVERY Introduction General principles for fees and charges Potential cost savings from reforms Contestability of agency service delivery Simplification Level of Fees and Charges 108 GLOSSARY OF ACRONYMS 111 APPENDIX A : MINISTERIAL DIRECTION NOTICE 115 REFERENCES 117 iii

6 Executive summary 1 EXECUTIVE SUMMARY 1.1 The importance of the industry Natural gas from coal seams is playing an increasingly important role in meeting Australia s overall energy requirements. Coal seam gas (CSG) now accounts for over 10% of Australia's total gas production. Queensland's CSG industry has driven most of the growth in production. There are three liquefied natural gas (LNG) projects under construction in Queensland, which will sustain nearly 20,000 temporary and permanent jobs, providing a major boost to the State's economic growth. The increase in LNG production when these projects are completed is projected to underpin a 23% increase in exports by The QCA's review The Queensland Government has directed the QCA to conduct a comprehensive review of the state's regulation of the CSG industry, including options for regulatory reform. The QCA's review is not intended to alter policy settings, or change the balance of rights and interests between the CSG industry, landowners and environmental outcomes. Rather, it is designed to ensure that there is an efficient and effective regulatory framework for the achievement of stated policy objectives. Given the extensive regulation that applies to Queensland's CSG industry, the QCA has focussed on those regulations that have a material impact on CSG operators that is, where there is the greatest scope to reduce the cost burden of regulation on Government and industry, without detracting from policy objectives. The QCA recognises that there are now at least 17 concurrent reviews underway on particular aspects of the regulatory framework relevant to the CSG industry. While this review is not intended to encroach on matters that are the subject of other reviews, where stakeholders have raised particular matters, the QCA has identified broad principles and options which might be taken into account in those reviews. 1.3 The regulatory framework The regulatory framework for the CSG industry in Queensland has been developed in a piecemeal and fragmented way, with many CSG specific measures introduced to address specific concerns about environmental, water, resource assessments and coexistence and community issues. In many instances, these CSG specific measures duplicate, or overlap with, other regulatory measures applying more broadly across the resources sector, which could achieve stated policy objectives for the CSG industry. This causes particular difficulties for industry in understanding, and responding to, a complex and confusing maze of regulations. Where there are unnecessary layers of regulation, this imposes additional compliance costs on the government and industry, in terms of both time and resource use. Moreover, lack of clarity in the regulatory framework can result in unintended outcomes that undermine the achievement of stated policy objectives. This has the potential to undermine both industry and community confidence, and discourage investment. Greater clarity and accountability in the regulatory framework will mitigate such problems, and promote greater community confidence that the industry is being developed in a safe and 1

7 Executive summary sustainable manner while its contribution to employment and economic growth is being maximised. Improving the regulatory framework The QCA has identified a number of opportunities to improve the regulatory framework applying to the CSG industry, as outlined in Table 1. Individually, many of these opportunities may have limited impacts, but collectively they contribute to a significant streamlining and rationalisation of the processes through which government and industry interact to guide CSG development. (c) (d) Reducing regulatory duplication For example: (i) (ii) It is unnecessary for both the Department of Energy and Water Supply (DEWS) and the Department of Environment and Heritage Protection (EHP) to regulate CSG water that may enter a public drinking source, particularly when water from other industries is only regulated by EHP Unnecessary duplication between Commonwealth and state environmental policies should be avoided, with arrangements to be agreed for the State to be accredited under Commonwealth regulation to carry out environmental responsibilities. Improving the effectiveness of regulation For example: (i) (ii) Standard Conditions for CSG production activities would provide greater clarity and certainty There should be greater flexibility for companies on how best to demonstrate that they can meet their rehabilitation obligations to the State in a cost effective way. Reducing excessive regulatory reporting requirements For example: (i) (ii) There should be greater flexibility for companies to meet their regulatory responsibilities relating to CSG waste water in a cost effective way Excessive reporting and notification obligations for minor incidents of environmental harm should be addressed. Removing regulatory inconsistencies For example: (i) (ii) The requirements for dams holding CSG water should be the same as for other industries where the water is of the same standard and quality, and therefore of the same risk Technical requirements for wells and bores under various acts should be aligned to ensure consistency. 2

8 Executive summary (e) Adopting outcomes based regulations For example: (i) (ii) Regulations should be structured to articulate desired outcomes. This will provide flexibility for companies as how best to deliver those outcomes in a cost effective way, without being constrained by prescriptive requirements Standard and Model Conditions for CSG production activities should be outcomefocussed and aligned with recognised standards where relevant. Better co ordination of the government regulatory reform efforts should promote further improvements in agency performance with respect to progressing applications in a timely and effective manner. The QCA recommends that the Department of State Development and Infrastructure Planning (DSDIP) be responsible for the facilitation of sustainable CSG industry development and oversight of the CSG regulatory regime to ensure its effective function. Furthermore, where there is duplication of, or a close similarity in, functions between agencies, there is no need for more than one agency to be involved. This is a costly and inefficient use of scarce resources for the government and industry. The QCA recommends that consideration be given to consolidating the regulation of CSG water into a single portfolio. 1.4 Cost recovery The Ministerial Direction requires the QCA to consider options for government to recover the costs of regulating the CSG industry based on best practice. In the QCA's view, the framework for regulating the CSG industry falls short of good regulatory practice, and substantial reforms are required. As a fundamental principle, the QCA considers that cost recovery should be achieved, where possible, by reducing the costs and burden of regulation, not by increasing fee revenue from industry, as the latter would impose an additional cost burden on industry, potentially eroding its profitability and international competitiveness. It is anticipated that the QCA's recommended reforms have the potential to achieve substantial savings in administrative costs for the government, as follows: (c) Estimated savings are estimated of between $4 to 5 million per annum There are other specific savings measures which cannot be quantified due to the lack of reliable information Further cost savings in the range of 10 30% could potentially be realised through the application of contestability to the provision of government services in areas such as accreditation of certification, assessment and auditing processes. The recommendation in (c) above is designed to achieve cost efficiency and better value for money in the delivery of these services, consistent with the recommendations of the Queensland Government's independent Commission of Audit. The QCA invites agencies to identify initiatives for the application of increased contestability in the provision of their regulatory services, as part of their formal response to the Draft Report. A particular difficulty experienced by the QCA in estimating the cost savings and addressing cost recovery issues has been the lack of reliable and accurate information from agencies on the 3

9 Executive summary actual and efficient direct and indirect costs of providing specific regulatory services to industry. As a result, the QCA has had to rely on limited cost estimates which provide only a broadly indicative guide to cost impacts of its recommendations. It is also relevant that, as the CSG industry moves to an operational phase, a decrease in approval activity can be expected. The approval related fees account for over 79% of the number of agencies assessable fees. The reduction in approval activity, while offset somewhat by an increase in compliance activities, is likely to lead to reductions in regulatory costs by government. Given this, the need for budget supplementation in the future should reduce as the savings from reforms identified in this report are achieved. 1.5 Benefits of recommended reforms The recommended reforms provide substantial benefits to the industry in terms of avoided costs and reduced delays for regulatory approvals. Indicative industry benefits are estimated to be about $60 million per annum. There are broader but largely unquantifiable benefits for industry, in terms of increased incentives for future investment because of greater certainty in policy and regulatory settings. Secondly, as noted above, significant savings in administrative costs of the government are possible, only some of which are quantifiable at this stage. These savings would reduce pressure on the state's financial position. Furthermore, the recommended reforms would deliver tangible benefits for the community, as follows: Greater clarity and transparency of agency responsibilities would ensure greater responsiveness in addressing community concerns, and would assist community understanding of accountabilities for managing and achieving specific policy outcomes Improved recording and reporting of information would enhance the ability of the community to access and assess relevant material on performance of the CSG industry in meeting regulatory requirements. The impact of the QCA's recommended reforms on the regulatory landscape is shown in Figure 1. This highlights the extent to which the recommended reforms would rationalise and simplify regulatory arrangements. 1.6 A foundation for further reforms The QCA's recommended reforms will promote greater certainty, clarity and transparency in the regulatory framework applying to the CSG industry. They will also promote a culture across government which seeks to ensure community engagement and confidence in the regulation of the CSG industry while being more responsive to industry and assisting CSG operators to meet their compliance obligations in a cost effective manner. A key ingredient of a cost effective regulatory regime is outcome focussed regulation proportionate to the risks involved and tailored to the circumstances of individual companies. This can be enhanced by Standard and Model Conditions which promote more timely and transparent approvals and compliance reviews. 4

10 Executive summary There is scope to do more. Approximately 148 fees and charges may apply to the entire life cycle of CSG regulatory activities from pre exploration to production. Further provisions or heads of power exist for as many as 28 additional charges for which no fee is specified. The QCA considers there is a strong case for rationalising and simplifying the existing fee structure and for fees to be based on efficient costs. However, most fees are generic, applying broadly to petroleum, gas and resource activities, rather than just the CSG industry. The QCA intends to work closely with agencies, industry and other stakeholders to identify options for cost recovery and the simplification of fees and charges; and, to identify means for ensuring fees and charges are set on an efficient basis, in its Final Report. In this respect, industry and agencies are requested to identify opportunities for increased contestability and aggregating fees to simplify fee and charge structures when responding to the Draft Report. Ultimately, any proposal for the revision of a fee or a new levy may fall into the regulation impact statement (RIS) framework and be subject to review by the QCA Office of Best Practice Regulation (OBPR). 5

11 Executive summary Figure 1: The CSG regulatory landscape ENVIRONMENTAL AND CONSERVATION REGULATION PLANNING I Standard Conditions for CSG Production Regu lationo~ fordrin"kin~ Health and Safety I I Model Conditions RoleofOGIA Plant Registration Land Acces; N~gotiation I Financial As;urance CSG Water as a Waste Plant Definition CSGCU Administrative Arrangements. Rcgul~tcd DtJms that hold CSG Water Waste Tracking Certificates CSG Well Survey Requirement I PYblic Notificortion Requirements I Environmentally Sensitive Areas- Category C Data Requ1rements Certification of Type B Devices I I Notification Requirements for Env. Incidents Baseline Assessment Plans Pressure Vessel Registration I Weiland Bore ConS1ructlon ExplorationActivity Definitions I Tenement Administr;~tion Foss agency Accountability P' forp~ AFTER io}i.li#kfl TBD ENVIRONMENTALAND CONSERVATION REGULATION WATER REGULATION RESOURCE ASSESSMENT AND PLANNING CO-EXISTENCEAND COMMUNITY ISSUES I Standard Conditions for CSG Production Regulation af CSG Water for Drinking Purposes Health and Safel)l High Value Agricultural land I Model Conditions CSG Water as a Waste I Plant Rcgisti'Oltion Land Access Negotiation I FinanciaiAssurance Waste Tracking Certificates Pla nt Definition Public Notification Requirements Regulated Dams that hold CSG Water Baseline Assessment Plans CSG Well Survey Requirement Environmentally Sensitive Areas- Category C Data Requirements I Certification of Type B Devices I Notification Requirements for Env. Incidents Weiland Bore Construction Pressure Vessel Registration I Commonwealth and State Offsets Policies I m proving Offset Arrangements Consolidated CSG Water Responsibilities lllciudes OGIA and CSGCU GIAT Exploration Activity Definitions Tenement Ad ministration 6

12 Executive summary Recommendations and savings to industry and government The QCA has made 36 draft recommendations in this Draft Report (Table 1). Table 1 Summary of recommendations Sec. Rec. No. Recommendation Indicative industry Savings $m, p.a Indicative government Savings $m, p. a Standard Conditions be: (c) developed for application to CSG production activities and coordinated projects to enable deemed preapproval where prescribed environmental requirements are met outcome focussed and aligned with recognised international/national standards for environmental management where relevant updated periodically to reflect relevant developments in environmental management and practices, in consultation with industry Model Conditions for CSG production activities be outcomefocussed and updated periodically in consultation with industry, to reflect relevant developments in environmental management and practices n/a 0.10 to A single financial assurance regime be established and administered by EHP, with revised arrangements to incorporate: n/a n/a (c) obligations for rehabilitation which are linked to the risk of default by operators guiding principles that are risk based and provide suitable incentives for compliance with rehabilitation requirements in a way which minimises costs for industry and the government flexibility for CSG operators to utilise a suite of options to meet their financial assurance obligations in a costeffective way, including through options such as security bonds, company specific trust funds and insurance bonds The Manual for Assessing Hazard Categories and Hydraulic Performance of Dams be amended to align dam requirements for the CSG industry with the requirements applying to other industries The Guideline being developed to define Category C ESAs, including the treatment of state forests and timber reserves, be reviewed by 31 January 2017 by EHP in consultation with industry Reporting and notification obligations (including the timeframes for reporting) of incidents of environmental harm be aligned with their risk and consequences n/a 0.10 to 0.15 n/a 0.10 to Reporting and notification obligations for similar risks be applied consistently across Environmental Authorities. 7

13 Executive summary Sec. Rec. No. Recommendation Indicative industry Savings $m, p.a Indicative government Savings $m, p. a The Commonwealth and Queensland governments : develop a common management approach to environmental policy execute a bilateral agreement which aligns their respective regulatory requirements, with arrangements to be agreed for the State to be accredited to administer implementation and compliance. n/a Offset arrangements be revised to focus on the achievement of environmental outcomes. n/a n/a 10 Greater flexibility be provided for CSG operators to meet offset requirements, including through payments to an accredited offset provider or company specific fund Part 9A of the Water Supply (Safety and Reliability) Act 2008 be repealed, and regulate and manage the release of CSG water that may enter a public drinking water source under the Environmental Protection Act CSG operators be provided with flexibility in how to satisfy the regulatory requirements relating to the use of CSG water, pending the outcomes of the review of beneficial use approval assessment processes to 3.40 n/a 1.20 n/a EHP expedite the development of an electronic waste tracking system for CSG water by no later than 30 June 2014, to reduce time delays in the compliance process EHP, NRM and OGIA rationalise compliance and reporting of CSG activities to: n/a n/a consolidate their databases prepare a single information template for completion by operators The Water Act 2000 be amended to define triggers for requiring baseline assessments on petroleum tenures, and the preparation of a baseline assessment plan to reflect the risk of impacts on private bores. $5,000 per bore not required to Amendment of baseline assessment plans not be required if new information on pre existing bores is identified as a result of conducting baseline assessments Construction standards for water bores and wells constructed under the Petroleum and Gas (Production and Safety) Act 2004 and Water Act 2000 be harmonised The Government consider consolidating the regulation of CSG water into a single portfolio. 19 The requirement for EHP to approve OGIA's technical reports be removed. $10,000 to $30,000 per water bore n/a n/a 0.10 to 0.15 n/a n/a 8

14 Executive summary Sec. Rec. No. Recommendation Indicative industry Savings $m, p.a Indicative government Savings $m, p. a The Petroleum and Gas (Production and Safety) Act 2004 and Workplace Health and Safety Act 2011 be amended to remove duplication and overlapping requirements relating to health and safety The plant registration requirements of the Workplace Health and Safety Regulation 2011 and commissioning requirements under the Petroleum and Gas (Production and Safety) Act 2004 be aligned. n/a 0.10 to 0.15 n/a 0.10 to The definition of 'plant' and 'operating plant' in ss. 670 and 673A of the Petroleum and Gas (Production and Safety) 2004 Act be clarified to prevent confusion with the Workplace Health and Safety Act n/a n/a The Petroleum and Gas Regulation 2004 be amended to provide for an appropriate accuracy requirement (+/ two degrees in azimuth) for surveying vertical wells with fewer than 6 degrees in inclination The Type B Approval Process Guidelines be amended to allow CSG operators to become certified Approval Authorities of all Type B devices as defined under the Petroleum and Gas (Production and Safety) Act A guideline outlining registration requirements for high risk pressure equipment be prepared by Workplace Health and Safety Queensland and NRM Clarity on the definitions of 'Preliminary Activity' and 'Advanced Activity' be provided by NRM A revised approach to petroleum exploration and production tenure administration be developed by NRM by no later than 31 December 2014, based on a total project rather than an individual tenement assessment n/a 0.10 to n/a 0.10 to The development of guidelines to assist the lodgement and assessment of Potential Commercial Area applications be expedited by NRM DSDIP be responsible for facilitation of the development of a sustainable CSG industry and oversight of the CSG regulatory regime to ensure its effective function, including reviewing agency performance in CSG service delivery. n/a n/a 9

15 Executive summary Sec. Rec. No. Recommendation Indicative industry Savings $m, p.a Indicative government Savings $m, p. a A single regime for protecting high value agricultural land be developed to: (c) (d) provide a clear, accurate and unambiguous definition of the areas and values to be considered worthy of protection incorporate maps of a higher quality to enable ready identification of areas not requiring protection incorporate a cost effective means for resolving obvious errors in mapping exempt low risk low impact activities from assessment The terms 'Notice of Intention to Negotiate' in the Petroleum and Gas (Production and Safety) Act 2004 be amended to allow advanced activities to commence within the mandated 20 day negotiation period: to where a Conduct and Compensation Agreement or Deferral Agreement has been reached with the landholder and subject to either party being able to retain the right to require cessation of advanced activities if differences in scope of the agreed activity arise The exclusion in s.150 of the Environmental Protection Act 1994 for public notification of an Environmental Authority be extended to coordinated projects to Charges and fees should have clarity of purpose, be transparently developed, based on efficient costs, have low compliance and administration costs and monitored and reviewed in a timely manner Budget supplementation of regulatory services be reduced as the savings from reforms identified in this report are achieved Agencies be required to identify and implement opportunities for applying contestability to CSG regulatory services. n/a n/a n/a n/a n/a n/a A single industry levy (including that based on tenures, wells or in the form of the same dollar amount applied to all operators) not be adopted to fund all CSG regulatory services. n/a Total quantifiable savings 61.7 to 62.3 n/a 4.0 to 4.7 Note: n/a means not available. 10

16 Introduction 2 INTRODUCTION 2.1 Ministerial direction The Government has directed the QCA to conduct a comprehensive review of the state s regulation of the Coal Seam Gas (CSG) industry, including options for regulatory reform. In particular, the QCA has been requested to consider reducing any duplication, consolidating and rationalising regulatory effort, simplifying fee structures and identifying alternative approaches for the achievement of similar outcomes (see Appendix A). In doing so, the QCA has also been asked to develop options for cost recovery for administering regulatory activities of CSG operations based on best practice. As provided in the Ministerial Direction, the QCA has had regard to: (c) maintaining desired environmental outcomes other stakeholders interests including landowners and concurrent mineral rights holders the costs of compliance and administration of regulatory regimes. 2.2 Scope of the investigation This Draft Report focuses on the legislation and subordinate regulation applying to Queensland's CSG industry. In particular, the Draft Report does not propose recommendations that affect the balance of rights between the CSG industry, landowners and the environment. Matters relating to CSG royalty rates are also not within scope of the investigation. 2.3 Consultation and submissions The QCA released an Issues Paper for consideration by stakeholders on 18 July Written submissions were received from 14 stakeholders. The QCA also met with a wide range of stakeholders in preparing this Draft Report. All submissions have been considered in the preparation of the Draft Report. A copy of the Issues Paper and copies of the submissions are posted on the QCA s website at Key dates Receipt of Terms of Reference 13 June 2013 Release of Issues Paper 18 July 2013 Due date for submissions 22 August 2013 Release of Draft Report 22 November 2013 Submissions in response to the Draft Report 18 December 2013 Final Report: 31 January

17 Industry Background 3 INDUSTRY BACKGROUND The CSG industry has grown rapidly in recent years, with significant export growth from liquefied natural gas (LNG) imminent. Internationally, production of natural gas is also increasing, within a competitive business environment. 3.1 Significance of the coal seam gas industry to Queensland Queensland's resources industry has grown rapidly in recent years and is a major driver of economic growth in the State. CSG companies have contracted in excess of $20 billion in infrastructure expenditure with Queensland based companies since 2008 and employ more than 28,500 people in Queensland. The CSG industry is a valuable contributor to the economic development of the state (DSDIP 2013a). The increase in LNG production will underpin a 23% increase in overseas exports by (Queensland Budget Paper ). The CSG/LNG industry is also expected to generate $850 million in petroleum royalties annually (Queensland Government 2012a). However, the industry operates in a global and competitive environment and competes for a limited pool of international investment capital. Such investment capital is likely to be redirected overseas if available opportunities are not developed by the domestic oil and gas industry (APPEA 2013a). 3.2 What is coal seam gas? CSG is predominantly methane and is located in coal formations underground. CSG can form from coal through either a biological (biogenic methane) or thermal (thermogenic methane) process (Geoscience Australia, 2012a). Biogenic methane is generated as a by product of microbial action in the early stages of the process that turns plants into coal. This is similar to methane generation in council landfills. In contrast, thermogenic methane is generated when organic matter is exposed to heat. Queensland CSG resources are a mixture of thermogenic and biogenic methane (Queensland Government 2008). 3.3 The production life cycle The development of CSG involves a number of distinct stages including exploration, development and production, processing and transport, and final consumption at an end market (see Figure 2). 12

18 Industry Background Figure 2: Coal seam gas production life cycle Source: Geoscience Australia, 2012b Exploration When exploring for CSG, the distribution of the targeted coal seams is generally known at a regional level, with further exploration conducted to determine which areas are suitable for commercial production. Although the exploration activities vary between areas, it typically involves the use of field and seismic surveys, aerial photographs and satellite imagery, as well as exploration well drilling. Seismic surveys are a key component of the CSG exploration process and are used to produce a detailed understanding of the targeted area s geology. Further information about the target s content, size and commercial viability is obtained through exploratory drilling. Development and production Once a suitable target for CSG production has been located, and the financial and regulatory requirements have been met, infrastructure is developed to support CSG production. This includes the construction of a gas gathering network, well testing facilities, onsite processing plants and pipelines before commercial production can commence. CSG field development usually requires the drilling of many shallow wells. Once the wells have been drilled, de pressurisation of the coal formations is required, thereby allowing the gas to flow from the coal seams and rise to the surface (see Figure 3). If a commercial scale flow of gas cannot be achieved, techniques such as hydraulic fracturing or horizontal drilling can be used to stimulate the gas flow from the well. Hydraulic fracturing involves the injecting of fluid, containing around 97% water and sand, into a steel cased CSG well. This pressure causes a fracture in the coal seam while the sand prevents the fracture from closing. 13

19 Industry Background Figure 3: Schematic diagram of coal seam gas extraction process i Source: CSIRO 2013 Processing and transport Once the gas has been extracted from the coal seam, it is gathered in a field compression station and prepared for transport to a central processing plant. After the gas has been processed and compressed, it is transported to its end market using pressurised pipelines (domestic), or specialised LNG ships (export). 3.4 The CSG industry Australia The commercial production of CSG is relatively new in Australia. In 1996, the first targeted CSG production occurred through the commercial drainage of coal mine methane at the Moura Mine (now Dawson) in Queensland. An important shift in focus occurred in the early 2000s, when CSG explorers targeted the relatively shallow depths of the coal seams in the Surat and Clarence Moreton Basins. As a result of increased exploration activity, Australia s estimated CSG resources have increased substantially in recent years. By 2011, Australia had approximately 101,434 petajoules (PJ) of 2P (proven and probable) reserves of CSG. Geoscience Australia (2012b) estimates there are 258,888 PJ of identified, potential and undiscovered CSG resources in Australia. One PJ of these gas reserves could supply approximately 100,000 Queensland households for one year. 14

20 Industry Background As a result of this growth in reserves, CSG has become a major source of gas production in Australia. In the five years to , Australia s CSG production increased from 2% to 11% of total national gas production (DRET 2012). Figure 4 shows this widespread production and future potential for CSG development across Australia. Figure 4: Australian basins with CSG potential Source: Geoscience Australia 2012a Queensland Reserves CSG activities in Queensland have increased rapidly since the mid 1990s. Between 1996 and 2012, Queensland increased its CSG reserves from an estimated 5 PJ to 36,916 PJ of 2P CSG reserves (NRM 2013a, Baker et al. 2008). Today, exploration is occurring further both in established basins, such as Bowen and Surat, as well as in less developed basins, such as Galilee. Figure 5 shows the rapid increase in Queensland s CSG reserves over the last decade. 15

21 Industry Background Figure 5: Queensland's CSG reserves (proven and probable) Source: NRM 2013a Production The CSG industry is a key part of the resources sector and has grown substantially in recent years since its beginnings in Roma and the Bowen Basin. In , 98% of Australia's non traditional gas production (254 PJ) was produced in Queensland (see Figure 6). The annual number of wells drilled has increased from 10 in the early 1990s to almost 600 in By the end of 2012, Queensland had 1,196 wells producing CSG. Figure 6: Queensland's CSG production Source: NRM 2013a 16

22 Industry Background CSG production occurs in the Bowen and Surat basin, and is also likely to expand to the Galilee Basin. Bowen Basin The Bowen Basin is located in eastern Queensland and occupies approximately 160,000 km 2. Commercial production is focussed around Moranbah, Injune, Moura and Wandoan. Major operators in the Bowen Basin include Origin Energy, Arrow Energy, Santos, Queensland Gas Company, Westside and Molopo. In , 115 PJ of CSG was produced, approximately 45% of total CSG production in Queensland (NRM 2013a). Surat Basin The Surat Basin is located in central southern Queensland and occupies approximately 300,000 km 2. Coals in the Surat Basin are not as thick, nor as deeply buried as in the Bowen Basin, resulting in generally lower gas content. However, these characteristics are offset by a generally higher permeability (NRM 2013b). Since 2000, the Surat Basin has grown in importance for CSG production in Queensland, with commercial production beginning in 2006 from the Kogan North CSG area, west of Dalby and south west of Chinchilla shortly afterwards. By June 2008, certified CSG reserves in the Surat Basin exceeded those of the Bowen Basin. In , 139 PJ was produced from the Surat Basin, about 55% of total production in Queensland. Major operators include Origin Energy, Arrow Energy, Santos, Senex Energy and QGC. Galilee Basin The Galilee Basin is located approximately 200 km west of the Bowen Basin and covers an area of 247,000 km 2. Although not producing CSG, the potential of the Galilee Basin for gas development has long been recognised. The region is being explored by a number of companies including AGL, Arrow Energy, Blue Energy, Comet Ridge, Exoma, Galilee Energy, Origin, QER and Westside. In April 2013, Galilee Energy and AGL restarted the Galilee Gas Pilot Project at Glenaras which seeks to establish the first coal seam gas reserves in the Galilee Basin. In June 2011, the joint venture announced a contingent resource estimate of 259 PJ of 2C (Contingent Resources) and 1,090 PJ of 3C over a 450km 2 area (Galilee Energy 2013). Industry participants The key participants involved in the CSG industry are: (c) (d) AGL Energy has significant holdings in gas powered generation, gas storage facilities and exploration tenements in the Galilee Basin. AGL Energy also has interests in fields operated by Origin and Arrow in the Bowen Basin (AGL 2013) Mitsui E&P/ Westside/ Molopo holds an interest in Westside and Molopo s adjacent tenements in the Bowen Basin Origin Energy has a 37.5% interest in developing one of Australia s largest CSG to LNG projects, Australia Pacific LNG. Origin has tenements in the Surat, Bowen, Cooper and Galilee Basins (Origin 2013a) Santos is one of Queensland s largest domestic gas producers, with tenements in the Surat, Bowen and Cooper Basins in Queensland. Santos is also the operator and 30% joint venture partner in the Gladstone LNG project (Santos 2013a) 17

23 Industry Background (e) (f) Arrow Energy holds a number of tenements in the Bowen and Surat Basins. As well as owning the proposed Arrow LNG project, Arrow supplies approximately 20% of Queensland s electricity generation needs through coal seam gas (Arrow 2013a) QGC is developing the Queensland Curtis LNG Project which involves taking natural gas from coal seams in central Queensland and liquefying it at Gladstone for export (QGC 2013a). 3.5 Liquefied natural gas (LNG) Production and infrastructure Natural gas, once cooled to 161 degrees Celsius, becomes a liquid which occupies less than 2% of its original volume. Once compressed, it can be transported on land by pipes and supercooled for export by ships. The conversion of CSG into LNG has made the international transportation of gas economical, unlocking Queensland s potential as a global LNG exporter. Two thirds of the world s committed or under construction LNG projects are in Australia. This would lead Australia to become the world s second largest LNG exporter by 2016 (Barber et al. 2013). There are four major natural gas pipelines in Queensland running from: (c) (d) Roma (Wallumbilla) to Brisbane Ballera to Mt Isa Gladstone to Rockhampton Ballera to Roma. Figure 7 shows the current and planned petroleum and gas infrastructure in Queensland. There are three LNG projects under construction in Queensland (see below) which have provided a significant boost to the Queensland economy. These projects will sustain an estimated 16,000 construction jobs and 3000 operational jobs, with an estimated final capital cost of $62.5 billion (Barber et al. 2013). Queensland will become a major LNG supplier when these projects are operational. It has been estimated that by , 25.3 million tonnes of LNG will be produced per annum (ACIL Tasman 2013). This represents approximately 10% of global LNG trade. Industry participants The participants in the LNG industry (DEWS 2012) are: Australia Pacific LNG a joint venture between Origin Energy, Sinopec, and ConocoPhillips. The joint venture will develop resources in the Bowen and Surat basins. It involves the construction of a 522 km pipeline and a multi train LNG facility on Curtis Island. About 9 mtpa of LNG will be produced requiring 270 PJ of CSG feedstock per train per annum Gladstone LNG a joint venture between Santos, PETRONAS, Total and KOGAS will develop gas fields in the Surat and Bowen Basin. The gas will be transported via a 420 km underground pipeline to a facility on Curtis Island. The facility will produce about 7.8 mtpa requiring approximately 234 PJ per train per annum 18

24 Industry Background (c) (d) Queensland Curtis LNG a project developed by QGC involves the development of CSG production in the Surat Basin. LNG is to be exported to China, Japan, Chile and Singapore. About 8.5 mtpa of LNG will be produced requiring approximately 255 PJ of gas per train per annum Arrow Energy a joint venture between PetroChina and Shell, is also planning the development of a LNG facility on Curtis Island. Feedstock would be sourced from the Bowen and Surat Basins. Stage one involves the production of 8 mtpa of LNG requiring approximately 520PJ per annum. Downstream customers LNG production in Queensland will add to export growth and will also be a major source of domestic supply. Queensland has the fastest growing market for industrial natural gas in Australia. Between 2013 and 2019, large industrial demand is projected to increase by 8% each year, with annual demand expected to reach 266 PJ by 2020 (AEMO 2012). 19

25 Industry Background Figure 7: Queensland's petroleum and gas infrastructure and resources Source: NRM 2013c 20

26 Industry Background 3.6 Overseas production 1 The United States, Canada, China and India have also experienced significant growth in nontraditional gas production. The United States and Canada are the largest producers. United States of America The US has a long history of CSG (commonly referred to as Coal Bed Methane) production. From 1989 to 2011, the US increased production of CSG from 109 PJ to 2,108 PJ, which is now equivalent to 9% of total domestic natural gas production. The three states of Colorado, New Mexico and Wyoming comprise the majority of production in the US (EIA 2013). This production is set to continue as the United States Geological Survey (USGS) indicates that the United States contains approximately 837,320 PJ of CSG reserves (USGS 2013). The growth in CSG production within the US has occurred in conjunction with a large increase in shale gas reserves. The United States Energy Information Administration (2012) estimates that between 2008 and 2012 the amount of technically recoverable shale gas in the United States increased by 280% to 576,555 PJ. Similar concerns are expressed in the US as in Australia, regarding each of the industries' impact on the community and the environment. In particular, concerns have been focussed on the contamination of underground water resources through the use of hydraulic fracturing and the disposal of produced water. Consistent with the growth in production, the US has developed significant experience in the regulatory framework for managing CSG development. Canada Alberta is a major producer of coal seam gas. The Alberta Geological Survey (2013) estimates that the province contains around 598,086 PJ of CSG reserves. Alberta has also experienced rapid growth in coal seam gas production. The first commercial CSG development was announced in 2002 and by the end of 2011 (ERCB 2012) Alberta contained 18,263 well connections that produced 368 PJ per year, or around 7.8 % of Alberta's total gas production. Alberta shares many commonalities with Queensland in the framework governing ownership of underground resources. Underground resources are owned by the province of Alberta (81%) and the Canadian Federal Government (19%), with similar land access and overlapping tenure issues. Many of the regulatory challenges are also similar to those in Queensland. These concerns largely relate to managing the surface impact of the industry, protecting groundwater resources including the introduction of guidelines for beneficial use of water and, increasing the level of knowledge regarding the impacts of future CSG development (AER 2013). Likewise, the regulatory framework for CSG is rapidly changing to keep pace with development. 1 Gas statistics in this section have been converted from cubic feet (cf) to petajoules (PJ) using the LNG conversion factor of 1 PJ per million cf (MMCF) 21

27 The Regulatory Framework 4 THE REGULATORY FRAMEWORK The CSG/LNG industry is a crucial driver of economic growth in Queensland and an efficient and effective regulatory framework is necessary for the industry to continue to prosper whilst at the same time ensuring that legitimate community concerns are addressed. The regulatory regime for CSG has developed incrementally to respond to the challenges of a newly emerging industry. This has resulted in a complex and burdensome regulatory framework. 4.1 The need for regulation The government has an important role to play in setting an appropriate regulatory framework for the development of the CGS/LNG industry. As a general principle, regulation is needed to address instances where the operation of the market alone leads to undesirable community outcomes. Typically, governments become involved in the regulation of markets where: (c) public goods exist that is, where provision for one person means the product is available to others at no additional cost externalities or spillovers occur that is, where an activity or transaction has positive or negative effects on others who are not direct parties to the transaction (for example, pollution, environmental degradation, and impacts on water quality and quantity) information failures occur that is, where there is insufficient or inadequate information about matters such as price, quality and availability for businesses, investors and consumers to make informed decisions (PC 2009). Regulation needs to be efficient and effective in encouraging industry development whilst ensuring that legitimate community concerns are addressed. The emergence of a number of large scale CSG/LNG projects in Queensland has provided governments, at all levels, with an array of community concerns, development pressures and environmental impacts not previously encountered. Concerns typically relate to the effects on groundwater, general environmental impacts, apparent lack of available scientific data, impacts on agriculture and land access (NSW Chief Scientist and Engineer 2013). See Box 1. 22

28 The Regulatory Framework Box 1: Common community concerns Water The extraction of large amounts of water from a coal seam to produce CSG can result in a lowering of standing water levels in adjacent aquifers. It has the potential to also impact adversely on the quantity and quality of water available in existing bores and natural springs. Water extracted from coal seams can, with appropriate treatment, be directed to beneficial uses such as reinjection into aquifers, irrigating crops and watering livestock. Land access Landowners seek certainty regarding CSG operators' access to their land and have concerns regarding the impact on land values and its productive use. Environmental impacts Hydraulic fracturing and related chemicals could contaminate water supplies or damage adjacent aquifers. In most instances, the concerns relate to the spillover effects of the proposed CSG activities and the lack of reliable information about their impacts. 4.2 The CSG regulatory regime The regulation of the CSG industry is achieved through a range of standard regulatory mechanisms, comprising primary legislation, subordinate regulations, administrative decisions or discretions and quasi regulations (Figure 8 refers). Figure 8: Hierarchy of regulation Primary legislation comprising acts of the Commonwealth and Queensland Parliaments Subordinate regulations comprising laws and rules made by an authority to which parliament has delegated its legislative power (e.g. statutory rules and by laws) Administrative decisions or discretions comprised of requirements stipulated by public officials (e.g. policy guidelines) Quasi regulation comprising implicit forms of regulation that effectively impose compliance requirements (e.g. codes, guidelines and standards) Source: QCA The regulatory regime for CSG has developed incrementally (adaptive management), in response to the challenges of a newly emerging industry an industry for which many of the impacts were largely unknown and untested. 23

29 The Regulatory Framework There are seven main pieces of legislation applying to the CSG industry: (c) (d) (e) (f) (g) Environment Protection and Biodiversity Conservation (EPBC) Act 1999 (Commonwealth) regulates matters of national environmental significance Petroleum Act 1923 regulates certain petroleum and natural gas activities Petroleum and Gas (Production and Safety) (P&G) Act 2004 regulates petroleum and gas exploration tenure, safety, production and pipelines in Queensland Environmental Protection (EP) Act 1994 outlines environmental regulation. Regulatory measures include: environmental authorities and protection policies; environmental impact statement (EIS) processes; a duty to notify of environmental harm; as well as environmental evaluations and financial assurance measures Water Act 2000 Chapter 3 of the Water Act provides for the management of impacts on underground water caused by the exercise of underground water rights by petroleum tenure holders Water Supply (Safety and Reliability) Act 2008 regulates CSG interactions and direct impacts associated with drinking water supply GasFields Commission Act 2013 establishes the GasFields Commission as an independent statutory body. 2 There are various other regulatory instruments specific to the CSG industry, including: Petroleum and Gas (Production and Safety) (P&G) Regulation 2004 Code of Practice for Constructing and Abandoning Coal Seam Gas Wells 2011 (c) Code of Practice for Upstream Polyethylene (CSG) Gathering Networks 2011 (d) Competency Standard for the Petroleum and Gas Drilling Industry 2011 (e) Code of Practice for CSG well head emissions, detection and reporting 2011 (f) SafeOp for Petroleum and Gas 2013 (g) Underground Water Impact Report and Final Report Guideline 2013 (h) Baseline Assessment Guideline 2013 (i) Bore Assessment Guideline 2013 (j) Recycled Water Management Plan and Validation Guidelines 2008 (k) Recycled Water Management Plan Exemption Guideline 2011 (l) Coal Seam Gas Recycled Water Management Plan Guideline 2013 (m) Guideline Approval of a Resource for Beneficial Use 2012 (n) the Coal Seam Gas Water Management Policy 2012 (o) Financial Assurance Guideline CSG operations are subject to different regulatory requirements of government agencies at every stage of a project's life cycle (see Figure 9). 2 There is also the Waste Reduction and Recycling Act 2011 which provides for BUAs for CSG water. 24

30 The Regulatory Framework Figure 9: CSG project life cycle by agency participation IV. PRODUCTION,,, Call for Te nde r ~ Work Program Planning ATP Tender Submission Relevant Arrangement Delay Well Production I I I I I I I I I I I Nat1ve Title Process RTN Strategic Cropping Land Assessment Requirements Environmental Authorities for All' ATP Granted xploration Safety Plan(s) Data Acquisition Authority Vl LU Land Access Entry Notice Environmental Authorities for Exploration Source: QCA 25

31 The Regulatory Framework 4.3 Problems of the regulatory regime Because of the range and complexity of regulatory instruments applying to the CSG industry, there is substantial scope for unnecessary regulatory burden to be imposed. This can impact on the state's international competitiveness. Particular issues which may create burdens for industry include: (c) (d) (e) (f) (g) duplication between different state agencies and jurisdictions (particularly between the state and Commonwealth) inconsistent or poorly defined regulatory objectives excessive requirements not commensurate with the associated risk or impact a lack of timeliness in administrative processes and granting approvals overly complex or prescriptive measures. Highly prescriptive regulations may not necessarily provide the confidence to the wider community being sought excessive or unnecessary reporting requirements lack of transparency and predictability in regulatory processes including about the reasons for decisions. These deficiencies in regulatory design and implementation can lead to unnecessary costs. A poorly designed regulation can create unnecessary compliance costs, delays or uncertainties. There are tangible deadweight economic losses associated with the poorly designed regulations (QRC 2013) Unjustifiable delays impose financial and time costs on businesses and hinder their ability to take advantage of market opportunities in a timely manner (PC 2007). The PC (2011) defines business administrative and compliance costs to include:... the administrative costs of undertaking paperwork, compiling the information, and reporting to regulators. There can also be more substantive compliance costs, such as the investment in staff training and systems and other capital upgrades required to comply with regulation. For CSG projects, which are characterised by long lead times, costs of delay can be quite substantial.... the anecdotal evidence that APPEA have gathered would suggest that extended delays and uncertainties result in significantly higher project costs and consequential losses than the actual costs expended in seeking approvals and ensuring compliance (APPEA 2008). Collectively, administrative/compliance cost and delay cost inefficiencies create an economic (deadweight) loss to the wider community. Moreover, the relative benefits and costs of regulation need to be considered. In many cases, regulation has proven ineffective in achieving the desired policy objective. Frequently, the costs imposed outweigh the benefits (Queensland Government 2013a). The adaptive management approach to regulation of the CSG industry has emerged in response to better understanding of industry impacts. However, there are some disadvantages in such an approach.... as the CSG industry has scaled up operations over the past decade or so, the tendency has been for the new regulations to be added in addition to, rather than as replacement for, the original regulation. Through time, you have a snowball effect with a steady accretion of new regulatory belts and braces. The complexity of the regulation which results through time lends 26

32 The Regulatory Framework itself to a growing risk of unintended consequences and perverse incentives as the original outcomes are buried under sedimentary layers of fresh red tape (QRC 2013). 4.4 Good regulatory design There are clear benefits to the community from improving the design and application of regulations. Ultimately, the acid test for regulation is whether it produces the desired outcome effectively and efficiently (QRC 2013). Good regulatory design includes: (c) (d) (e) (f) clarifying objectives including roles and accountabilities for performance simplifying regulation including streamlined, transparent and predictable processes. Deemed to comply provisions may be used where certainty and timing is critical reducing levels of prescription unless this is necessary to clarify requirements or provide certainty about compliance Governments have moved away from prescribing specific standards or procedures and, instead, have emphasised the achievement of the objectives of the legislation, leaving it to business to determine how objectives are met (PC, 2009) Focusing on risks, rather than prescriptive rules, and encouraging policy makers and regulators to explicitly dimension and assess risks, enables limited resources to be better targeted to achieve desired policy outcomes (Fensling and Peterson, 2011) removing inconsistencies between agencies and jurisdictions including establishing appropriate organisational infrastructure and processes to reduce regulatory duplication including review mechanisms to keep regulations up to date preparing regulatory impact statements (RISs) and consulting with business and the community (PC 2007). The government has endorsed the following regulatory processes (RIS guidelines): (c) (d) (g) (h) (i) establishing a case for action before addressing a problem addressing a range of feasible policy options, including self regulatory, co regulatory and non regulatory approaches, and their benefits and associated costs adopting the option that generates the greatest net benefit for the community in accordance with the Competition Principles Agreement, legislation should not restrict competition unless it can be demonstrated that: (i) (ii) the benefits of the restrictions to the community as a whole outweigh the costs the objectives of the regulation can only be achieved by restricting competition providing effective guidance to relevant regulators and regulated parties in order to ensure that the policy intent and expected compliance requirements are clear ensuring that regulation remains relevant and effective over time consulting effectively with affected key stakeholders at all stages of the regulatory cycle. Government action should also be effective and proportional to the issue being addressed. Effective incentives are required for decision makers to improve service delivery. Charging for regulatory services on an efficient cost recovery basis can create incentives to improve service delivery. 27

33 The Regulatory Framework Mechanisms allowing regulatory services to be subject to contestability also improve the efficiency of regulatory agencies. 4.5 Other reviews of CSG regulation There are various other reviews underway to address problems with the current CSG regulatory regime. The QCA has taken account of the progress of these other reviews: (c) (d) (e) (f) (g) Streamlining Approvals Project: NRM is leading a review of standards with the objective of reducing approval times and increasing regulatory certainty, leading to amendments through the Mines Legislation (Streamlining) Amendment Act Ongoing work includes enhancement of electronic approvals (MyMinesOnline). The project commenced in Greentape Reduction Project: EHP has ongoing work to review legislation and processes to reduce the time and burden associated with environmental approvals. The first stage resulted in amendments under the Environmental Protection (Greentape Reduction) and other Legislation Amendment Act Through these amendments EHP has streamlined and integrated regulatory requirements, thereby reducing costs, increasing certainty regarding assessment processes and significantly reducing approval processes for industry and government, whilst upholding environmental standards for the community. Ongoing work includes a risk assessment of production activities to inform the development of eligibility criteria and standard conditions for these activities where they are low risk and evaluation of electronic approvals. Consultation started in Regulated Waste, Beneficial Use and Waste Tracking Certificates: EHP is leading a review to update the definition of regulated waste and streamline the system of waste tracking. Initial work started in 2013 with amendments adding specific water quality standards to the EP Regulation 2008 effective as of September Ongoing work includes review of a CSG related general beneficial use approval (BUA) to improve opportunities for irrigation uses of this water and evaluating an electronic waste tracking system, scheduled for completion in Strategic Cropping Land: NRM is in the process of undertaking a review of the framework as required under s. 276 of the Strategic Cropping Land Act 2011 as required by the RIS framework. Started in 2013, the review is addressing industry and stakeholder concerns as well as new government policy on statutory regional planning. The Post Implementation Review is expected to be completed in Statutory Regional Planning: A project being led by DSDIP and the Office of the Coordinator General, the government has recently mandated a new approach to regional planning. The review and subsequent statutory regional plans will define approved land uses across regional Queensland. The project started in late Land Access Review Implementation: In December 2012, the government announced a six point action plan to reform Queensland's Land Access Laws and the establishment of a Land Access Implementation Committee to oversee the implementation of the reforms. Financial Assurance Review: A joint review by EHP, NRM and the Queensland Treasury is examining the Queensland Financial Assurance (FA) framework for resource sector activities and potential reforms to reduce red tape and promote efficiency. EHP is progressing a range of operational improvements in the short term (new calculation methodology and revised discount system) and has recently commenced a fundamental 28

34 The Regulatory Framework policy review to investigate substantive policy issues in the medium term. EHP is due to release a public discussion paper on the policy review in (h) (i) (j) (k) (l) (m) (n) (o) (p) Environmental Regulation of Resources: The Queensland Audit Office (QAO) is conducting an audit, complementary to the Financial Assurance Review, to examine whether compliance monitoring and reporting, enforcement, and financial assurance is effectively used, risk based, timely and effective. Work started in Modernising Queensland s Resource Acts Program (MQRA): Led by NRM, the program is designed to consolidate the current tenures administration system with a single, common Act for mining, petroleum and gas, geothermal and greenhouse gas storage addressing issues of overlapping tenure and native title issues under the Petroleum Act Groundwork was laid under the Mines Legislation (Streamlining) Amendment Act 2012 with initial consultation for the program starting in Overlapping Tenures: NRM is implementing a new framework for overlapping coal and CSG tenures (excludes MQRA work) as developed in the industry working paper, A New Approach to Overlapping Tenure. This framework is intended to ensure the efficient utilisation of resources. The project initially started in 2009, with the Draft Mines and Petroleum Legislation Amendment Bill Manual for Assessing Hazard Categories and Hydraulic Performance of Dams: EHP is leading a review of the dam manual to assess requirements for the potential hazards of dams or levees, and address specific conditions which apply solely to CSG activities. The current dam manual was issued in 2012 with scheduled delivery of amendments yet to be announced. EPBC Act Bilateral Agreements: State and Commonwealth jurisdictions are reviewing the process surrounding Federal bilateral agreements for the assessment of matters of national environmental significance by State agencies, including the recently established water trigger for CSG. Issues were originally identified by the Commonwealth Productivity Commission (PC) in 2009 with a date for final resolution yet to be determined. Coordinated Projects Process Review: The Office of the Coordinator General, RCC and EHP are working together to reduce the assessment time taken for coordinated projects by revising the terms of reference and also developing a set of consent conditions for these projects. Review work started in 2012 and is expected to be concluded by December Regulatory Strategy: Sets out how EHP will operate starting in 2013 as environment and heritage regulator, describing its approach to setting and applying standards, monitoring and responding to performance. Governing for Growth: Published by DSDIP in 2013, the report focuses on fiscal strategy and governance for a whole of government strategy, and support for the Commission of Audit's recommended reform for growth and productivity. Environmental Offsets: Commonwealth Department of the Environment and EHP are reviewing the State and Federal approach to environmental offsets to improve guidance and address industry concerns surrounding transparency, cash contributions, and informal dealings. Reviews started in 2011 and there is no scheduled date for completion. 29

35 The Regulatory Framework (q) Technical Working Group: Development of CSG water Irrigation Guideline: EHP, industry, rural stakeholders and the GasFields Commission are undertaking work to define standards for the irrigation of CSG water. Once a final draft of the guideline is established it is proposed to be released for public consultation. 4.6 Priorities for review Given the extensive regulation that applies to Queensland s CSG industry, the QCA has focussed on the regulations that have a material and direct impact on CSG operations. Stakeholders supported this approach in view of the timetable available for review. The four key areas stakeholders have nominated for priority review are as follows. Environmental regulation EP Act 1994 requires petroleum and gas (including CSG) operators to hold environmental authorities; allows for the creation of environmental protection policies; and establishes an EIS process EPBC Act 1999 (Commonwealth) regulates matters of national environmental significance. Water regulation Water Act 2000 Chapter 3 of the Water Act 2000 provides for the management of impacts on underground water caused by the exercise of underground water rights by petroleum tenure holders Water Supply (Safety and Reliability) Act 2008 regulates CSG water interactions and direct impacts associated with drinking water supply to protect public health. Resource assessment and planning (c) Petroleum Act 1923 regulates oil and gas exploration and development tenures P&G Act 2004 regulates safety, oil and gas exploration and production tenures as well as pipelines and facilities Workplace Health and Safety (WHS) Act 2011 regulates health and safety of workers. Co existence and community (c) Strategic Cropping Land Act 2011 protects the State's best cropping land from development that would impact on the productive capacity of the land Land Access Framework including the Land Access Code which is a condition of CSG tenure and the requirement to reach conduct and compensation agreements between landowners and industry State Development and Public Works Organisation (SDPWO) Act 1971 provides assessment and project approvals by means of nominated project pathways. This includes CSG operations that have significant environmental effects, or significant infrastructure requirements These priority areas for review are addressed in subsequent chapters. 30

36 Environmental Regulation 5 ENVIRONMENTAL REGULATION Environmental regulation of the CSG industry is necessary to ensure that CSG development is sustainable and impacts on the environment are acceptable to the community. Many current regulations are prescriptive and apply requirements specific to the CSG industry that do not apply to other industries with similar environmental impacts. There is also significant duplication between Commonwealth and Queensland Government environmental requirements. Recent and ongoing initiatives are addressing many of these matters, but there is scope to further improve environmental regulation. Recommendations include: extending the application of Standard and Model Conditions; providing choice in the range of financial assurance requirements for rehabilitation; aligning dam requirements for CSG with those of other industries; aligning reporting and notification obligations with their risks and consequences; and developing a common management approach to Commonwealth and Queensland Government environmental policy. 5.1 Introduction CSG exploration and production can involve significant environmental impacts as do many other activities such as farming and mining. CSG extraction requires wells to be sunk, land cleared and infrastructure to be built. The overarching policy objective of regulation is to ensure that desired environmental protection is achieved. The government, through EHP, protects the environment by: (c) (d) assessing applications and imposing and enforcing environmental conditions involving (i) (ii) assessments of environmental impacts imposing conditions in environmental authorities (EAs) for both exploration and production requiring financial assurance to protect the State in the event that an operator cannot meet their obligations to rehabilitate the environment once operations have ceased applying and enforcing dam standards to ensure that water is safely and securely stored allowing operators to address environmental impacts that cannot be avoided or mitigated through offset policies. Some of these regulations duplicate existing Commonwealth requirements. Significant initiatives have been recently adopted, are underway or are being developed, which seek to improve environmental regulation. 31

37 Environmental Regulation 5.2 Standard conditions for production Background Standard Conditions (which include eligibility criteria) 3 deem an application for an activity to be pre approved 4 if certain eligibility criteria are satisfied. These Standard Conditions are incorporated in EAs. Policy objective The policy objective of Standard Conditions is to provide industry with certainty on acceptable environmental requirements and to reduce the time required for approvals. Standard conditions for exploration EHP has streamlined assessment processes through its Greentape Reduction Project. As a result, Standard Conditions are available for certain low risk petroleum (including CSG) activities relating to: petroleum exploration (65 Standard Conditions) petroleum surveying (35 Standard Conditions) (c) petroleum pipelines up to 150km and existing pipelines being extended by 150km (65 Standard Conditions). Standard Conditions may be amended (by application) and, in the event a CSG proposal for one of the above activities cannot comply with the eligibility criteria, a site specific application is required. This involves assessment by EHP. EHP (2013a) noted that:...approximately 80% of all future applications for petroleum exploration will be standard applications and it is estimated that EHP s assessment time will be reduced by around 90 days, for 30 applications per year. Stakeholder submissions Standard conditions for CSG production Many industry submissions, and agencies, supported the development of Standard Conditions for CSG production activities to streamline assessment processes. EHP (2013a) noted that:... [t]he introduction of standard conditions would remove petroleum production activities from a site specific assessment and therefore significantly reduce the application and assessment effort associated with these activities EHP Likewise, DSDIP (2013a) noted that:... [w]here approvals are standardised as much as possible, it minimises cost for government and industry... DSDIP suggests accelerating the development of a production code for the petroleum and gas industry (similar to the one developed for exploration activity). DSDIP supports this approach especially as the CSG LNG proponents move towards export in DSDIP recognises that ongoing consultation in developing the production code is essential. 3 Several submissions refer to standard production codes or production codes. The QCA has taken these terms to be references to eligibility criteria and Standard Conditions under the EPA Act Explanatory Notes, Environmental Protection (Greentape Reduction) and Other Legislation Amendment Bill 2012, p

38 Environmental Regulation Santos (2013b) noted that a large number of production activities are no different, in terms of the manner in which the activities are undertaken and the risk to the environment, to those that operate with Standard Conditions for exploration (for example, wells, flow lines and roads). Santos also submitted that:... [a]ny production activities considered high risk or needing site specific assessment consideration (e.g. discharge to water, injection, etc.) could be addressed through either the eligibility criteria themselves or through conditions excluding such activities until further information has been supplied and assessed. These higher risk activities could be dealt with via variation applications at the time an initial EA application is made or by EA amendment further into gas field development. Extension to coordinated projects APPEA (2013b) submitted that Standard Conditions should be extended to coordinated projects. resource activities carried out as part of a coordinated project under the State Development and Public Works Organisation Act 1971 (Qld) cannot enjoy the benefit of the standard approvals. Although EHP has indicated it is willing to work with CSG proponents with an administrative solution, legislative change is needed to give certainty to industry and APPEA strongly recommends that this occurs. QCA analysis Standard conditions for CSG production Considerable progress has been achieved by EHP to improve decision making for EAs through the government's Greentape Reduction initiative. This has been complemented by an internal process review to significantly reduce/streamline decision making timeframes and by improving guidance and information available to industry. EHP has reduced the assessment timeframes for EA applications under the EP Act For example, in , the average assessment timeframe was 28 business days per approval, reduced from 56 business days in (EHP 2013a). Standard Conditions for exploration have been important in this regard. CSG production activities are, however, of greater scale, intensity and duration than exploration activities. Noting the general support from industry (Santos 2013b) and agencies (EHP 2013a and DSDIP 2013a) and benefits to date regarding exploration activities, there is a good case to extend the approach to production activities. Where a CSG proponent does not satisfy the eligibility criteria for Standard Conditions, it should be open to seek regulatory approval outside pre approved parameters by a site specific application. The Standard Conditions should not be provided on a take it or leave it basis. The development of Standard Conditions must also avoid taking a 'lowest common denominator' approach to regulation. The standard of rehabilitation (whether to pre development or otherwise) should be considered as part of this process. Where changes occur in environmental management practices, Standard Conditions should be updated, in consultation with industry. Outcome focussed Standard Conditions would promote their wider application leaving operators greater flexibility without diminishing their responsibilities. Aligning requirements with recognised standards such as those of the Australian and New Zealand Environment Conservation Council (ANZECC 2012) would promote clarity and certainty. 33

39 Environmental Regulation Extension to coordinated projects Projects significant in size and impact are usually progressed by the Co ordinator General under the SDPWO Act 1971 and are quite complex and have quite unique characteristics. These features are generally unsuited to the application of Standard Conditions. Moreover, the EP Act 1994 explicitly precludes the application of Standard Conditions to coordinated projects. Nevertheless, there are certain activities and associated environmental impacts that are unlikely to vary between CSG production activity to the next, and further, unlikely to vary between exploration and production activities. These types of activities could be eligible and suited to Standard Conditions. In some instances it may also be possible to incorporate Standard Conditions in site specific assessment processes. It is understood that the Co ordinator General is giving consideration to the development and application of Standard Conditions to coordinated projects. Draft Recommendation 1 Standard Conditions be: developed for application to CSG production activities and coordinated projects to enable deemed pre approval where prescribed environmental requirements are met outcome focussed and aligned with recognised international/national standards for environmental management where relevant (c) updated periodically to reflect relevant developments in environmental management and practices, in consultation with industry. Cost savings Santos (2013b) estimated administrative cost savings to industry from Standard Conditions for production activities (including applications and amendments) to be approximately $1 million per annum. If similar cost savings applied to all four major CSG operators, and noting there are other small CSG producers, the potential industry wide administrative cost savings could be at least $4 million per annum. In addition, Santos (see below) estimated that the time for applications and amendments could be reduced by 80 and 40 days respectively by using Standard Conditions. Using a broadly accepted methodology and data obtained from NRM, APPEA and the PC, the QCA estimates the average potential loss in industry revenue from an approval delay of one day is approximately $300,000 (see Figure 10). That is, potential industry savings of around $36 million per annum are implied from reduced delay costs. The ultimate level of benefit will depend upon the extent to which operators utilise the standard conditions. EHP has 22 full time equivalent staff with a budget of approximately $2.0 million engaged in assessment and desktop compliance activities under the EP Act Santos (2013b) estimated the cost savings to government to be between $544,000 and $1,632,000 based on the reduced assessment efforts involved: The average application and amendment is assessed by 1 2 assessment officers. 34

40 Environmental Regulation The average EA application takes an assessment officer 80 days longer to assess than would otherwise be the case if eligibility criteria and standard conditions were introduced. This has been estimated with reference to the reduction in assessment timeframes observed following the introduction of eligibility criteria and standard conditions for petroleum exploration activities. The average EA amendment takes an assessment officer 40 day longer to assess than would otherwise be the case if eligibility criteria and standard conditions were introduced. This has been estimated with reference to the reduction in assessment timeframes observed following the introduction of eligibility criteria and standard conditions for petroleum exploration activities The average salary of an assessment officer is within the range of $100,000 to $150,000 per annum; There are approximately 250 working days in year; and There are 2 EA applications and 30 EA amendments lodged per annum, consistent with the number of applications and amendments lodged during the 2013 financial year. Data provided by EHP and NRM confirms average agency budgets per employee are in the range of $98,000 to $145,000 respectively, which is broadly consistent with Santos' range. The range of $100,000 to $150,000 is adopted for estimating annual staff cost savings. The lower estimate by Santos of the savings to government has been adopted given the uncertainty related to the extent of adoption of the Standard Conditions by industry. Figure 10: Costs of delays The PC (2013) estimated that the loss in NPV to industry from a one year delay.the PC estimated the loss of an average oil and gas project would range from $300 million to $1.3 billion, depending on the discount rate used. Assuming a 30 year project life, for the 4 major CSG proponents, the cost to industry from a one day delay could range from nearly $110,000 to almost $475,000. APPEA (2013b) estimated the impact of a two year delay during the development and production of an Onshore CSG to LNG project to government tax receipts. A two year delay at the development or production stage was estimated to result in an NPV loss of $375 million to $750 million in tax revenue. Assuming a 30 percent corporate income tax and 10 percent tax on well head production, this equates to a NPV loss to industry of $938 million to nearly $1.9 billion (over the typical 30 year project life). 5 NRM estimated the average daily value of CSG production in Queensland to be $1.4 million. Assuming a 25 percent margin, similar to that of other extractive industries (Wood Mackenzie 2013), the loss from one day of production to industry is approximately $354,000. Averaging these, the QCA estimated that the loss in NPV to the CSG industry of a one day delay is approximately $300,000 per day (Table 1). CSG industry daily delay cost Annuitized Loss ($ per Day) Low Average High PC 110, , ,000 APPEA 171, , ,000 NRM n.a. 354,000 n.a. Average 211, , , questions/faqs/ 35

41 Environmental Regulation 5.3 Model conditions Background Model Conditions are off the shelf conditions that can be applied to CSG activities. Model Conditions require EA applications to be fully assessed by EHP (unlike Standard Conditions which are deemed pre approvals). Policy objective The policy objective of Model Conditions is to provide industry with certainty on acceptable environmental requirements which streamlines approvals processes. To the extent that Standard Conditions and eligibility criteria do not apply, Model Conditions provide a template of approved regulatory responses. EHP review of Model Conditions EHP maintains a library of enforceable and comprehensive Model Conditions for petroleum and gas activities (including CSG). These are based on typical management approaches to protect environmental values (for example, air emissions, waste management, monitoring, land disturbance, well stimulation and dams). EHP is reviewing its Model Conditions to ensure they are outcome focused, and unnecessary prescription is removed. EHP (2013a) submitted the review will involve: (c) development of a suite of outcome focused Model Conditions for specific environmentally relevant activities (including landfills, sewage treatment, high threshold extraction, dredging and composting) development and harmonization of a library of conditions for all EAs based on environmental risk a comprehensive assessment for all aspects of petroleum production activities to ensure that conditions are appropriate to the risk that activities pose. Stakeholder submissions QRC (2013) supported the development of outcomes based Model Conditions given its view that many of the existing conditions for CSG activities were still highly prescriptive. QRC provided an example of a typical prescriptive based CSG noise condition which required: an inventory of all noise sources and sound power levels; identification of all sensitive receptors in the area; details of background monitoring data across different locations; assessment, preferably by noise modelling and contour maps; and, a description of the extent to which the predicted noise emissions will protect acoustic value. In contrast, QRC stated that an outcomes based noise condition developed for mining activities required that noise did not exceed set limits. EHP (2013a) advised that the most recent model conditions for petroleum activities provide that either set noise limits are achieved, or that the operator has in place an alternative arrangement with landholders. QCA analysis Outcomes focussed Model Conditions may not be applicable to all circumstances. However, an outcomes based approach to environmental conditions, where possible, is strongly supported as it provides CSG operators with flexibility on how best to achieve environmental objectives. 36

42 Environmental Regulation Moreover, this provides CSG operators with a range of acceptable approaches, though certain complex proposals may require assessment. EHP s efforts in this regard are therefore endorsed. As with Standard Conditions, Model Conditions need to be updated periodically to reflect relevant developments in environmental management and practices, in consultation with industry. Draft Recommendation 2 Model Conditions for CSG production activities be outcome focussed and updated periodically in consultation with industry, to reflect relevant developments in environmental management and practices. Cost savings The savings industry could realise from Model Conditions would be similar to those for the development of Standard Conditions. The ultimate cost savings depending on a variety of factors, including how model conditions are developed and the applicability across projects and industry. While these savings to industry have the potential to be significant, industry has not provided estimates of savings. EHP has 22 full time equivalent staff engaged in assessment and desktop compliance activities. It is estimated that potential cost savings to government could be as much as $100,000 to $150,000 per annum. This is based on the assumption that outcomes based Model Conditions would save the equivalent average costs of at least one person assessing proposed conditions. 5.4 Financial assurance Background Policy objective The purpose of financial assurance is to provide the government with a financial security to cover any costs or expenses incurred in taking action to prevent or minimise environmental harm or rehabilitate or restore the environment, should the holder fail to meet their environmental obligations (EHP 2013b). Requirements The financial assurance cost represents a 100% upfront (bank) guarantee for: (c) (d) termination, decommissioning and removal of all relevant infrastructure and services activities required for rehabilitation project management costs maintenance and monitoring. Financial assurance is regularly reviewed to align with expected rehabilitation liabilities. A CSG operator nominates a disturbance period to calculate the amount required for activities being carried out. This provides a means to adjust obligations to reflect partial or full rehabilitation that has been progressively undertaken. EHP and NRM require separate financial assurance payments or guarantees for rehabilitation requirements. 37

43 Environmental Regulation Stakeholder submissions Industry submitted that the financial assurance regime did not reflect project risk. APPEA (2013b) considered the risk of site abandonment was unlikely to occur because of the long term contracts that have been signed and the relative certainty of future cash flows. APPEA (2013b) also submitted that:... the CSG industry involves development that is distributed over space and time, whereas mining projects typically involve large, concentrated activities. CSG projects permit ongoing remediation during and after construction. As a result, a financial assurance mechanism that is suitable for mining is not necessarily appropriate or cost effective for CSG. Potential improvements identified by industry were: linking the calculation of financial assurance for CSG tenements to a genuine assessment of the risk of CSG site abandonment or proponent insolvency (APPEA 2013b) providing flexibility in the forms of financial assurance able to be provided (APPEA 2013b) (c) ensuring the model and form of financial assurance reduces the administrative burden, government and industry costs, and reliance on banks (Arrow 2013b). QGC separately submitted that while EHP administers financial assurance generally, NRM administers financial assurance for strategic cropping land. QGC submitted that this led to different financial assurance requirements due to different methods for calculating rehabilitation requirements. This duplication means two cheques are lodged with two different agencies for the potential rehabilitation costs for a single parcel of land to a very similar if not identical standard (QGC 2013b) QCA analysis The State's financial assurance arrangements require that funds must be unconditionally and readily available to meet the cost of all assessed potential rehabilitation costs. They require a 100% upfront bank guarantee for the assessed amount for a nominated period. Risks As the financial assurance arrangements require coverage of 100% of the assessed rehabilitation costs, they are not linked to the probability that operators may meet their environmental obligations. Or put another way, they do not reflect the risks of a failure to rehabilitate the environment. Requiring each operator to cover 100% of the potential rehabilitation cost imposes significant unnecessary costs particularly where operators comply. While long term contracts may not always be honoured, the current arrangements fail to account for other more favourable outcomes in performance at a duplicated cost to the operator. Given that systemic risk is an unlikely event, it is therefore likely that the level of financial assurance sought by the State is excessive from a risk mitigation perspective, and imposes unnecessarily high costs on industry. A form of financial assurance which reflects the risks associated with a proponents default would impose lower costs on the operator and free up assets for further development. A precedent for risk based financial assurance already exists through a system of discounts for certain mining (not CSG) activities. These discounts are provided on the basis of demonstrating 38

44 Environmental Regulation prior performance in implementing progressive rehabilitation and providing certain financial information (EHP 2013b). Moreover, the characteristics of the CSG industry as noted by APPEA (2013b) relating to the more staged development suggests that a risk based approach is particularly appropriate for CSG. Bank guarantees The financial assurance process is also inflexible in only allowing bank guarantees as an acceptable form of financial assurance. 6 Bank guarantees can be costly to the operator, tying up capital and limiting borrowing capacity. Assets are thus quarantined for the duration of the project rather than producing income. Premiums paid in bank guarantees are also not refundable and do not contribute to environmental benefits (DSDBI 2011). Moreover, the funds committed to bank guarantees are likely to increase over the next five years as the number of CSG wells (that is, environmental disturbance) in Queensland increases. EHP's initiatives EHP has been seeking to address many of the concerns raised by the resources sector by: developing and introducing a standard methodology for calculating the level of financial assurance for a particular site reviewing the system of discounts for certain mining activities and considering whether they should be extended to all activities. EHP is also undertaking a broader review of financial assurance, including a detailed consideration of site abandonment and rehabilitation risks, and alternate means to address these risks. Principles In this regard, the QCA proposes that financial assurance arrangements be based on guiding principles that are risked based and provide suitable incentives for compliance with rehabilitation requirements in a way which minimises costs for industry and government. Specifically, these guiding principles should provide that financial assurance arrangements: (c) (d) (e) (f) reflect the actual risks of failure to rehabilitate, rather than an assumed total failure rate of 100% across all industry operators avoid creating moral hazard (incentives for operators to avoid meeting their rehabilitation obligations) reward consistent performance in fulfilling rehabilitation obligations provide appropriate incentives which encourage compliance with, and discourage avoidance of, future rehabilitation obligations avoid cross subsidies between operators avoid large and unpredictable increases in financial assurance requirements 6 Operators can also provide upfront cash to the State which imposes even greater constraints on operators. 39

45 Environmental Regulation (g) (h) (i) utilise instruments which are readily converted into cash minimise the costs of administration minimise the financial exposure of the government consistent with appropriate risk management strategies. It could be argued that these principles may not meet the financial risk to government to rehabilitate the environment should a company (or multiple companies) fail. Approaches to financial assurance differ internationally (see Figure 11). Figure 11: International financial assurance arrangements Nevada Nevada (USA) accepts several forms of financial assurance. An operator may use one or even several of these forms to provide assurance. There are also arrangements in place to assist small operators. For example, cash deposits are accepted from smaller operators who may not be able to obtain a bank guarantee. Ontario Ontario (Canada), accepts several forms of assurance. Company guarantees account for two thirds of the funds held as security. A company guarantee is only accepted from companies with a stable financial history and a good credit rating. Alaska Alaska (USA) has in place a state wide bonding pool as an alternative to individual bonds. Participants make an initial deposit of 15% of their calculated liability, refundable for satisfactorily completed rehabilitation, and make annual nonrefundable payments of 5% of their calculated liability. Interest is returned to the pool. The refundable portion of a deposit may not be used to fund another miner s obligations, and the pool may only be used to cover liabilities up to a set amount per unit area. An alternative fully funded bond mechanism must be used where the calculated liability exceeds this base amount per unit area. Any sites that are chemically processing ore or that are potentially acid generating are ineligible to participate in the pool. Source: DSDBI 2011 Options At a broad level, there are a range of options available for financial assurance including: (c) (d) a security bond that is, the current system a company specific trust fund where contributions are made to the fund by a company, with the monies to be used only to meet the rehabilitation obligations of that company an insurance bond where an agreement between an insurance company and an operator will provide funds for rehabilitation under circumstances that are laid out in the agreement a pooled sinking fund where funds are built up incrementally, with the participating operators making scheduled contributions. In this regard, the government of Western Australia has recently established the Mining Rehabilitation Fund (MRF) which reforms the financial assurance requirements. The MRF provides a pooled fund, levied according to the environmental disturbance existing on a tenement at the annual reporting date 40

46 Environmental Regulation Interest generated from this account will be used to fund the administration of the MRF and will also be used to undertake rehabilitation works on legacy abandoned mine sites throughout the state (DMP, 2013). The MRF has some desirable features, namely: (c) (d) the contribution to the fund occurs annually, rather than reflecting 100% of the expected rehabilitation costs upfront reduces costs to industry as operators may be able to relinquish their security in favour of the pooled approach covers the entire State and is not linked to a particular project, that is there is a pooling of risks the interest on monies in the fund can be used to fund environmental rehabilitation more generally. The MRF fund has a 1% premium whereas bank guarantee costs: for large, financially sound, companies are around 0.5% are significantly above 1% for relatively smaller, or less financially sound companies. This may mean that an option similar to the MRF fund may be attractive to smaller companies, but not necessarily for larger companies. A further alternative could be providing operators with a suite of options (that is choice) by which they can meet their financial obligations to address their particular circumstances. Operators would then be able to manage their financial assurance obligations. Such an approach has merit. Depending on how the arrangements are put in place, the administrative costs may not necessarily be higher (and would be offset by the savings from a single administration agency). Single agency administration While different agencies seek to pursue different outcomes, the need for two separate financial assurance schemes is not obvious. They require separate calculations and administrative processes. It is therefore recommended that the management of financial assurance obligations for environmental rehabilitation requirements be vested within a single agency. Given EHP has broad responsibilities for financial assurance, it is recommended that financial assurance obligations administered by NRM for SCL be administered by EHP. 41

47 Environmental Regulation Draft Recommendation 3 A single financial assurance regime be established and administered by EHP, with revised arrangements to incorporate: obligations for rehabilitation which are linked to the risk of default by operators guiding principles that are risk based and provide suitable incentives for compliance with rehabilitation requirements in a way which minimises costs for industry and the government (c) flexibility for CSG operators to utilise a suite of options to meet their financial assurance obligations in a cost effective way, including through options such as security bonds, company specific trust funds and insurance bonds. Cost savings As at 19 September 2013, the government held $729.4 million in financial assurance for CSG companies, which covers 239 CSG permits (for 70 different companies or their subsidiaries). This includes CSG exploration, production, pipelines and facilities (Powell 2013). With the bank guarantees costing about 0.5% for a large entity, the cost to industry is around $3.6 million. There are therefore likely to be material benefits from the adoption of an alternative form of financial assurance. Moreover, there are likely to be some reduced costs to industry and government from the consolidation of financial assurance administration within EHP. However, cost savings cannot be determined at this stage as they will depend on how reforms are implemented. 5.5 Regulated dams that hold CSG water Background Policy objective EHP provides industry with specifications to which regulated dams must be built in its Manual for Assessing Hazard Categories and Hydraulic Performance of Dams 2012 (the manual). The purpose of the manual is to: (c) guide the assessment of the hazard category of all structures constructed as part of environmentally relevant activities requiring an EA or development approval guide which structures require formal documentation provide approved methods for specifying the design performance in relation to dam break and overtopping scenarios. Potential impacts considered in this process include those to human health and general environmental harm (impacts to environmentally sensitive areas (ESAs), high value areas and habitat). Specific requirements impacting on CSG activities Part 3 of the manual also requires all CSG water, CSG concentrate, and brine dams to be constructed to meet additional design criteria in order to avoid seepage of contaminated water, irrespective of the quality of the waste water produced or the potential consequences to the 42

48 Environmental Regulation environment if it was to be released. These mandatory additional requirements do not apply to other industries such as coal or metalliferous mining. Stakeholder submissions APPEA (2013b), Arrow Energy (2013b) and Santos (2013b) submitted that the CSG dam requirements are not based on risk and impose different requirements on the CSG industry than on other industries conducting similar activities. Santos in particular submitted that some water that comes out of a high wall in an open cut mining pit or from a stock and domestic bore is no different from the coal seam water extracted from a producing gas well (Santos 2013b). Likewise, Arrow Energy (2013b) submitted that:... a mining operation and a CSG operation could have two storages beside each other, containing the same quality of water, and the CSG storage would need to be constructed to a higher specification to comply with its environmental authority to ensure fees and charges are set on an efficient basis. These CSG specific requirements impose significant costs on industry. The cost for CSG Industry to build dams in accordance with Part 3 of the [manual] is approximately $8.0 million, whereas the cost of building the same dam in other extractive industries is approximately $6.5 million. This suggests that there is a 20 30% cost increase to build a CSG dam over other types of dams in similar circumstances as a result of having to comply with part 3 of the [manual](santos 2013b). These additional costs relate to the higher specifications for CSG dams, including the prevention, monitoring and collection of leakage. QCA analysis As a general principle, regulation should be matched to risk. The manual requires other industry sectors to assess the potential consequences of a release of contaminants from a structure and then implement appropriate design criteria to minimise the identified risks to an acceptable level. The mandatory imposition of specific design criteria on the CSG industry in the manual, regardless of the results of any assessment of consequences, is inconsistent with the risk based approach that the manual adopts for all other resource sectors. The QCA has not formed any view on the standards necessary for dams to protect the environment and whether the standards for other regulated dams are appropriate. However, the QCA has not been provided with any compelling reason as to why CSG water should be treated any differently to water of a comparable quality produced by other industry sectors. The QCA notes that EHP has commenced a review of the manual and any consideration of the appropriateness of dam standards across industries should be considered in this context (EHP 2013a). Draft Recommendation 4 The Manual for Assessing Hazard Categories and Hydraulic Performance of Dams be amended to align dam requirements for the CSG industry with the requirements applying to other industries. 43

49 Environmental Regulation Cost savings Santos (2013b) estimated unnecessary construction costs per dam of $1.5 million. Santos indicated up to 30 dams can be built per major CSG project over the 30 year project life, which on average means one dam is built per year. Estimated savings to industry, based on unnecessary construction costs being removed for each major CSG project are approximately $6 million per annum. Santos (2013b) estimated that the abolition of this requirement would lead to some savings in administrative costs to government in the order of $100,000 per annum, namely relating to administering Part 3 of the manual. The QCA accepts that there will be some minor administrative cost savings to government. 5.6 Environmentally sensitive areas Category C and buffers Background Policy objective ESAs are designated to regulate potential impacts on areas of environmental value that may be affected by land disturbance. ESAs have an environmental value. The EP Act 1994 provides for the consideration, assessment and conditioning of the impacts of petroleum activities on ESAs. EHP issues CSG proponents with EAs which regulate activities that can be undertaken in order to protect the environmental values within ESAs. Classification of ESA EHP classifies ESAs into three categories in descending order of significance as summarised in Figure 12 below. Figure 12: ESAs Category A High value conservation areas of State significance that are made under Queensland conservation legislation (for example, National Parks, the Wet Tropics, and Marine Parks) and the Commonwealth s Great Barrier Reef legislation, that are likely to be identified as matters of environmental significance. Category B High value conservation areas of State significance that are identified in State environmental and cultural legislation (for example, conservation areas and places of cultural significance) including some areas identified as matters of national environmental significance (for example, areas subject to an international agreement). Category C High value conservation areas with State significant environmental values that are recognised and defined, or given effect, by State environmental and resource legislation (for example, nature refuges). Source: QCA analysis EHP applies these categories (as well as applicable buffers) by means of EA conditions. Category A and B are defined in the EP Regulation In contrast, Category C ESAs are not defined in 44

50 Environmental Regulation the EP Regulation 2008, but are incorporated in the definition of an environmental value in the EP Act There is no existing policy which publically documents the scope of Category C ESAs. Stakeholder submissions Industry questioned the validity of imposing requirements about Category C ESAs as well as buffers surrounding these areas as they considered there was adequate legislative protection through ESA Categories A and B and other regulatory mechanisms. Industry submissions raised concerns that as Category C areas are not defined in legislation they may be changed through arbitrary administrative decisions. Activities permitted in Category C ESAs and ESA buffers are regulated in an inconsistent manner through EA conditions. Category C ESAs and buffers significantly increase uncertainty for proponents due to ongoing mapping changes, changes in the how Category C ESA is defined and a lack of clarity on what activities are permissible in such areas. The industry s experience with specific applications to access Category C ESAs and ESA buffers shows that the process produces little if any material gain in environmental outcome (Arrow 2013b). QGC (2013b) stated that Category C areas, in some cases, included areas that are not primarily established for protecting environmental values for example, areas for resource purposes such as state forests and timber reserves, declared catchment areas, and resource reserves. QGC considered that the application of buffer areas around ESAs is arbitrary and without ecological merit. QGC proposed that Category C ESAs and buffers around ESAs be eliminated from EA conditions and replaced by conditions requiring disturbance minimisation, reporting and rehabilitation. DSDIP (2013a) considers that Category C ESAs are an example of regulatory creep and an approach that creates inconsistencies in regulation. Arrow (2013b) supported the need to refine definitions and activities permitted within Category C areas and to streamline the process for amending existing EA conditions to give effect to this approach. QCA's analysis EHP has significant discretion as to the environmental values that are appropriate for consideration and protection/management as part of the EA process. This results in considerable uncertainty for industry. The use of buffers or separation distances around sensitive areas is a well established land use practice but also has the potential to increase costs to industry and can introduce uncertainty. EHP has been engaging with industry to clarify the areas covered by Category C ESAs and to reduce the buffers around ESAs for existing and future approvals. Notwithstanding this, the application of Category C has created uncertainty for CSG participants. The QCA understands that EHP has developed new definitions of Category C ESAs. The QCA also understands that this will be articulated in a guideline to provide certainty and any changes to these definitions will be consulted on with industry. The QCA endorses the preparation of a guideline to address industry concerns on Category C ESAs and, in doing so, recommends that the guidelines clarify the government's intentions as they relate to state forests and timber reserves. 45

51 Environmental Regulation Changes have been introduced that reduced the area of land covered by Category C ESAs: Category A buffers have been reduced from 1km to 300m Category B buffers have been reduced from 500m to 300m (c) Category C buffers for state forests and timber reserves removed (from 500m) (d) For other category C areas, buffers reduced from 500m to 200m. QCA understands that the recent changes to buffer distances for ESAs are consistent with or less than those applied by the Commonwealth. EHP has also refined the administration of ESAs and the buffer areas around ESAs. QGC (2013b) maintains concerns regarding the new initiatives and essentially seeks a more outcome focussed approach. Such an approach is generally preferable. However, the current proposal by EHP to prepare guidelines to clearly define Category C ESA's including the treatment of state forests and timber reserves and to reduce buffers seems worthwhile particularly when the new buffer definitions are consistent with Commonwealth definitions. A review of the effectiveness of the guidelines and the approach would still seem essential to ensure Category C ESAs are protected in a cost effective manner. Three years should provide sufficient time for their effectiveness to be ascertained. In preparing the guideline EHP should consult with relevant agencies (including DAFF) and particularly industry. Draft Recommendation 5 The Guideline being developed to define Category C ESAs, including the treatment of state forests and timber reserves, be reviewed by 31 January 2017 by EHP in consultation with industry. Cost savings The extent of cost savings to industry from this reform has not been quantified but is not expected to be material. The potential cost savings to government of the current initiatives could be as much as $100,000 to $150,000 per annum if at least one person equivalent is tasked with the additional administration, compliance and enforcement relating to the complexity and uncertainty associated with existing Category C arrangements and responding to industry queries and concerns on this matter. 5.7 Notification requirements for environmental incidents Background Policy objective The EP Act 1994 and EAs require CSG companies to report defined incidents to EHP within certain timeframes and in certain formats. Notification processes are required to ensure the regulator can prevent or manage potential harm to the environment. 46

52 Environmental Regulation Notification requirements Environmental Protection Act 1994 The EP Act 1994 contains a duty to notify EHP within 24 hours of an operator becoming aware of an event 7 that causes or threatens environmental harm. Environmental harm includes: Serious Environmental Harm which is defined as: (i) (ii) irreversible, of a high impact or widespread caused to an area of high conservation value or special significance (iii) causing actual or potential loss or damage to property more than $50,000 (iv) resulting in costs of more than $50,000 to prevent or minimise or rehabilitate. Material Environmental Harm which is defined as: (i) not trivial or negligible in nature, extent or context (ii) causes actual or potential loss/damage to property between $5,000 and $50,000 (iii) resulting in costs of between $5,000 and $50,000 being incurred in taking appropriate action to prevent or minimise or rehabilitate. Additional notification requirements apply for CSG activity which negatively affects (or is reasonably likely to negatively affect) the water quality of an aquifer or causes the unauthorised connection of two or more aquifers. EAs EAs may also include separate requirements to notify of environmental harm. These may involve different information being provided to that required under the duty to notify harm, or notification of events outside the scope of the statutory duty to notify harm. Where notice is required to be given for both the duty to notify harm and an EA requirement, a single notice may be provided if it complies with both requirements. EA notification procedures typically require notification as soon as reasonably practicable, but within 24 hours after becoming aware of various events. 8 Such events include: (c) spills of contaminants including CSG water or any mixtures: (i) (ii) (iii) of any volume of contaminants to water releases of volumes of contaminants to land greater than, 200L of hydrocarbons, 200L of stimulation additives, 500L of stimulation fluids, 1,000L of brine or 5,000L of CSG water any volumes of contaminants where potential serious or material environmental harm has occurred or may occur where environmental harm is caused or may be caused detection of restricted stimulation fluids from stimulation fluid monitoring 7 Unless the event is authorised within, amongst other things, an EA, notification by the employee to their employer must occur within 24 hours. The employer then has 24 hours to notify EHP. 8 The notification requirements provided are found in 'Specific Environmental Authority, Resource Activities, Permit Number: EPPG ' 47

53 Environmental Regulation (d) any result from baseline bore, well or stimulation water impact monitoring that exceeds a stated water quality. Stakeholder submissions Industry raised concerns that reporting of environmental incidents is not aligned with the impact and that reporting timeframes are inconsistent within EAs. QGC (2013b) stated that reporting of environmental incidents and the regulator's response should be aligned with the environmental outcome being sought and the level of risk. QGC outlined the following example regarding reporting requirements to EHP for reporting dead or injured fauna. The breach generated the following paperwork: QGC notified the department of the delay in reporting the death; the department issued QGC with a written warning notice; QGC did an internal investigation and reviewed procedures (including contractor management) on why it took longer than 24 hours to notify the department; QGC wrote to the department informing it of the steps taken to respond to the warning notice. In all, QGC spent two weeks dealing with a failure to report a dead snake within 24 hours. This is paperwork for the sake of paperwork with no clear environmental benefit of reporting the incident within 24 hours (the fauna was already dead). Another example is the requirement to report spills of contaminants, regardless of quantity or volume, into water bodies. QGC also highlighted the unreasonableness of reporting thresholds with respect to quantities of contaminants. Another example is the requirement to report spills of contaminants, regardless of quantity or volume, into water bodies. QGC had previously reported a spill of 30ml of hydraulic oil into Gladstone Harbour. As each incident was a breach of conditions triggering a notification, the warning notice paperwork process outlined above was triggered. Again, the risk to the environment of a release of 30 ml of oil is unclear. In contrast, volume thresholds exist for releases of contaminants on to land (e.g litres for water from coal seams or 200 litres for hydrocarbons) (QGC 2013b). QGC observed that environmental requirements are not consistent across incidents. Another example is the varied timing required for environmental incident notifications to the department under environmental authorities. Under one pipeline environmental authority, environmental incidents must be notified on the same day as the incident, whereas under other environmental authorities, notifications must be made within 24 or 48 hours of incidents. This inconsistency makes it difficult for people working across environmental authorities to be certain of reporting times. The requirement to notify on the same day as the incident can also be challenging in remote locations with poor telecommunications (which is common in the gas fields). Where more than one party is involved (i.e. a contractor and QGC), it also takes time to establish what happened so accurate information can be provided to the department (QGC 2013b). 48

54 Environmental Regulation QCA analysis Breaching any condition of an EA is a material issue. Notification is important as some incidents may not yet have environmentally or socially significant impacts but may have the potential to become significant in the future. As such, notification allows EHP to guide industry s response to, and management of, the incident. However, industry has raised concerns that reporting of environmental incidents is not aligned to the impact or desired environmental outcomes and the timeframes are inconsistent. Notification requirements like those identified by QGC are clearly unnecessary, time consuming and costly to industry. They also impose costs on agencies. The QCA considers that notification requirements relating to environmental harm (including to landowners) should reflect the associated risks and consequences with stricter notification requirements applying to events with greater consequences. Draft Recommendation 6 Reporting and notification obligations (including the timeframes for reporting) of incidents of environmental harm be aligned with their risk and consequences. 7 Reporting and notification obligations for similar risks be applied consistently across Environmental Authorities. Cost savings The extent of cost savings to industry from this reform are not able to be quantified, but could be material. The QCA understands that EHP has around 13 staff engaged in compliance activities under the EP Act The QCA considers that the potential cost savings to government could be as much as $100,000 to $150,000 per annum. This is based on the assumption that there is at least one person tasked with the additional administration, compliance and enforcement relating to inefficient and inconsistent notification requirements. 5.8 Commonwealth and State regulation and offset policies Background Policy objective The Commonwealth and Queensland governments have statutory responsibilities for biodiversity conservation and environment protection regulation: the Commonwealth's EPBC Act The objectives are the conservation of biodiversity, protection of the environment and promotion of ecologically sustainable development. This Act applies to nationally and internationally important flora, fauna, ecological communities and heritage places defined in the EPBC Act 1999 as matters of national environmental significance 9 9 This includes; world heritage properties; national heritage places; wetlands listed under the Ramsar Convention; listed threatened species and ecological communities; migratory species protected under international agreements; Commonwealth marine areas; the Great Barrier Reef Marine Park; and nuclear 49

55 Environmental Regulation (c) Queensland's EP Act 1994 and Nature Conservation Act The objectives are the conservation of nature 10 and protection of Queensland s environment while allowing for ecologically sustainable development 11 Queensland s SDPWO Act 1971, which includes requirements for environmental coordination to ensure that in any development proper account is taken of the environmental effects. Commonwealth and Queensland Government processes invariably provide for projects to be assessed and for approvals to be granted subject to conditions. These are developed on the basis of each jurisdiction's separate assessment processes, policies and legislation. Stakeholder submissions Industry submitted that the duplication of the Commonwealth and Queensland Government processes led to: (c) significant costs of delay uncertainty and duplication of conditions and a lack of coordination poorly crafted, duplicative offset policies. Submissions highlighted the adverse impacts of Commonwealth/Queensland duplication and inconsistency. APPEA (2013b) submitted that: Australia s environmental regulatory framework contains numerous overlapping, excessive and inconsistent requirements that are causing unnecessary project delays and costs. The legislation does not always clearly define or achieve its objectives, or add any additional benefit to the Australian economy. It imposes additional costs on the industry and, in some cases, delivers conflicting outcomes that extend project timeframes and costs. Offsets policies CSG projects that are unable to avoid or mitigate adverse impacts on the environment may obtain project approvals if they agree to environmental offsets (for example, offsite rehabilitation or a financial payment). Generally, there are two types of offsets. Direct offsets provide an ecologically equivalent (physical) outcome to the impact. Other compensatory measures include financial, research and/or educational programs. The Queensland Biodiversity Offset Policy, applied under the EP Act 1994 allows proponents to fulfil their offset obligations by either physical or financial settlement. In Queensland, financial payments may comprise the majority of the offset contribution, however this is limited in scope under the Commonwealth s offset framework to a maximum 10% of the offset obligations. Industry submissions supported flexibility for offset policies. Queensland Government offsets policy allow proponents to fulfil their offset obligations by financial settlement or by physical, land based offset. Providing that the cost structure is not actions (including uranium mines). In addition, water resources are an additional 'matter of national environmental significance' in relation to coal seam gas and large coal mining developments. 10 Section 4 of the Nature Conservation Act 1992 provides a regulatory framework for the conservation of nature within protected areas and the protection of native wildlife and its habitat. 11 Section 3 of the Environmental Protection Act

56 Environmental Regulation excessive, enabling this option [financial or land based] would lead to a significant reduction in administrative burden for industry, without compromising environmental outcomes (APPEA 2013b). At a broader level, industry also supported removing duplications in offsets policies between the Commonwealth and Queensland Government. Species lists QRC is supportive of the development of an offsetting process that results in a single offset requirement for industry proponents, preferably through the accreditation of the Queensland state scheme by the Commonwealth (QRC 2013). Queensland Government offsets policy be aligned with its Commonwealth equivalent and ideally be granted Commonwealth accreditation, to avoid duplication of offsets requirements for proponents (APPEA 2013b) Queensland and Commonwealth Governments operate with dual listings of threatened species (plants and animals): EPBC list (Commonwealth) refers to threatened species and endangered communities that are 'matters of national environmental significance. Nature Conservation Act 1992 (Qld) refers specifically to threatened species There are differences in definitions, assessment criteria, and listing procedures for certain threatened species and ecological communities under each regime. The different lists then inform different environmental offset arrangements. For example, a species may be considered threatened nationally but be common in an individual state (or vice versa). Triggers for assessments being based on environmental impacts EIS processes are triggered by different Commonwealth and Queensland Government mechanisms. The Commonwealth's EPBC Act applies to internationally and nationally important flora, fauna, ecological communities and heritage places defined as matters of national environmental significance. Commonwealth EISs and approvals are mandatory for CSG activities as they are likely to have significant impacts on a water resource (the 'water trigger'). Industry submissions supported removing the EPBC Act s 'water trigger' as it is effectively mandated duplication. QRC (2013) submitted:... the new 'water trigger' as a Matter of National Environmental Significance.... [is a] completely unnecessary addition to federal environmental regulation [that] effectively duplicates preexisting state processes, particularly those put in place for the CSG industry. It is also completely removed from a risk based approach to environmental regulation. Reporting and compliance requirements Inconsistent reporting requirements arise from misalignment between the Commonwealth and Queensland regulatory regimes. Industry noted that Commonwealth and Queensland Government reporting requirements are inconsistent and often require slightly different compliance and reporting arrangements. Submissions (Santos (2013b), Arrow (2013b), and QRC (2013)) identified the following Commonwealth and Queensland Government areas of duplicative reporting requirements: rehabilitation plans CSG water management plans, groundwater impact modelling, spring surveys (mound springs), monitoring and reporting 51

57 Environmental Regulation (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) constraints planning and field development protocol disturbance limits to habitat values for listed species species and fauna management plans environmental offsets financial assurance general monitoring and reporting annual returns third party audit requirements decommissioning plans induction programs. QCA analysis The Commonwealth and Queensland Government assessment and approvals processes and environmental policies are priority areas for reform. The 2009 Independent Review of the EPBC Act 1999 recommended the Commonwealth undertake a range of measures to improve the efficiency of the EPBC Act by reducing duplication of environmental assessments between the Commonwealth and states. This included accreditation of government approval and assessment processes and publication of criteria processes for such accreditation. An Assessment Bilateral Agreement, enabling jointly conducted EIS assessment of projects under Commonwealth and Queensland legislation, was signed by relevant Ministers on 14 June However, the arrangements have shortcomings. The EPBC Act, as drafted, imposes constraints on extending a bilateral agreement for assessment to cover all Queensland projects. It also only covers major projects (that is, projects subject to full Environmental Impact Assessment meeting prescriptive EPBC Act requirements through the Coordinator General process or other legislation). These are only about half of all referrable projects. While a single assessment process meeting EPBC Act requirements (including referral to an Independent Expert Scientific panel) may be able to be negotiated, the Act explicitly prohibits its consideration in any future bilateral agreement. This effectively means approvals for CSG cannot be handed to the states until the EPBC Act is amended. The almost exclusive reliance of the EPBC Act on project by project processes makes it increasingly incompatible with state based systems which have moved to integrated planning and development assessment. These generally focus public consultation on up front plans and other guidance documents and use performance or outcome based approaches (for example, development codes) to assess and decide on the majority of projects. Only projects which have unique features or potentially significant impacts are subject to full environmental impact assessment. Commonwealth and Queensland environmental policies are similar, although differences in objectives, processes, and systems all create unnecessary regulatory burdens on industry for no material environmental gain. Importantly, these are primary causes of project delays. Moreover, the 'water trigger' duplicates existing state environmental controls. 52

58 Environmental Regulation The Commonwealth and Queensland governments should provide for a common set of objectives and guiding principles to develop a common environmental management approach and address industry concerns about: (c) inconsistent offsets policies duplicate approval processes (including 'water triggers') the multiple reporting requirements. Moreover, the Commonwealth should provide the Queensland Government with accreditation to implement environmental policies which would preclude the need for Commonwealth assessment. This would reduce duplication and allow the Queensland Government to retain responsibility for environmental matters which is appropriate given it is better placed to identify local issues and address community concerns. Accreditation through the negotiation of an approvals bilateral agreement would be consistent with the position of the PC (2013). The Commonwealth should improve the efficiency of environmental assessment and approval processes under the Environment Protection and Biodiversity Conservation Act by strengthening bilateral arrangements with the states and territories for assessments and establishing bilateral agreements for the accreditation of approval processes where the state and territory processes meet appropriate standards. The necessary steps to implement this reform should be properly scoped, identified and reviewed by jurisdictions and a timetable for implementation should be agreed. On 18 October 2013, the Commonwealth and Queensland governments executed a Memorandum of Understanding to deliver 'a one stop shop' for EPBC Act environmental approvals to remove duplication in assessment and approvals processes. The Memorandum of Understanding is not binding and has been executed on a best endeavours basis. The intention being: the Queensland government to become responsible for assessing EPBC Act projects execution of an approval bilateral agreement between the governments within 12 months (c) the Commonwealth Government to undertake a strategic oversight approach to environmental protection. The Memorandum of Understanding notes the development of certain environmental process standards will be required to be developed. The MoU and pending bilateral agreement should remove the inefficiencies of duplication which generates unnecessary regulatory burdens on Queensland's CSG industry and are supported. The development of a common management approach to environmental approvals would be consistent with the accreditation process as it would provide for a common basis on which to assess environmental matters. 53

59 Environmental Regulation Draft Recommendation 8 The Commonwealth and Queensland governments: develop a common management approach to environmental policy execute a bilateral agreement which aligns their respective regulatory requirements, with arrangements to be agreed for the State to be accredited to administer implementation and compliance. Cost savings While there are establishment costs and ongoing assessment costs that would arise from accreditation of the Queensland regime to make appropriate approval decisions in relation to Commonwealth's EPBC Act, the long term savings to the community and industry can be significant. Deloitte (2011) estimated the net costs and benefits over ten years (in NPV terms including second round effects) to be $119.9m to the Commonwealth Government, $21.4m to all state and territory governments and $253.15m to industry (nationally). Based on the share of extractive industries in Queensland relative to other jurisdictions (20%), this implies cost savings to government of $450,000 per annum. 5.9 Improving offset arrangements Arrow Energy (2013b) considered that offset policies were deficient in a number of ways: (c) procurement of offsets on the basis of individual EAs promotes a piecemeal rather than strategic approach rehabilitation requirements should be given consideration towards offsetting impacts administrative costs were prohibitive. The Queensland Government is reviewing its offsets policy. Any review of the offset policy should have regard to the Forestry Act 1959 and impacts on agricultural land. Offsets arrangements should, like other regulatory arrangements, be outcome focused as this provides flexibility to industry to address environmental outcomes in the most effective manner. To promote further flexibility, in addition to current options, offsets should also be able to be paid to an accredited offset provider or fund. Not only would this increase the range of options available to industry but, if paid into a fund, would allow government to pursue a wider range of potentially more comprehensive environmental programs. 54

60 Environmental Regulation Draft Recommendation 9 Offset arrangements be revised to focus on the achievement of environmental outcomes. 10 Greater flexibility be provided for CSG operators to meet offsets requirements, including through payments to an accredited offset provider or company specific fund. Cost savings It is not possible at this stage to estimate the costs savings to industry or to the government of the above recommendations relating to reform of Queensland Government offset arrangements as these are yet to be developed. 55

61 Water Regulation 6 WATER REGULATION The regulatory framework for CSG water is complex. CSG operators incur costs relating to: (c) understanding the different roles and responsibilities of agencies complying with multiple and sometimes duplicative regulatory processes and information requirements delays in obtaining approvals. There are also unnecessary costs to government in administering such arrangements including the costs of coordination and of processing the same or similar information in multiple reporting formats. There is significant scope to streamline and remove duplication in arrangements relating to public drinking water, waste water and for the assessment of bores affected by CSG water extraction. Consideration should also be given to consolidation of the regulation of CSG water into a single portfolio to enhance synergies between the various areas of government with expertise in CSG water regulation. 6.1 Introduction Background CSG production requires the extraction of water (CSG water) to allow the gas to be released. The quality of CSG water varies, however, it is generally rich in salts and other minerals. CSG operations invariably therefore require management and regulatory responses to protect the community and the environment from any adverse consequences of CSG water releases. Policy objective At its broadest level, the government's policy objective is to promote the development of the CSG industry while protecting the interests of the community and environmental values in relation to the treatment of water. Administrative arrangements and regulatory framework Administrative arrangements and regulatory frameworks have evolved over time. Key legislation is depicted in Figure 13, while the interrelationships between agencies are shown in Figure 14. The key agencies responsible for water related matters are: (c) DEWS which seeks to protect public health by regulating public drinking water EHP which seeks to protect the environment and manage impacts of the extraction of CSG water on springs and private bores NRM which is responsible for tenure management, water services and petroleum safety. 56

62 Water Regulation Figure 13: Matrix of water responsibilities Matrix of Responsibilities Petroleum & Gas (Production & Safety) Act 2004 Environmental Protection Act 1994 Water Supply (Safety & Reliability) Act 2008 Waste Reduction & Recycling Act 2011 Water Act 2000 Gasfields Commission Act 2013 Department of Environment & Heritage Protection Some relationship to Underground Water Rights through implementation of Chapter 3 of the Water Act 2000 Regulatory and compliance responsibilities in relation to: Environmental Authorities CSG Water Management Plans CSG Water Management Regulatory and compliance responsibilities in relation to: Beneficial Use Approvals Regulatory and compliance responsibilities in relation to: Baseline & Bore Assessments Underground Water Impact Reports Make Good Provisions Department of Natural Resources & Mines Regulatory and compliance responsibilities in relation to underground water rights. CSG CU has some involvement in this area through management of landholder/community inquiries CSG CU has some involvement in this area through management of landholder/community inquiries CSG CU has some involvement in this area through management of landholder/community inquiries although these are minimal in relation to the Water Supply (Safety & Reliability) Act 2008 CSG CU has some involvement in this area through management of landholder/community inquiries Compliance activities on behalf of EHP (generally field related) OGIA - Preparation of UWIR for CMA's (approval required by EHP) CSG CU - Inquiry Management Department of Energy & Water Supply Regulatory and compliance responsibilities in relation to: Recycled Water Management Plans Exclusion Decisions Gasfields Commission Review of Regulatory Framework and Agency Performance Review of Regulatory Framework and Agency Performance Review of Regulatory Framework and Agency Performance Review of Regulatory Framework and Agency Performance Review of Regulatory Framework and Agency Performance Legislative backing to: Facilitate better relationships Resolve Issues Develop educational material Review regulatory frameworks Source: QCA 57

63 Water Regulation Figure 14 : Agency relationships for water Governing Act Responsible Authority (including compliance where applicable) Compliance Activities by arrangemenuagreement Oversight and external review General I nvolvernent Source: QCA 58

64 Water Regulation 6.2 CSG water for drinking purposes Background Policy objective The policy objective of regulating CSG water that could potentially enter a drinking water supply is to ensure that water used for human consumption (drinking water) is safe.... CSG water will be regulated as recycled water. This is necessary to ensure the protection of public health and provide public assurance that public health is being protected (Second Reading speech for the Water and Other Legislation Amendment Bill). Regulation by DEWS DEWS regulates water quality to protect human health where it may enter a public drinking water supply pursuant to the Water Supply (Safety and Reliability) Act DEWS requires operators creating recycled water from a range of sources to prepare a recycled water management plan (RWMP). RWMPs are documented, risk based systems for managing risks associated with the production and supply of recycled water. The CSG industry is specifically identified in the Water Supply (Safety and Reliability) Act 2008 through Part 9A. A CSG operator is considered to be a recycled water provider if it owns infrastructure for the production and supply, or the supply only, of recycled water (defined to include CSG water). This requirement does not apply to other resource industries, such as coal mining activities, which may discharge saline water to watercourses. CSG recycled water schemes also have additional requirements placed upon them by the Act compared to other recycled water management schemes. These include: a demonstration of how risks associated with variations in the source water quality will be managed a provision of pre supply water quality data for the scheme (DEWS 2013). DEWS can grant an exclusion to these requirements where a CSG operator can demonstrate that the release would have no material impact on a public drinking water supply. This involves DEWS assessing, on a case by case basis, whether the release of recycled water will have a material impact on the drinking water supply of a drinking water service provider. Regulation by EHP EHP regulates water quality as part of its broader obligations to protect environmental values, including public health, in the EP Act EHP undertakes this through EAs required for CSG operations. An EA imposes conditions that relate to identified risks to environmental values, including protection of human health, in order to ensure these risks are appropriately managed. Figure 15 shows how both DEWS and EHP regulate CSG water that may enter a public drinking water source. 59

65 Water Regulation Figure 15: CSG water that may interact with drinking water Yes Desire to discharge CSG wa1er into a waller source used as a drinking water supply by a drinking water servoce Pf""'der Interim RWMP'sha~oe a maximum 12 month duration CSG Water details Details of recei\o\ng water supply Identification of U=c'::' hazards and Description of how rrpac1s wi U be managed Managerrent criteria and control poin1s Proposed monitoring RWMP ""'-! fur1her information requored DEWS Ukely irrpacls CSGWater detaols 1 nfrastructure details Recei\o\ng water details Treatment details EHP Applicaoton considerd by EJ-P CSG Water detai Is Reoei\o\ng en\o\ronment details Identification of potentially irrpacted En\o\ronrrental Values (inc 1-\Jman Health) Proposed management strategies Proposed management criteria Response actions shoukl criteria not be met No May be conditioned as required if subrritted RWMP is not sufficient to adequately manage potential irrpac1s and protect the drinking water supply ED Concitioned as requored epde-.elop conditions. and monitoring requirements Minimum discharge water quality Reoei\o\ng water conditions including flow rates and quality Ma>cim..m 1101umes and flow Monitoring requiremen1s to ensure protection or EVs 1 ncludes regular third party auditing requirerrenls ED Issued En\o\ronmental Authority Issued Includes regular third party auditing requi remenls Source: QCA 60

66 Water Regulation Stakeholder submissions Industry submitted that the CSG specific provisions in the Water Supply (Safety and Reliability) Act 2008 should be removed as CSG water is already sufficiently regulated under the EP Act 1994 to protect human health. For example:... proponents are required to develop a Recycled Water Management Plan, or obtain an 'exclusion decision' where there will be no material impact on the drinking water supply relating to any release of treated CSG water. Part 9A [of Chapter 3 of the Water Supply Act] is a duplication of pre existing approval requirements under the Environmental Protection Act 1994 (Qld), Environmental Protection (Water) Policy 2009 and specific environmental approval conditions, which are intended to avoid and minimise environmental harm and protect drinking water (APPEA 2013b). Industry also submitted that the additional regulatory requirements for CSG water were not related to risk. For example:... [c]oal seam gas water should not be classified as recycled water as it does not contain contaminants of concern that would normally be associated with recycled water. Moreover, water from the coal seams is widely utilised by various sectors and also for stock and domestic purposes (Arrow 2013b). Santos (2013b) noted that CSG water is treated differently to water of comparable quality from other sources. For example:... [t]he requirements of the WS Act do not apply to any other industry extracting or releasing water from coal seams other than the CSG industry. For example, the WS Act does not apply to the release of untreated mine water into the upper Fitzroy catchment by mining companies or the release of sewerage effluent into inland waterways by Local Governments. Concerns were also expressed about the compliance costs of water regulation under the Water Supply (Safety and Reliability) Act For example:... [the Water Supply Act] presents an unrealistic and inefficient compliance regime. The Coal Seam Gas Recycled Water Management Plan Guideline (which also includes guidelines for exclusion decision applications) issued by the Department of Energy and Water Supply (DEWS) sets out seventy two pages of issues to be addressed by project proponents (APPEA 2013b). Moreover, Santos (2013b) noted that the costs are in addition to the costs incurred for authorising the same activity under the EP Act Given these concerns, APPEA, Santos, Arrow, Origin, and QRC proposed that CSG water be treated like other water in terms of the regulatory framework. This would mean that the quality of CSG water would be regulated like other water discharges through EAs issued by EHP under the EP Act Arrow (2013b) submitted that:...[f]or coal seam gas water and treated water, the Environmental Authority should contain conditions that allow for the release of water in line with a standard appropriate for the receiving water source. This would remove regulatory burden for both Government and Industry and reduce costs. QCA analysis The QCA acknowledges that protection of the quality of public drinking water is of paramount importance, and cannot be compromised. Notwithstanding this, it is clear that the Water Supply (Safety and Reliability) Act 2008 administered by DEWS imposes specific and prescriptive requirements that apply to CSG water, that do not apply to water from other sources that is of comparable quality. 61

67 Water Regulation For example, under certain circumstances of water flow and quality, coal mines are authorised to discharge saline water to watercourses through applicable conditions in the EAs issued by EHP and are not subject to the Water Supply (Safety and Reliability) Act Moreover, it is not clear that CSG water presents a greater risk to the community such that it requires CSG specific regulations and regulatory processes. The final quality of the water is the key issue, irrespective of the source of that water. Given this, the QCA considers that CSG water that is released into a water source that may potentially be used for drinking water purposes should only be regulated through EAs under the EP Act 1994 and not also through Chapter 3 of the Water Supply (Safety and Reliability) Act Draft Recommendation 11 Part 9A of the Water Supply (Safety and Reliability) Act 2008 be repealed, and regulate and manage the release of CSG water that may enter a public drinking water source under the Environmental Protection Act Cost savings The additional regulatory requirements impose significant regulatory costs on industry. Santos (2013b) submitted that: The cost of applying for each of these exclusion decisions ranged from $100,000 to $150,000 in external consultant costs alone (including the cost of an extensive and costly water quality data collection program). The conditions attached to the exclusion decisions granted by the regulator also require the quality of the water to be monitored on an ongoing basis over the life of the proposed activities at an estimated cost in excess of $700,000 per annum. Santos estimates would imply cost savings to industry of between $2.8 and $3.4 million if achieved by all four operators. Both APPEA and Santos estimated the cost to government of CSG water regulation under Chapter 3 of the Water Supply (Safety and Reliability) Act 2008 at $1.2 million per annum. Industry's estimate of the cost saving to government are reasonable as the $1.2 million represents the one off budget funding for DEWS to regulate CSG water that may enter a public drinking water source in CSG water as a waste Background Policy objective CSG water extracted from coal seams is regulated so that EHP impacts on the environment are avoided and managed, and to ensure the water is used in a way that reflects its value as a resource. Wherever possible, CSG water should be used and managed in a way that is of benefit to the community, and reduces impacts on the environment (EHP 2012a). CSG water quality is regulated by EHP as part of its broader objective to protect environmental values that may be adversely affected by such activities (for example, habitat loss/degradation, water discharge, air emissions, noise emissions, waste management). 62

68 Water Regulation CSG water is considered a 'regulated waste' because it includes non toxic salts, including saline effluent. As a regulated waste, CSG water is required to be managed in accordance with certain stringent requirements, including for its treatment, transport and disposal. On 20 September 2013, the EP Regulation 2008 was amended to provide for suitable quality water to be classified as 'not a regulated waste'. 12 This amendment applies where CSG water has: a ph between 6 and 10.5 an electrical conductivity of less than 15,000 μs/cm. Accordingly, regulated waste requirements now only apply to CSG water that has a high salinity content. Irrespective of the CSG water quality, it is still captured as a waste by virtue of the EP Act 1994 definition, namely being a left over, or an unwanted by product, from an industrial, commercial, domestic or other activity. Whether the water is treated as a regulated or non regulated waste, it can be converted to, and managed as, an approved resource rather than a waste product. This can be achieved through a general BUA within specific water quality parameters. The general BUA potentially allows CSG water to be used for aquaculture, coal washing, dust suppression, industrial and manufacturing operations, irrigation and livestock watering. If CSG operators are unable to comply with a general approval, they may seek a specific BUA from EHP. However, EAs can also be used to achieve the same outcomes for approved uses of CSG water. Stakeholder submissions Industry submissions generally supported EHP's quality thresholds initiatives under the EP Regulation 2008, to exclude better quality CSG water from being managed as a regulated waste (Origin 2013b). However, Arrow (2013b) noted that in some cases a combination of the above approvals is required. This can create confusion, regulatory uncertainty, duplication and approvals with contradictory operating conditions. Instead, Arrow (2013b) proposed that reliance should be placed on the EA conditioning process: This approach could also be applied off tenure and allow for water to be transported, supplied, and used without the requirement for a beneficial use approval, or any other approvals, if the recognised water quality standard were met. QCA analysis Seeking some approvals through the EP Act 1994 and others through the Waste Reduction and Recycling Act 2011 seems unnecessarily complicated. The primary reason for seeking approval to use CSG water as a resource through an EA is so that another often lengthy specific BUA assessment process is not required under the Waste Reduction and Recycling Act This would suggest that EAs were more suitable to this task. 12 Schedule 7 of the Environmental Protection Regulation

69 Water Regulation It is understood however that EHP, industry, rural stakeholders and the GasFields Commission are seeking to define standards for beneficial use of CSG water for irrigation purposes (GasFields Commission Queensland 2013). Recourse to known standards and arrangements will provide benefits. Until resolved, operators should have flexibility in this regard. However, there should be no lessening of any regulatory requirements concerning the use of CSG water until the review of the BUA assessment processes is finalised. Draft Recommendation 12 CSG operators be provided with flexibility in how to satisfy the regulatory requirements relating to the use of CSG water, pending the outcomes of the review of beneficial use approval assessment processes. Cost savings The cost saving to industry and government is likely to be small as the QCA understands that only one full time equivalent staff is involved in BUAs under the Waste Reduction and Recycling Act Waste tracking certificates Background Policy objective The objective of waste tracking:... is to ensure [that EHP] has the information it needs to manage the environmental risks from the waste (Queensland Government 2013b). In particular, waste tracking provides a means for agencies to monitor the handling and disposal of waste. EHP The Environmental Protection (Waste Management) Regulation 2000 requires EHP to enforce the tracking of certain waste from its source to the place of storage, recycling, treatment or disposal by CSG operators. This is a paper based system based on waste tracking certificates. Waste transport certificates are purchased from EHP in books of 50 and these are the basis for the compliance, monitoring, and assessment process. As waste generators, CSG operators must submit waste tracking certificates to EHP within seven days of the disposal of waste, or the transportation of trackable waste from one site to another. The administrative compliance requirements with the current paper based system are complex and outlined in Figure

70 Water Regulation Figure 16: Waste transport certificate process Source: (EHP 2013c). Stakeholder submissions The need to constantly submit waste tracking certificates for most wells that are drilled causes delays to CSG projects due to having to wait for approvals and does not provide EHP with meaningful information (Santos 2013b). Santos also submitted that CSG waste tracking compliance should be undertaken on an electronic basis to remove the requirement to prepare paper submissions of waste transport certificates. QCA analysis It is evident that the tracking system is not an effective way to achieve government's objectives. In particular, the paper based system creates unnecessary work, which consumes considerable time and effort of both EHP and CSG operators. A dual system of paper and electronic tracking would incur unnecessary costs. EHP is leading a review to streamline the system of waste tracking, with an electronic waste tracking system, intended for completion in The review intends to provide on line access for industry, improved data quality for EHP and enhanced compliance monitoring. The QCA therefore endorses EHP's initiative to develop an electronic waste tracking system and seeks for this to be implemented no later than 30 June Draft Recommendation 13 EHP expedite the development of an electronic waste tracking system for CSG water by no later than 30 June 2014, to reduce time delays in the compliance process. 65

71 Water Regulation Cost savings Santos (2013b) estimated that savings for Santos from such an initiative would be approximately $50,000 per annum. The estimated savings to the industry are $200,000 per annum (reflecting savings extended to the four major CSG operators). Additionally, Santos estimated that they submit approximately 150 notifications per year with one to two hours spent in checking and verifying paper submissions. This means that electronic waste tracking certificates could save up to 19 days per annum or $5.6 million using QCA's estimates of average daily delay costs. Santos also estimated savings to government would be $100,000 per annum. 6.5 Data requirements Background EHP, NRM and OGIA have separate data requirements for compliance and other reporting purposes and databases that contain CSG related water information. For example, there are numerous reporting obligations that relate to the management of CSG water under the P&G Act 2004, Water Act 2000 and the EP Act This is in addition to Commonwealth reporting requirements under the EPBC Act Stakeholder submissions Origin (2013b) submitted that: [c]urrently companies must report to three agencies, [EHP], DEWS and SEWPAC [the Commonwealth environmental regulatory] on water and exploration drilling and/or fraccing... we question the need for [for reporting to] three separate agencies in three different formats. QCA analysis The various reporting obligations encompass diverse information requirements, some of which are overlapping, but some of which are differing. The maintenance of separate databases containing CSG specific or broader petroleum information that are not adequately interfaced or consolidated further creates the potential for duplication of compliance and reporting requirements. There are various initiatives within government to upgrade database capabilities and improve linkages between these systems. These include the NRM initiative MyMinesOnline which seeks to modernise resource tenure administration and EHP initiatives potentially to harness this system. NRM is also undertaking a full review of its groundwater data needs. There would be material benefits for industry and government in also consolidating the various databases and by removing the need for providing the same or similar information in multiple formats. A single information template should be agreed between relevant agencies for completion by operators. 66

72 Water Regulation Draft Recommendation 14 EHP, NRM and OGIA rationalise compliance and reporting of CSG activities to: consolidate their databases prepare a single information template for completion by operators. Cost savings It has not been possible to develop estimates of cost savings for industry or government as the extent of opportunities for rationalisation is yet to be ascertained. Nevertheless, reductions in administrative and reporting requirements should be of benefit to both parties. 6.6 Baseline assessment plans Background Policy objective The policy objective of baseline assessment plans (BAPs) is to enable an assessment of the impact of CSG extraction activities on private bores. The information collected in baseline assessments will establish benchmark data prior to any impact of the petroleum tenure holder exercising its underground water rights (EHP 2011). EHP Chapter 3 of the Water Act 2000 provides for CSG tenure holders to prepare BAPs for initial monitoring and data collection relating to private bores within 2 kilometres of production testing in the tenure area. These BAPs must be prepared to allow for baseline assessments of individual bores to occur prior to the commencement of production if the bore is within 2 kilometres of production activities. A timetable for baseline assessment of all remaining bores on the tenure must also be prepared. For existing CSG operations that have already commenced production the BAP is required to outline when all existing water bores in the tenure area will have a baseline assessment completed. A BAP therefore provides a program for conducting baseline assessments for bores that are located on a petroleum tenure. An Underground Water Impact Report (UWIR) includes a program for conducting baseline assessments for bores that are not on a petroleum tenure but within the long term affected area (as identified in the UWIR). Stakeholder submissions Origin (2013b) noted that these provisions capture projects which have been in production for a substantial period of time (possibly decades) and which produce very little water. An example is a BAP that requires surveys for in excess of 230 landholder bores, for leases with an approximate associated water production of only 8 ML/annum. Each landholder bore costs approximately $5000 to complete. Moreover, Origin considers that the legislation has been interpreted to require that the BAPs need to be updated for new information on bores impacts and for every new existing bore that is identified. Inaccurate or old data relating to existing bores in the area can then subsequently create unnecessary compliance requirements. 67

73 Water Regulation QCA analysis Better targeting The requirement to prepare BAPs and conduct baseline assessments on existing water bores seeks to balance the needs of landholders and the CSG industry. The requirements of the Water Act 2000 mean that in some instances, BAPs and baseline assessments are required where production testing is very minimal, and unlikely to have any impact on a private water bore. These requirements exist despite the level of production or production testing which is to be carried out. To automatically require that a BAP is prepared to provide for baseline assessments to be conducted for every bore on a tenure is not responsive to the genuine risks of an activity. The Water Act 2000 should be amended to reconsider triggers that more accurately contemplate the risk of impacts on private bores. The risks should be defined by reference to relevant matters including the extent of production testing, the size of the potentially affected area and in consultation with landholders. Updating BAPs for new information EHP interprets the legislation to require a BAP to be updated when details for bores are found to be incorrect or if new information is available (including where new pre existing bores are identified). For pre existing bores the available data can, in some instances, be many decades old. Accurate determination of the location of an existing bore, its construction details and identification of the aquifer from which it extracts water can be difficult. Given the issues regarding accuracy of available data and the discussion above regarding better targeting for BAPs and baseline assessments, it would seem beneficial for BAPs to identify areas in which baseline assessments are required for all existing water bores and when these baseline assessments are required. While the BAP may identify all known bores within this area, it should not require modification if bore details are found to be incorrect or new bores are identified within the area specified in the BAP. The BAP is simply a plan of when baseline assessments will be completed it is the conducting the baseline assessments itself that is the important issue. Stakeholders are notified if baseline assessments are being conducted and the baseline assessments themselves are provided to stakeholders and OGIA. Given there is a process for provision of the data from baseline assessments to both stakeholders and OGIA, it would seem an unnecessary administrative burden to update the BAP (which is just a plan of when baseline assessments are to occur) each time an additional existing bore is found or details of an existing bore identified in the BAP are found to be incorrect. An exception could occur where a (newly defined) risk trigger required a complete review of the BAP. Conducting baseline assessments in an area and provision of this information to government and OGIA will also assist in cleansing and verifying the data available in relation to water bores. 68

74 Water Regulation Draft Recommendation 15 The Water Act 2000 be amended to define triggers for requiring baseline assessments on petroleum tenures, and the preparation of a baseline assessment plan to reflect the risk of impacts on private bores. 16 Amendment of baseline assessment plans not be required if new information on pre existing bores is identified as a result of conducting baseline assessments. Cost savings The potential gain to industry is estimated by Origin (2013b) at $5,000 per bore for each baseline assessment not required as a result of the better risk based targeting approach. The saving to industry as the number of reduced baseline assessments and amendments to the Baseline Assessment Plan is difficult to estimate. Removing the need for government to update BAPs for new information has the potential to save government $100,000 $150,000 per annum. This assumes that at least one equivalent person is allocated to this function. 6.7 Well and bore construction Background Policy objective Well standards are required to ensure well integrity is maintained, thereby promoting better safety outcomes and protection of groundwater resources. NRM CSG wells are regulated under the P&G Act 2004 framework where it is noted that: [w]ell integrity during construction, operation and abandonment is fundamental to ensuring sustainable gas production and is also critical to ensure safety outcomes and the protection of groundwater resources (DEEDI 2011). Water bores are regulated under the Water Act 2000, where it is noted that: [t]he requirements focus on protecting groundwater resources from constructed bores, and on the construction of bores to provide a good water supply (National Water Commission 2012). Stakeholder submissions Origin (2013) submitted that wells and bores drilled under the P&G Act 2004 must comply with technical requirements in the Code of Practice of the Constructing and Abandoning CSG wells in Queensland (the Code). Origin noted these requirements differ from the requirements for the construction of water bores in accordance with the Water Act Origin also submitted that bores drawing water from aquifers other than the target coal seam (as opposed to CSG wells in the coal seam itself) constructed under the P&G Act 2004 cannot supply water to landowners while the bores are still owned by the tenure holder. This means 'that water from the Petroleum and Gas Act authorised water bores cannot be provided to landowners for any purpose including stock, domestic use and fire fighting' (Origin 2013b). 69

75 Water Regulation QCA analysis Bore and well construction requirements The Code is under review by NRM. The purpose of the review is to reduce the regulatory burden of drilling a water bore and streamline the conversion of CSG wells to water bores and construction of water bores. Harmonisation of the minimum construction standards for water bores would reduce compliance costs. In particular, the Code should enable bores/wells drilled to the Code to be converted to Water Act 2000 bores (that is, to be deemed to comply with the Water Act 2000 requirements). Bore and well usage There are concerns that the P&G Act 2004 prohibits the supply of water to a landowner while the bores are still owned by the tenure holder. There are also concerns that this Act prevents water from being accessed for emergency purposes. However, there is a provision for supply of water to landowners in accordance with the water licensing framework under the Water Act Further, the emergency provision of water (for instance for fire fighting purposes) is permitted in accordance with S. 20 (2) in the Water Act Draft Recommendation 17 Construction standards for water bores and wells constructed under the Petroleum and Gas (Production and Safety) Act 2004 and Water Act 2000 be harmonised. Cost savings The cost savings to industry from the harmonisation of construction standards are estimated to be in the order of $10,000 to $30,000 per water bore. Net savings will depend on the scale of the differing construction requirements and the need to use different materials depending on the purpose of the well or bore. Savings also will vary depending on the depths and geology of each bore/well across the area of CSG activities as well as the final standards/requirements specified by government. The potential cost savings to Government could be as much as $100,000 to $150,000 per annum with at least one person within agencies no longer undertaking unnecessary activities. 6.8 Consolidation of CSG water responsibilities As noted above, there are several agencies with responsibility for achieving the Government's policy objectives for the management of CSG water. For instance: (c) EHP is responsible for CSG waste water, waste tracking and base line assessment plans both EHP and NRM are responsible for CSG water data collection and bores and wells respectively DEWS is responsible for CSG waste water where it may enter a public drinking source. There are also other regulatory functions which impact on the regulation of CSG water. 70

76 Water Regulation OGIA OGIA is an independent agency located within NRM that assesses future impacts on groundwater from petroleum activities in an area where multiple CSG operators may impact on a common groundwater resource (that is, a declared cumulative management area (CMA)). OGIA was created by the Water Act 2000 (Chapter 3A). It prepares UWIRs for the declared Surat CMA which includes the Surat and Southern Bowen basins and the Condamine Alluvium. UWIRs identify the potential future impacts of CSG water extraction on water levels and pressures within aquifers and are essentially technical reports requiring specialist expertise. EHP assesses and approves UWIRs prepared by OGIA as EHP is the responsible agency for administering Chapter 3 of the Water Act EHP also assesses and conditions other UWIRs. For petroleum tenures that are not located within a CMA, the tenure holder is required to prepare the UWIR. CSGCU The CSG Compliance Unit (CSGCU) is located within NRM and operates with two distinct teams, namely: a Groundwater Investigation and Assessment Team (GIAT) specific responsibilities include: groundwater investigations of potentially impaired bores; implementation and reporting on the government's independent 300 bore monitoring program; and auditing of water monitoring bore construction and water sampling procedures a Community Engagement Team specific responsibilities include a contact point for stakeholder complaints about CSG activities as part of its broader role to inform, educate and listen to landholder and community concerns. QCA Analysis The responsibilities for CSG water are divided between three portfolios EHP, NRM (where OGIA is located) and DEWS. The QCA has recommended that DEWS' regulation of CSG water where it may enter a public drinking water source be removed. However, there remains a range of inter related CSG regulatory functions for water that span across EHP, NRM and OGIA (see Figure 17). 71

77 Water Regulation Figure 17: Interactions between EHP, NRM and OGIA Source: QCA There is merit in rationalising administrative arrangements for water regulation by consolidating CSG water regulation within a single agency. This has the potential to achieve synergies and cost savings between the various CSG water related functions. For example: (c) EHP is responsible for water quality while NRM is responsible for water quantity but both matters impact on the environment the GIAT has technical capabilities to support both the monitoring of CSG operations on bores (currently the responsibility of EHP) and groundwater planning (currently the responsibility of NRM) OGIA provides advice to EHP in relation to assessment of UWIRs prepared by individual tenure holders outside of a CMA, but also provides advice to NRM on water and resource planning and groundwater matters. The designation of a single regulatory agency with responsibilities for managing and coordinating all water related matters in the medium term would simplify the way in which industry interacts with Government on these issues. It should also bolster community confidence in CSG water regulation as regulatory accountability would reside in a single portfolio. However, as an immediate measure, there is no evident reason from an administrative perspective why one government agency (EHP) needs to approve the technical reports of 72