Broader regulatory framework

The Crown Minerals Act 1991 (CMA) regulates the management and development of Crown-owned minerals. Under the CMA, petroleum, gold, silver and uranium in their natural state are always Crown-owned (often referred to as statute minerals). The Crown also generally owns all minerals in the territorial sea (out to 12 nautical miles) and has vested rights in minerals in the exclusive economic zone (from 12 miles to 200 nautical miles offshore) and the continental shelf beyond (out to a maximum of 350 nautical miles offshore). The Marine and Coastal Area (Takutai Moana) Act 2011 provides the right for iwi, hapū and whānau to the ownership of minerals (excluding petroleum, gold, silver and uranium) within areas where customary marine title has been awarded.

Other kinds of minerals in their natural state are owned by the Crown if they exist on or under Crown land, or if they are on or under privately owned land that is subject to a mineral reservation in favour of the Crown.

The purpose of the CMA emphasises development of Crown-owned minerals and the role of the Crown in allocating and managing rights to prospect, explore and mine these resources for New Zealand’s benefit, including receiving a fair financial return through royalties. 

The CMA operates alongside other legislation that regulates the health, safety and environmental aspects of mining for both Crown-owned and privately owned minerals (e.g. the Health and Safety at Work Act 2015, the Resource Management Act 1991 (RMA), and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012).

A clear and certain regulatory pathway for natural and orange hydrogen development is important for encouraging investment 

Globally, natural hydrogen has been overlooked in the past due to the misconception that it rarely occurs naturally and because there has been a historical abundance of alternative resources, such as natural gas. As a result, regulatory frameworks for extractive/mineral activities have not been designed with natural or orange hydrogen in mind, including the CMA.

We are aware of industry interest in natural and orange hydrogen development in New Zealand. We have heard that having a clear and certain regulatory pathway, and clarity around if and how the CMA applies, is key to encourage investment. Without this certainty, investment is likely to be taken overseas. 

Natural hydrogen meets the definition of mineral under the CMA.^[1] However, the CMA does not have a mechanism in place to determine Crown ownership of minerals that are gases or liquids that may flow across Crown-owned and privately owned land. Permitting natural hydrogen based on the status quo under the CMA could lead to ownership challenges, which is unlikely to be conducive for investment. Additionally, under the status quo regulatory measures that apply to other volatile minerals (e.g. petroleum) under the CMA would not apply to natural hydrogen. 

In comparison, orange hydrogen development would not be captured under the definition of mineral under the CMA because it is not naturally occurring. However, there is an argument that orange hydrogen should be treated the same way as natural hydrogen. In practice, development is likely to require similar exploration and production techniques, and it is likely to be difficult to distinguish how much natural versus orange hydrogen is being produced during extraction.

Since the CMA has not been designed with natural and orange hydrogen in mind there are questions around whether they should be treated as a mineral and be regulated under the CMA.

This consultation document focuses on which regulatory regime(s) should apply, including what (if any) changes are necessary to provide regulatory certainty and clarity to enable responsible development.

Policy objectives

While we do not have a natural and orange hydrogen industry yet, there are advantages of being a fast mover in enabling an industry to emerge for the positive economic and energy outcomes it could have for New Zealand. We see the following objectives as being important: 

• Providing investment certainty – by ensuring developers have clarity and good understanding of the rules that need to be complied with (e.g. easily understanding how natural and orange hydrogen is treated, especially as this is related to the CMA and RMA and knowing where they fit within the current system of rules);
• Efficient market outcomes – ensuring hydrogen can be developed efficiently and effectively in a responsible manner (i.e. any potential adverse economic, health and safety and environmental outcomes from development are managed appropriately).

International trends in regulating natural and orange hydrogen

The emerging international trend is to regulate natural hydrogen like petroleum

Other countries are integrating the regulation of natural hydrogen development into existing extractive legislative frameworks, rather than formulating bespoke legislation (e.g. France, Spain, Philippines and Australia). Most countries that have incorporated natural hydrogen into their existing legislative frameworks have also asserted complete state ownership of the resource (e.g. nationalised natural hydrogen).

Australian states are some of the most advanced in regulating natural hydrogen. Four out of the 8 Australian states/territories^[2] that have regulated or are about to regulate natural hydrogen have either integrated it into their definition of petroleum (Northern Territory) or included it as a regulated substance under existing petroleum legislation and regulation (South Australia, Western Australia and Tasmania). This approach acknowledges that hydrogen development uses similar exploration and production techniques to petroleum, requiring similar controls. New South Wales is the only Australian state that has prescribed natural hydrogen as a mineral separate from petroleum. We understand this was because there was an opportunity to include it in an existing review of their minerals regulations and prescribe detail at a later point. As we progress a national discussion on hydrogen, there is an opportunity to learn from these international regimes as they are developed and implemented. 

In New Zealand, petroleum is a nationalised resource, allocated under the CMA. As the Government is not intending to nationalise natural hydrogen, treating it exactly the same as petroleum may not be appropriate. In addition, given the emerging nature of the hydrogen industry, all existing petroleum settings under the CMA may not be well suited to regulate natural hydrogen. Further discussion about this is outlined under the section which CMA requirements should apply if hydrogen is treated as a mineral under the CMA.

Regulatory frameworks for orange hydrogen are developing internationally and carbon capture, utilisation and storage (CCUS) frameworks are an important aspect

Internationally, including in the Australian states/territories outlined above, changes that have been made to extractive frameworks have focused on natural hydrogen rather than orange hydrogen. This is likely to be because the concept of orange hydrogen is newer. For New Zealand, there is an opportunity to consider both types of hydrogen at the same time.

Along with hydrogen extraction, carbon capture and storage  can be a component of orange hydrogen production. Many countries are at different stages of developing a CCUS regulatory framework and are taking various approaches to consenting/permitting, monitoring and liability regimes and the treatment of CCUS within carbon markets. Certainty around these factors will likely influence investment decisions in orange hydrogen. 

To provide an enabling environment for orange hydrogen in New Zealand we need clear regulatory settings for both hydrogen development and CCUS. We are already progressing work on the CCUS regulatory framework for New Zealand and are cognisant of the importance that it meets the needs of orange hydrogen development.^[3]

Footnotes

[1] From what we understand, Victoria, Queensland and the Australian Capital Territory currently do not have a regulatory framework in place for natural hydrogen development.

[2] Carbon capture and storage is the process of trapping carbon dioxide produced by burning fossil fuels or other chemical or biological processes and storing it to prevent it from entering the atmosphere, with the aim of mitigating the effects of global warming.

[3] Proposed regulatory regime for Carbon Capture, Utilisation, and Storage

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