WA’s land tenure amendments: Key takeaways

• The reforms facilitate the expansion of carbon farming, with pastoralists set to benefit from the extension of pastoral leases for up to 50 years and associated security of tenure benefits to attract carbon farming capital investment.
• The reforms are seeking to strike a balance of risk and reward between the conflicting land uses associated with the nascent green hydrogen industry and biodiversity conservation.  At this stage, the reforms appear to be weighted in favour of the latter and questions remain how the reforms will ‘unlock land for renewable energy’, such as green hydrogen projects, because:
  • the best wind and solar energy resources in the State exist in coastal areas and, outside of the freehold areas of the south west, is predominated by existing pastoral leases;
  • the grant of the new ‘diversification lease’ (in the ‘switch’ from a pastoral lease) will still require agreements to be reached with pastoral lease and native title holders.  As such, key hurdles for clean energy projects remain given the location of many existing pastoral leases coincide with the best wind and solar energy resources in the State;
  • more carbon farming will potentially create more conflicting land uses for clean energy projects and mining to contend with;
  • the conflicting pastoral land use is perpetuated by extending pastoral leases for up to 50 years; and
  • more sweeping tenure reform to ‘unlock land for renewable energy’ and green hydrogen projects will still be needed, and possibly require large-scale acquisition of existing rights and interests (such as pastoral and native title rights) which are outside of the scope of the current reforms.
• Accordingly, given the geographic distribution of wind solar resources and pastoral tenure, it appears the amendments unlock pastoralists’ ability to market and monetise their tenure for clean energy development, rather than unlocking the land for development itself.
• Apart from this, mining companies that also hold underlying pastoral leases may be able to capitalise the fastest on the opportunities presented by the proposed diversification leases.

State Government aims to unlock land for renewable energy and economic diversification

Last week, the Western Australian Government announced a suite of land tenure reforms headlined by a new form of tenure – the diversification lease.  The announcements suggest the reforms will be a welcome and necessary development for prospective renewable energy developers seeking to harness the unique opportunity WA’s natural resources offer. 

The Government stated the new diversification lease provides a form of tenure that can support the establishment of clean energy projects and the expansion of carbon farming to capitalise on the burgeoning offsets industry.  The Government’s announcement also promises to reduce red tape and streamline approval processes to ‘unlock land for renewable energy and economic diversification’.

Many aspects of the reforms to the Land Administration Act 1997 (WA) (LAA) are distinctly familiar to those who followed the mooted Rangelands leases in 2016 as we predicted in ‘Greener Pastures – Land tenure and other legal reforms flagged for WA’s renewable or green hydrogen industry’. At this stage, the Government has only announced a summary of the proposed reforms noting the amendment Bill is currently being drafted and is intended to be introduced into Parliament early in 2022.

We eagerly await the Bill and further information to assess the extent to which it will meet the Government’s objectives and industry demands to support the wind, solar and nascent green hydrogen market.  We set out below some key points to consider from the information released last week.

Diversification leases

What are diversification leases?

Diversification leases are undoubtedly the headline act as the apparently new form of land tenure was positioned as the key to unlocking WA’s renewable energy potential to allow diversification of WA’s economy.

Under the LAA, pastoral leases only allow the relevant land to be used for pastoral purposes and  large scale renewable facilities are not permitted pastoral purposes.  The Government has previously identified this issue given pastoral leases over Crown land cover roughly 36 percent of WA (90 million hectares), predominantly located in regional and remote areas where WA’s best solar and wind resources are located.

Diversification leases are an alternative to the existing pastoral leases, allowing for a more diversified range of clean energy related land uses to coexist with existing pastoral and mining land uses.  Such uses clearly contemplate solar and wind farms, which provide the renewable energy required to give green hydrogen its colour. 

Conversion to the new leases is not mandatory, and there is currently no new conversion mechanism that is proposed by which a pastoralist can be compelled to agree to diversified activities over existing tenure or to surrender their lease in favour of a diversification lease. 

In this way, there is naturally a limit to the extent to which land covered by pastoral leases can be ‘unlocked’ by these reforms as it will remain incumbent on clean energy project developers to reach agreement with pastoralists regarding the grant of a diversification lease.

Pastoral leases in Western Australia
 

Wind speeds in Australia

Solar energy availability in Australia

How are diversification leases different?

Those familiar with pastoral leases will be aware of the existing diversification permit.  This permit is not transferrable, requires approval after application to the Pastoral Lands Board and may allow for any non-pastoral purposes if the land has been enclosed or improved.  The changes brought by the diversification lease are substantively procedural but increase efficiency.  The tenure removes the need to obtain a pastoral lease and then a permit, the approval of which is not guaranteed.  Renewable energy developers may now obtain a diversification lease from the outset or convert pastoral leases instead of seeking permits approving certain uses. The leases provide increased operational certainty as opposed to permits, and the legal characterisation as a lease rather than a licence provides greater security of tenure.  Diversification leases will also be transferrable making them overall a far more commercially-friendly tenure.  The ‘conversion’ of a pastoral lease into a diversification lease looks set to occur by way of surrender and regrant.  Given the geographic distribution of resources and pastoral tenure, it appears the amendments unlock pastoralists’ ability to market and monetise their tenure for clean energy development, rather than unlocking the land for development itself.

Evidently, the substance of what a diversification lease allows is not too different, but the new framework is aimed at commercial efficiency and viability.  However, other amendments allow for more competitive reviews of rent amounts, which we expect the government to leverage by monetising tenure to compensate for the revenue inevitably lost from the transition away from carbon-intensive resources.  For more information on what to expect read ‘Decarbonisation: is zero-emission energy a zero-sum game for governments?’ in which we discuss potential areas of monetising green energy, including leases and rent.

Will the reforms streamline the land tenure approvals pathway?

There is no quick-fix tenure option for renewable energy facilities in WA.  Potential options include tenure under the Mining Act 1978 (Mining Act), the LAA or contractual arrangements with existing land holders. The availability of and the preference between the current land tenure alternatives in WA depends on a range of factors, including:

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

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

At this stage, it is not clear whether the diversification lease will be suitable across the life-cycle of a clean energy project or whether it is intended to simply be the ultimate form of tenure related to construction and operation of a facility. 

In theory, the diversification lease could be seen as a form of tenure to replace existing mechanisms under the LAA for authorising early access for investigative or feasibility works (namely, the ‘section 91 licence’).  This could overcome limitations of a section 91 licence, namely their short-term nature and that they do not typically permit construction or operational activities.  However, this may be unlikely given the native title processes to be followed for the grant of a diversification lease as discussed below. 

Assuming that the diversification lease is therefore intended for the construction and operation of a clean energy facility, this would necessarily mean that the diversification lease is to be utilised in conjunction with other forms of existing tenure under the LAA (such as a section 91 licence) and other rights and interests in the earlier stages of a project.  It remains to be seen if the reforms will address transitioning between different stages of the project and different forms of tenure to streamline and provide increased certainty to the land tenure approvals pathway.

Of course, being a non-exclusive form of tenure, a diversification lease may not be appropriate where exclusive tenure is required given the nature of the infrastructure to be constructed. For example, exclusive tenure such as a Crown lease may be required for the hydrogen production infrastructure (such as the electrolyser) or even a solar field where other diversified activities may be incompatible.  This lends weight to our initial views that a diversification lease may not be intended as a one size fits all tenure option, but an additional tenure option forming part of the matrix to be used at certain stages or for certain types of infrastructure or land uses.

Other procedural improvements

Whilst the Government’s announcements provide little context, it appears a number of other changes are proposed to overcome legislative limits or deficiencies that may benefit clean energy projects:

• Reserved land limits:  Under the LAA, the Minister may reserve Crown land for one or more purposes in the public interest (such as for ‘recreational and cultural purposes’, ‘satellite communications’ or other environmental or community benefits).  It appears additional flexibility will be introduced to allow for the partial revocation, cancellation or change of reserve land in recognition that alternative, potentially compatible, low intensity renewable energy related land uses could also be carried out on reserved land.
• Transferability of easements in gross:  The LAA enables easements to be granted without a dominant tenement and these so called ‘easements in gross’ have a fundamental limitation that they cannot be transferred. This limit on transferability creates a key bankability issue for any project financing.  It is proposed that easements in gross will be transferrable, suggesting easements in gross may play a key role in clean energy projects that may not require a dominant tenement in the form of a Crown lease.  For example, an easement in gross seems particularly well suited to the ‘hub and spoke’ model of developing green hydrogen projects which comprises numerous interconnected wind or solar farms that connect to a remote or isolated grid and may not be directly connected to the hydrogen production facility itself.
• Clarification of compulsory acquisition powers: The definition of a ‘public work’ and ‘work’ under the Public Works Act 1901 (WA) will be amended to include ‘[p]ower generation, transmission distribution and storage infrastructure from gas, electricity and any other form of energy source’ and ‘[r]eclamation of land for any public work.’  We expect these amendments will operate to clarify that the Crown’s power to take interests in land under Part 9 of the LAA extends to renewable energy developments.  This clarification may be important where land cannot otherwise be ‘unlocked’ by commercial agreement or the Crown exercising its administrative powers to grant LAA tenure for a renewable energy project.

Impact of WA’s land tenure amendments on native title

The Government has confirmed that the reforms will not impact existing native title requirements and that the conversion to or grant of a diversification lease will constitute a future act under the Native Title Act 1993 (Cth) that will most likely require an indigenous land use agreement (ILUA) with the relevant native title holders. 

Until the carbon farming market develops, the time and cost in negotiating an ILUA will present difficulties or a barrier to diversified land uses associated with carbon farming.

The fact that renewable energy projects can, in theory, continue indefinitely has created a new dynamic in ILUA negotiations for the first green hydrogen projects that are emerging.  These reforms do not alter this dynamic as project proponents and native title holders seek to quantify the scale of opportunity presented by this new industry.

There is also now a statutory requirement for the Pastoral Lands Board to have a member appointment by the Minister for Aboriginal Affairs “from among Aboriginal persons with experience in pastoral leases” in addition to a “person with expertise in the field of flora, fauna or conservation land management”.  These appointments would make a valuable contribution to the Pastoral Lands Board in its role going forward.

The information released so far is relatively limited, as expected at this stage. G+T’s Clean Energy and Decarbonisation lawyers will be attending information sessions to further discuss the amendments and will continue to bring you updates and new information as it becomes available.