Carbon Capture, Utilisation and Storage – a way forward for New Zealand?

CCUS involves capturing carbon dioxide, often from power stations, industrial facilities and other point sources. That CO₂ is then either used onsite, transported elsewhere for use (potentially as dry ice to chill food exports or as a welding gas for steel construction) or else injected into the earth, often into depleted oil and gas reservoirs, geothermal wells or certain aquifers, so that it does not enter the atmosphere.

As noted in the Government’s proposal, international momentum behind CCUS is growing, with a number of jurisdictions having developed or developing regulatory frameworks for it. In addition, the proposal cites three key benefits of CCUS for New Zealand:

Allowing CCUS to compete with other emissions reductions/removal options to enable a least cost transition.
CCUS technology may reduce costs for gas production (particularly for high CO₂ gas fields), which may promote investment and reverse the “current sharp decline” in gas production.
CCUS has the potential to decrease the cost of New Zealand reducing its emissions, which will assist with its international competitiveness.

However, current regulation is ill-equipped to handle CCUS projects. First, New Zealand’s emissions trading scheme (the NZ ETS) does not expressly address CCUS. Forestry receives New Zealand Units (NZUs) for the emissions it removes, while geothermal fluid users can apply for approval to use a unique emissions factor allowing them to subtract CO₂ reinjected into geothermal fields from their liability. Beyond that, there is scope for CO₂ captured and stored by the person emitting it, where that person is required to surrender NZUs under the ETS, to have this recognised as a removal activity; however, there is no detail provided around this and the relevant provision would need to be brought in by Order in Council.

Second, New Zealand’s Resource Management Act 1991 (the RMA) and equivalent legislation applying to projects offshore also do not expressly regulate CCUS, and it is unclear how decision-makers would process applications for such projects.

The proposal

While it does not see its role as including provision of financial incentives, the Government does propose to establish a “clear regulatory landscape” for CCUS, which allows for reduced emissions and energy security while ensuring environmental integrity. Specifically, this regulatory regime would address:

The ETS: As noted above, the ETS does not recognise CCUS activities, except in limited contexts. The Government is therefore proposing that the ETS be amended to provide for emissions reductions/removals from carbon storage, with participants able to subtract stored emissions from their emissions liabilities. Alternatively, businesses could receive NZUs for their removals (similar to the way forestry removals currently earn NZUs), providing they have a clear mechanism for sequestering the carbon.
Monitoring: The Government proposes to create regulations similar to those in Australia and the EU which would require operators of CCUS to monitor their storage sites and collect information on CO₂ captured, sequestered and leaked during transportation, injection and storage. Regulations would also include an audit and compliance regime. CCUS operators would also need to be participants in the ETS while responsible for storage and would be required to surrender NZUs/store additional CO₂ to compensate for any leakage.
Long-term liability for storage sites: The Government proposes adopting a framework requiring operators of storage sites to apply for permits and approval of their monitoring plans, monitor for leakage and pay compensation as required. Prior to closure of the storage site, the operator would need to provide closure plans and evidence that the site has no or negligible risk of leakage as well as completing a financial capability assessment (if required) to determine its ability to maintain/remediate the site. Operators would be responsible for any issues with the storage site for a set period after closure, with the government able to opt to indemnify the operator after that period if satisfied there is no significant risk. There would also be “trailing liability”, with previous owners of the site potentially liable if the current owner could not meet their obligations.
Consenting and permitting: The Government considers that New Zealand currently has “a neutral policy environment for consenting” so is not proposing any changes. While there are inconsistencies, it considers that it is not clear that these are an impediment to investment, noting that geothermal plants are already piloting CCUS.

Next steps

As part of its consultation, the Government seeks feedback on its proposal as well as the potential regulatory and policy barriers to investment in, and adoption of, CCUS technologies. Submissions on the consultation close 6 August 2024, with the Government to make its policy decisions after that.

If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.