Financial assurance and estimated rehabilitation cost (ERC)
What changes were made to the financial assurance requirements?
The Mineral and Energy Resources (Financial Provisioning) Act 2018 changes financial assurance arrangements for the resource sector and introduces a financial provisioning scheme.
The scheme is designed to better manage the financial risk to the State if a holder of an environmental authority for a resource activity, or of a small scale mining tenure, does not comply with their environmental management and rehabilitation obligations. The scheme will be managed by a Scheme Manager.
For more information on the financial assurance reforms and the financial provisioning scheme, visit the Queensland Treasury website.
Will there be any change to the financial assurance arrangements for prescribed environmentally relevant activities?
The financial assurance reforms apply to activities classified in the Environmental Protection Act 1994 as resource activities only. This means that any prescribed environmentally relevant activities (as described in schedule 2 of the Environmental Protection Regulation 2019) will see no change to financial assurance arrangements. This means that activities such as quarries and landfills are not part of the reforms.
What is the Estimated Rehabilitation Cost (ERC) and ERC period?
The ERC is the cost to rehabilitate or manage disturbance of land on which the resource activity is carried out for a fixed period of time. The cost must be equivalent to the maximum liability for the period.
The ERC period will vary for different activities:
- for mining lease environmental authorities that have (or will have following transition) a PRCP schedule – a period in between one to five years nominated by the holder.
- for environmental authorities for ineligible petroleum activities (activities that are not eligible for standard conditions and that require a site specific assessment to manage the environmental risks of the activity) where a Plan of Operations is not required and petroleum activities authorised under the Petroleum Act 1923 – a period of between one to five years nominated by the holder.
- for environmental authorities for petroleum leases (to which a plan of operation applies) – the plan period.
- for all other resource activities – the length of the resource activity authorised under the environmental authority.
How does the ERC decision interact with the financial provisioning scheme?
The Department of Environment and Science (the department), as the administering authority, will make decisions about the ERC, which will then be used by the scheme manager to calculate the amount of contribution or surety a holder is required to pay under the new financial provisioning scheme.
Is there a requirement to pay a contribution or give a surety?
The financial provisioning scheme applies to:
- the holder of an environmental authority for a resource activity (under section 297 of the Environmental Protection Act 1994) and
- the holder of a small scale mining tenure (under section 21A of the Environmental Protection Act 1994).
For an environmental authority with an estimated rehabilitation cost (ERC) amount equal to or more than the prescribed ERC amount (currently $100,000), the scheme manager must allocate the authority to one of four risk categories and then determine whether the holder is required to pay a contribution to the scheme fund or give a surety to the scheme manager (this is referred to as the risk category allocation framework).
For an environmental authority with an ERC of less than $100,000 or small scale mining tenures, holders will be required to give surety to the scheme manager equal to the ERC amount.
More information is available about the Financial Provisioning Scheme is available on the Queensland Treasury website.
Does an ERC decision need to be made before commencing activities under an environmental authority?
It is a condition of an environmental authority (section 297) that the holder must not carry out the resource activity unless:
- the ERC decision is in effect
- the annual contribution has been paid or surety has been given to the scheme manager under the new financial provisioning scheme
- compliance with the requirements under the scheme has been achieved.
What happens when the ERC amount changes?
The obligation to comply with section 297 continues and the holder will be required to provide the amended contribution or surety amount.
Who is responsible for ensuring that the ERC is in effect before an activity can commence?
The department, as the administering authority will continue to be responsible for securing compliance with all conditions placed on an environmental authority.
This means that the department will be responsible for receiving and assessing ERC applications and making ERC decisions. Once a decision is made, the department will issue a notice to the environmental authority holder and to the scheme manager.
The scheme manager is then responsible for performing the risk assessments, and deciding on risk allocation. The scheme manager will issue the environmental authority holder the requirement to either pay a contribution or give a surety. Once payment has been received or surety has been given, the department, as the administering authority is notified.
If an environmental authority holder fails to pay a contribution or give a surety, the scheme manager will take steps to ensure the invoiced amount for the contribution or surety is paid. Failure to pay a contribution will result in it being a debt which may be recovered through debt recovery processes managed by the scheme manager. In addition, where the holder is operating, the administering authority may continue its own enforcement actions under the Environmental Protection Act 1994 for non-compliance with a condition of an environmental authority.
If an environmental authority holder fails to apply for a new ERC decision and their existing ERC decision has expired, it is the administering authority’s responsibility to contact the holder and secure compliance with the requirements in the Environmental Protection Act 1994.
Will the ERC be subject to the application of discounts?
Discounts will not be applied to the ERC. Any discounts applied to existing financial assurance amounts will be removed over the course of the three-year transitional period, as the initial ERC periods expire and holders apply for a new ERC decisions.
Does the condition in section 297 of the amended Environmental Protection Act 1994 need to be in the physical environmental authority to have effect?
Section 297 operates as a condition of an environmental authority, irrespective of whether the condition is contained in the physical environmental authority (or in the ERA standard). Environmental authorities do not have to be amended on commencement to include this condition.
When will money be claimed under the financial provisioning scheme?
The administering authority may make a request of the scheme manager to claim funds under the financial provisioning scheme if the administering authority incurs, or might reasonably incur, costs and expenses in taking action to:
- prevent or minimise environmental harm or restore the environment, in relation to carrying out an activity for which a contribution has been paid or a surety has been given, or
- secure compliance with an environmental authority or prescribed condition for a small scale mining activity for which a contribution has been paid or a surety has been given.
The administering authority will endeavour to exhaust all options before making a claim under the financial provisioning scheme, including pursuing enforcement action to identify and ensure the responsible party undertakes the required action. For example, the administering authority may issue an environmental protection order to the responsible entity to remedy the environmental harm that has occurred or is likely to occur, before claiming on the financial provisioning scheme. In that instance, the claim on the financial provisioning scheme will only be made if, and when, the environmental protection order is not complied with.
What triggers a change to an ERC decision?
The main triggers which will require a holder to apply for a new ERC decision include:
- the end of an ERC period
- an increase to the likely maximum disturbance within an ERC period
- a change to the way activities are carried out resulting in an increase in the ERC
- as a result of an amalgamation or de-amalgamation of an environmental authority
- as a result of information supplied in an annual return.
When should the first application for an ERC decision be made?
The timing of application will be at the discretion of the environmental authority holder and should allow for sufficient time for a decision to be made before operations are planned to commence. This is because an environmental authority holder must have an ERC decision in effect and have provided a contribution to the scheme fund or given a surety to the scheme manager before they can commence operations under their environmental authority.
Does the ERC decision need to be consistent with rehabilitation requirements in the Progressive Rehabilitation and Closure Plan?
The ERC decision application must include a statement of compliance outlining consistency in between the application and the Progressive Rehabilitation and Closure Plan schedule.
Will the existing financial assurance framework remain in the Environmental Protection Act 1994?
The existing financial assurance framework in the Environmental Protection Act 1994 will be limited to prescribed environmentally relevant activities and for transitional environmental programs.
Will there be an ERC calculator to be used for all calculations?
The financial assurance calculators developed by the department will be updated (renamed as ERC calculators) and available for use upon commencement of financial provisioning scheme.
Will third-party quotes and contracted rates be allowed to be used for the ERC calculation?
The use of third party quotes and contracted rates will continue to be allowed, subject to compliance with the relevant criteria in the statutory guideline being developed for ERC. The criteria for third party quotes and contracted rates in the ERC guideline have been taken from the existing Financial Assurance under the Environmental Protection Act 1994 guideline. The criteria are being reviewed to ensure that they appropriately reflect the cost to the Queensland Government.