Draft National Coal Seam Gas Harmonised Regulatory Framework

Draft National Coal Seam Gas Harmonised Regulatory Framework:

Submission to the Standing Council of Energy and Resources (SCER) as part of the consultation process to establish a national harmonised framework for the development of Coal Seam Gas in Australia

Dr Tina Hunter

Professor Andrew Garnett

Foreword

This report has been authored by Dr Tina Hunter, TC Beirne School of Law, University of Queensland and Professor Andrew Garnett, Director of the UQ Centre for Coal Seam Gas. The University of Queensland Centre for Coal Seam Gas (CCSG) was established in 2011, and aims to be a world-leading Centre of Excellence that serves the research and educational needs of industry, government and community stakeholders regarding this emerging industry. CCSG supports leading-practice policy and regulatory development, and will assist to ensure that Australia becomes a primary source for new knowledge, technology and skilled graduates for industry and broader society. Currently funded by the University and industry with representation from the State regulator on its governing body, the Centre conducts world-class, impartial and independent scientific research in four key research areas: water, geoscience, petroleum engineering and social impact, as well as a focus on education.

Disclaimer

The views and opinions expressed herein do not necessarily represent the views of the members of the University of Queensland, Centre for Coal Seam Gas.

Background, aims, and scope of the submission

Backgroundto the National Harmonised Regulatory Framework

The National Harmonised Regulatory Framework (the framework) seeks to be a guidance and reference tool for Australian federal, state and territory government regulators of the Coal Seam Gas (CSG) industry (p5). Its purpose is to provide a suite of national and global leading practices to consider and implement in the assessment and ongoing regulation of proposed CSG projects. In addition, the framework has been formulated to respond to community concerns, and is broadly organised into six areas:

1. Sustainability and coexistence
2. Applying leading practices
3. Well integrity
4. Water management and monitoring
5. Hydraulic fracturing
6. Chemical use

The framework has two primary aims (p5):

1. Seeks to be a guidance document for governments in the six areas outlined above; and
2. Provide benefit for communities and industry by providing increased levels of consistency, transparency and certainty in the management of CSG development.

Aims and scope of this submission

This submission seeks to assist SCER in constructing a national CSG harmonisation framework by analysing and commenting on the content of the draft framework, based on the legal and technical competencies of the authors. This analysis is undertaken against the two primary aims of the framework. It examines the framework under the six broad areas outlined, and particularly examines the leading practices that have been proposed by the draft framework (p6 of the framework), which outlines the eighteen leading practice areas. In assessing the framework, this submission also comments on other areas where the frameworkmight include more information or might otherwise be improved.

General comments regarding the framework

Overview Comments

The authors recognise and welcome the efforts of the SCER in creatingthe draft harmonisation framework and see it as a step forward in promoting the sustainable development of coal seam gas in Australia. In particular the recognition of the role of the regulator in achieving balance, the principle of co-existence and the need for risk-based decision making are well stated. The authors recognise the focus on qualified personnel in several Leading Practice areas, and note that the document focuses primarily on the Operator. However, given the scale and complexity of the industry, it would seem prudent to put similar focus on skills and competencies and resourcing levels within the regulators – this may be an area for a new Leading Practice.

As a draft there are, naturally, areas where additional information or elucidation could further the goals of the framework. The following sections discuss these areas, rather than commenting on areas considered to be well covered in this draft framework.

Science and data

As noted in the policy statement published by SCER, the harmonised framework is promoted as an important demonstration that governments are listening and responding to community concerns, and working together to strengthen regulation and ensure a balance between protecting human health, social and environmental values and achieving economic outcomes.It will also increase public understanding of CSG issues, the role of governments, industry and communities, and the science and economics that underpins the development of the sector.Consistent with this approach of listening to community concerns and responding to those concerns, the framework also seeks to act as a guide to industry on what leading practice regulation is. In doing so, the framework seeks to provide greater certainty and consistency for CSG operators, and will provide a foundation for continued improvement in operational leading practice, built on improved science and data.

In order for the framework to achieve these goals, it is important that it provides comprehensive references to the scientific information and data framework it intends on using, or indeed any scientific information it has consulted. Demonstrable scientific underpinning will assist in community and industry education, and improvement in developing and implementing leading practices.

Access to information

The executive summary refers to a number of reports that were utilised by the CSG Harmonisation Steering Body (p2), especially a report on Multiple Land Use Framework Research Study, Leading Practice Framework for CSG Development in Australia, and CSG Legislative Review. Unfortunately these reports do not appear to have been made publically available to date. To promote education and consistency, it is important that this information is readily and publically available.

Community confidence

The framework positions various governments as educators. Evidence suggests that governments might be more effective in recruiting the University and research community to assist with this task. The Centre for Coal Seam Gas is already engaged widely in this sphere and would welcome the opportunity to contribute to the aims of the framework.

Towards sustainability and co-existence

Key points

Sustainable development is defined on page 8 as meaning that ‘CSG projects should be financially profitable, environmentally sound, technically appropriate and socially responsible’. Perhaps the most recognised and commonly used definition of the term comes from the Brundtland Commission. That definition differs somewhat from form elucidated in the framework, which may cause some confusion for readers. While the framework has sought to simplify and operationalize the concept, it might be useful to specifically recognise that the working definition in the framework is not a complete departure from Brundtland i.e. that there are “limitations” imposed by technology and social organisationon the environments ability to meet present and future needs. Discussion of these limitations is the very discussion of balance which the regulator must strike.

This submission acknowledges that the explicit presumption on co-existence as a core principle and is in any case implicit in the context of Crown ownership of resources and State rights. It would be useful to elucidate or give examples of what the co-existing entities and operations are seen to be in this context.

Governments’ role to ensure a balanced outcome

The framework acknowledges the crucial role of the regulator in ensuring the economic, social and environmental sustainability of CSG operations. The authors recognise that this is a significant challenge. In order for the regulator to effectively regulate this very large and complex industry, it needs to be both well resourced (both financial and human resources) and sufficiently skilled. The issue of skill development and retention remains a major challenge for regulators. The harmonisation framework is silent on regulator resourcing and competency levels and this is considered to be a major area of deficiency of the framework. This in turn is complex and difficult for governments to address given the high demand (and wage levels) for relevant skills from the CSG industry itself. However, it is a challenge which must be met for the framework to be successful. An additional “Leading Practice” in this area should be considered.

The framework emphasises the importance of the regulator role in assessing EIS’s, analysing company monitoring reports, undertaking monitoring itself and also auditing company performance. In addition to skills levels, given the scale of the task, itis critical that regulators be adequately resourced to undertake these functions. Environmental assessment is a highly specific and labour-intensive regulatory task. Given that the CSG industry is likely to be ongoing in the eastern states for several decades, it is crucial that governments focus on building (or otherwise accessing) capacity for the long term.

The framework discusses the concept of verification of key system elements, including well design, water management and hydraulic fracturing process by competent and qualified professionals (p20). The nature, minimum standards and verification of these professionals is not addressed. The authors presume that this is intended to ensure that the risk and onus of proof remains with the operator. It might be valuable, for industry and community alike, to define some minimum qualifications (e.g. International Well Control certification) for the most critical roles.

Elsewhere, there has been concern regarding a shortage of technically competent professionals. The 2011 report into the Western Australian CSG and Shale Gas regulatory framework identified and discussed the lack of technical staff at the Department of Mines and Petroleum (DMP), especially in relation to well design and construction. The report identified the age of the staff as critical – they were older professionals that have come from industry at a period in their lives when they can afford a dramatic pay decrease as they move from industry to government employment.

Theframework

A clear statement that development will not proceed where impacts cannot be sufficiently minimised would increase community confidence in the framework. Although this is explained in the glossary as the concept of ALARP, part of the ambit of this framework is to educate the community. Therefore, consideration should be given to expanding on the concept of ALARP, how the risk is reduced, and whom the responsibility for reducing the risk lies with (whether it is the role of the regulator or the operator). Without clarification, the community may see this ALARP role being that of the regulator, whereas the concept of ALARP, certainly within the Safety Case Regime, places the responsibility of reducing risk to ALARP on the operator.

The executive summary of the framework notes that the current legislative arrangements of the Commonwealth and state/territory governments provide a sound mechanism for managing CSG exploration and development activities. While legislative arrangements do exist, the governments are not complacent, rather theyare actively pursuing improvements to the regulatory framework. Indeed, several key regulators are presently undertaking comprehensive assessment and review of existing regulatory frameworks to strengthen these frameworks:

• Western Australia undertook a review of its unconventional gas framework in 2011, with the framework lacking basic environmental and resource management and administration regulations. Since this report,thePetroleum and Geothermal Energy Resources (Environment) Regulations 2012 (WA) have been introduced (August 2012). Resource management regulations, including the regulation of well integrity and field development plans) have been drafted though yet to be circulated to stakeholders.
• Queensland has recently announced a review of its CSG regulatory framework, especially that relating to land access arrangements. In addition, Qld regulators have a policy of adaptive management, which is based on the philosophy of ‘learning by doing’ through the imposition of a layered monitoring and reporting scheme alongside obligations to compensate and ‘make good’ any harm caused.
• New South Wales continues to reform and develop its CSG regulatory framework, and admits that the framework requires adaptation for the increasing development of CSG in that state (refer to NSW Legislative Committee General Purpose Standing committee No. 5 Coal Seam Gas, 2012).
• Dr Tina Hunter undertook a review of the regulatory framework relating to unconventional gas regulation in the Northern Territory in 2011-12, at the request of the Northern Territory Government. This review remains with the Northern Territory government, whilst stakeholders, especially those who were consulted during the review process, await the release of the report.
• The Commonwealth government’s jurisdiction over onshore CSG activities, is primarily restricted to the regulation of environmental matters that fall under the ambit of the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) (EPBCA). However, the Commonwealth does have the power to regulate CSG activities under sections 51(i) (interstate and overseas trade and commerce) or 51(xx) (corporations power) of The Constitution.

The Centre for Coal Seam Gas and the TC Beirne School of Law welcomes any opportunity to assist SCER in assessing the current legislative arrangements and clarifying the role of regulators and operators within the ALARP framework.

Applying leading practices

Risk-based framework & ALARP

This submission acknowledges the use of risk-based decision-making framework, which focuses on the application of leading practices in accordance with the level of (assessed) risk with evidence based decision-making.In general, theapplication of such risk-based regulatory frameworks relies on principles-based regulation and the concept of ALARP, which arose out of the Piper Alpha disaster in the North Sea in 1988.

Recapping. The disaster and resulting Cullen Inquiry recognised that the prescriptive (or rules-based) framework was a contributory factor. The prescriptive regime that existed at the time of Piper Alpha placed the responsibility for platform safety upon the regulator, who attempted to specify in detail all that was required in order to ensure the occupational health and safety in the design, construction and operation of offshore installations. The Piper Alpha disaster, and other similar incidents (including the Ekofisk Bravo blowout in 1977 and the Alexander Kielland platform capsize in1980) demonstrated the limitations of the detailed prescriptive approach to cope with health and safety on offshore petroleum facilities. The Cullen Inquiry recommended the use of a Safety Case Regime (SCR), an objective or goal-setting regime, based on the principle that the legislation sets the broad goals to be attained, and the operator of the facility develops the most appropriate method of achieving those goals. The regime is a sophisticated, comprehensive and integrated risk management system based on a rigorous framework, captured by a safety management system that is used to support the operators claim that the operation is safe.In this principles-based regulatory environment, the operator is required to demonstrate that they have identified and assessed all relevant risks, and have taken all steps necessary to reduce these risks to as low as reasonably practicable (ALARP).

The success of the SCR relies on a well-resourced, competent and independent regulator with adequate legal powers, to ensure that the operator carries out the process of preparing the Safety Case in a rigorous manner, and if the Safety Case is not adequately demonstrated, the regulator has the capacity to challenge it. The justification for the SCR in the UK was that those who create and manage major hazards must be responsible for controlling the risks (Cullen, 1990). This shifts the responsibility for safety (and by analogy environmental performance) from the regulator to the operator. Australia adopted the SCR into the regulation of offshore petroleum occupational health and safety in 1999, and was further strengthened in 2005 with the creation of the National Offshore Petroleum Safety Authority (NOPSA).

In regulating CSG activities within a risk-based context, the responsibility to manage minimize risk is placed on the operator, who is required to find the best way of achieving the outcome required, which is reducing the environmental impacts and risks associated with the petroleum activity to as low as reasonably practicable (ALARP). Whereas rules-based regulation prescribes the detailed steps for environmental compliance, principles-based regulation provides an overarching framework within which the operator must operate. The advantage of this principles-based regulation is the ability of the regime to be flexible, enabling new technologies and approaches to be applied in different situations, while still complying with the principle objective of the legislation.

Principle-based regulatory framework represents best regulatory practice, and when adhered to by the operator and reinforced by a competent regulator it can effectively regulate petroleum activities. A concern of principle-based regulation is where the operator fails to adhere to the ALARP framework established (as was the case of PTTEPAA in the Montara blowout and subsequent oil spill (Borthwick, Report of the Montara Commission of Inquiry 2010, p11)) or where the regulator is unwilling or unable to effectively regulate (such as outlined by the Montara Commission of Inquiry (Borthwick, Report of the Montara Commission of Inquiry 2010, p13)).