Environmental liabilities

In NSW, onshore gas development is limited to the exploration, assessment and production of coal seam gas reserves.

In 2013 the EPA commissioned comprehensive review by the NSW Chief Scientist and Engineer of coal seam gas activities, focusing on impacts to human health and the environment.

The Final Report of the Independent Review of Coal Seam Gas Activities in NSW (PDF 243KB) made 16 recommendations, including Recommendation 9 which stated

‘That Government consider a robust and comprehensive policy of appropriate insurance and environmental risk coverage of the CSG industry to ensure financial protection short and long term. Government should examine the potential adoption of a three-layered policy of security deposits, enhanced insurance coverage, and an environmental rehabilitation fund.’

Recommendation 9 focused on ensuring that the costs and impacts from the coal seam gas industry are not a burden for the community. The recommendation supports the ‘polluter pays principle’ where the costs of remedying any environmental impacts from coal seam gas activities are paid by the industry.

In investigating Recommendation 9, the EPA considered the current state of the coal seam gas industry and consulted with industry operators, insurance providers and NSW Government agencies. The EPA also consulted with environment and community groups, community representatives and relevant local councils. Comments, ideas and concerns were received around compensation for landholders, environmental impairment insurance and business implications for gas operators.

Safeguarding future environmental liabilities

In February 2020, the NSW Government released Safeguarding future environmental liabilities from Coal Seam Gas Activities in NSW (PDF 1,143KB) which explains that the NSW Government will

  • continue the existing security deposit scheme which covers the costs of rehabilitation administered by the now Division of Mining, Exploration and Geoscience within the Department of Regional NSW when petroleum titles are issued
  • require coal seal gas companies to employ effective risk management strategies throughout the life of a project and provide evidence of adequate insurance coverage or alternative financial arrangements to cover the clean-up costs of potential pollution incidents
  • assess potential future environmental liabilities to determine whether a financial assurance is required for residual risks that are not covered by the rehabilitation security deposit. This will cover environmental liabilities that may arise after rehabilitation activities have been completed and the security deposit is released.
  • continue the NSW Government’s existing program managing abandoned petroleum wells, the Legacy Wells program which provides an existing framework for strategic management of abandoned petroleum wells where the former titleholder cannot be held responsible and no financial assurance mechanism applies

The EPA considers that in implementing the recommendations of the (former) Chief Scientist and Engineer and the NSW Gas Plan (PDF 2.85MB), the NSW Government has already adopted best practice standards and implemented strict regulations. These standards and regulations are enabled through the planning assessment processes, petroleum titles assessment process, well decommissioning, rehabilitation and other mechanisms. They govern all phases of a coal seam gas well lifecycle and have resulted in reduced potential for residual risk to the environment.

Where coal seam gas wells have been constructed, maintained and decommissioned in accordance with the relevant standards and regulations, they represent a low risk to human health and the environment. These standards include

The EPA also works closely with Minerals, Exploration and Geosciences and licensees to achieve the highest practicable standard when decommissioning wells that were constructed prior to current standards.

The figure below illustrates the application of these financial protections to manage environmental liabilities during the different stages of a gas operations lifecycle.

environmental liabilities

Insurance coverage

Existing and new coal seam gas operations are required to prove to the EPA their financial arrangements to cover the costs of unexpected potential pollution incidents during the lifetime of the project.

The availability of adequate environmental impairment liability insurance for coal seam gas operations in Australia is currently limited. Where it is available it often excludes activities such as fracking. Industry has therefore moved to a reliance on maintaining sufficient assets and funds to adequately manage their environmental risks.

Companies that choose not to hold relevant insurance or where it is not available will be required to prove the existence of sufficient funds or other financial arrangements to cover any potential clean up activities. Companies will need to prove they hold adequate insurance coverage or alternative financial arrangements annually, and on commencement of new activities.

Future environmental liabilities

Environmental liabilities provisions are important as while being very low, unforeseen residual risks from coal seam gas activities remain, particularly if well integrity is compromised in the future.

In determining whether to seek financial assurance for potential future environmental liabilities, the EPA uses its powers in the Protection of the Environment Operations Act 1997. Factors that are considered include the degree of residual environmental risk, additional remediation work that may be required and the environmental record of the licence holder.

If ongoing environmental residual risks are identified, the management costs of these are calculated and used to determine the value of any financial assurance secured by the EPA. When a financial assurance is retained for ongoing residual risks, a regular review is undertaken to determine whether to retain or release the funds. 

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