This chapter examines certain parts of the Offshore Electricity Infrastructure Bill 2021 (the Bill) that submitters and witnesses argued could be improved, namely:
the process for declaring areas for offshore renewable energy infrastructure (OREI);
the application of work health and safety (WHS) laws; and
future legislative and policy work.
Process for declaring areas for offshore renewable energy infrastructure
The Bill proposes to empower the Minister for Energy and Emissions Reduction (the minister) to declare specified areas in the Commonwealth offshore area suitable for OREI. The Bill sets out the process that must be followed by the minister before making a declaration:
a notice proposing to declare the area must be published, inviting public submissions on the proposal within 60 days;
the closing date for submissions must have passed;
the minister must have consulted with the Minister for Defence and the Minister administering section 1 of the Navigation Act 2012; and
the minister must be satisfied that the area is suitable for OREI.
The Bill also sets out matters to which the minister must have regard when making a decision.
The Victorian Government focussed on the mandatory consultation requirements, submitting that the Bill should require the minister to consult with the states and territories prior to making a declaration, given the necessary interaction between governments in the offshore renewable energy sector (see 'Future legislative and policy work').
Professor Tina Soliman Hunter, Dr Miguel Frohlich and Mr Jordie Pettit, all experts in energy law, agreed:
Consultation with affected states and territories should also precede the declaration of suitable areas. States and territories will play a key role in most offshore energy projects developed in Commonwealth waters due to associated onshore infrastructure required for construction, operation, maintenance, and decommissioning activities. Consequently, states and territories may provide valuable inputs before a declaration is made... States and territories will be able to propose adjustments in the location of proposed areas to consider existing port infrastructure capacity, issues regarding grid connection, potential conflicts in uses outside Commonwealth waters, among other issues.
Professor Hunter, Dr Frohlich, Mr Pettit and the Australian Marine Conservation Society (AMCS) also argued that the minister should be required to consult the Commonwealth Minister for the Environment. In addition:
This requirement should trigger strategic assessments of environmental conditions of proposed areas for offshore renewable energy infrastructure, thereby contributing to adequate marine spatial planning.
As explained by the legal experts:
Without prior strategic environmental assessments, environmental issues will only be considered in environmental assessments submitted by project proponents, i.e., after an area is declared as suited for offshore renewable energy infrastructure. Consequently, project proponents who were granted licences under the proposed licensing scheme may have an increased risk of experiencing delays in their environmental approval processes (or even approval refusals). Critical environmental issues should be flagged as early as possible to avoid the declaration of areas that are not environmentally suited for offshore renewable infrastructure.
The AMCS concurred with the need for proper consideration of environmental impacts, as well as cultural and social impacts, in the selection and assessment of declared areas:
…decisions need to be made with adequate information about the environmental, cultural and social values of a marine area and the potential impacts from different types of infrastructure, including importantly, the cumulative impacts from existing and planned development and activities (and expected climate change impacts).
The Victorian Government also expressed concerns about the level of environmental or other technical assessments that will be undertaken by the minister prior to declaring an area, as well as potential developers access to this information:
…the more work that is done up-front to de-risk a potential area of seabed for the development of offshore electricity infrastructure, the greater confidence developers will have to apply for licences and develop projects… The [offshore electricity infrastructure (OEI)] Bills should clarify the role of bodies like Geoscience Australia in collecting information about prospective areas of seabed and provide some guidance as to the level of environmental assessments that will be carried out prior to areas of seabed being declared. The ability of project proponents to have regard to information about declared areas should also be clarified.
Several other submitters commented on the identification of prospective areas. The Electrical Trades Union (ETU) and the Maritime Union of Australia (MUA) submitted, for example:
…there are no provisions explaining how or why the Minister would begin a declaration process, or timelines for when such a process would be complete. This means financiers and developers have no certainty when they will be able to proceed to a project feasibility licence application… A developer, a government energy planning agency, or a state government, should be able to request that a Minister commence a pre‑declaration assessment, and know when they will receive a reply.
Macquarie Group Ltd (Macquarie) submitted that it would welcome 'a consistent framework that facilitates proponents making proposals for suitable areas for declaration, based on their own assessment on site suitability'. It noted that there is international precedent for such a framework:
[In the United Kingdom] the Crown Estate initially invited proponents to submit information on their areas of interest for consideration, ahead of lease tendering and awards. In that instance, the Crown Estate was able to access technical information that it could rigorously assess, but the cost had been borne by the proponent.
The Department of Industry, Science, Energy and Resources (DISER) noted that 'it is Australian Government policy to manage the marine environment in a way that recognises all users and balances competing interests'. Its submission highlighted ways in which the Bill achieves this balance, including by guaranteeing that consultation will occur across government and with communities before any decision is made to declare an area suitable for OREI.
Departmental representative Mr Paul Murphy, General Manager of the Clean Technology Branch, impressed that 'it's a matter for government to identify the priorities and the order or sequencing of declared areas, and to identify which areas should go ahead'. Further, 'there is no provision that mandates or sets a time frame for declaring areas'.
The committee notes that a wide range of affected stakeholders expressed views about the process for declaring areas suitable for OREI. The committee considers that there is merit in expanding the consultation requirements to specifically include the Minister for the Environment, affected state and territory governments, energy planning authorities and developers. The committee also considers that there should be greater transparency and timeframes incorporated into the declaration process. The committee supports further consideration being given to these matters as the bills progress through the Parliament.
The Bill would empower the minister to grant licences for offshore infrastructure activities in the Commonwealth offshore area. The specifics of the licensing scheme—such as applications, the offer and grant of licences, transfer of licences, changes in control of licence holders and management plans—are to be prescribed in regulations.
Professor Hunter, Dr Frohlich and Mr Pettit noted that it is good regulatory practice to place 'much of the day-to-day regulation of offshore electricity activities in the yet-to-be drafted Regulations'. However, they remarked that this can also be problematic:
…the Bill refers many critical regulatory requirements to the Regulations…but does not determine what WILL be in the Regulations—at present the Bill only indicates what MAY be in the regulations. This creates uncertainty for investors and project proponents and requires clarity for the Bill to proceed.
Most submitters expressed concern however with specific aspects of the proposed licensing scheme, such as changes in control of licence holders, merit criteria and interference with other activities by licence holders.
Changes in control
The Bill would require persons who propose to begin or cease control of licence holders to obtain approval from the Registrar (the National Offshore Petroleum Titles Administrator (NOPTA)), and creates offences and civil penalties for persons who begin or cease control of licence holders without prior approval.
Star of the South and Copenhagen Infrastructure Partners (CIP) submitted that the proposed provisions would place a significant burden on projects, owners, and government, as there are complex financing and contractual arrangements for large offshore energy projects that would regularly trigger the provisions:
Examples of these complex arrangements include 'control' moving from one fund to another without any change in practical control. Control may also change in instances where a party's share of ownership of a project changes (sometimes automatically) when the project reaches certain milestones.
Mr Anthony Lamb, Macquarie's Head of Offshore Projects, Asia-Pacific, reminded the committee that the large infrastructure projects to be covered by the Bill are multi-billion dollar concerns. Further:
…over the lifetime of developing, constructing and operating the assets the nature of the risk, and the capital associated with that, really does change. So to ensure efficient flow of capital in and out of the sector, and to ensure that the sector can be delivered in the way we all hope, I would encourage the right balance on those controls on ownership between the natural safeguards government is looking for but not impeding too much that flow of capital.
Star of the South and CIP suggested what they described as a minor technical amendment to allow for different change in control thresholds for individual licences:
This would allow for change of control matters to be considered transparently during the licence application process and to have those matters directly regulated in the licence itself, while still maintaining the government's intended outcomes. This could be achieved by amending section 84(3) to read "The licensing scheme or a licence may prescribe a different percentage, or different percentages".
For licences to be granted to eligible people, the minister must be satisfied that a licence 'meets the merit criteria'. This term encompasses matters such as technical and financial capability, the viability of a project, suitability of the applicant and other prescribed matters.
Several submitters and witnesses questioned the scope of the merit criteria, primarily on the grounds that the criteria should also include economic development, local content and benefit-sharing.
Dr Chris Briggs and Dr Sven Leske, based at the Institute for Sustainable Futures at the University of Technology Sydney, submitted, for example:
The permitting process for offshore wind should include economic development and local supply chain involvement criteria to create requirements and incentives for industry development. Community benefit including benefits to Traditional Owners should also be incorporated. The use of local content criteria has been successfully used in onshore renewable energy auctions in the ACT and Victoria and in offshore wind auctions and programs internationally.
The Brotherhood of St. Laurence considered that community benefit should give specific consideration to First Nations people:
Research shows that Aboriginal and Torres Strait Islander communities can gain significant social and economic benefits from local energy projects where they are able to participate (e.g. in planning and employment) and have 'a significant financial stake and have power over other areas of the development to ensure it is in line with their cultural values and responsibilities'.
In this regard, Mr David Griffin, CEO of Sun Cable, noted that its project has engaged Traditional Owners over an extended period of time in relation to the solar precincts:
We're in the midst of preparing an Indigenous benefits package…and that's going to continue well into 2022… We've got a very clear understanding of what their expectations are… Unsurprisingly, they're very interested to know what the training opportunities, the employment opportunities and the business opportunities are. One thing they have repeatedly made very clear…is that their experience has been with a major project coming in that the major project says, 'We're going to need lots of workers,' and then at the start of construction they go to the community and say, 'We need electricians and people for other high‑skill jobs,' and nobody has those skill sets in the local community, so all those jobs have to be filled from outside. The point they're making is: don't come to us the day you start construction and say you need these highly skilled workers; come to us years in advance and say, 'How are you going to get the skills that we need? How are you going to train between now and then?' so that the local community are ready to go and provide those skill sets to meet your requirements. That's something that we're really working on as a primary focus.
Similar to Dr Briggs and Dr Leske, the Australian Council of Trade Unions (ACTU) expressed the view that the merit criteria for the commercial and transmission and infrastructure licence streams should include 'creating employment and promoting local industry, manufacturing and jobs; increasing employment and income opportunities for First Nations communities; and contributing to a just transition for impacted energy workers and communities'.
Oceanex Energy Pty Ltd CEO Mr Andy Evans was optimistic about a just transition and developing the local supply chain, telling the committee that Australia already has many of the necessary skills sets and parts of the supply chain, and that these need to be supported and partly regenerated.
Mr Steve Blume, President of the Smart Energy Council, added that, development of the local supply chain will also have a flow-on effect to other industries, such as to onshore mining and the minerals and metals processing sector:
…what we need to grasp is that this is the biggest economic opportunity the world has ever seen, and we can be in the lead of that… There is no conflict between doing this materials stuff with renewables, and climate change and zero carbon, and activities between now and 2030 to reduce our emissions. There is no conflict in that at all.
Friends of the Earth and RE-Alliance referenced the Victorian Renewable Energy Auction scheme, with the latter noting the 'minimum local content requirements set by Government, something that could be emulated at a Federal level for offshore wind'.
Hunter Jobs Alliance's Mr Warrick Jordan commented that, while there might be a temptation to favour wholly-imported supply chains, as occurred in the United Kingdom, this temptation should be resisted in Australia:
What we saw with the UK…is that 10, 15 years ago, when they were in a similar position to us, there was very much an emphasis on more or less wholly-imported supply chains, with maybe 10, 20 per cent local content. What they had there was a backlash from communities, local government and others when some of the promised benefits weren't delivered, and then a recognition that the opportunity was there. So, subsequently, they've seen things like the offshore wind sector deal, where their local content has now risen up to 50 per cent and there are aspirations to go higher to 60 per cent. You can see what that's done, in terms of their now having onshore blade manufacturing, high-voltage subsea and other components, and that's employing a lot of people. But essentially they missed an opportunity over those first 10 or 15 years.
Some submitters and witnesses—including Professor Hunter, Dr Frohlich and Mr Pettit—raised the question of whether the Bill should provide for community compensation, as occurs at the Middelgrunden wind farm in Denmark:
In Denmark, offshore wind turbines are located less than 16 kilometres from the coastline, and offshore wind law requires that obliged local citizens whose visual amenity is impacted by offshore energy installations are offered compensatory benefits amounting to at least 20% of ownership shares of the project. Under Australia's proposed Bill, there are no explicit community benefit schemes. This is an important omission, since creating laws to increase community participation and engagement could reduce any risk of "not in my backyard" (Nimbyism) attitudes, even when the activity is located offshore.
Ms Taryn Lane, Director of the Smart Energy Council, the peak industry body for the solar, green hydrogen, wind storage and smart energy management industries, argued that, if the Bill were to incorporate benefit sharing in the merit criteria:
…it can provide clarity and a pathway for proponents to work early on high-quality community engagement and benefit sharing, rather than it being at the discretion of a project proponent or the ability for a local community to negotiate positive outcomes.
Interference with other activities by licence holders
The Bill would create offences for licence holders who interfere with certain activities—including Native Title rights and interests, and fishing—where the interference is greater than is necessary for the reasonable exercise of licence holders' rights or legal obligations.
Friends of the Earth and Professor Hunter, Dr Frohlich and Mr Pettit queried the meaning of 'necessary' and 'reasonable', with the legal experts submitting that the vague wording could result in projects proceeding, even when those projects conflict with Native Title rights: 'given that the [Native Title Act 1993] extends to the jurisdiction of the Bills, native title rights and interests must be clarified and protected'.
The Commonwealth Fisheries Association (CFA), the peak body representing commercial fishers under Commonwealth legislation, argued that the proposed approach asks infrastructure proponents to coexist but in reality, they are 'given a priority over other users'. Further the CFA submitted that the Bill does not address unreasonable loss of access or compensation to commercial fishers:
Offshore renewable energy is likely to see significant investment and growth as the world transitions to renewable energy sources, yet its growth will come at the cost of existing users of the marine domain, in particular commercial fishers.
The South-East Australian Fishing Industry agreed that 'fishing industry balance sheets are sensitive to marine space being transferred to other commercial interests':
Fishing industry property rights exist in the form of access to grounds and often also as the right to take a proportion of a sustainable catch (quota). The value of these rights [is] impacted by catch revenue, costs to catch, assessment (science) risks and environmental impacts caused by the sector. If fishing grounds are reduced (for instance by the transfer of those grounds to an offshore windfarm) then revenues fall and catch costs increase—reducing the value of these rights.
Other submitters contended that the Bill should give more consideration to the allocation and sharing of the Commonwealth offshore area. The Blue Economy CRC submitted, for example:
With many [offshore wind projects] already in the development pipeline, Australia would benefit from proactive consideration, via Marine Spatial planning, to resolve potential conflicts in uses of the marine domain and ensuring it remains sustainably managed.
The AMCS agreed that there is a need for a robust strategic planning process to enable 'integrated and coordinated planning and management of current and future uses of the marine environment, while ensuring the ongoing health of the marine environment':
[Marine spatial planning] should identify areas of conservation importance that should be excluded from threatening processes, including areas that would qualify for protection but that have not yet been afforded that status. This legislation needs to recognise that conservation measures [are] often far behind operational activity, and that scientific understanding of many of the high priority natural values in the marine environment is in its infancy.
Macquarie expressed particular concern about the possible interaction between offshore wind infrastructure and offshore oil and gas activities. Its submission noted the United Kingdom's experience where it was necessary to develop guidance 'setting out the mechanism for managing the interaction between offshore wind and offshore oil and gas', including compensation:
We recognise that NOPTA and [the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA)] being both the registrar and regulator for offshore wind and oil and gas could potentially be beneficial in managing this theoretical conflict. To support NOPTA and NOPSEMA, we would suggest that guidance be given at the outset.
The Global Wind Energy Council supported 'a robust government-led marine spatial planning process…to reduce cross sector conflict between different ocean users', while the Blue Economy CRC expressed a keen interest in acting as an independent broker to facilitate:
…the development of a framework for marine spatial planning that provides for a transparent, evidenced based approach to the sustainable use of our shared marine estate, including regard for the needs and wishes of the traditional owners and the interests of a diverse range of industries and interest groups.
Dr John Whittington, CEO of the Blue Economy CRC, told the committee that marine spatial planning is an emerging area of policy and research, and 'trying to write it proscriptively into the bill now would be the wrong way of doing it'. Instead:
[We should] work with the policymakers on developing best practice and building on world experience; that's certainly what Blue Economy is hoping to do. If I was tasked to write the policy right now, I don't think I'd have the information to do [it] right on day 1.
DISER acknowledged that much detail of the licensing scheme is to be set out in regulations. Its representative Mr Murphy noted that work has been proceeding sequentially:
Most of our resources have been dedicated to the bill in the first instance. We then started work on the regulations that support the commencement of the bill and the policy work for the declarations. Once we have the licensing scheme established in regulation, we'll be required to have the supporting policy.
In relation to the merit criteria, Mr Murphy advised that the Australian Government is not specifically considering amending the Bill to include economic development, local content or benefit sharing:
The government has a lot of policy in regard to local content and manufacturing… The government has the Modern Manufacturing Strategy… It has a specific road map for clean energy and recycling, and that is designed to support projects. One of the criteria is that it has a specific aim to support domestic manufacturers to benefit from opportunities created by large energy projects.
DISER also pointed out that the Bill employs a range of approaches for the sharing of the Commonwealth offshore area, for example:
limiting licences in areas recognised for specific purposes;
requiring strategies for minimising risks to existing users;
applying licence conditions to manage co-use;
imposing additional consultation requirements; and
requiring impacts on existing users of the marine environment that may be occurring under separate legislation to be minimised, such as commercial fishing activities.
The committee heard that the licensing scheme proposed in the Bill is widely supported, subject to a few specific concerns.
The committee accepts that the first of these concerns—changes in control provisions—identifies a potentially significant regulatory burden that submitters argue can be remedied without much difficulty and without impacting government policy. The committee encourages the government to actively consider these suggested amendments prior to the Bill's passage.
In relation to the suggested additions to the merit criteria, the committee acknowledges the strong view that legislative support should be given for economic development, local supply chains and community benefits. The committee welcomes the significant and wide-spread benefits that would result from the Bill. At the same time the committee is not in favour of the addition of highly specific or prescriptive merit criteria to the Bill. In these circumstances, and noting the department's evidence, the committee suggests that the Australian Government should consider incorporating broad socio‑economic benefits as part of the merit criteria in the overall administrative framework.
The committee recognises that the allocation and use of Australia's precious marine resources is highly contested. A related matter was recently also examined by the Senate Environment and Communications References Committee in its Inquiry into the impact of seismic testing on fisheries and the marine environment. This competition is likely to continue given the forecast growth of offshore renewable energy. In these circumstances, the committee supports the development of comprehensive, robust and equitable marine spatial planning underpinned by a sound evidence base. As this matter is beyond the scope of the Bill and its associated regulations, the committee encourages the Australian Government to support the Blue Economy CRC to develop best practice marine spatial planning guidance in anticipation of increased offshore electricity infrastructure deployment, without delaying that deployment.
Managing and protecting infrastructure
The Bill would require licence holders who propose to conduct offshore infrastructure activities to have a management plan for the licence. This plan would cover a range of matters, for example, environmental management and the maintenance and removal of property.
As part of a management plan, licence holders would have to address environmental matters, such as their compliance with any obligations under the Environment Protection and Biodiversity Conservation Act 1999 (the EPBC Act) or its regulations, in relation to the activities to be carried out under the licence.
Some submitters and witnesses expressed concern with the level of environmental protection provided for in the Bill. For example, Professor Hunter, Dr Frohlich, Mr Pettit and Friends of the Earth noted that Professor Graeme Samuel in an independent review of the EPBC Act recently recommended a significant overhaul of that Act.
Professor Hunter and her colleagues referred especially to the North Sea jurisdiction as 'a comprehensive blueprint for offshore wind international best practice'. This blueprint includes environmental monitoring programs and marine spatial planning for the early industry, as well as integration with legislation that provides environmental protections. These components were drawn from development of the offshore wind industry in both Denmark and the United States.
Dr Briggs and Dr Leske submitted that there is a need to acquire more baseline information on the environmental and social dimensions of offshore wind energy, as these are largely untested and unknown in the southern hemisphere:
More research and collection of baseline data is required to understand the effects of offshore renewable energy on ocean and local communities, and on economies and local environments. Global knowledge gained in reducing the potential environmental effects of offshore wind turbines must be transferred to an Australian context. This work should not be left to individual companies, and the value of shared data agreements should be recognised.
Professor Hunter, Dr Frohlich and Mr Pettit considered that the Australian Government should be actively involved in and fund the collection of this baseline data, suggesting that the Bill be amended to include 'provisions that explicitly allow and incentivise the use of money from financial offers, fees and levies for the collection and dissemination of such data'.
Removal of property
The Bill would require licence holders to remove all structures, equipment and other property from the licence area that is neither used nor to be used in conjunction with authorised activities. Friends of the Earth explained that these proposed provisions would particularly apply at the end of projects' lifespans when assets are repurposed or decommissioned:
Offshore renewable energy projects are long-term assets that will generate electricity for many years… The typical lifespan of a wind farm is at least twenty five years or more, with many projects now increasing their expected useful lifespan to thirty years. At the end of a project's lifespan, decommissioning may involve either full or partial dismantling of an offshore wind project, reuse or recycling of components, or full or partial repowering to extend the useful lifetime of projects.
Many submitters and witnesses supported the decommissioning provisions proposed in the Bill but several argued that there are circumstances in which it would not be appropriate to remove OEI. For example, the CEC highlighted that 'the removal of inert, sub-sea transmission cables could present a higher environmental risk than leaving them in-situ'. Sun Cable concurred:
This is especially true of subsea transmission infrastructure, such as HVDC cables which are buried under the seabed for many decades prior to decommissioning. Such buried infrastructure is inert and extraction from the seabed is likely to cause more disturbance to the marine benthic environment than decommissioning the equipment in situ. Further, extraction activities may present risks to other offshore infrastructure, such as operational gas pipelines or telecommunications cables which interface with the infrastructure on the seabed.
In Sun Cable's view, the preferred approach is to allow the regulator and/or the minister the power to determine 'whether leaving certain infrastructure in place provides a net environmental benefit, based on a case-by-case assessment of the environmental risks and benefits associated with decommissioning activities'.
Recreational fishers argued that OEI can provide sites for offshore aquaculture and large‑scale artificial reefs, which would benefit, among other things, aquaculture, commercial fisheries production and recreational fishing opportunities. Recfishwest, the peak body for recreational fishers in Western Australia, submitted, for example:
…well designed offshore renewable energy infrastructure will, following their service life, provide highly productive habitats that assist large-scale fishery production, Recfishwest believe that once decommissioned, these installations provide greater benefit to the environment and the community by being left in situ.
DigsFish Services Pty Ltd suggested that the removal of OEI would not be desirable in most cases:
…this would kill enormous numbers of marine animals and destroy their ecological function as artificial reefs. Removing reefs to other locations may also be contraindicated by the fact that offshore energy projects are recognized as potential biosecurity threats as they allow opportunities for "stepping stone colonisation" of new regions by marine pests…and potentially, also disease agents.
Provision of financial security
Where there is a management plan, the Bill would require licence holders to provide the Commonwealth with financial security sufficient to pay any costs, expenses and liabilities that could arise in connection with or as a result of:
(a) the decommissioning of licence infrastructure; and
(b) the removal of equipment and other property from the licence area or a vacated area; and
(c) the remediation of the licence area and vacated areas, and any other area affected by activities carried out under the licence.
Many submitters and witnesses supported the concept of the proposed financial security scheme but some voiced concerns about the lack of detail in the Bill. For example, Dr Penelope Crossley indicated that the paucity of information makes it difficult to determine whether the scheme will be effective. Star of the South and CIP commented:
There is no guidance, cap, or calculation regarding the amount, nature or term of financial security that must be provided by the proponent. We understand this type of approach is unprecedented in Australia for the offshore and onshore energy and resource industries.
The NT Government queried how the regulations might calculate the amount of security required from licence holders, noting that each project will have its own requirements and risk considerations:
The Territory…recommends that these differences are reflected in the methods applied in determining whether, and the form of, financial security that is required to ensure that the financial security is commensurate with project-specific risks.
Flotation Energy Pty Ltd argued that not only must the amount of the financial security be reasonable but that the Bill should also clarify timing for the provision of the security: 'financial security should not unduly quarantine working capital (e.g. before construction commences), which could deter or inhibit proponents from investing in projects'.
Mr Griffin from Sun Cable agreed:
…there is no logic in imposing financial bonds on day one, that would sit there and cause an economic burden on the project and therefore the cost of electricity et cetera for the next 60 years. That is just counterproductive. Of course, there might be something that happens over time that gives the regulator cause for concern. We think that it's probably appropriate that the regulator might have the ability to consider how that infrastructure is performing in the environment as it approaches the end of its operational life.
The CEC suggested aligning decommissioning payments with projects' operational earnings:
One possible model would be a ratcheting bond, featuring low payments in the early years of operation (when debt repayments are highest), increasing during the asset's operation such that the full cost of decommissioning would be set aside by the later years of the asset's life. This approach would smooth the total cost over the project's life and allow the bond to be funded by cash-flow from the asset rather than being an upfront lump-sum equity contribution.
Several submitters endorsed this proposal, including Sun Cable:
…where subsea cable removal is required in part or in full, Sun Cable recommends a ratcheting bond as a possible model for consideration. The proposed model would see payments begin thirty years into the licence term, and then progressively increase such that the full cost of decommissioning is covered ten years prior to the asset's end of design life.
Dr Crossley added that, to keep abreast of projects, the Bill should also require the periodic revision of management plans and adopt a strategic asset management approach:
Periodic revisions will ensure there is not a shortfall in the Financial Security Reserve at the end of life of the project, and that the Management Plan is adopting industry best practice to meet the relevant environmental standards upon decommissioning.
Departmental and NOPSEMA response
DISER highlighted that there are protections to ensure OEI projects will be undertaken in an environmentally responsible way, including the need for environmental approval under the EPBC Act:
Commonwealth marine areas are matters of national environmental significance under the EPBC Act. This means any offshore electricity infrastructure projects that will have, or are likely to have a significant impact on the environment, must be referred to the Minister for the Environment and undergo environmental assessment and approval.
DISER also pointed out that, under the Bill, licence holders will have to demonstrate how their environmental obligations will be met, as well as any other environmental management requirements, such as remediation:
The Regulator [NOPSEMA] will monitor compliance with the approvals granted under the EPBC Act and ensure that continuous improvement in environmental management performance is achieved through periodic revision of management plans. This ensures impacts and risks are being managed throughout the life of a project.
DISER submitted that environmental risks are further managed by the proposed requirement for licence holders to decommission infrastructure and address environmental remediation for any incidents at the end of a project's life, to the regulator's satisfaction.
Mr Stuart Smith, CEO of NOPSEMA, specifically noted however:
…there is discretion that can be exercised by the regulator to allow things to remain in situ depending on the environmental outcome. If there's going to be a positive environmental outcome because things are being left in situ then there is the opportunity for the regulator to allow it, which is the same for offshore oil and gas infrastructure.
Departmental representative Mr Murphy informed the committee that the concerns raised by submitters and witnesses in relation to the financial security scheme have been considered, and the proposed provisions are 'scalable and tailor-made for the nature of the activities':
The bill requires the financial security to match [the stage of construction]—you can't deploy any infrastructure unless you have security that's sufficient to cover that stage of your construction. It's a very scalable approach. Also the management plan has review cycles in it, so you could review the amount of security needed not only in response to the project but also in response to what are acceptable environmental practices... All of these offshore activities occur in hazardous environments, and things can go wrong… There are a lot of assumptions that a cable can be nicely rolled out and left there for decades, but the financial security will also cover the construction phase and needs to be sufficient if something goes wrong.
The committee heard that submitters and witnesses generally support the proposed requirement for a management plan for licences. The committee acknowledges that the Bill contains environmental protections that are assisted and complemented by other Commonwealth laws such as the EPBC Act. The committee agrees that international experience can inform the development of the offshore wind industry in Australia, with translation to the local context, noting that NOPSEMA would consider these models where appropriate (see paragraph 1. 23).
The committee understands that the aim of the decommissioning provisions proposed in the Bill is to protect the environment. The committee notes NOPSEMA's advice that the regulator has discretion to allow infrastructure to remain in situ if that best serves environmental objectives. The committee encourages the government to make clear the criteria NOPSEMA will apply in relation to that discretion, noting Australia's international environmental obligations.
The committee heard that while submitters and witnesses support the proposed financial security scheme some are concerned that the regulations will require surplus security and will effectively lock up capital when projects require the use of those funds. The committee accepts that some security is required from the outset and that this amount is reviewable throughout the life of a project. The committee urges DISER to examine the concept of security 'ratcheting' as it formulates the regulations for consideration by the Australian Government.
Application of work health and safety laws
The Bill proposes to apply the Work Health and Safety Act 2011 (WHS Act) to certain activities in the Commonwealth offshore area, with some legislative modifications to ensure that the provisions are fit-for-purpose for the offshore environment.
Legal experts highlighted the hazardous and high risk environment of offshore wind projects. Dr Crossley particularly noted risk statistics compiled by the Global Offshore Wind Health and Safety Organisation that show:
…a total recordable injury rate within the offshore wind sector of 5.5 injuries per million hours worked in 2019, which compares to a rate of 0.92 injuries per million hours worked in the offshore petroleum sector.
Dr Crossley submitted that the offshore petroleum sector has a bespoke work, health and safety (WHS) regime and questioned why the Bill would propose the WHS Act for the much more hazardous OEI industry:
Working offshore and at significant heights carries with it increased risks for employees and contractors. It is for this reason that most countries in the world have a specific offshore work health and safety regime for the petroleum sector.
Workers' representatives did not agree that a bespoke approach is necessary, welcoming the general application of the WHS Act which, they argued, would apply modern and widely understood WHS systems and processes to offshore electricity work. In their view, the proposed modifications to the WHS Act would create:
…an entirely new and bespoke work health and safety regulatory regime, significantly different to all existing WHS regimes. This in turn introduces a lack of certainty and transparency to the Bill's application and misses an opportunity to remove regulatory duplication.
The ETU and MUA voiced concerns about some of the proposed changes—such as the removal or rending inoperable of several important provisions of the harmonised WHS system and the application of more than one WHS regime—but also objected to the bespoke new WHS regime:
…establishment of a new WHS regime for offshore electricity is contrary to the objective of harmonisation of WHS laws agreed through Council of Australian Governments' (COAG) National Reform Agenda. The formal harmonisation process established by the Intergovernmental agreement for regulatory and operational reform in occupational health and safety in July 2008 should be adhered to. Occupational Health and Safety in specific industries or in relation to specific hazards "should only be separately regulated where it is periodically and objectively justified". No such justification has been presented. A recent review of the harmonised WHS system found that if the objective of harmonisation "is to be sustained into the future, it is critical that all jurisdictions commit to it".
Mr Liam O'Brien, Assistant Secretary of the ACTU, emphasised that the model WHS laws cover a diverse range of industries, demonstrating that they are 'very fit‑for-purpose'. Mr Gauld from the ETU suggested that, in fact, the Bill is 'being built to suit NOPSEMA rather than being built to suit the industry'.
Departmental and NOPSEMA response
DISER submitted that the protection and safety of the OEI workforce is assured by the application of the WHS Act:
These model WHS laws are an established, nationally agreed standard for managing work health and safety. The [Bill] provides for direct alignment with the model WHS laws, maximises consistency with the states and territories that have adopted these model laws, and guarantees the [Bill] will stay aligned with these national standards should they change in the future.
The department noted also that NOPSEMA has extensive experience regulating industries in the high hazard and risky offshore environment. The proposed regulator agreed that it has 'strong operational knowledge of the offshore environment and associated health and safety requirements and can ensure the offshore electricity sector establishes and maintains the high standards'.
NOPSEMA CEO Mr Smith acknowledged that the WHS Act has never before been applied in the offshore area but assured the committee that NOPSEMA has carefully considered the proper application of that Act:
We have sought extensive advice and worked pretty closely with the Attorney-General's Department about how we can apply the model legislation because we do think it is best practice, and having it in the bill would mean that if there is ever future harmonisation in the main area, that would be picked up automatically. If that Act [the WHS Act] was modified, it would be picked up automatically by the [OEI] bill.
The committee notes the vital importance of the health and safety of OEI workers. The committee notes that NOPSEMA, which significantly informed development of the bills, advised that it has sought legal advice to ensure that the appropriate protections are provided. In addition, the department advised that it has sought to promote harmonisation in this space, as agreed by the 2008 National Reform Agenda.
Future legislative and policy work
Although the Bill and the Offshore Electricity Infrastructure (Regulatory Levies) Bill 2021 are 'ready to go', submitters and witnesses observed throughout the inquiry that additional future legislative and policy work is required to complete the regulatory framework. For example, introduction of the Offshore Electricity Infrastructure (Consequential Amendments) Bill 2021, and completion of the licensing scheme (see 'Licensing scheme') and financial security scheme (see 'Provision of financial security'), which are to be detailed in the regulations.
DISER representative Mr Murphy advised that the department is currently planning its consultation process for the regulations, with a focus on those that are first required in the proposed framework. This consultation process is expected to take place in the first half of 2022 and to be completed within six months.
As the development of offshore renewable energy progresses, the Victorian Government argued that governments will need to closely coordinate legislation, policies, guidelines, et cetera. Its submission noted the various and necessary jurisdictional intersections, for example, support for renewable energy development and navigation of requirements in the Commonwealth offshore area and coastal waters.
DISER also noted that the Bill will operate in conjunction with existing regulatory requirements, including those applicable at the state and territory level:
The complex nature of the offshore renewable energy generation and transmission projects captured under the OEI framework means there will be a number of different regulatory regimes with which each project may need to align. For example, consider a project for an offshore wind farm: it will require a licence under this OEI framework to construct infrastructure in the Commonwealth offshore area, but will also need to ensure the different component materials are transported to the licence area in line with international and domestic maritime laws, that the transmission cables that run through state waters and onshore meet state government requirements, and that the generation outputs of the project meet obligations under Australia's National Electricity Laws.
The Victorian Government suggested that it would be beneficial to create an Australian-Victorian Government oversight body:
This governance group could consider declared areas, the licensing scheme which is to be developed, how interactions between current and future marine users (such as oil, gas and carbon capture and storage projects) are coordinated, and how to streamline environmental approvals across state, territory and Commonwealth borders.
The bills have been introduced to establish a regulatory framework for offshore infrastructure activities, both generation and transmission. Throughout the inquiry, there was strong and wide-spread support for these objectives, with governments, developers, investors, unions, researchers, academics, environmentalists, communities and individuals eager to see the bills expeditiously enacted.
The committee notes the significant economic, social and environmental opportunities that will be promoted through the Bill, particularly if the legislative framework is well-crafted from the outset. The committee agrees that it is important for the framework to be enacted as soon as possible, to create industry certainty, sufficient lead time for complex project design and financing, and workforce delivery in alignment with forecast closure of current energy assets.
The committee also notes that the regulations, which will set out significant parts of the OEI operational framework, will not be complete until well into 2022. However, the committee considers it necessary to take this time to consult widely and develop and present complex and articulate legislation.
The continuing regulatory development phase presents the Australian Government with the opportunity to consider the extensive and valuable feedback to this inquiry. While some suggestions might require more long‑term consideration, the committee considers that there are others where there can be a more immediate response such as:
amending the objects clause to better incorporate electricity transmission objectives (see paragraph 2.32);
amending the consultation requirements for declared areas (see paragraph 3.13); and
considering amendments to the changes in control provisions (see paragraph 3.20).
The committee accepts that the bills establish a framework where much of the detail is not yet known, however this framework is intended to support highly valuable offshore infrastructure activities that will contribute significantly to Australia's economy and clean energy future.
The committee recommends that the Senate pass the bills.