Strategic Policy Framework for Near Zero Emissions from Victoria’s Fossil Fuels
Position Paper October 2008
The Victorian Government is determined to meet the climate change challenge and create a clean energy future for Victoria, and is targeting a 60 per cent reduction in greenhouse gas emissions by 2050.
There is no single, simple answer to delivering clean energy for Victoria. Carbon capture and storage technologies are one avenue, but the Government is also investing heavily in other low emissions coal technologies, renewable energy and increased energy efficiency, and providing support in the development of the national emissions trading scheme. this multi-faceted approach was detailed in 2004, in The Greenhouse Challenge for Energy position paper.
Already under development internationally, carbon capture and storage involves capturing carbon dioxide emissions and storing them safely and securely underground. Victoria is now hosting one of australia’s first large-scale demonstrations in this area. if successful, these technologies may hold the key to reducing Victoria’s energy related greenhouse gas emissions to near zero over time.
This position paper outlines the Victorian Government’s approach to advancing carbon capture and storage in our state. if proven safe and effective, these technologies can become a commercially viable solution for our energy sector.
The Government is keenly investigating a range of technologies to help secure a sustainable energy future for Victoria. Work so far has indicated that carbon capture and storage could play an integral role.
The Victorian Government’s work in this area will help create the certainty needed to encourage industry investment in these and other clean energy technologies.
Communities and industry have responded positively to the Government’s integrated approach to carbon capture and storage, following the release of an issues paper in 2007.
The Department of primary industries, and other Victorian Government Departments, will continue to work together with all Victorians to deliver a near zero emissions energy future for Victoria.
The Victorian Government recognises that climate change is one of the most serious environmental challenges we face today.
The steps needed to prepare our economy and community for a carbon-constrained future require all sectors — government, business, and households — to significantly reduce greenhouse gas emissions that are contributing to climate change.
The Victorian Government is committed to maintaining a secure, efficient, affordable, safe and environmentally sustainable supply of energy.
The Government has developed a comprehensive climate change policy package to reduce greenhouse gas emissions from the energy sector. this includes support for renewable energy, energy efficiency, low emissions technologies and a national emissions trading scheme.
Key initiatives include:
- providing continued support for the renewable energy industry through the Victorian renewable energy target (Vret) scheme
- introducing the Victorian energy efficiency target (Veet) scheme from 1 January 2009, to help households reduce greenhouse gas emissions and cut their power bills
- a target to increase the Government’s use of Greenpower to 25 per cent by 2010
- strengthening feed-in tariff provisions and extending them to all small renewable generators, and introducing a premium feed-in tariff scheme in 2009 for households with small-scale solar photovoltaic systems
- supporting research, development, demonstration and commercialisation of renewable energy and greenhouse gas reduction technologies through the energy technology innovation strategy (etis), including support for large-scale demonstration of sustainable energy.
The Government has also set a long-term target to cut greenhouse emissions across all sectors by 60 per cent of 2000 levels by 2050.
This paper is part of the Victorian Government’s suite of policies to address energy in a carbon-constrained environment. it specifically addresses those components of the energy sector which rely on fossil fuels and are responsible for a substantial portion of Victoria’s greenhouse gas emissions.
Victoria has abundant reserves of brown coal, which provide a low cost and readily available energy source that promotes the competitiveness of the Victorian economy. However, Victoria’s brown coal has a high moisture content. this means it produces relatively high levels of greenhouse gases when used to generate electricity or for other purposes.
In a carbon-constrained future, we need a strategy to deliver near zero emissions from fossil fuels to ensure the continued use of Victoria’s valuable energy resources.
Improvements to technologies for drying coal can make significant reductions in emissions levels, and the Government is supporting this through the etis program. renewable energy and energy efficiency will also play an increasingly important role in Victoria’s clean energy future.
However, we cannot afford to rely on these technologies alone to meet Victoria’s 2050 emissions reduction target.
Deep cuts in greenhouse gas emissions will require consideration of a range of other technologies, including the commercialisation and application of carbon capture and storage (CCs) technologies.
CCs and other technological developments can also unlock opportunities to use coal for applications other than electricity generation. these include minerals processing and coal-to-liquids for the production of diesel as a transport fuel, as well as converting it to agricultural, metallurgical and activated carbon products, processing and export quality brown coal.
This paper complements the Victorian Government’s overarching energy-related greenhouse policy, The Greenhouse Challenge for Energy, by setting out the strategic policy framework which will enable Victoria to become a global leader in CCs if the technology is proven. achieving this goal will secure our natural resources as a supply of clean energy in a near zero emissions future.
In addition, this paper will contribute to the development of the Victorian Government’s 2009 White paper on Climate Change, which will contain concrete measures to help Victoria adapt to climate change and realise the opportunities created in the transition to a low carbon economy.
Along with support for a national emissions trading scheme, renewable energy and increased energy efficiency, the Strategic Policy Framework for Near Zero Emissions from Victoria’s Fossil Fuels is one of an important range of initiatives designed to significantly reduce Victoria’s greenhouse gas emissions.
Box 1: Strategic Policy Framework for Near Zero Emissions from Victoria’s Fossil Fuels
The Victorian Government recognises the essential contribution that fossil fuels make to Victoria’s economy. It has a suite of initiatives to reduce greenhouse gas emissions by 60 per cent of 2000 levels by 2050, which includes continued investment in renewable energy, energy efficiency and low emissions coal technologies. As part of this, the Government will undertake the following actions:
Develop a legislative framework for offshore and onshore carbon storage
Support a national emissions trading scheme
Engage with the community to evaluate the role and potential of CCs
Support CCs technology development
Retain and develop technical expertise in Victoria
Plan and develop Victoria’s coal resources with CCs
Participate in global CCs commercialisation efforts
2 Victoria’s fossil fuels
2.1 Victoria’s energy from brown coal reserves
Victoria has one of the world’s largest reserves of brown coal, estimated at 430 billion tonnes, of which 33 billion tonnes are considered potentially economic. at current usage rates, that equates to a 500 year supply of economic brown coal. this does not take into account the additional coal that may become economic in the future, nor does it account for a potential increase in usage resulting from new technologies enabling the export of coal and coal-based products.
These coal reserves provide a significant benefit to the Victorian and australian economies. Brown coal reserves are currently used to generate low-cost baseload electricity. this benefit is shared with other states participating in the national electricity market, by contributing to low electricity prices across australia’s eastern seaboard. around 90 per cent of all electricity consumed by Victorians is currently generated by brown coal power stations.
In addition to secure low-cost energy, brown coal mining and electricity generation have delivered significant economic activity and jobs to the Latrobe Valley and across Victoria.
The cost of mining in the Latrobe Valley is very low, which makes brown coal power generation an attractive commercial proposition. as prices rise for other, increasingly scarce energy sources such as oil and gas, the potential to use Victoria’s brown coal resources for other applications could become economically viable. these products and applications applications include coal-to-liquids, fertilisers, metallurgical reductants, activated carbon, minerals processing and export-quality brown coal in competition to black coal.
Coal drying, gasification and other technologies have the potential to produce exportable commodities from brown coal, such as diesel and other liquid and gas fuels.
Victoria’s brown coal is low in ash, sulphur and heavy metal contaminants, which results in relatively low emissions of sulphur dioxide and also reduces the need for expensive ash control measures when combusted. However, it has a high moisture content, and is typically comprised of 60 to 70 per cent water. this means that the brown coal has a low net energy content relative to black coal and natural gas and, when combusted in the process of electricity generation, produces significant greenhouse gas emissions.
Victorian electricity generators produce an average of 1.3 tonnes of greenhouse gases per megawatt hour (mWh), compared with an australian average of around 0.9 tonnes of greenhouse gases per mWh (table 1).
In a carbon-constrained future, our sustainable energy capability hinges on the successful transition of the energy industry to near zero greenhouse gas emissions.
Carbon dioxide abatement through CCs and efficient coal use technologies could allow brown coal energy industries to continue making significant long-term contributions to the Victorian economy.
2.2 Victoria’s gas supplies
Victoria also has access to significant gas reserves, which comprise 20 per cent of australia’s natural gas production.  The large gas deposits, discovered in the offshore Gippsland Basin in 1965, have delivered energy to Victoria for over 40 years. exploration activity has branched out into the offshore otway Basin and resulted in the discovery of the La Bella, minerva, Geographe, Casino and Henry Gas fields, as well as thylacine in offshore tasmanian waters.
Victoria is integrated into a gas market that operates along eastern australia, and most of Victoria’s reserves supply the domestic market.2 Combined reserves for eastern australia comprise around 14,000 petajoules.3 Gas is also used for electricity generation, supplying in the order of five per cent of all electricity currently consumed by Victorians.
The emissions intensity of gas-fired electricity generation is lower than for brown coal-fired electricity generation. However, to ensure the continued use of gas for electricity generation in a carbon-constrained future, it may also require the use of CCs technologies.
Table 1: Comparison of emission intensities
|Generator type||Greenhouse gas emissions (tonnes CO2-e per MWh)|
|Existing brown coal generators in the Latrobe Valley||
1.17 – 1.50
|Existing pulverised fuel black coal generation||
|New ultra-supercritical brown coal generation||
|Integrated Drying Gasification Combined Cycle (iDGCC)||
|Gas combined cycle||
|IDGCC with carbon dioxide capture||
3 The Greenhouse Challenge
The Victorian Government recognises the significant impact of climate change and is committed to playing a leading role in global mitigation and adaptation efforts.
In 2005, Victoria’s net greenhouse gas emissions were around 122 million tonnes, which was approximately 22 per cent of australia’s overall emissions. 
The stationary energy sector, which includes all energy used in homes, businesses and industry, contributed about 80 million tonnes.
3.1 Victoria’s energy and greenhouse policy framework
In recognition of the significant contribution of the stationary energy sector to Victoria’s overall greenhouse gas emissions, the Victorian Government has developed a comprehensive energy and greenhouse strategy to reduce emissions from this sector.
The objective of this strategy is to provide the certainty that the private sector needs to make important investment decisions, and to support development of an energy industry able to meet Victoria’s greenhouse challenges.
The Greenhouse Challenge for Energy position paper,  released in December 2004, broadly sets out the Government’s energy-related greenhouse policy objectives (see Box 2). it outlined measures to ensure that energy supplies and energy use are environmentally sustainable and less greenhouse gas intensive.
Box 2: The Victorian Government’s greenhouse and energy policy objectives
The Greenhouse Challenge for Energy Position Paper (2004) sets out the Government’s energy-related greenhouse policy objectives:
The Greenhouse Challenge for Energy describes how these broad objectives can be met through an integrated package of measures, including support for a national emissions trading scheme, policies and other initiatives to increase use of renewable energy and to improve energy efficiency, and support for the development, commercialisation and deployment of low emission energy technologies.
The Victorian Government released the Victorian Greenhouse Strategy Action Plan Update in april 2005.  this document identified the need for new low emissions technologies, including CCs.
Building on the broader policy framework, the Victorian Government released the Action Agenda on Climate Change and Greenhouse in march 2006.  in this document, CCs was identified as a means for delivering significant reductions in greenhouse gas emissions, while also enabling the expansion of Victoria’s brown coal industries.
The actions set out in these documents have progressed through subsequent policies, programs and schemes.
Following the decision by the former australian Government to not expand its mandatory renewable energy target, Victoria introduced a Victorian Renewable Energy Target (Vret) scheme on 1 January 2007. this scheme sets a target of 10 per cent of Victoria’s electricity consumption to be supplied from renewable sources by 2016.
The premium feed-in tariff scheme will commence in 2009. under this scheme, households who install small-scale solar photovoltaic systems will be paid a premium rate of 60 cents for every kilowatt hour of electricity they feed back to the grid.
Further initiatives to accelerate uptake of renewable energy and drive development of the renewable energy sector in Victoria are outlined in the Government’s Renewable Energy Action Plan. 
The Victorian Energy Efficiency Target  (Veet) scheme will commence on 1 January 2009. the scheme will provide an incentive to reduce greenhouse gas emissions through household energy efficiency actions. energy saving devices and home improvements will be available to householders, at reduced costs.
The Energy Efficiency for Victoria Action Statement  outlines a range of other energy efficiency initiatives for households and businesses. these include the mandated rollout of smart meters, electricity interval meters with two-way communications, which will help households better understand and manage their energy use.
The Greenhouse Challenge for Energy position paper also stressed the need to develop low emission generation technologies. funding made available through etis has provided support for large-scale demonstration projects and research and development, including coal drying, carbon capture technologies, new generation photovoltaic cells and a large-scale photovoltaic plant. further details of the range of projects supplied under etis are provided in appendix B.
The Victorian Government has also supported the development of a national emissions trading scheme (ets) as a least-cost method of reducing greenhouse gas emissions. the australian Government has committed to introduce its Carbon pollution reduction scheme by mid-2010, and has released a Green paper outlining the design of its proposed scheme.  this will put a price on carbon dioxide emissions and create an economic incentive for electricity generators to invest in low emission technologies such as CCs.
The Green paper notes that “australia has a vital interest in transformational technologies such as CCs being successfully commercialised as part of the domestic and global response to climate change.” 
The Australian Government also recognises, in its Green paper, that early commercialisation of CCs is critical to meeting the goal of 60 per cent reduction in emissions by 2050, and that ongoing government support will be needed to continue to help drive the development and deployment of CCs technology.
The Garnaut Climate Change review was commissioned by australia’s state and territory governments in april 2007. the australian Government is also participating in the review. the review is examining the impacts of climate change on the australian economy, and will recommend medium to long-term policies and policy frameworks to improve the prospects for sustainable prosperity.
An interim report released in february 2008 stated that an ets will be the centre-piece of a domestic mitigation strategy. it also emphasised that an ets will need to be “supported by measures to correct market failures or weaknesses related to innovation, research and development, to information, and to network infrastructure.” 
The interim report, as well as a further Discussion paper  on the design of an ets released in march 2008, stressed the importance of CCs to australia. in the absence of commercially successful CCs, some coal-based power generators may be unable to operate profitably under an ets. Closure of those generators would have implications for workers and regional communities. the report states that “it would be consistent with australian policy traditions, and with sound principle, to make substantial commitments to support private research, development and commercialisation activities related to CCs by established coal based electricity producers.” 
The Draft report, released in July 2008, goes further by recognising that australia has the opportunity and the interest in coordinating and leading a major global effort to develop and deploy CCs technologies, and to transfer those technologies to developing countries. 
The Victorian Government has also recognised the importance of CCs and released an issues paper for a Strategic Policy Framework for Near Zero Emissions from Latrobe Valley Brown Coal in 2007.
Community and industry stakeholder forums were held in the Latrobe Valley and in melbourne to present and discuss the issues set out in the issues paper. in response, 43 submissions were received.
This position paper draws on the results of this consultation; the title of this paper reflects that CCs can be used for both coal and gas, and could be implemented outside the Latrobe Valley.
4 Moving to near zero emissions with CCS
As The Greenhouse Challenge for Energy recognised, the market will ultimately determine the mix of different energy technologies that will meet Victoria’s future energy needs and meet emissions reduction targets, at lowest cost.
The Victorian Government recognises that no single policy instrument will meet its greenhouse gas and energy objectives, and that a multi-faceted approach is required.
Potential future energy sources, long-term market regulation, energy technology and greenhouse abatement policies must be designed to meet Victoria’s energy and environmental objectives, at least economic cost.
The Victorian Government and the private sector will play key roles in developing and deploying CCs and other new energy technologies.
In particular, the Victorian Government will continue to act to support the development and deployment of such technologies where market failures are evident and government intervention is likely to provide a net public benefit.
These roles differ throughout the innovation cycle. for example, government intervention at the earlier stages of the innovation cycle may be required to encourage research, development and demonstration of new technologies. this assists the private sector to overcome initial barriers (such as cost, technical and market barriers) to entering a new market.
As the market develops and particular technologies mature, government would reduce its involvement, and instead provide appropriate frameworks to allow market forces to deliver Victoria’s energy efficiently.
The introduction of a national ets may also lead to changes in the role of different energy sources, including an increased role for renewable energy and gas. actions which increase energy efficiency and maximise the use of renewable or other less carbon-intensive forms of energy will be essential.
However, there are currently limits to the role that alternative forms of energy can play in achieving deep cuts in greenhouse gas emissions. Challenges remain for renewable energy. over time gas resources will deplete and prices are likely to rise. the Victorian Government also opposes the use of nuclear energy given the cost and high level of risk involved.
The international energy agency (iea) projects that the world’s primary energy needs will grow by 55 per cent between 2005 and 2030, at an average annual rate of 1.8 per cent per year. fossil fuels will remain the dominant source of primary energy, accounting for 84 per cent of the overall increase in demand between 2005 and 2030. 
While energy efficiency and renewables can make major contributions to lowering emissions, CCs technology has the potential to make deep cuts in greenhouse gas emissions while enabling the continued use of fossil fuels and existing energy infrastructure.
The iea commented that CCs is one of the most promising routes for mitigating emissions in the longer term, and could reconcile continued coal use with the need to cut emissions. 
In its Special Report on Carbon Dioxide Capture and Storage, the intergovernmental panel on Climate Change (ipCC) said that CCs “has the potential to reduce overall (greenhouse gas) mitigation costs and increase flexibility in achieving greenhouse gas emission reductions.” 
In Climate Change 2007: Mitigation of Climate Change, the ipCC identified CCs as one of the key mitigation technologies to reduce emissions from energy supplies including gas, biomass and coal-fired electricity, as well as other energy intensive industries.  the report also noted there are a range of technical and financial uncertainties inherent in CCs, and that the timeframe within which it will become viable is difficult to predict.
Analysis and modelling undertaken for the states and territories’ national emissions trading taskforce (nett) showed that, even with significant changes to the energy fuel mix — such as increased uptake of renewable sources and the substitution of coal with gas-fired generation — it will not be possible to achieve current greenhouse gas reduction targets without significant cost. 
To achieve the major reductions needed to meet Victoria’s emissions reduction target, given Victoria’s accessible energy resources, it is essential that technologies are developed which will enable continued use of fossil fuels with reduced greenhouse gas emissions.
CCS is necessary if coal is to continue being used for electricity generation or converted to other commodities. it may also be required to support continued use of gas for electricity generation.
While the Latrobe Valley is a major source of Victoria’s emissions from the use of brown coal and gas to generate electricity, it also has unique advantages in relation to CCs.
The Latrobe Valley is close to the offshore Gippsland Basin, which appears well suited for storage of carbon dioxide. additional offshore and onshore storage is also likely to be available.
The Latrobe Valley and Gippsland coal fields are ideally positioned to become a powerhouse of new economic growth and commercial activity, supported by world-leading innovation, research and development in low emissions coal technologies. the provision of CCs infrastructure, facilitating the continued utilisation of Victoria’s brown coal resources in a carbon-constrained future, has the potential to deliver significant economic and environmental benefits to the state.
4.1 What is carbon capture and storage?
Carbon dioxide is a greenhouse gas which can be safely stored deep below the earth’s surface. this storage characteristic has the potential to significantly reduce Victoria’s net carbon dioxide emissions into the atmosphere.
Carbon capture and storage, abbreviated as CCs, is a generic term to describe a set of technologies in which carbon dioxide is captured and separated at the source of its production, compressed to a liquid-like state, transported to a storage site and injected deep underground into a stable geological reservoir for long-term storage.
CCs can be applied to carbon dioxide emissions from any source including gas and coal-fired power plants, as well as other concentrated sources of carbon dioxide emissions, such as in the cement industry.
Box 3: Where is CCS currently being used?
There are several working small scale CCS plants around the world and many more are in planning and feasibility stages in Australia and overseas.
These projects involve:
Once injected underground, a variety of techniques – including seismic analysis and gas sampling – monitor and verify that the carbon dioxide is securely stored.
The first larger-scale application of this technology has been demonstrated since the late 1990s in the sleipner project in norway, which captures around one million tonnes per annum (mtpa) of carbon dioxide from natural gas production and injects it into a saline aquifer 1,000 metres below the seabed. the scale of this project is significantly less than would be required to store the greenhouse gas emissions from Victoria’s electricity generators (approximately 60 mtpa). there is currently no large-scale demonstration of CCs integrated in a power station.
While technologies for the capture, compression, transport and long-term storage of carbon dioxide have been demonstrated at varying scales, there has been no large-scale demonstration of the integration of these technologies.
Although the process of capturing carbon dioxide from gaseous streams occurs today in various industrial applications, there still remain economic and technical barriers that must be overcome before the process can be implemented at a commercial power station. significant research is required to prove carbon capture technology at large-scale, and to reduce the costs.
The technology for carbon dioxide transport is mature and has low technological risk. pipelines for transport of carbon dioxide, natural gas and other more hazardous liquids and gases have been in use safely for many years throughout the world. the experience gained from these operations has resulted in codes of practice, standards and regulations covering both design and operating requirements.
However, significant further geological research is required to determine optimum approaches to long-term storage of large volumes of carbon dioxide. although there is a considerable body of knowledge relating to the extraction of petroleum, there is limited knowledge of the geology and fluid dynamics relevant to the injection and long-term storage of carbon dioxide in the Gippsland Basin and other potential storage sites.
Integrated CCs is also expensive, and not yet commercially viable. Government support is necessary, where market failures exist, to assist private research, development and commercialisation activities.
Such activities will:
- increase the options available for • meeting the Government’s long-term targets for greenhouse gas reduction
- protect and enhance the value of Victoria’s brown coal resource, by ensuring that it can be used for electricity generation, as well as for other valuable uses, while meeting those targets
- ensure that technologies applicable to Victorian brown coal and storage sites are developed and available to potential investors.
There is a strong case for the Victorian Government to provide some support for the development of CCs in and around Victoria, based on Victoria’s reliance on coal and the Government’s desire to reduce greenhouse gas emissions.
5 Government actions to support CCs
Once proven, it is expected that CCs will be deployed on an efficient, market-driven basis. However, government support through specific actions is vital to encourage investment in an emerging CCs industry.
These actions include measures which will facilitate the commercialisation of CCs, such as supporting a national ets and determining how investors gain access to pipelines and storage sites.
They are designed to support efficient, market-driven provision of CCs when this technology becomes commercially viable.
There is also a role for the Victorian Government to intervene to address evident market failure, where there are net public benefits from doing so.
Government assistance for development of CCs could make commercial scale CCs available earlier as an option for responding to climate change.
Specific Victorian Government actions will:
- ensure clear and stable policy and legislative settings to support the commercial development of CCs in Victoria
- support a national ets that will, amongst other things, create a more attractive market environment for the commercialisation of CCs
- engage with the community to evaluate the role and potential for CCs in Victoria
- support CCs technology development, including large-scale integrated demonstration of CCs
- support retaining and developing technical expertise in Victoria on CCs and other low emissions coal technologies
- provide planning and further development of Victoria’s fossil fuel resources with CCs, to maximise economic opportunities for the state in a carbon-constrained future
- monitor and actively participate in global efforts to commercialise CCs.
The following chapters detail these government actions.
6 Clear and stable policy and legislative settings
The availability of multiple options for climate change response is likely to deliver results faster and at lower cost.
CCs has emerged as a key option for a strategic and effective response to the challenges of climate change.
Government has an important role to play in providing the private sector with the confidence and support necessary for investment in CCs technology, while retaining the flexibility to adjust policy settings in response to new information.
While a number of policy settings are required to contribute to the commercial viability of CCs, such as the design of a national ets, there are also barriers preventing the uptake of CCs that need to be addressed by government and the private sector.
In particular, a comprehensive and effective legislative framework is needed to provide investment certainty and consistency across state and national jurisdictions. Considering the basis on which investors can gain access to pipelines and storage areas will also be important.
The Victorian Government will actively support the early emergence of CCs in Victoria, monitor market response, and take action where there is sufficient sign of market failure and net public benefit from government intervention.
6.1 a legislative framework for offshore and onshore carbon storage
Commercial development of CCs, and specifically the geological storage of carbon dioxide, requires comprehensive and effective legislation to ensure consistency across state and national jurisdictions.
An effective regulatory framework for injection and storage of carbon dioxide both off and on-shore is essential, since CCs can potentially take place in areas under state or national jurisdiction.
State and national legislative frameworks must, as far as possible, be consistent to provide investors with necessary certainty as well as legal rights to undertake CCs related activities, such as exploration and storage.
The Australian Regulatory Guiding Principles for Carbon Dioxide Capture and Geological Storage, endorsed by the ministerial Council on mineral and petroleum resources in 2005, provides the broad policy framework for a nationally consistent approach to the regulation of CCs in australia. 
Key legal issues affecting the commercial framework for storage include:
- storage allocation
- interaction with existing oil and gas producers
- long-term liability
- planning and environmental approval processes at a state and national level.
Some of the world’s largest potential storage areas are located in the offshore Gippsland Basin, under national jurisdiction. in 2007, the Australian Government began amending the Offshore Petroleum Act 2006 (Cth), to establish a regulatory framework for the injection and long-term geological storage of carbon dioxide in offshore australian waters. 
An exposure draft of amendments was released for public consultation in may 2008, and a report was tabled in august 2008. 
The Victorian Government also intends to develop a regulatory framework for offshore storage sites in waters under its jurisdiction. the timing of this legislation depends on development of the australian Government’s regulatory framework. Victorian legislation will aim to mirror the australian Government’s framework for offshore waters.
The Victorian Government will develop legislation to regulate the injection and storage of carbon dioxide in offshore Victorian waters which will mirror the australian Government’s framework for injection and storage in national waters.
Victoria currently has legislation applicable to some aspects of CCs.However, this legislation was not designed to address issues unique to CCs, such as the management of long-term geological storage.
The release of A Regulatory Framework for the Long-Term Underground Geological Storage of Carbon Dioxide  in January 2008 was a first step in developing a specific regulatory framework for onshore injection and storage of carbon dioxide. this paper examined arrangements for regulation of injection and storage of carbon dioxide currently in place or being proposed in other jurisdictions, and set out options and alternatives for Victoria.
In september 2008, the Victorian Government introduced legislation into parliament to enable and regulate the onshore injection and permanent storage of greenhouse gases in Victoria.
Victoria’s legislation for the onshore storage of carbon dioxide will be consistent, where possible, with similar legislation enacted by the australian Government and by other states.
The Victorian Government is working with the other states and the australian Government to develop more detailed, common guidelines for CCs and legislative amendments.
The Victorian Government will develop legislation during 2008 to regulate the onshore injection and storage of carbon dioxide in Victoria.
6.2 Support for a national emissions trading scheme
A national ets will help support the long-term commercial viability of CCs by putting a price on carbon.
Under an ets, a cap is placed on emissions and emissions permits will be available in the market, equivalent to the emissions cap. emissions permits will be traded in the market, thereby setting a price for greenhouse gas emissions.
Participants (such as electricity generators and other emitters) will be required to surrender emissions permits equivalent to their actual emissions for the period, or face a penalty.
A company will decide whether it wants to reduce its own emissions or buy permits in the trading market, depending on the relative costs of taking abatement action versus buying permits.
Investment in emissions reduction, through technologies such as CCs, will enable participants to avoid purchasing emissions permits, or to sell permits already held.
Emissions trading will help bridge the ‘deployment cost’ gap by helping to create a market environment in which it becomes commercially attractive to install abatement technologies such as CCs.
Any decision to invest in CCs will depend on whether there is sufficient commercial benefit from emissions reduction to justify the additional cost to new or existing generation. to date, no commercial scale plants with CCs have been built in australia, and the scale of the required permit price to make CCs commercially attractive is uncertain.
The australian Government has outlined some key ets design options in its Green paper on the Carbon pollution reduction scheme. the design of the scheme is intended to be finalised by the end of 2008 and the scheme is expected to commence in mid-2010.
Key elements of the national ets, such as sectoral coverage, level of emission caps, penalties, and offset provisions will influence the carbon price and, therefore, the commercial viability of CCs.
Box 4: A national emissions trading scheme
A national ets is a key measure to deliver a flexible, least cost approach to reducing greenhouse gas emissions in the transition to a carbon-constrained future.
With careful design, an ets could provide a mechanism for the australian economy to transition into a low carbon future, and potentially link australia to international carbon markets.
Victoria strongly supports the australian Government’s leadership on an ets and will work with the australian Government and other states and territories on the design and implementation. Design is to be finalised by the end of 2008, and the ets is scheduled to start in mid-2010.
Under an ets, a limit (or cap) is set for the amount of emissions permitted by sectors subject to the scheme.
In the case of greenhouse gas emissions, the limit could be related to a country’s Kyoto target or related to an individual country’s abatement goals. in australia’s case, the australian Government has committed to reducing emissions by 60 per cent of 2000 levels by 2050.
At the end of each monitoring period, participants in the scheme are required to hold emissions permits equivalent to their actual emissions for the period.
Key design issues for the national ETS include:
- level and timing of emissions limits
- scope of the scheme including coverage of gases and liable parties
- permit allocation
- dealing with new businesses entering the market after emissions trading has commenced
- addressing the impacts of emissions trading on potentially vulnerable sectors and groups.
The Victorian Government will continue to actively support the development of a national ets, and will work with the australian Government to design a scheme by the end of 2008, and implement that scheme in 2010.
7 Engaging with the community
The Victorian Government believes that the development of CCs may offer long-term benefits for the community as a whole, and for brown coal-based industries and residents in the Latrobe Valley, in particular.
At the same time, the Victorian Government is aware that the public needs to be informed regarding the development of CCs, including the health, safety and environmental implications of large-scale transport and long-term storage of carbon dioxide.
Rigorous planning and environmental approval processes currently exist in Victoria and all CCs proposals — for development of carbon capture facilities, transport pipelines or injection and long-term storage of carbon dioxide — will be required to go through the applicable regulatory and approval processes.
The Victorian Government recognises that the community needs to know that CCs will be developed in a manner which is sensitive to community needs and expectations. these will need to be addressed over the long term, given the likely timelines for investment in CCs.
the Victorian Government will continue consultations with community organisations, environmental groups, regulators, and major industry in the Latrobe Valley and elsewhere. these consultations will provide the community with the information necessary to develop a better understanding of CCs, and the role that CCs can play in helping to meet the Victorian Government’s targets for greenhouse gas emissions reduction.
The Victorian Government will also work with the community to evaluate the performance and impact of emerging CCs technologies.
The Victorian Government will continue to work with all sections of the community to objectively assess costs and benefits and increase understanding of CCs.
8 Supporting CCs technology development
The stationary energy sector is the dominant source of greenhouse gas emissions in australia. rapid innovation and technology development will be required in this sector to meet targets for reduction of greenhouse gas emissions.
Technology development tends to suffer from some degree of market failure, as individual companies often cannot fully capture sufficient commercial benefits of their investment, nor is there always the realistic capacity to commercialise all research and development projects.
This is particularly true for zero and low-emissions energy technologies, where ‘first mover’ risk can be significant.  Given this risk, there is a strong case for initial government support to ensure the optimal level of research and development in the start-up phase of any technologies required to deploy CCs.
Although less costly, the need for government support is greater at the early stages of the innovation cycle — that is, from relatively low cost research and development, to pilot scale, to costly large-scale pre-commercial demonstration.
As technologies become mature, and move towards full commercial application, the role of the market will increase as the role of government declines. this is generally reflected in the proportion of government contributions to projects. early stage research and development attracts a higher government proportion of funds, often in the order of one government dollar to each industry dollar. at large-scale demonstration, this can be one government dollar to between two and ten private dollars.
Thus, consistent with australian policy traditions, and with sound principle, australian governments contribute to supporting private research, development and commercialisation activities related to CCs, which are predominantly carried out by the private sector. this position is also supported by the Garnaut review. 
The Victorian Government will continue to provide appropriate support to innovation and technology development across the supply chain, to enable continued use of fossil fuel resources while moving to near zero emissions at least cost.
8.1 Carbon dioxide capture
Separation of carbon dioxide in the processing of natural gas is a mature industry, and there are multiple commercial scale replications of the technology in operation worldwide.26 similar capture technology can also be applied to emissions associated with combustion of natural gas or coal for electricity generation. However the costs of capture technology are currently high and represent a large proportion of the overall costs of CCs.
Substantial work is under way, in the private sector, to develop new capture technologies and reduce capture costs. there is also a public interest in advancing this research and development. the benefit of government assistance could result in a number of ‘spill-over’ benefits, which could assist investors other than the party incurring the costs of technology. these benefits include a positive impact on the value of fossil fuel resources, in particular brown coal, and the value of having additional options available for greenhouse response.
The Victorian Government will continue to support research and development, through the etis program. this research investigates ways to reduce costs to capture carbon dioxide from gas or coal-fired electricity generation, and contributes to international efforts while ensuring research findings respond to distinctive characteristics of Victoria’s brown coal.
International efforts in research and development in carbon dioxide capture technology has been on both pre and post-combustion capture. Coal gasification and oxyfuel combustion represent the principal focus for precombustion capture. retrofit and super critical and ultra supercritical conventional boiler technology are the focus for post-combustion capture (see appendix a for a detailed discussion of CCs technologies). However, the commercial viability of these technologies is not yet clear.
In 2007, the Victorian Government announced etis grants to support research into:
- pre-combustion capture ($2.06 million to the Co2CrC to test pre-combustion carbon dioxide capture technologies in power generation)
- post-combustion capture ($2.5 million to Loy yang power and Co2CrC to research technology options)
- oxy-fuel combustion ($1.3 million to monash university and partners).
Through its energy technology innovation strategy (etis), the Victorian Government will support research and development into carbon dioxide capture at coal-fired power stations, in collaboration with the australian Government and industry.
Box 5: Energy Technology Innovation Strategy (ETIS)
A principal objective of etis is to drive pre-commercial energy technologies down their respective cost curves. this ensures that the most optimal range of low cost, low emissions technologies are available for commercial deployment in time to minimise the economic cost of the emissions trading scheme.
While the current suite of projects under etis is mainly focussed on reduced emissions from electricity production, other products, such as coal-to-liquids, are not excluded.
A key feature of initiatives under etis is that Victoria’s investments support those technologies that industry chooses to invest in, attracting both Commonwealth and private investment.
Part of the etis research program focuses on carbon capture projects which explore technologies for both pre-combustion and post-combustion capture. these technologies are relevant to electricity production and other products from coal.
A pre-combustion carbon capture project led by the Cooperative research Centre for Greenhouse Gas technologies (Co2CrC) aims to reduce the cost of carbon capture by 70 to 80 per cent to achieve the international goal of $10 per tonne of captured carbon dioxide. With support from project development company HrL Limited, this project will test a pre-combustion capture process at a pilot integrated
Drying Gasification Combined Cycle (iDGCC) gasifier. other pre-combustion applications will also be investigated.
The Latrobe Valley post-Combustion Capture project combines the facilities and expertise of Loy yang power, international power-Hazelwood, Co2CrC and Csiro. this project tests post-combustion technologies that capture carbon dioxide from the flue gases of brown coal fired power stations at the Loy yang a power station and at the Hazelwood power station.
Through etis, the Victorian Government will continue to provide financial support for research and development, into a range of prospective carbon capture technologies, and continue the onshore storage pilot project in the otway Basin.
For more information on etis go to www.dpi.vic.gov.au/etis.
8.2 Carbon dioxide transport
As part of the CCs industry, potential users will need to access CCs infrastructure on a fair and reasonable basis. this will almost certainly include CCs pipeline infrastructure to transport carbon dioxide to selected storage sites.
Given the location of Victoria’s current energy infrastructure, the capture of carbon dioxide is most likely to be very closely integrated with production facilities at power stations, coal-to-liquid plants and other industrial uses of brown coal in the Latrobe Valley.
The transportation of high pressure carbon dioxide is a relatively mature technology, subject to ongoing learning through industrial application rather than primary research and development. there are more than 2,500 kilometres of such carbon dioxide pipelines in the united states alone, which are predominantly used for enhanced oil recovery.
Risks and design for such pipelines are similar to natural gas pipelines. Conventional safety and risk management methodologies for industrial plant and equipment will apply to any new carbon dioxide pipeline.
Any pipelines servicing Latrobe Valley power stations would be expected to follow the same route as existing pipelines carrying oil and gas which have right of way from the region. new corridors from areas around the power stations to collect the carbon dioxide would also be needed. a more detailed study to minimise pipeline length and construction disruption will be required.
However, there may be ambiguity surrounding the development of this transport infrastructure. it is unclear when such infrastructure would be needed and how it would be developed. identification of parties suited to develop this infrastructure and best ways to make use of economies of scale need to be addressed in the overall development of Victoria’s CCs industry.
Transportation of carbon dioxide could be provided by parties other than government or the producers of the carbon dioxide. this raises the issue of how potential third party users can gain access to transport on fair and reasonable terms.
Analogies may be drawn with the natural gas pipeline sector, which has similar characteristics to carbon dioxide pipelines and has experienced decreasing levels of regulation over time. potential users of carbon dioxide pipelines may conclude that they can ensure access on reasonable terms through vertical integration or through long-term contract. if so, it would be possible to allow the pipeline investment to simply be determined by commercial factors when a sufficient carbon price is reached in the future.
In the interim, the Victorian Government will consider any economically justifiable role it may take in how this infrastructure is developed.
The Victorian Government will investigate its role in the development of the carbon dioxide transport infrastructure.
A CCs pipeline has natural monopoly characteristics. if it is an industry whose output is produced at least cost by just one firm, then there is a risk that the owner of that monopoly infrastructure may exert excessive market power to the detriment of other buyers in the market. Limited competition could result in an inefficiently low level of CCs operations.
Government may consider whether economic regulation should be imposed to constrain any undesirable market power held by a pipeline provider. an appropriate form of economic regulation would constrain pipeline access charges to allow a reasonable return on the regulatory asset base, rather than relying on access charges set by commercial agreement.
The Victorian Government will carefully consider its role and any justification for imposing economic regulation on access arrangements, as inappropriate regulation could impose additional risks and act as a deterrent to investment.
The Victorian Government will monitor the ability of potential users to access carbon dioxide transport on fair and reasonable terms and conditions, and consider the justification for economic regulation if there is evidence of significant market power.
8.3 Carbon dioxide storage
A greater understanding of Victorian carbon dioxide storage sites is an essentialrequirement for any CCs project.
The Victorian Government has previously provided financial support for a preliminary assessment of potential storage sites. 
To date, the assessment has focused on the otway and Gippsland Basins, looking at both potential onshore and offshore sites. other possible storage sites were also assessed and were less favourable.
Preliminary analysis has identified medium to high-level characteristics and technical potential for secure geosequestration of carbon dioxide as well as costs. further analysis of potential storage sites is required to confirm that large volumes of carbon dioxide can be stored securely over time and to understand how the carbon dioxide may move underground.
Any proponent wishing to inject carbon dioxide into the sub-surface in the future will have to carry out a detailed site assessment in line with state and national planning and environmental regulatory and approval processes. ensuring that the injected carbon dioxide stays deep underground as planned is of paramount importance when evaluating potential projects.
The movement of the injected carbon dioxide can be monitored and verified by a number of techniques, such as seismic technologies and the sampling of the migrating gas from monitoring wells that have been drilled. such ongoing monitoring will be necessary for management of the storage sites and to confirm that the carbon dioxide is safely contained in the sub-surface and is not leaking to the surface or adversely affecting underground water resources.
It will also be essential to understand the geology and fluid dynamics relevant to the long-term storage of carbon dioxide. this will contribute to the process of identifying potential storage sites and capacity, as well as ensuring secure permanent storage, development of risk management strategies and regulation.
Although there is a considerable body of knowledge relating to the extraction of petroleum, there is limited knowledge of the geology and fluid dynamics relevant to the long-term storage of carbon dioxide in Victoria. most of the geological knowledge is centred around oil and gas fields and is held in commercial confidence.
However, these fields only comprise a small portion of Victoria’s potential storage capacity. it is critical that further exploration and modelling is undertaken to understand potential storage capacity, and long-term potential movement of carbon dioxide within the subsurface.
This analysis will inform government policy, legislation and regulation, particularly to manage processes for permit allocation and storage rights and liabilities. this information will also be necessary to manage the possible interaction between storage activities with existing mineral extraction operations and other potential activities that may be undertaken in the future.
The Victorian Government will invest $5.2 million to undertake further storage and dynamic modelling that will develop greater technical understanding of storage potential in areas under state and national jurisdictions.
Box 6: Potential carbon dioxide storage areas in Victoria
The offshore Gippsland Basin appears well suited for carbon dioxide storage. it offers large volumes of high quality storage, including capacity in depleting oil and gas reservoirs.
A review of existing studies undertaken by the Co2CrC  estimates the Gippsland Basin’s proven storage capacity to be in excess of two billion tonnes, sufficient for 30 years of storage at current emission rates. they also estimate that more comprehensive studies could confirm storage capacity to be around six billion tonnes.
This study only considered closed petroleum traps within the Gippsland Basin. the future of geological storage in the Gippsland Basin may, however, lie in injection into deep saline aquifers. these aquifers make up almost 95 per cent of the total storage potential of the Gippsland Basin. it is possible, on this basis, that the potential of the deep saline aquifers is around 35 billion tonnes, as compared to two billion tonnes in the traps. for Victorian emissions, there could be potential in deep saline aquifer for over 200 years of storage capacity.
The offshore Gippsland Basin may also have lower costs than other sites around australia due to its proximity to the power stations in the Latrobe Valley, which are the principal source of carbon dioxide emissions in Victoria.
In some cases, it may also be commercially viable for the offshore Gippsland Basin to provide storage for emissions sourced from other regions.
Other onshore sites in Victoria offer smaller scale sequestration opportunities  suitable for smaller commercial scale projects. a storage trial is currently being conducted in Victoria in the otway Basin (see Box 7).
Storage capacity in the otway Basin’s deep saline aquifers can be estimated to be in the order of four billion tonnes, which offers an additional 30 years of storage.
However, storage options in the offshore Gippsland Basin are likely to be the most suitable once major long-term storage is required.
Box 7: Victoria leading the way in CCS
The otway Basin pilot project is one of the leading carbon storage research projects in the world. this trial has put Victoria at the forefront of this important new technology. Co2CrC is the over-arching body overseeing the otway project being carried out in nirranda, southwest Victoria.
The project has attracted international attention with research organisations and governments from australia, new Zealand, united states, Canada and Korea taking part. a number of multinational companies, active in oil and gas or coal are also actively involved.
the project is firmly on the world stage with the Carbon sequestration Leadership forum (an international climate change initiative) recognising this research project as being of international significance. Costing some $40 million to establish, it is one of the largest individual research projects in australia. the Victorian Government has contributed $6 million to this project.
The project takes carbon dioxide from a naturally occurring gas field, conditions it and pipes it to an adjacent empty gas field where it injects the gas into the subsurface. this project will demonstrate the possibility of storing carbon dioxide in the australian context, thereby increasing our knowledge in measuring and monitoring techniques, technology, regulatory framework and community consultation processes associated with CCs storage.
Injection commenced in early 2008 and is scheduled to finish in mid-2009, with site closure in 2010.
The project has a state of the art subsurface monitoring and verification program which will observe the behaviour of carbon dioxide once injected underground. a world class surface monitoring facility will provide the basis for setting technology standards for surface monitoring, including both the monitoring of background atmospheric carbon dioxide levels and the ability to detect the smallest levels of subterranean carbon dioxide to test for leakage.
The project is leading the way on defining frameworks for subsurface geological risk assessment for this new industry. the program aims to assure communities and regulators of the veracity of monitoring and verification methodologies to be eventually used when carbon storage is implemented on commercial scale. the project has already also provided vital experience for regulators preparing to approve projects and defining important principles for legislation and community consultation processes. the project is thus providing knowledge and leadership in technology, in policy and a variety of issues associated with using this carbon storage technology.
8.4 An integrated large-scale demonstration of CCs in Victoria
There is increasing international pressure on the need for large-scale integrated demonstration of CCs. a 2007 report by the World Coal institute  identified 11 coal-based projects that incorporate CCs, with start-up dates between 2010 and 2020.  nine of the 11 projects were proposed to be integrated Gasification Combined Cycle (iGCC) projects. the other two are post-combustion capture CCs projects using conventional pulverised coal technology.
The european Commission anticipates that 10 to 12 large-scale demonstration projects for CCs applied to coal and gas plants should occur by 2015, with a view to zero emissions technologies being ready for commercial implementation by 2020. 
Box 8: ETIS large-scale brown coal demonstration projectsS
Through the etis program, the Victorian Government has provided support to a number of large-scale projects in Victoria to demonstrate low emission energy generation technologies.
ETIS has awarded a $30 million grant to international power Hazelwood for the demonstration of a new large-scale coal dryer and boiler modification project with a 25 tonne per day carbon capture plant aimed at accelerating the development of highly efficient, low carbon dioxide intensity power technologies.
A further $50 million grant was awarded to australian technology and project development company HrL Limited for a world-first, low-cost, low-emission demonstration plant. the 400 mW plant will be based on high efficiency, integrated drying gasification and combined cycle (iDGCC) technology developed in Victoria.
For further information on the etis program go to www.dpi.vic.gov.au/etis
In may 2008, the Victorian Government announced an additional $110 million fund to establish a large-scale, pre-commercial, CCs demonstration program. this will:
- demonstrate effective integration of the main elements of CCs
- advance geo-technical understanding of potential storages in the offshore Gippsland Basin
- explore the potential for CCs as a viable option for greenhouse gas mitigation given the particular characteristics of Victorian brown coal and generation infrastructure
- develop the commercial framework for providing access to storage.
The program will incorporate large-scale carbon dioxide capture. the Victorian Government will encourage the market to identify appropriate capture technologies and sources. possible sources include retrofit of existing coal-fired or gas-fired generation, new generation, or using brown coal for other applications.
Storage in the offshore Gippsland Basin is the key to Victoria’s comparative advantage in CCs. the large-scale CCs demonstration should advance geo-technical understanding of potential storage, within the frameworks established under the new state and national legislation. it also seeks to develop commercial understanding of the interaction between oil and gas production and storage activities in the offshore Gippsland Basin and other locations.
The cost of a large-scale integrated demonstration is likely to be high, and will vary according to the capture technologies selected, and the carbon dioxide source. the Victorian Government will seek to develop collaborative funding arrangements with the australian Government and private sector. it anticipates the share of private funding will increase as technology development moves along the innovation chain from research to full commercial deployment.
The Government will invest $110 million to support demonstration of large-scale integrated CCs in Victoria, through the etis program.
8.5 Retaining and developing technical expertise in Victoria
In australia and globally, there are general skill shortages in science and engineering. these skill shortages are due to an ageing workforce, and decline in student participation in science and engineering. the resources boom has also increased competition for these skills.
The skills shortage is particularly acute for the application of physical sciences to the brown coal resource and to geological storage of carbon dioxide.
The development of clean coal technologies in general will require stronger brown coal skills and expertise in Victoria. it will also require building skills specifically around CCs and geological storage
The Victorian Government is committed to retaining and fostering the development of new skills and expertise in Victoria through its support for CCs research, development and demonstration.
Such support will ensure that Victoria’s skills in these areas are maintained and built, not only to develop novel technologies but also to enhance the ability to make informed decisions about how and why technologies developed elsewhere could be adapted and adopted for use in Victoria. this strategy will ensure that the most promising and relevant technologies to Victoria will be supported, whether developed in australia or overseas, according to the fast-follower principle.
It will also ensure that Victoria gathers and retains the necessary knowledge and experience in measuring and monitoring techniques, technology, regulatory framework and community consultation processes associated with CCs storage, which are particular to Victorian conditions.
The Government will support retaining and further developing of technical expertise in Victoria; in particular, through its support for the research and development of coal technologies, and through its assessment of Victorian carbon dioxide storage capacity.
The Victorian Government will commit $3.6 million in funding to extend the Co2CrC for another seven year term. this will also enable further support to be provided to the otway Basin pilot project for ongoing research and understanding about carbon dioxide storage deep underground.
9 Planning and developing Victoria’s coal resources
Coal use contributes to the competitiveness of australia’s economy, and will continue to play a key role in contributing to Victoria’s economic wellbeing and livelihood in a carbon constrained future.
Victorian brown coal reserves are estimated at 430 billion tonnes.  these resources are concentrated in the Latrobe Valley, and in the western fringe of the adjoining Wellington shire. approximately 33 billion tonnes of ‘economic’ coal has been identified in the Latrobe Valley with about 13 billion tonnes currently unallocated.
At the current level of use, there is sufficient coal for hundreds of years of power generation. this timeframe would shorten considerably as significant new uses for brown coal became viable and established.
To help ensure the Latrobe Valley’s long-term future and to maximise the value of Victoria’s brown coal resources, greater strategic management is needed to facilitate the optimal use of the resource, balance competing land uses, consider a balanced perspective on future emissions of proposed coal use and develop a clear strategy for allocation of coal to the private sector.
Allocation of coal
As the custodian of the state’s coal reserves, the Victorian Government protects the long-term value of the resource, allocates coal resources, and ensures maximum value to the Victorian community.
Coal is made available to private developers through an application to the minister for energy and resources, direct allocation under a state interest criterion, or allocation through a competitive tender process.
Allocations are currently made under the Mineral Resources (Sustainable Development) Act 1990. the most recent significant allocation was the Brown Coal tender in 2002.
Subject to clear commercial interest and rigorous approval processes, the Victorian Government intends to continue allocating coal, in line with emerging needs, through existing mechanisms of tender processes, application or direct allocation. triggers to initiate allocation include evidence that there are credible, well financed investors who require access to the unallocated coal to develop potentially viable projects and where considered appropriate, to support investment attraction initiatives.
Any new developments will operate under a carbon-constrained environment, in the presence of a national ets, and would face a strong commercial driver to adopt the most efficient mechanisms to manage their emissions, potentially including CCs.
Long-term planning of coal resources
The Victorian Government does not intend to undertake coal mining, or directly invest in commercial power generation or other coal use industries.
However, the Victorian Government does make many decisions which require a clear understanding of how coal mining and the coal-based industry may develop, and its impact regionally.
Those decisions include:
- exercise of planning powers under legislation
- when and how to allocate coal
- granting exploration and mining licences
- setting licence conditions
- setting rehabilitation bonds.
In addition to these administrative decisions, government expenditure decisions require an understanding of how the coal sector may develop.
These expenditure decisions cover research, development and demonstration in technologies associated with coal and coal-based industries, collection and analysis of geological data on the coal resource, and infrastructure (road, ports, rail and water) affected by future coal-related projects.
Effective exercise of these powers requires the Victorian Government to understand how the sector may develop. this understanding depends on data collection, review of domestic and international developments, assessment of changes in related markets such as oil and carbon dioxide emissions, and analysis of how government decisions affect future coal and CCs industry development scenarios.
Since the privatisation of the energy industry in the 1990s, government capability in this area has declined. the Victorian Government intends to rebuild sufficient capacity to develop a strategic plan for development of the coal resource. this is one of the key tasks of the newly established Clean Coal Victoria, (CCV).
The Victorian Government has dedicated $12.2 million to establish CCV, which will plan for the long-term extraction, development, use and rehabilitation of the state’s coal resources. CCV will be an important contributor to the complex task of developing the state’s coal resources in a carbon-constrained future.
Subject to clear commercial interest and rigorous approval processes, the Victorian Government will continue to allocate coal to private developers operating in a carbon-constrained environment.
The Victorian Government will strengthen its capacity to develop a strategic plan for the development of the coal resource. this strategic plan will, facilitate the optimal use of the resource within a carbon-constrained future, ensure sound long-term environmental outcomes associated with mining, and support necessary infrastructure for new developments.
10 Participating in global CCs commercialisation efforts
There is substantial worldwide interest in CCs as a key technology for developing deep cuts in greenhouse gas emissions. the interest in developing this technology is reinforced by the potential benefits to industry as new technology emerges.
Currently, the bulk of research on carbon dioxide capture is undertaken by large equipment suppliers and utilities in other countries.
While australia may benefit from research and development elsewhere, attention needs to be paid to the best application of those technologies in local conditions.
CCS has not yet been integrated into any large-scale power generation plant in the world. the timing of commercial viability in australia depends on the design of the national ets, and in particular the timing and levels of emissions caps to be imposed under that scheme. Current costs of supporting this new technology are high.
The Victorian Government will monitor and learn from international developments. substantial research and development is being undertaken on the capture of carbon dioxide in a number of coal-fired power stations. Where appropriate, further work will be undertaken to apply relevant results from international research to suit the particular characteristics of Victorian brown coal.
Australia is a member of the Carbon sequestration Leadership forum, which is a framework for international cooperation in research and development of CCs technologies.
While carbon capture is subject to rapid technical change, this appears less true of storage. the key requirement in this respect will be further geo-technical research, to develop greater understanding of the characteristics of potential storage sites in the offshore Gippsland Basin and elsewhere.
The Victorian Government has already taken steps to build global collaboration in CCS. in april 2008, the Victorian premier signed, on behalf of the state of Victoria, a memorandum of understanding (mou) with the William J. Clinton foundation’s Clinton Climate initiative to further a shared goal of reducing greenhouse gas emissions. part of the initial program under this mou will focus on clean energy technology demonstration, including CCS.
The MoU will help to position Victoria as a global CCs leader by:
- utilising global networks to promote the CCs policy, regulatory and technology development initiatives being pursued by the Government, as outlined in this strategic policy framework
- investigating the creation of a CCs hub centred on the Latrobe Valley.
A similar mou was signed between the australian Government and the Clinton Climate initiative in september 2008.
The Australian Government launched the Global Carbon Capture and storage institute in september. the institute will aim to accelerate carbon projects through facilitating demonstration projects and identifying and supporting necessary research.
The Australian Government has also created a new national emissions Coal Council and a Carbon storage taskforce to drive the adoption of low emissions coal technologies. Victoria is represented on this taskforce, which will examine work already underway in australia and indicate priority issues going forward to make recommendations on the forward work program for geological mapping, infrastructure and storage locations.
The Victorian Government will develop domestic and international links to monitor the progresss of CCs and respond through robust policy and action as appropriate.
11 Going forward
The Victorian Government has followed an extensive consultative process in the development of this position paper.
The Strategic Policy Framework for Near Zero Emissions from Victoria’s Fossil Fuels position paper and all public submissions that were made to the issues paper in 2007 are available on the Department of primary industries’ website at www.dpi.vic.gov.au/energy.
The Victorian Government will develop further proposals to take this strategy forward, and will continue to consult with stakeholders and the community.
this position paper will also feed into the development of a Victorian Government White paper on Climate Change, to be released in 2009, that will contain concrete measures for the next phase of climate action.
How CCs works – capturing,transporting and storing carbon dioxide
Carbon dioxide capture involves separating carbon dioxide from a source, whether flue gas or carbon dioxide in a natural gas stream through physical separation (passing the gas through membranes) or chemical sorption (passing the gas through solvents or porous solids).
Small-scale carbon dioxide capture is used to supply carbon dioxide used in food products (for example, carbonated water) or other applications such as fire extinguishers.
Large-scale carbon dioxide separation is widely used in gas-processing facilities, to reduce the carbon dioxide content of natural gas before it is transported. in almost all cases, the carbon dioxide is simply vented to the atmosphere, rather than compressed and then stored.
Large-scale capture of carbon dioxide (measured in millions of tonnes per annum), rather than simply separating and venting the carbon dioxide is not common.
The technologies used for capture of carbon dioxide in coal-fired power generation are:
- coal gasification with pre-combustion capture of carbon dioxide
- post-combustion capture of carbon dioxide
- oxyfuel combustion, in which the power plant’s fuel is burnt in oxygen rather than air, combined with post-combustion capture.
The addition of carbon capture technology substantially increases capital and operating costs. recent estimates conclude that for the first series of CCs demonstration plants capital costs will be 40 to 60 per cent higher than for comparable power plant without CCs, and that operating costs may be 20 per cent higher. 
In power generation applications, the capture of carbon dioxide is likely to be the largest additional cost associated with CCs. in coal-to-liquids and other products, carbon dioxide separation is often an integral part of the process of converting coals to liquids or other chemical products. for these applications, separating the carbon dioxide is not an additional cost. However, for both power generation and coal to other products the cost of compressing, transporting and storing carbon dioxide (rather than venting it to the atmosphere) is additional.
After it has been separated and compressed, carbon dioxide is transported to long-term storage. the least cost approach is likely to be through gas pipelines.
Pipeline transportation of high pressure carbon dioxide is a mature technology. there are more than 2,500 kilometres of such carbon dioxide pipelines in the united states alone, used predominantly for enhanced oil recovery.
The risks associated with carbon dioxide pipelines do not differ greatly from existing natural gas pipelines. in addition, conventional safety and risk management methodologies for industrial plant and equipment will apply to a new carbon dioxide pipeline in the united states alone.
There are significant economies of scale in pipeline transport. most of these economies are realised once the volume of carbon dioxide transported reaches 10 to 15 million tonnes per year (mt/ year). Large emission volumes in the Latrobe Valley will be sufficient to realise economies of scale. However, the scale and timing of initial investments may need consideration to minimise long-term costs.
Carbon dioxide storage can be geological, mineral or biological. analysis by the iea and others suggests that geological storage is likely to have a significant cost advantage. However, some commentators have argued that biological storage may also be feasible and commercially viable.
Geological storage involves the injection of liquid carbon dioxide in subterranean reservoirs. Geological storage possibilities include depleted oil and gas reservoirs, deep unused saline aquifers (that is, reservoir rocks saturated with saline water) and deep coal seams unsuited to mining.
Geologists consider risk of leaks from appropriately assessed storage sites to be low. appropriate sites have contained materials such as oil, gas and carbon dioxide for millions of years. the ipCC has estimated that appropriately selected and managed geological reservoirs are “very likely” to retain more than 99 per cent of injected carbon dioxide over 100 years. the panel said it was “likely” that more than 99 per cent could be retained over 1,000 years.
Following injection into storage there will be a need for monitoring and verification. once the carbon dioxide is stable, this monitoring requirement will remain, but reduce.
Mineral sequestration involves the uptake of carbon dioxide into basic oxide minerals present in natural silicate rocks. the process is, in effect, what occurs in natural ‘weathering’ of these rocks and is part of the carbon dioxide cycle.
There are large quantities of these minerals distributed throughout the earth. the process would require mining and processing of the rocks, transport of carbon dioxide to the mine location, and the subsequent storage of the final product. this approach to carbon dioxide storage has the benefit that the carbon dioxide is permanently locked up as a mineral and the residue can be stored with minimal monitoring.
While the process is feasible it occurs very slowly. increasing the speed of the process requires grinding the basic mineral prior to reaction with the carbon dioxide. approximately three tonnes of mineral is needed to fix one tonne of carbon dioxide. this would require significant investment in mines for the base mineral mine, a processing facility and the storage site.
Biological sequestration of carbon dioxide can occur in any plant matter. the most commonly discussed options are trees and fast growing micro-algae, possibly combined with subsequent production of biofuels.
These processes use photosynthesis to convert water and carbon dioxide into biomass. Where that biomass is subsequently being used – for example, as biofuel – the carbon dioxide is released and the impact on carbon dioxide mitigation would need to be considered on a life cycle basis.
Mineral and biological sequestration may not be cost effective. mineral sequestration is estimated to cost us$80 per tonne of carbon dioxide avoided, and in the power sector may lead to a reduction in net power efficiency of 44 per cent. Biomass production is limited by the efficiency of converting solar energy into chemically stored energy, requiring immense plot areas for large-scale capture.
Analysis to date has concluded that geological storage is the most viable option, with other options only being viable in small applications where geological storage potential is limited. However, technology is evolving rapidly in these areas, and comparative costs and commercial feasibility may change.
Government funding for technology development
ETIS clean brown coal technologies
$110 million fund to establish a new large-scale, pre-commercial Carbon Capture Storage (CCS) demonstration program.
$83.5 million over five years for large scale demonstration clean brown coal technology power plants in the Latrobe Valley, which have attracted strong industry and Commonwealth Government support.
- $50 million grant to HrL Limited to build and run a commercial-scale power plant using world-first low emissions coal technologies developed in Victoria. the 400 mW plant will trial a high-efficiency, integrated drying gasification technology, which is both low-cost and low-emission.
- $30 million grant to international power Hazelwood for the development of a new large scale coal drying and combustion plant. in addition, a 25 tonne per day carbon capture plant will be built to demonstrate the latest carbon capture technology. fuelled by a mixture of dried brown coal and raw wet coal, new efficiencies gained through these technologies are expected to significantly lower Co2 emissions as compared to the current Hazelwood plant.
$12 million for Brown Coal Research and Development Grants to boost the utilization of the state’s massive brown coal reserves for both new forms of high-value, high-volume applications and advanced low emission technologies associated with power generation including coal drying, carbon capture, oxy-fuel combustion, and efficiency improvement technologies.
- $2.5m to Loy yang power and Co2CrC to research technology options in the post-combustion capture of Co2 from both Loy yang a and Hazelwood power stations.
- $2.06m to the Co-operative research Centre for Greenhouse Gas technologies (Co2CrC) for a project to test precombustion carbon dioxide capture technologies in power generation.
- $1.3m to monash university, to look at oxy-fuel combustion which has the potential for brown coal fired power stations to reach near zero emissions and also capture emissions for underground storage.
- $800,000 to aquex to look at dewatering brown coal under pressure and to assist in developing a commercial dewatering method
- $550,000 to Csiro minerals for modelling dried brown coal power furnaces to assess future operational requirements of brown coal fired power stations.
- $550,000 to monash university to investigate the use of lignite to increase the effectiveness of separation of sludge solid from municipal water treatment plants and pulp and paper mills using conventional separation equipment.
- $525,000 to HrL technology to look at improving the knowledge of advanced materials for power plants.
- $450,000 to HrL technology to look at advanced flaw detection in welds, pitting in tubes and turbine blades in the Latrobe Valley.
- $390,000 to HrL technology to develop a boiler optimization package to improve combustion efficiency and reduce Co2 emissions from the combustion of brown coal.
- $300,000 to monash university to investigate the key technical feasibility of a conceptual advanced gasification technology.
$4 million for a Carbon Dioxide storage (geo-sequestration) trial in the otway Basin. a further $2m has been committed to stage two of this project by the Victorian Government.
$1.2 million for Brown Coal Research and Development Post Doctoral Fellowships.
ETIS sustainable energy technologies
$72 million towards large scale sustainable energy demonstration projects that will position Victoria as a world leader in the fight against climate change.
- An up to $50 million grant to solar systems Generation pty Ltd for the establishment of the world’s largest and most efficient solar photovoltaic concentrator demonstration project for the production of clean energy from the sun. this project has also attracted significant Commonwealth support.
- $10 million for sustainable energy research and Development Grants announced under the our environment, our future sustainability action statement (serD). the three-year r&D grants program supports sustainable energy technology.
- $6 million grant for a project headed by melbourne university to develop and increase the efficiency of organic solar cells as an alternative to silicon based cells in the generation of solar power.
- $1.2 million grant for a project led by melbourne university to look at the development of a more efficient hydrogen-fuelled car engine and also the storage of hydrogen.
- $650,000 grant for a project led by monash university to research the recycling of waste plastics for the production of diesel fuel.
- $250,000 grant for a project led by australian sustainable industry research Centre Ltd (asirC), based in the Latrobe Valley, to investigate the energy efficiency of solvent based fuel derived from recycling industrial liquid wastes.
Other Government energy related initiatives
$29.25 million for the Centre for Energy and Greenhouse Technologies
(CeGt). the CeGt provides investment funds and support services for the development of new sustainable energy and greenhouse reductions technologies to a pre-commercial stage. since commencing operation, the CeGt has received nearly 500 applications for funding and achieved a funding base of around 1:7 government-to-private funds.
$12.2 million to create Clean Coal Victoria in the Latrobe Valley, an organisation dedicated to maximising the value of Victoria’s brown coal resources. Clean Coal Victoria would be based in the Latrobe Valley and would focus on identifying future coal resources, planning for long-term brown coal use and rehabilitation.
$5.2 million for investigating carbon storage sites in the Gippsland basin
to better understand carbon storage potential through research and modelling of the region’s geology.
$3.6 million as Victoria’s share to extend the Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC) for another seven year term. this will also enable further support to be provided to the otway Basin pilot project for ongoing research and understanding about carbon dioxide storage deep underground.
$2.2 million for Mechanical Thermal Expression (MTE) to construct a pre-commercial plant demonstrating the coal drying technology. Victoria’s brown coal produces high levels of greenhouse gas emissions because of its high water content. mte reduces coal water content with the potential to produce greenhouse gas emission reductions of between 30 and 40 per cent in a new power station.
Terms and abbreviations
||Carbon Capture and storage|
|Co2-e||Carbon dioxide equivalent. the universal unit of measurement used to compare the emissions from each of the greenhouse gases, based upon their Global Warming potential.|
|Co2CrC||Co-operative research Centre for Greenhouse Gas technologies|
|ETIS||Energy technology innovation strategy|
|ETS||Emissions trading scheme|
|Fugitive emissions||Emissions associated with gas leaks from the mining, processing, transmission and/or transportation of fossil fuels.|
|Geosequestration||The process of injecting large amounts of greenhouse gases, particularly carbon dioxide, into deep, permanent underground storage.|
|Greenhouse gas||Any gas that absorbs infrared radiation in the atmosphere. Greenhouse gases include, but are not limited to, water vapour, carbon dioxide (Co2), methane (CH4), nitrous oxide (n2o), hydrochlofofluorocarbons (HCfCs), ozone (o3), hydrofluorocarbons (HfCs), perfluorocarbons (pfCs), and sulphur hexafluoride (sf6).|
|IDGCC||Integrated Drying Gasification Combined Cycle|
|IEA||International energy agency|
|IGCC||Integrated Gasification Combined Cycle. this is a process which uses coal gasification to produce a clean burning gas which is then combusted to generate electricity.|
|IPCC||Intergovernmental panel on Climate Change|
|Market failure||The inability of a market system to truly reflect the social and environmental costs and/or benefits associated with transactions. this can lead to a situation where the incentives and market conditions which individuals and businesses face, lead to actions that are bad for society.|
|MWh||mega watt hour|
|NETT||National emissions trading task force. the taskforce comprises senior representatives of state and territory Governments. it was established (as the inter-jurisdictional emissions trading Working Group) in 2004 to develop a national emissions trading scheme design for consideration by state and territory governments.|
|RD&D||Research Development and Demonstration|
|Stationary energy||Stationary energy refers to all energy used for non-transport applications. this includes the energy used in homes, businesses and industry such as electricity.|
 The australian Bureau of agricultural and resource economics (aBare), Energy in Australia, 2008, page 30.
 This includes the Gippsland, otway, Bass, Coal seam methane and Cooper reserves.
 EnergyQuest Energy Quarterly, february 2008.
 state and territory Greenhouse Gas inventories 2006, Australia's National Greenhouse Accounts, Australian Greenhouse office, June 2008.
 ibid. (see appendix C for definitions).
 Victorian Government Department of infrastructure and Department of sustainability and environment The Greenhouse Challenge for Energy: driving investment, creating jobs and reducing emissions, December 2004, available at www.climatechange.vic.gov.au
 Victorian Government Department of sustainability and environment Victorian Greenhouse Strategy Action Plan Update, april 2005, available at www.climatechange.vic.gov.au
 Victorian Government Department of primary industries Action Agenda on Climate Change and Greenhouse: Growing Sustainable Primary Industries, march 2006.
 Victorian Government Department of sustainability and environment Renewable Energy Action Plan, July 2006, available from www.climatechange.vic.gov.au
 Victorian Government Department of primary industries and Department of sustainability and environment Victorian Energy Efficiency Target issues paper, march 2007, available at www.dpi.vic.gov.au/energy
 Victorian Government Department of sustainability and environment Energy Efficiency for Victoria Action Plan, July 2006, available from www.dpi.vic.gov.au/energy
 Commonwealth of australia, Carbon Pollution Reduction Scheme Green Paper, July 2008, page 356. available at http://www.climatechange.gov.au/emissionstrading/index.html
 Garnaut Climate Change review: Interim Report to the Commonwealth, State and Territory Governments of Australia, february 2008, page 5.
available at http://www.garnautreview.org.au.
 Garnaut Climate Change review: Emissions Trading Scheme Discussion Paper, march 2008. available at http://www.garnautreview.org.au
 Garnaut Climate Change review: Interim Report, op. cit., page 51.
 Garnaut Climate Change review: Draft Report, June2008, page 502. available at http://www.garnautreview.org.au
 World energy outlook 2007 - executive summary: China and india insights. available at http://www.iea.org/Textbase/npsum/WEO2007SUM.pdf, page 4.
 ibid. page 12.
 intergovernmental panel on Climate Change special report on Carbon Dioxide Capture and storage – summary for policymakers and technical summary, 2005, page 9.
 ipCC fourth assessment report, Working Group iii report “mitigation of Climate Change”, 2007, mitigation of Climate Change, page 10, available at http://www.ipcc.ch/ipccreports/ar4-wg3.htm
 national emissions trading taskforce (nett) state and territory officials Possible Design for a National Greenhouse Gas Emissions Trading Scheme. Discussion paper. (august 2006).
 ministerial Council on mineral and petroleum resources Australian Regulatory Guiding Principles for Carbon Dioxide Capture and Geological Storage, november 2005.
 The Offshore Petroleum Act 2006 (Cth) applies to australian territorial waters greater than 3 nautical miles offshore.
 available at www.aph.gov.au/house/committee/air/exposuredraft
 available at www.dpi.vic.gov.au/energy.
 stern review: report on the economics of Climate Change, 2006, pages 352-355.
 Garnaut Climate Change review: Interim Report, loc. cit.
 intergovernmental panel on Climate Change, op. cit. page 5.
 ‘review of Geological storage opportunities for Carbon Capture and storage (CCs) in Victoria’, Gibson-poole (Co2CrC), april 2007.
 Co2CrC, Latrobe Valley storage Co2 assessment final report, november 2005, edited by Barry Hooper, Luke murray, Catherine Gibson-poole.
 ‘review of Geological storage opportunities for Carbon Capture and storage (CCs) in Victoria’, Gibson poole (Co2CrC), april 2007.
 World Coal institute Coal meeting the Climate Challenge: technology to reduce GHG emissions, october 2007.
 While the report confirms a strong industry and Government interest in CCs, and a main but not exclusive focus on iGCC technology, some data in the report seems unduly optimistic. as an example, the report states that the ZeroGen project in Queensland has an expected start date of 2010. this project has not yet proceeded to front-end engineering and design, prior to a decision on funding, and this start date is unrealistic. the description of a number of other projects appears more optimistic than statements on the relevant project websites.
 Commission of the european Communities, Communication from the Commission to the Council and the european parliament -sustainable power generation from fossil fuels: aiming for near-zero emissions from coal after 2020, Brussels, January 2007 available at http://eur-lex.europa.eu/ Lexuriserv/site/en/com/2006/com2006_0843en01.pdf.
 Department of primary industries, Victorian Coal, a 2006 inventory of resources.
 european Commission, staff Working Document, Supporting Early Demonstration of Sustainable Power Generation from Fossil Fuels, 23 January 2008, page 17.