Australia has one of the best legal and regulatory regimes in the world for carbon capture and storage (CCS). However, CCS developments in Australia are significantly lagging the progress seen in the US and Western Europe, largely due to the absence of adequate incentives, as well as uncertainty around emissions reductions requirements post-2030.

Within Asia Pacific there is also a subtle race to develop storage hubs, as countries, such as Singapore, South Korea and Japan, seek to export their emissions for storage overseas, due to limited capacity at home. State-backed energy companies, along with their respective governments in Southeast Asian nations, specifically Petronas in Malaysia and Pertamina in Indonesia, have been quick to spot potential business opportunities. Australia has too, although perhaps with less fanfare, as the government is more detached from Australia's major oil and gas companies, such as publicly listed Woodside Energy and Santos, that are also angling for this emerging business. 

More incentives needed for CCS in Australia

Still, there is no doubt that Australia needs to do much more to encourage CCS. Data from the International Energy Agency (IEA) shows that growth in Australia's greenhouse gas (GHG) emissions exceeds global and regional rates.

 

Despite a relatively small population, Australia is responsible for around 4.8% of global emissions, or around 1.7 billion tonnes per year, when emissions from Australia's gas and coal exports are considered. 

The Australian government has committed to net zero by 2050. Put simply, net zero refers to the balance between the amount of greenhouse gas (GHG) that is produced and the amount that is removed from the atmosphere. It can be achieved through a combination of emission reduction and emission removal.

So far, the government has put the onus on Australia's big emitters to slash emissions with its Safeguard Mechanism Policy. It sets legislated limits—known as baselines—on the greenhouse gas emissions of Australia's largest industrial facilities. These emissions caps will decline, predictably and gradually, on a trajectory consistent with achieving Australia's emission reduction targets of 43% below 2005 levels by 2030 and net zero by 2050. As a result, it is clear emissions will need to continue falling post-2030, although the government has yet to set specific rates for emitters. 

The Safeguard Mechanism requires all new gas developments to be net zero, which effectively means that CCS is mandatory for any new LNG developments in Australia, such as Woodside Energy's proposed Browse LNG scheme. 

CCS key tool in Australia's decarbonisation 

Needless to say, CCS will be a key tool in Australia's decarbonisation push. However, if the implementation of the CCS industry sits only with the business community, it will be hard to gain more momentum. Moreover, some proponents in the energy transition, who prefer to promote other technologies, such as renewable energies, combined with anti-fossil fuel activists and their use of lawfare, make it harder for CCS to get the necessary business and investment support in Australia, especially when CCS is perceived as just prolonging oil and gas production. Rather than cleaning up oil and gas production. 

Indeed, there is a good argument that the Australian government is missing a giant opportunity to decarbonise if it largely focuses on developing renewable energy and misses the opportunity to promote and develop CCS. 

In a recent report, consultancy Wood Mackenzie, said flaring reduction, methane detection and repair, electrification of operations, and the deployment of carbon capture, utilisation and storage (CCUS) had all helped to drive down emissions intensity in the global upstream oil and gas business. 

Still, oil and gas giants in Australia, particularly Santos, Inpex, Chevron, Woodside Energy and ExxonMobil, remain the driving force behind the country's emerging CCS and CCUS industries. Chevron's controversial Gorgon CCS project – the world's largest dedicated storage facility - led the way, but is often, perhaps unfairly, dubbed a failure by opponents of the technology. Gorgon is not running at its targeted capture capacity of 4 million tonnes per year (t/y) of CO2, but it is currently permanently storing 1.6 million t/y and Chevron is working hard to hit design capacity over the next two years. Moreover, in excess of 9 million tonnes of CO2 have been stored since 2019 when the facility commenced operations – a significant achievement despite the challenges and naysayers – which otherwise would have ended up in the atmosphere. 

 

Meanwhile, Santos' Moomba CCS project, which will rival Gorgon's current capture rates, is due online this year. Moomba in South Australia is designed to store up to 1.7 million t/y of CO2.

However, it is worth noting that not everyone is enthusiastic about the potential of CCS to help industry decarbonise. Analysts at the Institute for Energy Economics and Financial Analysis (IEEFA), whose stated mission is to accelerate the transition to a diverse, sustainable, and profitable energy economy, believe "CCS is a fig-leaf for the oil and gas industry to develop more fossil fuel projects that will result in a large net increase in emissions pumped into the atmosphere." 

The organisation, which appears largely against new fossil fuels developments, highlights that there must be a crossover between the amount of carbon stored and the emissions generated, as well as energy consumed from the work required to capture, compress, transport, plus reinject and store the carbon. Importantly, IEEFA said there needs to be more transparency and disclosure around emissions and energy used during the CCS process.

Data from IEEFA also underscores the underperformance of Gorgon CCS, where operator Chevron had committed to bury 80% of the CO2 removed from the Gorgon gas field under its EPA rules. This underperformance has provided plenty of ammunition for anti-CCS advocates in recent years. 

Australia scores highest in CCS regulatory index

Positively, Australia ranks highest in the Global CCS Institutes legal and regulatory indicator 2023. The index scores countries on the existence of effective regulations in respect to the CCS value chain, rather than on policy incentives to develop CCS.

"The regulations in place in Australia to allow the utilisation of pore space for CO2 storage are very strong. The Greenhouse Gas Storage Act provides the necessary processes and approvals," said Alex Zapantis, general manager external affairs, at the Global CCS Institute.

"There is a very clear regulatory process that enables the issuance of acreage and for exploration, it's done in a similar way as how it's done for oil and gas. The regulations also cover potential conflicts of interests, as well as describe how liabilities are managed in the long term" Zapantis told Energy News Bulletin (ENB).

Woodside Energy's head of CCS, Cameron Remeljej, told ENB that "Australia has an existing and robust regulatory regime, which includes requirements around performance of both capture and storage technology, and the location of the storage itself, however modernisation of these regulatory frameworks to support the scale up of CCS is essential." 

"We welcomed the Federal Government's recent announcement to review and deliver regulatory reform. This would provide industry with the clarity and streamlined approval timeframes to allow for security of investment in CCS projects," added Remeljej.

 

 

Powerful commercial incentives needed for CCS

Conversely, unlike the US and Western Europe, Australia performs poorly when it comes to incentivising CCS investments. Industry executives that ENB spoke to at the major oil and gas operators in Australia agreed they need more incentives, as well as higher carbon prices, and storage demand from third parties, to encourage more CCS developments. Importantly, encouraging large storage hubs would help build scale and cut costs, leading to greater decarbonisation. 

"In most of the world, not just Australia, the business case for investing in CCS is not strong enough to drive the deployment necessary to meet emissions reduction targets. The business case is getting stronger but it's not there yet," said Zapantis.

"In Australia, we need stronger policies to drive investment. The Safeguard Mechanism is part of that as companies are required to emit less. And with the price of carbon offsets going up, as well as offsets becoming less available in future, it will not take long before CCS becomes a lower cost option for emitters. Moreover, although we do not know the emissions reductions requirements post-2030, we know they will become more stringent, which makes CCS increasingly important," he added.

However, "if Australia is really going to drive CCS, so that it contributes in a meaningful way to our emissions reductions targets, and deliver those reductions to Australia at the lowest overall cost, there needs to be policies that brings forward investments in CCS, so the option is available when we need to deploy it," warned Zapantis.

CCS leaders

In the US and Western Europe there is a strong business case to invest in CCS. North America remains the world leader in CCS deployment following substantial policy enhancements, particularly the game-changing US Inflation Reduction Act (IRA). 

The US is leading the global CCS landscape with the largest number of CCS facilities operating, in construction, and in development. Several projects have cited the Inflation Reduction Act (IRA), which offers tax credits of US$85/tCO2, as a driving force in accelerating their launch. The US 2021 Bipartisan Infrastructure Law (BIL) also provides US$8.5 billion in supplemental funding for CCS between 2022 and 2026. Analysis suggests the IRA could boost the deployment of carbon capture in the US by as much as 13-fold by 2030, said the Global CCS Institute in its annual report for 2023. 

CCS is also starting to thrive in Western Europe, particularly in the North Sea. The European Commission has initiated several new legislative proposals, and billions of Euros have been made available to help fund CCS projects. Moreover, the ETS price hit a new high of EUR100/tCO2 in February 2023, which helped improve the business case for CCS in some sectors. Although, the outlook for carbon prices is more bearish going forward. S&P Global forecasts 2024 prices at EUR65-95.50/tCO2. 

Notably, Equinor, Shell and TotalEnergies are investing in the Northern Lights project in Norway. When it starts operating this year it will be the world's first open-source CO2 transport and storage infrastructure.

Australia CCS potential

Significantly, Australia is in a very advantaged position if it can introduce the right policies and incentives, given its fantastic subsurface, large land mass, as well as existing infrastructure, which would benefit CCS development in the country.

There are also opportunities to use CCS as part of a strategy to cut emissions from LNG export projects or eliminate the need to buy carbon offsets and safeguard mechanism credits. 

In the long run, CCS has a broader solution than just oil and gas and could provide an emissions solution for a range of industries, Woodside's Remeljej, told ENB. 

Australia could also help the wider APAC region decarbonise by providing storage services and low-carbon fuels, such as hydrogen, developed in tandem with CCS.

Remeljej added "Australia has an opportunity to play a role in this emerging market, supporting the broader Asia Pacific region in creating an international offshore carbon storage industry."

Remeljej welcomed the Federal Government's recent passing of the Environment Protection (Sea Dumping) Amendment Bill, which was an important step forward in enabling the import of CO2 for CCS projects. 

Still, for now, it remains to be seen, if Australia can realise its CCS potential. Moreover, investment in CCS is nowhere near the pace needed to hit net zero ambitions.