27/08/2021

At the recent Committee for Economic Development of Australia (CEDA) conference in Perth the Western Australian Government (State Government) indicated that there were 240 pieces of legislation that would be infringed or incompatible in the development of the largescale renewable energy projects required to produce green hydrogen. To address this, the State Government has flagged regulatory reform in both the land tenure and gas pipeline regimes in the pursuit of establishing Western Australia (WA) as a mass green hydrogen producer:

  • land tenure reforms: the need to reform land tenure laws to implement a mechanism for land to be converted from pastoral land into tenure for green hydrogen production, inclusive of renewable energy sites; and 
  • gas pipeline reforms: reforming the pipeline regulatory regime to enable the blending of green hydrogen into existing gas infrastructure.

This article reviews the State Government’s approach in establishing WA as a leader in the green hydrogen space and then comments on the shape that potential reforms might take. 

In our view, the introduction of land tenure and gas pipeline reforms will be fundamental steps towards WA being able to capitalise on the full potential of large scale hydrogen production.

State Government’s Hydrogen strategy

Part of developing a green hydrogen industry is having an established bureaucracy, together with licensing and regulatory bodies, to advise and direct the establishment of this new industry and administer an appropriate regulatory framework. Initially the State Government’s hydrogen strategy came under the ambit of the Department of Jobs, Tourism, Science and Innovation (DJTSI) and its Minister the Hon Alannah MacTiernan MLC and was developed with the support of the Western Australian Renewable Hydrogen Council (ARHC) which was formed in 2018. 

In the State Government cabinet reshuffle, post the landslide 2021 state election, the Premier, the Hon Mark McGowan, created the Hydrogen Industry portfolio and appointed the Hon Alannah MacTiernan MLC as minister (Minister of Hydrogen Industry). The introduction of the new portfolio is the State Government’s recognition of how instrumental hydrogen has become in WA’s energy future – an acknowledgement that hydrogen is an economically realistic and tangible green energy source and one that provides a major opportunity for WA to establish itself as a leading player in a global market.

In conjunction with the ARHC, DJTSI released both the Western Australian Renewable Hydrogen Strategy (Strategy) and the Western Australian Renewable Hydrogen Roadmap (Roadmap) in July 2019 and November 2020 respectively. The State Government’s hydrogen vision is set out in the Strategy and the Roadmap: for Western Australia to become a significant producer, exporter and user of renewable hydrogen with its share in global hydrogen exports similar to its share in LNG today. Whilst the Strategy undertakes a high level analysis into why WA provides a suitable environment for the hydrogen industry, outlines the State Government’s hydrogen goals and explains the benefits of using hydrogen, the Roadmap addresses the practicalities of the Strategy – what mechanisms and timeframes will apply to ensure the Strategy is fulfilled. The Strategy was updated in January 2021 (Updated Strategy) to align the State Government’s original goals with advancements in the hydrogen industry. Throughout both the Roadmap and the Updated Strategy are hints at prospective land tenure and gas pipeline reforms.

Land tenure reforms

As is now well-understood, the ‘green’ aspect of green hydrogen is not based on the molecular structure of the hydrogen, rather it is an acknowledgement that the electrolysis process used to produce the hydrogen is powered solely by renewable energy. Due to the high energy intensity of hydrogen production, the renewable energy facilities (such as the wind and solar farms) require expansive land tenure areas in addition to the areas required for the hydrogen production infrastructure. Large-scale renewable energy projects are therefore central to the burgeoning green hydrogen industry and not only do the solar and wind resources need to be available, but the land also has to be available and accessible for that purpose. 
Under WA’s current land tenure regimes, there is no fit for purpose or one size fits all tenure option for renewable facilities. The options include tenure under Mining Act 1978 (Mining Act), the Land Administration Act 1977 (LAA) or contractual arrangements with existing land holders. The availability of and the preference between the current land tenure alternatives in WA will depend on a range of factors, including: 

  • whether the renewable project has an appropriate connection with mining; 
  • an analysis of underlying tenure or interest holders in the relevant locations, including an assessment of whether existing land uses are compatible with the preferred tenure option and proposed new land use; 
  • the stage of the project for which the tenure is required (such as investigative, feasibility, construction or operational phase); 
  • the nature of infrastructure to be constructed at a particular location (ie hydrogen production infrastructure, renewable energy facilities or ancillary areas such as access areas); and
  • whether exclusive or non-exclusive tenure is required in light of the infrastructure to be constructed,

and it may be that the solution will not be limited to one type of tenure, with a matrix of rights and interests being appropriate over the life-cycle of the project and for different aspects of infrastructure depending on the actual land use associated with the infrastructure. 

An issue that the State Government has identified and is seeking to address is that pastoral leases over Crown land cover rough 36 percent of WA (90 million hectares), with these pastoral leases located in regional and remote areas of WA where WA’s best solar and wind resources are located. 

Under the LAA, pastoral leases only allow the land to be used for pastoral purposes. Large scale renewable facilities are therefore not permitted pastoral purposes. 

Despite this, the State Government has indicated in the Updated Strategy that WA land will be accessible for renewable energy:
“With an area of 2.5 million km2 (one-third of the Australian continent), low intensity land use combined with low population density, Western Australia is well placed to develop large-scale renewable energy generation.”

The implication is that pastoral leases will be available for such projects. As a result, what appears clear is that the pastoral lease regime will undergo reform. What is unclear is how the State Government will legislate the reforms and whether pastoral lease holders will be entitled to compensation. 

The Minister of Hydrogen Industry has flagged the shape these reforms might take, “we need to legislate a mechanism whereby land can be taken out of the pastoral estate and put into a tenure that is appropriate for large-scale hydrogen production.” The statement suggests that whatever mechanism the State Government opts for, it may involve a conversion of the pastoral lease to an alternative form of tenure. 

Of course, project proponents and pastoralists could reach a commercial agreement that involves a pastoral lease or portions of it being surrendered and replaced with a more appropriate grant of replacement tenure. Instead, the position taken by the State Government so far suggests that the incoming reforms will likely take a similar shape to those introduced by the same Labor Party almost five years ago when it proposed to legislate for a new type of lease, the rangelands lease. Under the previous reforms, pastoral leases could be converted into a new rangelands lease that allowed for a greater variety of permitted land uses. In the pending reforms, the State Government could:

  • re-introduce the rangelands lease and include renewable energy projects as a permitted land use; or
  • legislate conversion to a Crown lease, or a new type of ‘fit for purpose’ hydrogen tenure, to be used for the purpose of largescale renewable hydrogen projects. 

The conversion of pastoral leases has obvious benefits to increasing diversification and intensity of land use. Legislating for a new ‘fit for purpose’ hydrogen tenure could also recognize that the continuation of low intensity land uses is not necessarily inconsistent with the operation of certain aspects of largescale renewable hydrogen projects (such as in areas surrounding wind turbines that may be sparsely located over vast distances); this provides a unique opportunity to consider a land tenure mechanism that may benefit a wider range of stakeholders.

What will be unavoidable are the native title implications; expectedly, the State Government has already flagged that the conversion will be a future act for native title purposes that will trigger the standard notification, consultation and/or other relevant processes under the native title legislation.
Security of land tenure is one of the top issues facing potential hydrogen producers in WA.  We will be following developments closely as access to land with the strongest renewable resources will be key and ‘fit-for-purpose’ hydrogen tenure may provide the best long-term solution to address the issue.
In considering any land tenure reforms, the rent to be charged for the use of the land may provide a lead indicator of the State Government’s thinking about how it intends to monetise the value of Crown land in clean energy projects.  For further information on this topic, please review our article Decarbonisation: is zero-emission energy a zero-sum game for governments (Part 1) and (Part 2)?.

Pipeline reforms

The State Government’s vision for producing and exporting hydrogen is contingent on increasing the demand for hydrogen. The ability to transport hydrogen via existing pipeline infrastructure in WA is an essential part of driving demand. In the Updated Strategy, the State Government brought forward its 2040 goal of having WA’s gas pipelines and networks contain a 10% renewable hydrogen blend (Hydrogen Blend), now aiming to achieve the blend by 2030 (Hydrogen Goal).

In the Updated Strategy, the State Government flagged the need for relevant licensing and regulatory bodies to assess and implement regulatory changes to facilitate demonstration projects. The demonstration projects are the first substantive steps the State Government is taking towards the Hydrogen Goal. The Minister of Hydrogen Industry indicated at the CEDA conference that the State Government’s approach has been to look at the specific regulatory needs of a number of demonstration projects (and to create a “sandbox” for each project) by way of grant of temporary exemptions or relaxing of regulatory requirements and approvals rather than wait until the whole regulatory environment is reformed.

For instance, the State Government is co-funding a feasibility study alongside Australian Gas Infrastructure Group (AGIG), who is conducting the study, into incorporating hydrogen into the feedstock mix of the Dampier-Bunbury natural gas pipeline (DBNGP). Extending for roughly 1,600 kilometres and delivering 90 percent of WA’s domestically used natural gas, the DBNGP is essential to the WA gas landscape. The feasibility study is one of seven feasibility studies funded by the State Government and is due to complete its findings in 2021. There is currently an open question regarding the extent to which the regulatory framework lawfully enables the blending of the hydrogen into the existing pipeline and it has been stated by AGIG that an outcome of the study will be the development of a roadmap to assist in the development of regulations for the Hydrogen Blend in WA. 

WA gas regulations cover safety and technical aspects of the transmission, distribution and downstream use of the gas itself alongside other regimes that affect or are affected by the vast network of gas pipelines. Underpinning an assessment of regulatory reform is the understanding that the Hydrogen Blend comprises a gas that is a blend of both natural gas and hydrogen is not naturally occurring. 

For example, key legislation in WA deals with naturally and non-naturally occurring gas in different ways. Some pieces of legislation have wide definitions for gas with terminology that applies to any gas or mixture of gases, with no discrimination between naturally occurring or manufactured gas. 

This is in contrast to other legislation in WA which define petroleum as a substance that is naturally occurring and does not take into account hydrogen blends. As it stands, hydrogen blends are not lawfully capable of being transported via some existing pipeline infrastructure because of the strict definition found in the legislation.
Limitations under existing gas legislation in respect of hydrogen blends has a potential knock-on effect in both environmental and planning regulations which provide exemptions where activities are covered by the existing gas legislation, such as under the Environmental Protection (Clearing of Native Vegetation) Regulations 2004 which provides exemptions to activities authorised under certain legislation meaning the exemption may not apply to activities undertaken as part of a hydrogen project.

As part of the State Government’s investment in hydrogen gas blending, $2 million in funding was recently awarded to ATCO Australia to support capital works associated with blending hydrogen into isolated sections of the natural gas distribution network.  Due to the embrittlement or degrading effect of hydrogen on steel pipelines that were originally designed for natural gas transportation, the further investment should assist to optimise the extent of blending for the safe transportation of hydrogen.

This collaboration between the State Government and industry, as highlighted by the demonstration projects of hydrogen blending in WA’s gas networks and the early stage funding being provided by the State Government, will be essential in the transition to a hydrogen economy as the full scope of the required regulatory changes are determined and demonstration projects seek to move from the sandbox to full-scale commercial implementation.

https://researchlibrary.agric.wa.gov.au/gis_maps/3/

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