Carbon appétit: Government expresses hunger for carbon capture and storage via new fund

On 1 March 2021, the Commonwealth Minister for Energy and Emissions Reduction, Angus Taylor, launched the $50 million Carbon Capture, Use and Storage Development Fund (Fund) to support the growth of carbon capture, use and storage (CCUS) opportunities in Australia. The Fund is part of the Commonwealth Government’s wider $1.9 billion new energy technologies investment package, which was announced by Prime Minister Scott Morrison in September 2020.

Background to the Fund

The establishment of the Fund follows the release in September 2020 of the Commonwealth Government’s ‘Technology Investment Roadmap: First Low Emissions Technology Statement – 2020’ (Statement).[i] The Statement was developed following a public consultation process conducted in 2020 and sets out the Commonwealth Government’s strategy to accelerate the development of new and emerging low emissions technologies. 

The Statement identified carbon capture and storage (CCS) as a priority low emissions technology. Under the Statement, priority low emissions technologies are technologies that are expected to have transformative economic and abatement impacts and that have high potential to reduce emissions across multiple sectors and applications.

The Statement sets out the Government’s ‘economic stretch goal’ for CCS, being its ambitious but still realistic goal to bring CCS to economic parity with existing mature technologies. That goal is for CO₂ compression, hub transport and storage to cost less than $20 per tonne of CO₂ sequestered. That goal does not, however, cover the cost of carbon capture processes.  

It was recognised in the Statement that CCS deployed at scale is required to meet the global goals set out in the Paris Agreement. The Statement also noted that CCS will underpin new low emissions industries (including “blue” hydrogen) and provide a potential decarbonisation pathway for industries for which it is hard to abate CO₂ emissions, such as natural gas processing and cement production. However, the Statement acknowledged that CCS is likely to add costs to projects compared to incumbent technology and, for that reason, requires targeted government support and incentives to increase its deployment.

Operation of the Fund

The Fund will run over three years from 2020-21 to 2022-23 and will support CCUS pilot projects or pre-commercial projects aimed at reducing emissions. The Commonwealth Government has released the ‘Grant Opportunities Guideline – Carbon Capture, Use and Storage Development Fund’ (Guideline) to assist entities with applying for the grants available from the Fund and understanding how applications will be determined.[ii]

The Guideline notes that the Fund’s objectives include:

• reducing emissions across energy generation, natural gas or hydrogen production and heavy industries (including manufacturing, chemicals, cement and fertiliser production);
• fostering existing, pilot or pre-commercial CCUS facilities that could connect into a regional CCS hub in the future and bring together a network of multiple greenhouse gas emitters enabling reductions in costs and risks for CCUS projects and large-scale abatement;
• supporting new opportunities to use carbon dioxide in the development of CO₂-derived products and services; and
• leveraging expertise and viable geological storage resources for CCUS in Australia.

Eligible entities

The Guideline sets out a range of requirements in respect of an applicant which need to be met in order for it to be eligible for a grant from the Fund.[iii] Income tax exempt entities, individuals, partnerships, unincorporated associations and certain other organisations are not eligible to obtain a grant from the Fund. To be eligible for a grant, the applicant will need to provide evidence:

• from its board that the relevant project is supported, and that the applicant can complete the project and meet the costs of the project not covered by grant funding; and
• of how it will provide its share of project costs (such as an accountant declaration that confirms it can fund its share of the project costs, including any ineligible expenditure).

Eligible projects

The Guideline also sets out a range of requirements in respect of a project which need to be met in order for an applicant to be eligible for a grant from the Fund.[iv] Those requirements include that the project must:

• be located in Australia;
• be completed no later than 30 June 2025;
• be aimed at developing CCUS technology or CCUS deployment involved in energy generation, natural gas production, hydrogen production, or heavy industries (including manufacturing, chemicals, cement and fertiliser production) and pilot and/or significantly progress CCUS deployment in Australia towards commercial operations;
• have at least $500,000 in eligible expenditure; and
• not receive funding from another Commonwealth Government grant.

The Guideline contains detailed provisions on what constitutes eligible expenditure.[v] Broadly speaking, to be eligible an expenditure must be a direct cost of the project or be incurred in respect of project audit activities.

Grant amounts, reporting and compliance

The amount of the grant under the Fund awarded to an applicant for a project may be up to 100% of the eligible expenditure for the project, with the minimum grant amount for a project being $500,000 and the maximum grant amount for a project being $25 million.

If an applicant is successful, it will be required to enter into a grant agreement with the Commonwealth Government.[vi] The grant agreement will, among other things, set out the grant funds to be paid by the Commonwealth Government and the timing or milestones for such payment. The grant funds can only be spent on eligible expenditure incurred on an agreed project as defined in the grant agreement.

A successful applicant who enters into a grant agreement will need to provide progress reports, an end of project report, and such other ad hoc reports as may be requested. Such an applicant may also be asked to provide an independent audit report verifying that the grant funds have been spent in accordance with the grant agreement. Government representatives may also undertake compliance visits during the life of the project to ensure compliance with the grant agreement.

Closing remarks

The deadline for submission of applications to participate in the Fund is 5.00pm AEDT on 29 March 2021. Given this deadline, potential applicants will need to act quickly if they wish to participate in the Fund.

Despite concerns regarding the effectiveness of existing CCS facilities, such as the Gorgon CCS project on Barrow Island (due to delays in commencing operations), the Commonwealth Government’s $50 million pledge to develop new and existing CCS facilities is a strong indication of the importance of this technology in Australia’s quest to meet its emissions targets under the Paris Agreement.

The adoption of CCUS technologies in Australia is also being incentivised by the Commonwealth Government’s pledge to introduce a new CCS methodology under its Emissions Reduction Fund. While work to develop this new method has begun, it is only in its initial design process and is scheduled to be released for public consultation in the second quarter of 2021. Release of the draft methodology will give further indication of the Commonwealth Government’s long-term strategy to incentivise investment in CCUS technologies in Australia.

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