Clean Energy Finance Corporation Amendment (Carbon Capture and Storage) Bill 2017

Bills Digest No. 36, 2017-18

PDF version [713KB]

Sophie Power
Science, Technology, Environment and Resources Section

14 September 2017

Contents

The Bills Digest at a glance

Purpose of the Bill

Background

What is the Clean Energy Finance Corporation?

What is carbon capture and storage technology?

CCS around the world

CCS in Australia

Committee consideration

Selection of Bills Committee

Senate Standing Committee for the Scrutiny of Bills

Policy position of non-government parties/independents

Position of major interest groups

Business and industry groups

Conservation organisations

Other stakeholders

CEFC

Financial implications

Statement of Compatibility with Human Rights

Parliamentary Joint Committee on Human Rights

Key issues and provisions

What can the CEFC currently invest in?

Key provisions

Would this enable to the CEFC to invest in CCS?

Low emissions technology guidelines

CEFC investment mandate

The role of CCS in reducing greenhouse gas emissions

Objectives of the CEFC: should the CEFC invest in CCS?

Date introduced:  31 May 2017
House:  House of Representatives
Portfolio:  Environment and Energy
Commencement: The day after Royal Assent
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s homepage, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at September 2017.

The Bills Digest at a glance

Purpose of the Bill

  • The Bill proposes to amend the Clean Energy Finance Corporation Act 2012 (CEFC Act) to remove a prohibition on the Clean Energy Finance Corporation (CEFC) investing in carbon capture and storage (CCS) technologies.

What is the Clean Energy Finance Corporation?

  • The Clean Energy Finance Corporation (CEFC) is a Commonwealth statutory authority established in 2012 to manage a $10 billion fund which co-finances and invests in renewable energy, low-emission and energy efficiency projects. Plans to abolish the CEFC following the change of government in 2013, which were rejected by the Senate, have since been shelved.

What is carbon capture and storage?

  • Carbon capture and storage (CCS) is the capture, transport and storage of carbon dioxide (CO2) from processes that emit significant quantities of the gas, such as coal- and gas-fired power stations or other industrial processes such as natural gas production, cement manufacturing, steel processing and oil refining.
  • Both the International Energy Agency and the Intergovernmental Panel on Climate Change have recognised that CCS may have a role to play in reducing greenhouse gas emissions. In particular, CCS has a range of applications, not just in the power generation sector, and may be an important technology in other industrial processes for which there are few other alternatives for reducing emissions.

What do people think?

  • Some stakeholders, including industry groups such as the Minerals Council of Australia, have welcomed the Bill as it would allow the CEFC to take a more technology-neutral approach to reducing greenhouse gas emissions, as well as help overcome financial obstacles for some CCS projects.
  • Other stakeholders, particularly conservation organisations, are opposed to the Bill on the basis that allowing the CEFC to finance CCS would not be consistent with its original purpose, particularly if it were to fund CCS associated with coal fired power generation. A related concern was that CEFC funds could be diverted from renewable energy projects.
  • Others, such as the Australia Institute, have suggested that CCS technologies have already received considerable amounts of government funding, with little result in terms of reduced greenhouse gas emissions or operational CCS projects.
  • A key issue is whether the CEFC is an appropriate vehicle to fund CCS projects and whether CCS projects would in any case meet the CEFC’s commercial requirements, including the benchmark rates of return required by the CEFC’s current investment mandate.

Purpose of the Bill

The purpose of the Clean Energy Finance Corporation Amendment (Carbon Capture and Storage) Bill 2017 (the Bill) is to amend the Clean Energy Finance Corporation Act 2012 (CEFC Act) to remove the prohibition on the Clean Energy Finance Corporation (CEFC) investing in carbon capture and storage (CCS) technologies.

Background

What is the Clean Energy Finance Corporation?

The Clean Energy Finance Corporation (CEFC) is a Commonwealth statutory authority established in 2012 under the CEFC Act.[1] The object of the CEFC Act and the CEFC is to facilitate increased flows of finance into the clean energy sector.[2] The CEFC manages a $10 billion fund which co-finances and invests in clean energy technologies, that is, renewable energy, low‑emission and energy efficiency technologies.[3] The CEFC was originally intended to supplement the former carbon pricing mechanism.[4]

The CEFC Board has statutory responsibility for decision-making and managing the CEFC's investments. The CEFC Act requires investments by the CEFC to be ‘complying investments’, which are investments that are in ‘clean energy technologies’; solely or mainly Australian-based; and not in a prohibited technology.[5]

While the Board operates and makes its investment decisions independently of government, the CEFC must also comply with an investment mandate,[6] which is issued by the responsible Ministers[7] to give guidance to the CEFC. The investment mandate must not be inconsistent with the CEFC Act and must not require the CEFC Board to make any particular investment.[8]

The Coalition Government has attempted to abolish the CEFC several times since 2013, but two abolition Bills were rejected by the Senate, while a third abolition Bill lapsed in April 2016.[9] The plan to abolish the CEFC has since been abandoned. Instead, the Government has issued new investment mandates to the CEFC, directing the CEFC to focus on emerging and innovative renewable energy technologies and energy efficiency, such as large‑scale solar, storage, offshore wind and energy efficiency in the built environment.[10]

In addition, in March 2016, the Government announced the creation of a new Clean Energy Innovation Fund (CEIF) which was initially allocated $100 million annually for ten years, funded out of the CEFC’s $10 billion allocation. The CEFC makes final approval decisions in relation to the CEIF, which is operated in consultation with the Australian Renewable Energy (ARENA).[11] The CEIF provides loans to businesses rather than grants, and ‘targets technologies and businesses that have passed beyond the research and development stage, but are not yet established or of sufficient maturity, size or otherwise commercially ready to attract sufficient private sector capital’.[12] The funding available specifically for the CEIF has since been reduced to $200 million in total, apparently to ‘avoid an unintended increase in overall public resources available to ARENA’.[13]

The Government has also directed the CEFC to make up to $1 billion of investment finance over ten years available each to a Sustainable Cities Investment Program[14] and a Reef Funding Program.[15]

What is carbon capture and storage technology?

Carbon capture and storage (CCS) is the capture, transport and storage of carbon dioxide (CO2) from industrial processes, such as coal- and gas-fired power generation or processes such as cement manufacturing, steel processing and oil refining. CCS involves three distinct stages: capture of CO2, transport to a storage site and injection and long-term storage of the gas underground. CCS can be potentially incorporated into new facilities or retrofitted to existing plants.[16]

The key aim is to prevent large amounts of CO2 from being released into the atmosphere and hence to reduce greenhouse gas emissions which contribute to climate change.[17] The potential role of CCS in reducing greenhouse emissions and meeting international climate commitments has been acknowledged by both the International Energy Agency (IEA)[18] and Intergovernmental Panel on Climate Change (IPCC).[19]

However, the Climate Change Authority (an independent statutory authority which provides advice to the Australian Government) considers that ‘while the individual aspects of the CCS chain have been proven to be technologically feasible, there are few demonstration projects around the world and it has yet to be proven commercially’.[20] In addition, while CCS can reduce emissions by 85 per cent or more, the process of capturing CO2 emissions also both increases the cost and reduces efficiency of power generation:

CCS increases the cost of electricity from fossil fuel generation, due to the additional equipment and operational cost involved, and because it requires a significant amount of power to run, reducing the available output from the generator.[21]

Nevertheless, CCS may still have a role to play in reducing greenhouse gas emissions:

In the future, using CCS in conjunction with bio-energy (BECCS) could enable the drawdown and storage of emissions already in the atmosphere (a ‘negative emissions technology’), which could support efforts to limit warming to 1.5 degrees. CCS could also help reduce emissions from industrial processes, such as in the production of cement, iron and steel.[22]

Note that in some instances, CO2 may be captured and put to some other use, rather than long term storage underground.[23] For example, in the Netherlands, CO2 from a refinery is captured, transported and used in nearby greenhouses.[24] However, this appears to be unusual, with most CCS involving some form of storage in geological formations.

CCS around the world

There are currently 17 large-scale CCS projects operating globally across a range of applications, including coal‑fired power generation and steel manufacturing.[25] Many of these are in North America, and most involve using the captured CO2 for enhanced oil recovery (whereby captured CO2 is injected into oil reservoirs to enhance oil recovery), rather than dedicated geological storage.[26] Only two coal-fired power stations with CCS are currently operational: Boundary Dam in Canada and Petra Nova in the United States (and both involve enhanced oil recovery).[27] Other operational projects apply CCS to industrial processes, including natural gas processing and fertiliser production.[28]

CCS in Australia

In Australia, CCS has received funding support from the Commonwealth government since at least 2003. The Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC) was established in 2003, as part of the Australian Government Cooperative Research Centres (CRC) program, to investigate CCS technologies and options for Australia.[29] Other past Commonwealth funding programs include the former Low Emissions Technology Demonstration Fund (established in 2005);[30] and the CCS Flagships program, established in 2009 to support large-scale CCS projects in Australia.[31]

More recently, in 2015, the Commonwealth Government announced a new $25 million CCS Research Development and Demonstration Fund.[32] In August 2016, the Australian Government announced grants of $23.7 million to seven applicants under this fund.[33]

According to the Minister for the Environment and Energy Josh Frydenberg, more than $590 million in government financial support has been provided to CCS projects since 2009.[34]

Examples of CCS projects currently under development or in operation in Australia include:[35]

  • the Gorgon Carbon Dioxide Injection Project, currently under construction in Western Australia by Chevron Australia. The Gorgon Project involves the development of two gas fields and the Injection Project proposes to separate CO2 from the natural gas stream prior to gas processing and inject up to four million tonnes of CO2 each year into a deep reservoir for underground storage.[36] This CO2 does not come from combustion, but exists naturally as part the extracted gas. Usually, CO2 contained in reservoir gas is vented to the atmosphere, so this deep injection represents a foregone emission. The gas processing plant is in the final stages of commissioning and CO2 injection is expected to commence shortly[37]
  • the CO2CRC Otway research facility, a demonstration project in Victoria capturing CO2 from a gas field. The CO2 is then piped to a depleted gas field and a saline aquifer for storage[38]
  • the South West Hub in Western Australia, which has been evaluating the feasibility of a geological formation south of Perth as a deep underground CO2 storage site.[39] The project was selected in 2011 to receive federal government funding under the (now closed) CCS Flagships program[40]
  • the CarbonNet Project, which is investigating the potential for establishing a commercial scale CCS network in the Latrobe Valley that would involve multiple CCS projects transporting CO2 via a shared pipeline and injecting it into deep offshore underground storage sites in Gippsland[41]
  • the Surat Basin CCS Project, operated by a subsidiary of Glencore. The Project is still in feasibility stage, but aims to demonstrate the viability of CCS in the Surat Basin of Queensland, and will involve the injection and monitoring of CO2 from nearby coal fired power stations.[42] In August 2016, this project received a grant of nearly $9 million under the CCS Research Development and Demonstration Fund.[43]

Discontinued Australian CCS projects include the Callide Oxyfuel Project in Queensland, a demonstration project in which CCS technology was fitted to an existing coal-fired power station. The project closed in March 2015.[44]

Committee consideration

Selection of Bills Committee

The Senate Selection of Bills Committee has deferred its consideration of whether the Bill should be referred to any committees for inquiry.[45]

Senate Standing Committee for the Scrutiny of Bills

The Senate Scrutiny of Bills Committee had no comment on the Bill.[46]

Policy position of non-government parties/independents

The Australian Labor Party (Labor) is opposed to the Bill. Labor has indicated that it is not opposed to CCS, but rather ‘has been a strong supporter of carbon capture technology for many years’.[47] However, when changes to allow the CEFC to invest in CCS were first flagged by the Government in February this year, Labor’s Shadow Minister for Climate and Energy, Mark Butler indicated that Labor would strongly oppose such legislation, which he considered would ‘fundamentally undermine the CEFC’.[48] When the Bill was announced, Opposition Leader, Bill Shorten, responded on Twitter to a related media article with a tweet saying ‘you’ve got to be kidding’.[49]

Mr Butler, along with Shadow Finance Minister Jim Chalmers, subsequently described the Bill as a ‘hollow gesture’, noting that the ‘Government is unable to point to any CCS projects that would meet the strict commercial investment mandate of the CEFC—which can only invest in projects that pay a commercial return’.[50] They pointed out that in 2014 the Government removed $460 of uncommitted funds in the CCS Flagships program, which is now closed to new projects and had supported research and development in CCS technology.[51] They stated that ‘if the Turnbull Government was serious about seeing CCS technology deployed commercially, they would first reinstate the research and development funds they previously cut’.[52]

Senator Nick Xenophon has reportedly stated that he has ‘real reservations’ about allowing the CEFC to invest in carbon capture and storage technology and is concerned that if CEFC funding goes to a coal generator, other projects will inevitably miss out.[53] Senator Xenophon’s preference would be for the government to focus on an emissions intensity scheme for the electricity sector.[54] Rebekha Sharkie of the Nick Xenophon Team (NXT) has similarly stated that ‘I’d be disappointed if the Clean Energy Finance Corporation was assisting to fund clean coal, which I think is an oxymoron’.[55]

The Australian Greens are opposed to the Bill, with climate change and energy spokesperson Adam Bandt suggesting that ‘using money for clean energy to fund a broken technology’ is ‘like pouring money from the health budget into asbestos’. He has called for Labor and the Senate cross-bench to reject the Bill.[56]

At the time of writing, other non-government parties and independents do not appear to have commented on the Bill.

Position of major interest groups

Business and industry groups

The Minerals Council of Australia supports the Bill which it considers ‘recognises the role our high-quality coal in helping curb emissions’. It said if the Government's intention is to reduce emissions, there needed to be a technology-neutral approach, which means ‘considering the opportunity coal offers when utilising both high efficiency low emission (HELE) and carbon capture and storage (CCS)’.[57] The Council said that CCS is a ‘real-world technology’ that ‘can reduce greenhouse emissions by up to 90%’. It considered that including CCS in the CEFC ambit ‘strengthens our capacity to lower emissions in the supply of electricity’.[58]

Energy Networks Australia welcomed the government’s decision to allow the CEFC to fund CCS technology, describing it as ‘consistent with a ‘technology neutral’ regulatory framework for achieving carbon abatement’. Energy Networks Australia suggested that CCS technologies are not ‘pro-coal’ and that ‘CCS has the potential to support long-term carbon abatement in major industries with significant carbon emissions, like metal manufacturing, fertilisers and advanced manufacturing’.[59]

The Australian Petroleum Production and Exploration Association (APPEA) similarly welcomed the proposal, stating that ‘access to CEFC financing could help overcome some of the capital and financing obstacles facing some CCS projects’. APPEA suggested that ‘accelerating the roll-out of CCS projects could assist in reducing emissions from the generation sector’. APPEA further considered that ‘support for CCS projects is consistent with the CEFC’s function to finance Australia’s clean energy sector using financial products and structures to address the barriers inhibiting investment’.[60]

The Business Council of Australia also welcomed the Bill, suggesting that ‘removing arbitrary restrictions on CEFC investments in potentially effective technologies like CCS will allow market participants to determine the most effective technology to invest in’.[61]

Conservation organisations

Conservation organisations have objected to the Bill, with their primary concern appearing to relate to allowing the CEFC to invest in CCS fitted to coal-fired power generation, rather than the application of CCS to other industrial processes (as noted earlier in this Digest).

The Australian Conservation Foundation (ACF), for example, has described the Bill as a ‘corruption of the original mandate of the CEFC’ and an ‘illogical backward step that will cost Australians jobs in renewable energy and increase pollution’.[62] The ACF compared allowing the CEFC to invest in coal technology as ‘like telling the health department to invest in tobacco’.[63]

The Climate Council warned against enabling the CEFC ‘to fund coal plants with carbon capture and storage’, describing it as ‘bizarre’ and a ‘waste of money’:

The CEFC was designed to invest in commercially sound renewable energy and emissions reducing projects, and it should stay this way. The CEFC have shown wind and solar plants provide a positive return on investment as well as actually reducing emissions and creating jobs.[64]

The Climate Council considered that ‘coal power plants with carbon capture and storage are notoriously bad investments’ and that ‘diverting renewable energy funds to coal projects is costly, will increase emissions, and exacerbate climate change’.[65]

Other stakeholders

The Australia Institute recently released a discussion paper on CCS funding which suggests that since 2003 the federal government has committed more than $3.5 billion, and distributed more than $1.3 billion, to CCS-related projects.[66] Despite this spending, the Australian Institute argued that there has been little progress on CCS in Australia, and very few successful projects. In particular, ‘there has never been an operational large-scale deployment of coal with CCS in Australia’ and CCS is ‘likely to be more expensive than about every other energy source’.[67] The Australia Institute considered that redirecting funds from commercial or near-commercial clean energy towards CCS would be ‘throwing good money after bad’.[68]

The CO2CRC (as noted above, the CO2CRC is now a private research organisation dedicated to CCS) welcomed the Bill, stating that the proposed change ‘is an important step forward for carbon capture and storage to become a real option for industries such as cement, steel, oil, gas and coal to significantly reduce their greenhouse emissions in Australia’.[69]

The Global CCS Institute (GCCSI) applauded the move to open CEFC investments to CCS, with their Chief Executive Officer describing it as ‘an historical step towards a true low-carbon energy future in Australia’.[70]

The Australian Academy of Technology and Engineering (ATSE) does not appear to have commented directly on the Bill, but recently published an action statement on CCS. The statement recommends, among other matters, that the Australian government should ‘lead the effort to build and deploy a commercial-scale CCS demonstration plant within the next five years’ (while also legislating to limit emissions from power stations). At the same, ATSE has recommended that Australia should ‘accelerate the application of CCS to industrial processes globally’, particularly given the importance of iron, metallurgical coal and LNG exports to the Australian economy.[71]

CEFC

The CEFC itself made a statement following the announcement of the Bill. While noting that amendments to the CEFC Act are ‘a matter for the Parliament’, the CEFC observed:

In addition to potential applications in the power sector, CCS can also be used in the industrial sector to capture emissions from chemical processes, as well as fugitive emissions. There are some industrial processes for which there are currently very few alternatives to reducing emissions, making CCS an important technology if these sectors are to achieve deep cuts in emissions.

The majority of existing large-scale CCS projects globally are in the industrial sector, including in natural gas, fertiliser, hydrogen, and iron and steel making. In Australia, there are several industrial pilot CCS projects either in operation or at a planning stage.[72]

The CEFC made no direct comment on whether it would be able to fund CCS projects if the prohibition were lifted, more generally observing:

The CEFC receives a steady flow of potential projects relating to a diverse range of clean energy technologies. We are in a continuous process of receiving and reviewing new project proposals and investing in eligible commercial projects.

Through our investment activities, the CEFC continues to support the development of a resilient, balanced and secure energy system in Australia, through the deployment of eligible clean energy technologies across diverse areas of the economy.[73]

Financial implications

According to the Explanatory Memorandum, the Bill has no financial impact.[74] In particular, the Bill will not have an impact on the funding available to the CEFC and ‘does not alter the CEFC’s legislated appropriation or have the effect of actually requiring the CEFC to invest in carbon capture and storage projects’.[75]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[76]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.[77]

Key issues and provisions

What can the CEFC currently invest in?

To date, the CEFC has invested more than $3.3 billion in eligible clean energy projects, with a total project value of $8.3 billion, ‘while also delivering a positive return for the taxpayer’.[78]

The CEFC Act requires investments by the CEFC to be ‘complying investments’, which are investments that are in ‘clean energy technologies’; solely or mainly Australian-based; and not in a prohibited technology.[79]

Clean energy technologies are defined by section 60 of the CEFC Act as energy efficiency technologies; low‑emission technologies; and renewable energy technologies. The CEFC must ensure that at least half of the funds invested on or after 1 July 2018 are invested in renewable energy technologies.[80] Section 62 currently prohibits investments in technology for carbon capture and storage (CCS), nuclear technology or nuclear power.

The Board has also established formal guidelines, as required by the CEFC Act, setting out the matters to which it will have regard in satisfying itself that a technology is a ‘low emissions technology’.[81] These are discussed further later in this Digest.

As noted earlier in this Digest, the CEFC must also comply with its investment mandate,[82] which is issued by the responsible Ministers to give guidance to the CEFC. The investment mandate must not be inconsistent with the CEFC Act and must not require the CEFC Board to make any particular investment.[83]

The current investment mandate, issued in December 2016, requires the Board to target an average return of the five-year Australian Government bond rate +3 to +4 per cent per annum over the medium to long term as the benchmark return of the portfolio.[84] However, the targeted rate of return is different for investments made under the Clean Energy Innovation Fund, which is designed for ‘emerging clean energy technology projects’ and ‘technologies that have passed beyond the research and development stages but are not yet established or of sufficient maturity, size or otherwise commercially ready to attract sufficient private sector investment’. Under the Clean Energy Innovation Fund, the target average return is at least the five-year Australian Government bond rate +1 per cent per annum.[85]

The CEFC also formulates written investment policies which outline its investment strategy, benchmarks and standards as well as the risk management approach for the CEFC and its investments.[86]

Key provisions

The Bill only contains one substantive provision, item 1, which amends section 62 of the CEFC Act. Paragraph 62(a) of the CEFC Act currently prevents the CEFC from investing in ‘technology for carbon capture and storage’. Item 1 of the Bill proposes to repeal paragraph 62(a) of the CEFC Act in order to remove the prohibition on the CEFC investing in CCS technology.

‘Carbon capture and storage’ is currently defined in paragraph 62(a) by reference to section 7 of the National Greenhouse and Energy Reporting Act 2007 (NGER Act). Section 7 of the NGER Act provides that CCS means:

  • the storage of a greenhouse gas substance in a part of a geological formation
  • the injection of a greenhouse gas substance into a part of a geological formation for the purposes of such storage or
  • the capture, compression, processing, offloading, transportation or piped conveyance of a greenhouse gas substance, where the compression, processing, offloading, transportation or piped conveyance is for the purposes of such storage.[87]

Note that this definition does not appear to cover the capture and re-use of CO2 for other purposes (as discussed earlier in this Digest). However, by repealing paragraph 62(a), the Bill will remove any reference to CCS or any definition of CCS from the CEFC Act.

Would this enable to the CEFC to invest in CCS?

The Bill does not mean that the CEFC will invest in CCS technology; it simply removes the prohibition from the legislation and provides the CEFC with the option to invest in those technologies. If the Bill were passed, the CEFC could still only invest in any relevant CCS projects if they met the other eligibility criteria for CEFC investments.[88] In the case of CCS, key criteria are currently set out in the guidelines for ‘low emissions technology’ and the CEFC investment mandate. These are discussed in further detail below. However, note that both the CEFC investment mandate and the low emissions technology guidelines could potentially be changed in the future by the relevant Ministers (in the case of the investment mandate) or the CEFC Board (in the case of the guidelines).[89] If the prohibition on investment in CCS technology is removed from the CEFC Act, this leaves open the possibility of amendments to the guidelines and mandate in the future, in order to facilitate CEFC investments in CCS technologies. However, the guidelines and mandate must still be consistent with the CEFC Act, and in particular, the investment mandate must not require the CEFC Board to make any particular investment.[90]

Low emissions technology guidelines

In particular, any proposed CCS project would need to qualify as a ‘low emissions technology’. Subsections 60(4) and (5) of the CEFC Act provide for the CEFC Board to make guidelines ‘setting out the matters to which the Board will have regard in satisfying itself that a technology is a low-emissions technology’.

The current guidelines developed by the CEFC provide that low emissions technology includes activities ‘using, reducing, or eliminating existing fugitive greenhouse gas emissions’. However, the low emissions technology must result in emissions that are ‘substantially lower than the current average of the most relevant baseline for the activity being undertaken’. In turn, to satisfy this test a proponent must demonstrate:

  • that if the technology is solely for electricity generation, it must achieve an emissions intensity of less than 50 per cent of the existing generation system as connected to the transmission network/grid, or where not connected to a grid, less than 50 per cent of the emissions intensity of the baseline activity;
  • that, if otherwise, the technology achieves useful-life emissions at 50 per cent less than the relevant current average baseline of the activity being undertaken; or
  • that, for a technology not solely for electricity generation that does not achieve the useful-life emissions at 50 per cent less than the relevant current average baseline of the activity being undertaken, the technology achieves (or has real demonstrable ability to achieve) meaningful aggregate emission reductions and other positive externalities.[91]

The guidelines further provide that ‘the Board will consider on a case by case basis the level of reduced emissions in ranking low emissions technology investments against other investments the CEFC may make’.[92]

Whether any particular CCS project would meet the current guidelines would depend on the nature of the particular project, including the percentage of emissions actually captured by the project. While CCS can potentially reduce emissions by large amounts,[93] certain CCS projects may only capture some emissions. For example, in the Callide Oxyfuel project (mentioned earlier in this Digest), CCS technology was fitted to only one of four boilers at the Callide A power station, meaning it only reduced emissions from a fraction of the power station as a whole.[94]

CEFC investment mandate

In addition to meeting the guidelines in relation to low-emission technologies, CCS projects would also need to meet the benchmark rates of return set out in the CEFC investment mandate (as outlined earlier in this Digest). Several industry groups considered that access to CEFC financing would help to overcome ‘capital and financing obstacles facing some CCS projects’.[95] Similarly, the Minister in his second reading speech suggests:

Access to finance is one of the barriers to investment in CCS technologies. This change will provide direct support for CCS technologies, encourage greater private sector investment and reduce risk for potential investments.[96]

However, several commentators have queried whether CCS project would be able to meet the rates of return currently required for CEFC investment.[97] Some commentators have suggested that ‘given the poor economics of CCS technology, it is difficult to see how the CEFC can provide finance for any such projects and meet the government’s benchmark returns’.[98]

The cost and commercial viability of any particular CCS project would depend on the particular location and application, including the capture method, whether CCS is being retrofitted to an existing plant or incorporated into a new build, and the distance which CO2 may need to be transported to a suitable storage site.[99]

Nevertheless, the Minister for the Environment and Energy has suggested, based on a report by the CO2CRC, that retrofitting CCS to existing coal and gas fired power stations is economically viable and competitive with solar photovoltaics.[100] In contrast, critics of the Bill suggest that CCS is prohibitively expensive, and in the case of power generation, is not cost‑competitive with renewable energy such as wind or solar photovoltaics.[101]

The role of CCS in reducing greenhouse gas emissions

In his second reading speech, the Minister stated that, by widening the scope of emissions reduction technologies the CEFC can invest in, the Bill will also ‘assist in achieving our emissions reduction targets more cost-effectively’.[102] The Minister further suggested that ‘CCS technology has been acclaimed by the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) as critical to enabling the world to meet its emissions reduction targets’.[103]

As discussed above, whether CCS is a cost-effective form of emissions reduction has been questioned. However, as noted earlier in this Digest, both the IEA and the IPCC have observed that CCS could play a role in reducing GHG emissions and meeting commitments under the Paris Agreement.[104] The IPCC suggested in 2014 that without CCS, the cost of achieving a 2°C outcome increases by 138 per cent by the end of this century.[105] The IEA has described CCS as ‘an essential part of the climate solution’[106] and a ‘crucial technology’ in reducing emissions to meet commitments under the Paris Agreement.[107]

In the Australian context, the recent review of the future of the National Electricity Market led by the Chief Scientist, Dr Alan Finkel, reported that CCS can reduce emissions from power stations by around 85 per cent (but reduce the efficiency of power generation by up to 25 per cent).[108] It can also reduce or even eliminate emissions from industrial processes.[109] In particular, as the CEFC itself has stated, for some industrial processes there are currently very few alternatives for reducing emissions and CCS may play a key role for those processes. In contrast, others suggest that CCS may be useful ‘at the margin’ in terms of reducing greenhouse gas emissions.[110]

Finally, concerns have been expressed about the long-term nature of CCS storage due to the potential for leakage of CO2 from CCS storage sites. However, the IPCC found in 2005 that with careful site selection and design, along with appropriate operation and monitoring, the risk of leakage can be very low.[111] Nevertheless, as the CSIRO recently observed:

... there is also an ongoing perception that CCS promotes continued use of coal and is unsafe due to CO2 leakage from reservoirs, particularly onshore. Widespread consultation with stakeholders regarding the safety of geological storage and continual community has been found to be critical in overcoming these social licence barriers.[112]

Objectives of the CEFC: should the CEFC invest in CCS?

Many of those opposed to the Bill point to the original intent and purpose of the CEFC as being to increase flows of finance to the clean energy sector, with many considering that CCS technologies are not consistent with this original intent. As noted earlier in this Digest, the concerns of many of those who have expressed opposition to the Bill appear to revolve around allowing the CEFC to invest in CCS fitted to coal-fired power generation: many argue that that ‘clean coal’ is not ‘clean energy’. The Climate Council argues, for example, that ‘clean coal’ is a misnomer and that ‘no matter how efficient a coal-fired power station is, it is always polluting’.[113]

However, as noted earlier in the Background to this Digest, CCS can also involve capturing the emissions from other forms of power generation (such as gas) as well as industrial processes: this is known as industrial CCS.[114] Some commentators are concerned that industrial CCS has been ‘largely ignored’ as a result of the focus of debate on CCS and ‘clean coal’.[115] Many consider that CCS has a valuable role to play in reducing greenhouse gas emissions from these processes. Indeed, as noted earlier in this Digest, the CEFC itself has noted that ‘there are some industrial processes for which there are currently very few alternatives to reducing emissions, making CCS an important technology if these sectors are to achieve deep cuts in emissions’.[116] At the same time, the Global CCS Institute considers that ‘the longevity of Australia’s coal industry in the face of aggressive climate targets depends on CCS’.[117]

A related concern is that allowing the CEFC to invest in CCS would displace funding available for renewable and other clean energy projects.[118] The CEFC is currently required to invest at least half of its funds in renewable energy technologies. The remainder is available for low-emission and energy efficiency technologies, and it is possible (noting the other requirements discussed earlier), that this remainder could be used for CCS rather than other alternatives.[119] However, the Minister for the Environment and Energy argues that the change proposed by the Bill is consistent with a ‘technology-neutral approach’ to energy and climate policy. He has also pointed out the CEFC is ‘not the renewable energy finance corporation’ and ‘is explicitly encouraged under part six of the Act to also invest in energy efficiency and low emission alternatives’.[120]


[1].         The CEFC is also a corporate Commonwealth entity under the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

[2].         Clean Energy Finance Corporation Act 2012 (CEFC Act), section 3.

[3].         Ibid., sections 58 and 60.

[4].         Explanatory Memorandum, Clean Energy Finance Corporation Bill 2012, p. 7.

[5].         CEFC Act, subsection 59(2).

[6].         Ibid., section 67. Note that the investment mandate is NOT a disallowable instrument: see paragraph 44(2)(b) of the Legislation Act 2003 and Regulation 9 of the Legislation (Exemptions and Other Matters) Regulation 2015.

[7].         That is, the Minister for the Environment and the Minister for Finance: see CEFC Act, section 64 and the definition of ‘responsible Ministers’ in section 4. Note that the Acts Interpretation (Substituted References - Section 19BA) Amendment Order 2015 (No.1), substituted the reference to the Treasurer in the definition of ‘responsible Minister’ in the CEFC Act to the Minister for the Environment.

[8].         CEFC Act, section 65.

[9].         See the Clean Energy Finance Corporation (Abolition) Bill 2013; the Clean Energy Finance Corporation (Abolition) Bill 2013 [No. 2]; and the Clean Energy Finance Corporation (Abolition) Bill 2014.

[10].      Clean Energy Finance Corporation Investment Mandate Direction 2016 (No.2), clause 13.

[11].      Clean Energy Finance Corporation (CEFC), ‘Where we invest: Innovation Fund’, CEFC website. ARENA was established under the Australian Renewable Energy Agency Act 2011 in 2012 with funding to co-invest in projects that improve the competitiveness of renewable energy technologies and increase the supply of renewable energy in Australia: see further A St John, ‘What’s happening with ARENA?’, FlagPost, Parliamentary Library blog, 19 September 2016.

[12].      CEFC, ‘Where we invest: Innovation Fund’, op. cit. See also Clean Energy Finance Corporation Investment Mandate Direction 2016 (No.2), subclause 14(1).

[13].      M Cormann, ‘In committee: Budget Savings (Omnibus) Bill 2016’, Senate, Debates, 15 September 2016, p. 1193; see also Clean Energy Finance Corporation Investment Mandate Direction 2016 (No.2), clause 4; St John, ‘What’s happening with ARENA?’, op. cit.

[14].      CEFC, ‘Sustainable cities investment program’, CEFC website.

[15].      CEFC, ‘Reef funding program’, CEFC website; see also Clean Energy Finance Corporation Investment Mandate Direction 2016 (No.2), clause 5.

[16].      For further information see, for example, CSIRO, Carbon capture and storage (CCS): frequently asked questions, CSIRO, Australia, n.d.; Global CCS Institute (GCCSI), ‘Understanding carbon capture and storage’, GCCSI website; CO2CRC, ‘What is CCS?’, CO2CRC website.

[17].      Ibid.

[18].      International Energy Agency (IEA), Carbon capture and storage: the solution for deep emissions reductions, IEA, Paris, 2015; IEA, Energy technology perspectives 2017, IEA, Paris, 6 June 2017, p. 364.

[19].      See, for example, Intergovernmental Panel on Climate Change (IPCC), ‘Summary for policy makers’, Climate change 2014: mitigation of climate change, Cambridge University Press, New York, 2014, p. 15.

[20].      Climate Change Authority (CCA), Towards a climate policy toolkit: special review on Australia’s climate goals and policies, CCA, Melbourne, August 2016, p. 103.

[21].      T Campey, S Bruce, T Yankos, J Hayward, P Graham, L Reedman, T Brinsmead, J Deverell, Low emissions technology roadmap, CSIRO, Australia, June 2017, p. 49; see also A Finkel, Independent review into the future security of the National Electricity Market: blueprint for the future, (Finkel Review), Department of the Environment and Energy (DEE), Canberra, June 2017, p. 187.

[22].      CCA, Towards a climate policy toolkit: special review on Australia’s climate goals and policies, op. cit.

[23].      For other possibilities, see IEA, Technology roadmap: carbon capture and storage in industrial applications, IEA, Paris, 2011; IPCC, Carbon dioxide capture and storage, special report, IPCC, 2005.

[24].      IEA, Technology roadmap: carbon capture and storage in industrial applications, op. cit., p. 10.

[25].      IEA, ‘Part 2: catalysing energy technology transformations’, Energy technology perspectives 2017, op. cit., p. 38; GCCSI, ‘Large-scale CCS facilities’, GCCSI website: ‘Large-scale’ integrated CCS facilities are defined as facilities involving the capture, transport, and storage of CO2 at a scale of at least 800,000 tonnes of CO2 annually for a coal-based power plant, or at least 400,000 tonnes of CO2 annually for other emissions-intensive industrial facilities (including natural gas-based power generation)—see: GCCSI, ‘Large-scale CCS facilities: definition’, GCCSI website.

[26].      GCCSI, ‘Large-scale CCS facilities’, op. cit. See further, for example, IEA, Storing CO2 through enhanced oil recovery: combining EOR with CO2 storage (EOR+) for profit, IEA, Paris, 2015.

[27].      GCCSI, ‘Boundary Dam carbon capture and storage’, GCCSI website, 20 June 2017; GCCSI, ‘Petra Nova carbon capture’, GCCSI website, 20 June 2017.

[28].      GCCSI, ‘Large-scale CCS facilities’, GCCSI website; GCCSI, Global status of CCS: special report: introduction to industrial carbon capture and storage, GCCSI, Melbourne, June 2016; see also S Evans, ‘Around the world in 22 carbon capture projects’, Carbon Brief website, 7 October 2014.

[29].      CO2CRC, ‘Our history’, CO2CRC website. At the conclusion of its CRC funding in 2014, CO2CRC Limited was established as a private research organisation to continue the research and to focus on commercial adaptability of CCS.

[30].      I Macfarlane (Minister for Industry, Tourism and Resources), $500 million low-emissions technology fund takes final shape, media release, 3 June 2005.

[31].      Department of Industry, Innovation and Science (DIIS), ‘Carbon capture and storage flagships program’, DIIS website. The CCS Flagships program’s initial funding was $2 billion (see, for example, P Wong (Minister for Climate Change and Water), Budget 2009: Australian Government climate change strategy, media release, 12 May 2009). The program’s funding was scaled back progressively and the program has now closed to new projects: see further A St John, ‘Changes to energy and climate programs’, Budget review 2014–15, Research paper series, 2013–14, Parliamentary Library, Canberra, 2014 and K Swoboda and S Power, ‘Clean energy support’, Budget review 2016–7, Research paper series, 2015–16, Parliamentary Library, Canberra, 2016.

[32].      I Macfarlane (Minister for Industry and Science), New support for carbon capture and storage research and development, media release, 31 August 2015.

[33].      M Canavan (Minister for Resources and Northern Australia), $23.7 million for carbon capture and storage, media release, 12 August 2016.

[34].      J Frydenberg, ‘The world can’t hit its Paris target without captured carbon’, Australian Financial Review, 31 May 2017, p. 39.

[35].      The author gratefully acknowledges the work of researcher Kate Loynes in preparing background information for this section.

[36].      Chevron Australia, ‘Carbon dioxide injection: world-class technology’, Chevron Australia website; GCCSI, ‘Gorgon carbon dioxide injection’, GCCSI website, 20 June 2017.

[37].      GCCSI, Submission to the DEE, Review of Australia’s climate change policies, 5 May 2017, p. 3.

[38].      GCCSI, ‘CO2CRC Otway Project’, GCCSI website, 2 March 2017; CO2CRC, ‘$100 million Otway research facility’, CO2CRC website. As noted above, the CO2CRC is now a private research organisation.

[39].      Department of Mines and Petroleum (WA) (DMP), ‘South West Hub Project’, DMP website; GCCSI, ‘South West Hub’, GCCSI website, 14 September 2016.

[40].      DIIS, ‘Carbon capture and storage flagships program’, op. cit.

[41].      Department of Economic Development, Jobs, Transport and Resources (Victoria) (DEDJTR), ‘The CarbonNet Project’, DEDJTR website; GCCSI, ‘CarbonNet’, GCCSI website, 19 September 2016.

[42].      GCCSI, ‘Integrated Surat Basin CCS Project’, GCCSI website, 26 August 2016.

[43].      Canavan, $23.7 million for carbon capture and storage, op. cit.

[44].      CS Energy, ‘Callide Oxyfuel Project’, CS Energy website.

[45].      Senate Selection of Bills Committee, Report, 7, 2017, The Senate, Canberra, 22 June 2017; Senate Selection of Bills Committee, Report, 8, 2017, The Senate, Canberra, 10 August 2017; Report, 9, 2017, The Senate, Canberra, 17 August 2017; Report, 10, 2017, The Senate, Canberra, 7 September 2017.

[46].      Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 6, 2017, The Senate, Canberra, 14 June 2017, p. 19.

[47].      M Butler (Shadow Minister for Climate Change and Energy), Industry has no faith in Turnbull to solve energy crisis, media release, 31 May 2017; see also M Butler (Shadow Minister for Climate Change and Energy), Government’s latest energy stunt, media release, 30 May 2017.

[48].      E Borrello, ‘Josh Frydenberg flags changes to allow CEFC to invest in carbon capture and storage’, ABC News website, 20 February 2017; M Butler (Shadow Minister for Climate Change and Energy), Clean energy to support coal, not going to happen, media release, 20 February 2017.

[49].      B Shorten (@billshortenmp), ‘You've got to be kidding ...’, tweet, 30 May 2017, https://twitter.com/billshortenmp/status/869412442526199808.

[50].      M Butler and J Chalmers, Labor opposes amendments to CEFC, media release, 13 June 2017; see also Borrello, ‘Josh Frydenberg flags changes to allow CEFC to invest in carbon capture and storage’, op. cit.; Butler, Clean energy to support coal, not going to happen, op. cit.

[51].      Butler and Chalmers, Labor opposes amendments to CEFC, op. cit.; see also St John, ‘Changes to energy and climate programs’, op. cit.; DIIS, ‘Carbon capture and storage flagships program’, DIIS website.

[52].      Butler and Chalmers, Labor opposes amendments to CEFC, op. cit.

[53].      K Murphy, ‘Nick Xenophon reluctant to back Coalition plan for CEFC to fund carbon capture’, The Guardian, (online edition), 31 May 2017; K Murphy, ‘Nick Xenophon says he has “real concerns” about CEFC investing in “clean” coal’, The Guardian, (online edition), 22 February 2017.

[54].      Ibid.

[55].      M Butler (Shadow Minister for Climate Change and Energy), Radio interview: ABC Adelaide, Super Wednesday: Oakden, CEFC, Finkel Review, EIS, transcript, 31 May 2017.

[56].      A Bandt (Australian Greens), Greens slam govt's proposal for CEFC to fund coal, media release, 30 May 2017.

[57].      G Evans (Executive Director of Coal, Minerals Council of Australia), Government takes balanced view with low-emission strategy, media release, 30 May 2017.

[58].      Ibid.

[59].      Energy Networks Australia, CCS funding decision levels the playing field for carbon abatement options, media release, 30 May 2017.

[60].      Australian Petroleum Production and Exploration Association (APPEA), Gas industry welcomes support for carbon capture and storage support, media release, 30 May 2017.

[61].      Business Council of Australia, Statement on the Clean Energy Finance Corporation, media release, 30 May 2017.

[62].      Australian Conservation Foundation (ACF), CEFC investing in fantasy coal technology is like smoking to reduce cancer, media release, 30 May 2017.

[63].      Ibid.

[64].      Climate Council, Turnbull Government diverting clean energy funds to coal bizarre, media release, 30 May 2017.

[65].      Ibid.

[66].      B Browne and T Swann, Money for nothing, Discussion paper, The Australia Institute, Canberra, May 2017, pp. 1, 10.

[67].      Ibid., pp. 2, 3.

[68].      Ibid., pp. 3–4.

[69].      CO2CRC, Commonwealth legislation to support financing of CCS, media release, 30 May 2017.

[70].      GCCSI, World’s leading authority on carbon capture and storage applauds Government CEFC investment decision, media release, 30 May 2017.

[71].      Australian Academy of Technology and Engineering (ATSE), Deep reductions in emissions using CCS, Energy action statement, ATSE, June 2017.

[72].      CEFC, Statement from the CEFC regarding proposed changes to the Clean Energy Finance Corporation Act, media release, 30 May 2017.

[73].      Ibid.

[74].      Explanatory Memorandum, p. 1.

[75].      Ibid.

[76].      The Statement of Compatibility with Human Rights can be found at page 2 of the Explanatory Memorandum to the Bill.

[77].      Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 5, 2017, 14 June 2017, p. 49.

[78].      CEFC, Statement from the CEFC regarding proposed changes to the Clean Energy Finance Corporation Act, op. cit.

[79].      CEFC Act, subsection 59(2).

[80].      Ibid., subsection 58(3).

[81].      As provided for in subsection 60(4) of the CEFC Act.

[82].      CEFC Act, section 67. Note that the investment mandate is NOT a disallowable instrument.

[83].      Ibid., section 65.

[84].      Clean Energy Finance Corporation Investment Mandate Direction 2016 (No.2), clause 7.

[85].      Ibid., clause 7 and subclause 14(1).

[86].      CEFC Act, section 68. These policies must be consistent with the Investment Mandate (subsection 68(2)). The current investment policies are available on the CEFC website: CEFC, ‘About us: investment policies’, CEFC website.

[87].      Note also that expressions used in this definition are to have the same meaning as in the Offshore Petroleum and Greenhouse Gas Storage Act 2006. Section 7 of that Act defines greenhouse gas substances, and also defines ‘geological formation’ as including ‘any seal or reservoir of a geological formation; and any associated geological attributes or features of a geological formation’.

[88].      See further CEFC Act, sections 59–60; CEFC, Complying investments and guidelines, CEFC, Sydney, n.d.; and CEFC, CEFC investment policies, CEFC, Sydney, 2016.

[89].      CEFC Act, subsections 60(4) and (5) and section 64.

[90].      Ibid., section 65.

[91].      CEFC, Complying investments and guidelines, op. cit., p. 3.

[92].      Ibid.

[93].      Finkel Review, op. cit., p. 187.

[94].      CS Energy, op. cit.

[95].      APPEA, op. cit.

[96].      J Frydenberg, ‘Second reading speech: Clean Energy Finance Corporation Amendment (Carbon Capture and Storage) Bill 2017’, House of Representatives, Debates, 31 May 2017, p. 5.

[97].      See, for example, G Parkinson, ‘Coalition tries to push CEFC into carbon capture and storage’, RenewEconomy, 30 May 2017; P Hannam, ‘Captured?: why getting the green bank to look at CCS is not so whacky’, Sydney Morning Herald, (online edition), 30 May 2017.

[98].      Parkinson, ‘Coalition tries to push CEFC into carbon capture and storage’, op. cit.; see also Hannam, ‘Captured?: Why getting the green bank to look at CCS is not so whacky’, op. cit.; M Ludlow and B Potter, ‘“Clean coal” too costly for CEFC mandate’, Australian Financial Review, 21 February 2017.

[99].      See, for example, CO2CRC, Australian power generation technology report, CO2CRC, Melbourne, 2015, pp. vii, 179–201.

[100].   Frydenberg, ‘The world can’t hit its Paris target without captured carbon’, op. cit., p. 39; CO2CRC, Retrofitting CCS to Coal: enhancing Australia’s energy security, CO2CRC, Melbourne, 2 March 2017, p. viii; see also, for example, S Long, ‘“Clean” coal-fired power will not work: industry insider’, ABC News website, 19 June 2017.

[101].   See, for example, The Australia Institute, op. cit., p. 27; Climate Council, Factsheet: 10 basic electricity facts to help you navigate the Finkel Review, Finkel Review fact sheet, Climate Council, June 2017; Climate Council, Clean coal: briefing paper, Climate Council, Sydney, June 2017, p. 4.

[102].   Frydenberg, ‘Second reading speech: Clean Energy Finance Corporation Amendment (Carbon Capture and Storage) Bill 2017’, op. cit.

[103].   Ibid.

[104].   Under the Paris climate agreement, countries have agreed to hold the increase in global temperature to well below 2 °C above pre-industrial levels: Paris Agreement, done in Paris on 12 December 2015, [2016] ATS 24 (entered into force for Australia on 10 December 2016), article 2. Australia has committed to reduce greenhouse gas emissions by 26–28 per cent below 2005 levels by 2030: Australian Government, Australia’s intended nationally determined contribution to a new climate change agreement, United Nations Framework Convention on Climate Change, New York, August 2015.

[105].   IPCC, ‘Summary for policy makers’, Climate change 2014: mitigation of climate change, op. cit., p. 15.

[106].   IEA, Carbon capture and storage: the solution for deep emissions reductions, op. cit.

[107].   IEA, Energy technology perspectives 2017, op. cit., p. 364.

[108].   Finkel Review, op. cit., p. 187.

[109].   Ibid., p. 188.

[110].   I Dunlop, ‘“Clean coal”, CCS and CSG will not save fossil fuels: their game is up’, The Guardian, (online edition), 3 March 2017.

[111].   IPCC, IPCC Special Report on Carbon dioxide capture and storage, 2005, Cambridge University Press, Cambridge, pp. 244–246.

[112].   CSIRO, Low emissions technology roadmap, op. cit., p. 201.

[113].   Climate Council, Factsheet: 10 basic electricity facts to help you navigate the Finkel Review, op. cit., p. 5; Climate Council, Clean coal: briefing paper, op. cit., pp. 1–2; see also, for example, B Potter, ‘Why coal won't wash’, AFR Weekend, 3 February 2017.

[114].   See further, for example, GCCSI, ‘Industrial CCS’, GCCSI website; U.S. Department of Energy’s (DOE) Office of Fossil Energy, ‘Carbon capture and storage from industrial sources’, DOE website.

[115].   See, for example, A Martinez Arranz, ‘The “clean coal” row shouldn’t distract us from using carbon capture for other industries’, The Conversation, 18 April 2017.

[116].   CEFC, Statement, op. cit.

[117].   GCCSI, Submission to the DEE, op. cit.

[118].   See, for example, The Australia Institute, op. cit., p. 3.

[119].   CEFC Act, subsection 58(3).

[120].   Frydenberg, ‘The world can’t hit its Paris target without captured carbon’, op. cit., p. 39.

 

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