![Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 (10 September 2018)](http://data.docslib.org/img/1b3e9c0b183fa4d80841a04ee6efa444-1.webp)
Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 (10 September 2018)
Division: General Division
File Number: 2016/0604
Re: Moreton Resources Ltd
APPLICANT
And Innovation and Science Australia
RESPONDENT
DECISION
Tribunal: Deputy President S A Forgie
Date: 10 September 2018
Place: Melbourne
The Tribunal decides to: affirm the decision of the respondent dated 21 December 2015 confirming its decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of the Income Tax Assessment Act 1997.
...... [sgd]...... Deputy President S A Forgie
© COMMONWEALTH OF AUSTRALIA 2018
TAXATION – RESEARCH AND DEVELOPMENT TAX INCENTIVE – underground coal gasification pilot project - whether R&D activities – decision affirmed
Legislation
A New Tax System (Goods and Services Tax) Act 1999 Acts Interpretation Act 1901 s 23(b) Corporations Act 2001 s 249D Environmental Protection Act 1994 (Qld) ss 7, 11, 146(1), 146(2), 147, 147(1), 147(2), 148, 148(1)(c), 148(3) 148(4), 149, 154(2), 155, 156, 187, 188, 193, 193(2), 193(3)(b), 194(2)(b), 358, 360(1)(c), 360(2), 361, 361(1), 361(2), 426, 430, 430(2) and 430(3) Environmental Protection (Greentape Reduction) and Other Legislation Amendment Act 2012 Income Tax Assessment Act 1997 ss 355-5, 355-5(2), 355-20, 355-25, 355-25(1), 355-25(1)(a), 355-25(1)(a )(i); 355-25(1)(a )(ii), 355-25(1)(b), 355-25(1)(f), 355-25(2), 355-25(2)(f), 355-30, 355-30(2), 355-30(2)(a), 355-35(1)(a), 355-100(1), 355-100(2), 355-205, 355-205(1) and 995-1(1) Income Tax Assessment Act 1936 ss 73B, 73B(1), 73B(1)(a) and 73B(2C) Industry Research and Development Act 1986 ss 3, 4(1), 27A, 27A(1), 27A(1)(a), 27A(1)(b), 27A(3)(a), 27A(3)(b), 27B, 27B(1), 27B(2), 27C, 27D, 27D(c), 27F, 27F(2), 27F(3), 27F(4), 27J, 27J(1), 27J(1)(a), 27J(1)(c), 27J(1)(c)(i) to (iv), 27J(1)(d), 27J(2), 27K(2), 27M, 27M(1), 28A, 28A(1), 32A, 32B, 32J and 39J Industry Research and Development Decision‑making Principles 2011 Land Access Code 2010 Mineral Resources Act 1989 (Qld) ss 186 and 208(3) Petroleum and Gas (Production and Safety) Act 2004 Petroleum and Gas (Production and Safety) Regulation 2004 Tax Laws Amendment (Research and Development) Bill 2010 Taxation Administration Act 1953 s 14ZZK(b)(i) Taxation Laws Amendment Act (No 3) 1996 s 3 Tax Laws Amendment (Research and Development) Act 2011
Cases
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 73 ATR 256 Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; (1983) 44 ALR 607; 70 FLR 447; 83 ATC 4015; 13 ATR 825 Blue Metal Industries Limited v Dilley (1969) 117 CLR 651; [1970] AC 827; [1969] 3 All ER 437; [1969] 3 WLR 357 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Cabell v Markham (1945) 148 F(2d) 737 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384; (1997) 141 ALR 618 Cougar Energy Limited v Debbie Best, Chief Executive under the Environmental Protection Act 1994 [2011] QPEC 150; [2012] QPELR 370 Deal v Father Pius Kodakkathanath [2016] HCA 31; (2016) 258 CLR 281; 334 ALR 37 Industry Research and Development Board v Coal & Allied Operations Pty Ltd [2000] FCA 979; (2000) 101 FCR 405; 2000 ATC 4477; (2000) 44 ATR 541 Kia Australia Pty Limited v Chief Executive Officer of Customs (1998) 86 FCR 473 Krew v Federal Commissioner of Taxation (1971) 71 ATC 4213; 2 ATR 230
Page 2 of 128
Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329; (2010) 76 ATR 19 McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 79 ATC 4111; 9 ATR 61 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217; 79 ATC 4133; 9 ATR 638 Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85; 149 ALR 623 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; (1998) 153 ALR 490 Re Applicant and Industry Research and Development Board [1999] AATA 468; (1999) 55 ALD 784; (1999) 99 ATC 179; (1999) 42 ATR 1116 Re Babinda Co-operative Sugar Milling Association Ltd and Australian Industrial Research and Development Incentives Board; [1980] AATA 38; (1980) 2 ALD 851 Re DBTL and Innovation Australia; [2013] AATA 573; (2013) 137 ALD 88 Re JLSP and Innovation Australia [2016] AATA 23 Re RACV Sales & Marketing Pty Ltd and Innovation Australia [2012] AATA 386; (2012) 129 ALD 32; (2012) 57 AAR 268; [2012] ATC ¶10-254 Residual Assco Group Ltd v Spalvins [2000] HCA 33; (2000) 202 CLR 629; 172 ALR 366 Sea Shepherd Australia Limited v Commissioner of Taxation [2013] FCAFC 68; (2013) 212 FCR 252; 92 ATR 836 Taylor v Owners-Strata Plan No 11564 [2014] HCA 9; (2014) 253 CLR 531; 306 ALR 547
Secondary Materials
Chambers 21st Century Dictionary, 1999, reprinted 2004 (Chambers) Explanatory Memorandum to the IRD Amendment Bill Explanatory Memorandum to the R&D Amendment Bill Explanatory Memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 Macquarie Dictionary; 5th edition, 2009, Macquarie Dictionary Publishers Pty Ltd, Sydney, Australia Shorter Oxford English Dictionary, 5th Edition, 2002, Oxford University Press Statutory Interpretation in Australia; 8th edition, DC Pearce and RS Geddes, LexisNexis Butterworths, Sydney 2014 Stroud’s Judicial Dictionary of Words and Phrases, Seventh Edition, 2006, Sweet & Maxwell, London
REASONS FOR DECISION
Deputy President S A Forgie
1. Subject to certain conditions, an R&D Tax Incentive is available to an entity if it is an “R&D entity” and conducts “R&D activities” in respect of which it is registered under the Industry Research and Development Act 1986 (IRD Act). The incentive takes the form of a refundable or non-refundable tax offset depending on the annual turnover of the entity. Innovation and Science Australia (ISA), which is also referred to as the “Board” under the
Page 3 of 128
IRD Act and was previously known as “Innovation Australia”,1 is responsible for the registration of activities and for determining whether activities are R&D activities. The Commissioner of Taxation (Commissioner) is responsible for determining whether an entity is an R&D entity entitled to apply for an R&D Tax Incentive and for determining the expenditure incurred and claimed.
2. Moreton Resources Ltd (Moreton Resources) is an “R&D entity” as it is a body incorporated under an Australian law.2 Until 16 February 2007, it had been known as Pinnacle VRB Limited and, until 11 October 2013 as Cougar Energy Ltd (Cougar). I will refer to it as “Moreton Resources” regardless of its precise name at the time. It applied to ISA to be registered under s 27A of the IRD Act in respect of some of its activities as R&D activities for each of the income years ending 30 June 2012, 2013 and 2014 (2012, 2013 and 2014 years). The ISA initially registered Moreton Resources. It subsequently decided that the activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of the Income Tax Assessment Act 1997 (ITAA97). ISA made that decision on 21 August 2015 and confirmed it on 21 December 2015.
3. I have decided to affirm the decision dated 21 December 2015 confirming the decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of ITAA97.
LEGISLATIVE FRAMEWORK
Object of Division 355 of ITAA97: Research and Development
4. Division 355 of the ITAA97 is entitled “Research and Development”. Its object is set out in s 355-5:
“(1) The object of this Division is to encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy. (2) This object is to be achieved by providing a tax incentive for industry to conduct, in a scientific way, experimental activities for the purpose of generating new knowledge or information in either a general or applied form (including new knowledge in the form of new or improved materials, products, devices, processes or services).”
1 Reference will be to the ISA or to the Board in these reasons for decision. 2 IRD Act; s 4(1) and Income Tax Assessment Act 1997 (ITAA97); s 355-35(1)(a)
Page 4 of 128
Tax incentive takes the form of a tax offset
5. The tax incentive, to which s 355-5(2) refers is provided in the form of a tax offset. Generally speaking,3 provided notional deductions, which are the subject of s 355-205, are at least $20,000:
“An *R&D entity is entitled to a *tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions: (a) section 355-205 (R&D expenditure); (b) section 355-305 (decline in value of R&D assets); (c) section 355-315 (balancing adjustment for R&D assets); (d) section 355-480 (earlier year associate R&D expenditure); (e) section 355-520 (decline in value of R&D partnership assets); (f) section 355-525 (balancing adjustment for R&D partnership assets); (g) section 355-580 (CRC contributions). …”4
6. Section 355-205 sets out when notional deductions for R&D expenditure occurs. In particular, s 355-205(1) provides:
“An R&D entity can deduct for an income year (the present year) expenditure it incurs during that year to the extent that the expenditure: (a) is incurred on one or more *R&D activities: (i) for which the R&D entity is registered under section 27A of the Industry Research and Development Act 1986 for an income year; and (ii) that are activities to which section 355-210 (conditions for R&D activities) applies; and (b) if the expenditure is incurred to the R&D entity’s *associate – is paid to that associate during the present year. …”
What are R&D activities?
7. The expression “R&D activities” is defined in s 355-20 of ITAA97.5 It separates “core R&D activities” from “supporting R&D activities”.
3 An exception to the $20,000 threshold is provide for in s 355-100(2) of ITAA97. 4 ITAA97; s 355-100(1) 5 The definition was added by the Tax Laws Amendment (Research and Development) Act 2011; Act No. 93 of 2011 (IRD Amendment Act); s 3, Schedule 1, Item 1 with effect from 8 September 2011; s 2, Item 6. It replaced the definitions that had formerly been included in s 73B of the Income Tax Assessment Act 1936 (ITAA36), which was repealed with effect from the same day: IRD Amendment Act; s 3, Schedule 3, Item 44. I note in particular the definition of the expression “research and development activities” in ITAA36 to mean: “(a) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of:
Page 5 of 128
A. Core R&D activities
8. Section 355-25(1) was introduced with effect from 8 September 2011 by the IRD Amendment Act.6 It provides:
“Core R&D activities are experimental activities: (a) whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: (i) is based on principles of established science; and (ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and (b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).”
9. Section 355-25(1) is qualified by s 355-25(2):
“However, none of the following activities are core R&D activities: (a) market research, market testing or market development, or sales promotion (including consumer surveys); (b) prospecting, exploring or drilling for minerals or *petroleum for the purposes of one or more of the following: (i) discovering deposits; (ii) determining more precisely the location of deposits; (iii) determining the size or quality of deposits; (c) management studies or efficiency surveys; (d) research in social sciences, arts or humanities; (e) commercial, legal and administrative aspects of patenting, licensing or other activities; (f) activities associated with complying with statutory requirements or standards, including one or more of the following: (i) maintaining national standards; (ii) calibrating secondary standards; (iii) routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things; (g) any activity related to the reproduction of a commercial product or process: (i) by a physical examination of an existing system; or
(i) acquiring new knowledge (whether or not that knowledge will have a specific practical application); or (ii) creating new or improved materials, products, devices, processes or services; or (b) other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).” 6 IRD Amendment Act; s 3 and Schedule 1, Item 1
Page 6 of 128
(ii) from plans, blueprints, detailed specifications or publically available information; (h) developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions): (i) the entity (the developer) for which software is developed, modified or customised; (ii) the entity *connected with the developer; (iii) an *affiliate of the developer, or an entity of which the developer is an affiliate.”
B. Supporting R&D activities
10. Section 355-30 provides:
“(1) Supporting R&D activities are activities directly related to *core R&D activities. (2) However, if an activity: (a) is an activity referred to in subsection 355-25(2); or (b) produces goods or services; or (c) is directly related to producing goods or services; the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities”.
Registration of an R&D entity in relation to R&D activities under the IRD Act
A. Application under s 27D to register under s 27A
11. The IRD Act provides for registration of an R&D entity in relation to R&D activities and for registration of R&D activities themselves. An R&D entity may apply to register activities in respect of an income year. It must do so in accordance with s 27D and the application must be made within ten months after the end of the income year or within such further period allowed by the Board in accordance with the decision-making principles.7
12. When an R&D entity applies to the Board under s 27A of the IRD Act, the Board must decide whether to register, or refuse to register, it for either or both of two types of activities for an income year. One of the types comprises one or more activities specified as core R&D activities conducted during the income year. The other comprises one or more activities specified as supporting R&D activities conducted during the income year.8
7 IRD Act; s 27D(c). “Decision-making principles”, with which the Board must comply, may be made by the Minister under s 32A. They are set out in the Industry Research and Development Decision-making Principles 2011. 8 IRD Act; s 27A(1)(a) and (b)
Page 7 of 128
13. Any finding that the Board makes must be consistent with any that are already in force under s 27B(1) in relation to an application for registration of an R&D entity for R&D activities and any finding under s 28A regarding advance findings about the nature of activities in relation to the R&D entity. Section 27B(1) relates to an activity, or part of an activity, conducted during the income year. The Board may make a finding as to whether or not all or part of an activity mentioned in the application was a core R&D activity conducted during the income year and, if not, whether or not it was a supporting R&D activity conducted during the income year in relation to one or more specified core R&D activities for which the entity has been or could be registered under s 27A for an income year. Those findings are made under s 27B(1) and the Board may specify in the finding, the time to which it relates.9 Findings may not be inconsistent with earlier findings.10
14. For each activity that is registered as a supporting R&D activity for an R&D entity for an income year, the registration must also specify one or more activities as the corresponding core R&D activities.11 If any of those activities specified under s 27A(1)(a) as a core R&D activity conducted during the income year, the registration must also specify each income year for which that core R&D activity was registered, or is proposed to be registered, for the R&D entity.12
15. Section 27B provides that the Board may make one or more findings when considering an R&D entity’s application for the purposes of s 27A(1) and give notice of its decision under s 27C in relation to the application. In practice, the Board adopts a “self-assessment” system whereby, in the first instance, it registers R&D entities under s 27D in respect of specified activities as a matter of course. It does not necessarily consider whether activities specified in an application satisfy the definition of “R&D activities”. Registration does not, of itself, render the activities described in the registration eligible as core or supporting R&D activities.13
9 IRD Act; s 27B(2) 10 IRD Act; s 32B. Section 32B refers not only to earlier findings made under s 32J but also to any advance findings that an R&D entity has requested under s 28A. Section 28A(1) is concerned with advanced findings that the Board may make about an activity on an application by an R&D entity. The Board may make a finding that all or part of the activity is a core R&D activity or a supporting R&D activity in relation to one or more specified core R&D activities for which the entity has been or could be registered under s 27A for an income year; a finding to the effect all or part of the activity is neither a core R&D activity or a supporting R&D activity; or, if justified in accordance with the decision-making processes, refuse to make a finding about all or part of the activity. The Board must not make a finding under 28A(1) about an activity unless it is satisfied that the activity: “(a) is being conducted, or has been completed, during the income year in which the application is made; or (b) is yet to be conducted, but that it is reasonable to expect that the activity will be conducted in any or all of the following income years: (i) the income year in which the application is made; (ii) either of the next 2 income years.” 11 IRD Act; s 27A(3)(a) 12 IRD Act; s 27A(3)(b) 13 Respondent’s Written Opening Submissions at [33]
Page 8 of 128
B. Examination of registration by the Board
16. Under s 27F of the IRD Act, the Board may conduct one or more examinations of all or part of the R&D entity’s registration under s 27A for an income year. It may do so on its own initiative,14 at the request of the Commissioner or if the R&D entity has applied for one or more findings under s 27J(1).15 If the examination is undertaken on the R&D entity’s application, the Board must make one or more of the findings under s 27J(1) about the registration or, if justified in accordance with the decision-making principles, refuse to make a finding under that provision.16
17. Section 27J(1) provides:
“The Board may make one or more findings to the following effect about an R&D entity’s registration under section 27A for an income year (the registration year): (a) that all or part of a registered activity was a core R&D activity conducted during the registration year; (b) that all or part of a registered activity was not an activity of a kind covered by paragraph (a); (c) that all or part of a registered activity was a supporting R&D activity conducted during the registration year and in relation to: (i) one or more specified registered core R&D activities; or (ii) one or more specified core R&D activities for which the entity has been registered in an earlier income year; or (iii) one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year; or (iv) several specified core R&D activities, each covered by subparagraph (i), (ii) or (iii); (d) that all or part of a registered activity was not an activity of a kind covered by paragraph (c). Note 1: A finding is reviewable (see Division 5). Note 2: The Board may make a finding under paragraph (b) if, for example, the Board has sufficient information to make a finding under paragraph (a). Similarly, the Board could make a finding under paragraph (d) if it has sufficient information to make a finding under paragraph (c).”
18. If the Board makes a finding under s 27J(1) in relation to an R&D entity’s registration, it may specify in the finding the time to which that finding relates.17 As s 27J is subject to s 32B, the findings that the Board makes cannot be inconsistent with earlier findings made by the Board.
14 IRD Act; s 27F(2) 15 IRD Act; s 27F(3) 16 IRD Act; s 27F(4) 17 IRD Act; s 27J(2)
Page 9 of 128
19. Under s 27M18 the Board may, by notice in writing to the R&D entity, vary the entity’s registration under s 27A for an income year if that entity applies for the variation, the variation is consistent with any findings made by the Board under Part III of the IRD Act and making the variation is justified in accordance with decision-making principles.
Reconciliation of Part III of IRD Act with previous system of registration of R&D activities
20. Part III of the IRD Act, including ss 27A and 27J, was introduced into that legislation by the IRD Amendment Act with effect from 8 September 2011.19 Before their introduction, R&D activities were registered under s 39J, which was repealed with effect from 8 September 2011.20 Item 16 of Schedule 4 of the IRD Amendment Act included transitional provisions so that references to registration under the current s 27A would include a reference to registration under the repealed s 39J in the following provisions:
“(a) subparagraph 27A(3)(b)(i); (b) subparagraph 27B(1)(c)(ii); (c) subparagraph 27J(1)(c)(ii); (d) paragraph 28A(1)(b); (e) paragraph 28D(2)(b). Note: For each of these provisions, the R&D activity registered under former section 39J will need to be a core R&D activity within the meaning of the amendments made by this Act.”
21. The transitional provisions mean that, if a finding was made under former s 39J that an R&D activity was a core R&D activity within the meaning of s 355-25 of ITAA97, a finding may be made under s 27J that an activity conducted in a registration year is a supporting R&D activity to that core R&D activity.
THE REGISTERED ACTIVITIES
22. Moreton Resources applied to be registered for activities detailed under the project names shown in the table in each of the income years 2012, 2013 and 2014.
Income Date of application Activities for which application Date of registration as R&D Year for registration for registration made activities
2012 27 November 2012 Project 1: Kingaroy21 29 November 201223 Project 2: Wandoan22
18 IRD Act; s 27M(1) 19 IRD Amendment Act; s 3, Schedule 2, Item 1 and s 2, Item 2 20 IRD Amendment Act; Schedule 2, Item 34 21 T documents; T85 at 1825-1828 22 T documents; T85 at 1828-1830 23 T documents; T86 at 1848
Page 10 of 128
Income Date of application Activities for which application Date of registration as R&D Year for registration for registration made activities
2013 1 October 2013 Project 1: Kingaroy24 3 October 201326 Project 2: Wandoan25
2013 30 April 2014 Project 1: Kingaroy28 11 June 2014 (revised application to 29 (Notification of ISA’s approval replace 2013 Project 2: Wandoan under s 27M of request to application27) amend registration)30
2014 29 April 2015 Development of a conceptual 8 May 201532 water model and rehabilitation plan following UCG pilot plant experimentation31
In each case, the letter written by ISA to Moreton Resources advising that it had approved the registration of R&D activities detailed in each application. The letter also advised that:
“Registration of activities does not, by itself, render the activities described in this registration as eligible core or supporting R&D activities, nor is it an indication of compliance with the requirements of the R&D Tax Incentive. Determining the eligibility of activities under the R&D Tax Incentive is the responsibility of the R&D entity, under self-assessment.”33
23. The issues in this case relate to the 2012, 2013 and 2014. It was conceded by Moreton Resources,34 and agreed by Innovation Australia, that the following activities had either been conducted in an earlier year or there had been insufficient evidence to demonstrate that it had been conducted during the 2012 year. They are:
Year Activity Reason
2012 Investigation of the Conducted prior to the 2012 year. cause of the blockage in the P4 extraction well Gas production at the plant had ceased on 20 March 2010. Investigations were carried out to determine whether the well could be rehabilitated or blocked off completely. It was determined that the P4 casing could not be replaced and the well was irretrievable. Research was required to determine the best way to seal the well to prevent future gas escape. A monitoring bore was drilled for that purpose. Moreton Resources had not provided sufficient evidence to demonstrate that “research” was conducted during the 2012 year to determine the best way to seal P4 to prevent future gas escape.
24 T documents; T96 at 2195-2197 25 T documents; T85 at 2198-2200 26 T documents; T97 at 2204 27 T documents; T111 at 2327 28 T documents; T106 at 2279-2282 29 T documents; T106 at 2282-2284 30 T documents; T118 31 T documents; T136 at 2663-2666 32 T documents; T137 at 2670-2671 33 T documents; T137 at 2670-2671 (example) 34 Applicant’s Written Submissions at [46] and Annexure B and see also Respondent’s Amended Statement of Facts, Issues and Contentions at [39] and [53]
Page 11 of 128
Year Activity Reason
Testing and evaluation Moreton Resources does not concede testing and evaluation of gas of gas production and production and plant performance to ensure environmental standards plant performance to can be met. test viability of the coal seam used.
2013 Investigation of the The investigation was undertaken before the 2013 year. It could not cause of the blockages have occurred in the 2013 year as the plant never produced gas after in the extraction well to June 2010. understand how the process failed.
Testing and evaluation It could not have occurred in the 2013 year as the plant never of gas production and produced gas after June 2010. performance of the pilot plant to understand the success of the gasification process.
BACKGROUND
24. There was no disagreement between the parties as to the facts forming the background to the issues in dispute between the parties. I will set them out together with references to the material supporting them in this passage of my reasons.
Overseas development of UCG technology
25. Mr Len Walker, who was then the Managing Director of Linc Energy NL (Linc Energy), published a paper in the October 1999 edition of The Australian Coal Review entitled “Underground Coal Gasification: A Clean Coal Technology Ready for Development”. In that paper, Mr Walker outlined the process and referred to its being used on a commercial scale in Uzbekistan. It had not been adopted in the West due to a conjunction of factors, which he outlined. He thought that there was opportunity for the technology to be “rediscovered” and brought into commercial operation. UCG technology development had, Mr Walker wrote, been strongly advocated for in Australia by the late Professor Ian Stewart of the University of Newcastle. Professor Stewart had concluded that UCG was an established technology that could potentially provide Australia with the lowest cost of synthetic fuels. The South Australian Department of Mines and Energy had conducted a feasibility study at Leigh Creek in 1983 but had not pursued it. In Mr Walker’s view, the year 2000 and beyond would see a new set of industry factors that would suggest that it was time for taking the final step with the technology. Privatisation of the power industry and pricing were two of the factors and sources of coal another. At the time, Linc Energy was engaged in a commercialisation programme of what Mr Walker described as an “old
Page 12 of 128
technology” whose time for acceptance might have come.35 Mr Walker published and delivered papers on the subject.36
Moreton Resource’s assessment of sites for UCG technology
26. In or about 2006, Moreton Resources started to access Australian coal deposits that might be suitable to exploit using underground coal gasification (UCG) technology. In very general terms, UCG is a process involving the in-situ conversion of coal into a gas by means of a combustion process. That is achieved by igniting a coal seam and injecting oxidants, gasifying the coal and bringing the gas to the surface through drilled production wells. The gas is then used as a fuel for power generation, industrial heating and the manufacture of petrochemical products and other chemicals. In or about March 2007, Moreton Resources announced that it had identified a coal resource near Kingaroy and some 160km northwest of Brisbane in Queensland (Kingaroy site) that it considered suitable to support a potential UCG project.
27. Moreton Resources went on to plan and develop a pilot UCG project to test the viability of using UCG technology at the Kingaroy site to produce UCG synthesis gas (syngas) that is then cleaned and stabilised for production of electricity using gas turbines. In order to carry out a pilot UCG project, Moreton Resources had to obtain a Mineral Development Licence (MDL) under the Mineral Resources Act 1989 (Qld) (MR Act) and an Environmental Authority (EA) under the Environmental Protection Act 1994 (Qld) (EP Act).
Planning and developing a pilot UCG project
A. Environmental Authority
28. Acting under s 193 of the EP Act as it was then drafted, the Environmental Protection Agency (EPA) issued an EA for a non-code compliant Level 1 Mining Project (Permit No. MIN100656507) to Moreton Resources as the Principal Holder and to SE Qld Energy Pty Ltd (SEQEPL) as the Joint Holder in respect of the Kingaroy site on 30 April 2008.37 It took effect from the date on which the mining tenement, MDL385, was granted to Moreton Resources and SEQPL.
B. Kingaroy Pilot UCG Project Front End Engineering Definition: FEED Document
29. Moreton Resources released a document named the “Kingaroy Pilot UCG Project Front End Engineering Definition” on 27 May 2008 (FEED document). The primary purpose of
35 T documents; T4 at 64-66 36 T documents; T5 at 67-92 37 Referred to when EA amended on 24 October 2008: T documents; T15 at 355
Page 13 of 128
the FEED document was to define its requirements of the Pilot Facility with the main focus being on hardware and as the prime reference for cost estimates.
30. The FEED document explained that:
“To date there are no UCG facilities of this scale in the world, and none utilising a gas turbine to make electricity from the UCG syngas. Once the pilot facility has achieved its aims, the process will be scaled up. Experience with the pilot scale plant and other factors will determine the size and configuration of the first commercial scale gas turbine installed. Options include a nominal 39MW open cycle turbine, a nominal 115MW open cycle turbine or a nominal 176MW combined cycle turbine. Further turbines would be subsequently added as confidence grows in the process. This FEED document is for the Pilot Facility only. Purpose of the Pilot Facility The purpose of the pilot facility is to demonstrate: · that the coal deposit selected produces a UCG gas that can be used to power a commercially available gas turbine · that the UCG gas can be cleaned up to the requirements of the gas turbine · that the process con [sic] be operated in a safe and environmentally responsible manner As part of the operation of the pilot facility a series of trials with extensive monitoring will be carried out on all aspects of the technology associated with the process, particularly the environmental aspects. Once the pilot facility objectives have been achieved and confidence in the UCG process has been gained, a larger scale plant can be built.”38
31. Two options had been considered for the pilot facility operating mode. One was to produce electricity using gas engines fed by UCG gas from the pilot scale facility. That option had been ruled out when Moreton Resource’s investigations and its discussions with Ergon Electricity (Ergon), which was the electricity distributor for the area, identified capital costs, delivery time and technical problems as issues. That left the second option, which was to flare the UCG gas produced at the pilot scale. Having chosen that option, Moreton Resources:
“… proposed to operate the pilot facility for twelve months collecting the operating data and carrying out technical trials necessary to be confident that a power plant could be successfully operated using UCG syngas as a feed. Following the twelve month period, a shutdown process (nominally six months) will be undertaken to halt the process and restore the site. Preliminary Trial Program There is a range of activities, trials and process monitoring required to achieve the pilot facility’s objectives. They include:
38 T documents; T12 at 286
Page 14 of 128
· operating and managing UCG process in standard production mode over a range of injection flows and system backpressures · linking in new wells · determining optimum well spacing · measure the composition of syngas produced for a range of gasifier operating regimes · measure the composition of the syngas after gas cleanup (to ensure it is suitable for a commercially available gas turbine) Potentially trialling different packing types, depths, tower diameters and liquor rates. Potentially trial different Venturi Scrubber designs and liquor rates. · establish vapour liquid equilibrium data for contaminants to be scrubbed from the syngas · establish height of a cooling transfer unit for the scrubber packing · trial different scrubber cooling rates to establish the optimum condensable vapour removal rate · measure the composition of the co-product taroil produced and monitor how its composition changes with production rate · measure the composition of the water produced and monitor how its composition changes with production rate · trial alternate water treatment technologies · monitor the impact on air quality of the flared gases · monitor the impact on groundwater quality · monitor the impact on groundwater level · monitor for ground subsidence · assess process controllability of the UCG wells and gas separation operation · assess materials of construction for larger plant design · monitor pipework and equipment fouling · assess instrumentation in the respective services.”39
C. Kingaroy Pilot Gasification Plant Project Execution Plan
32. On 25 September 2008, Moreton Resources issued a document entitled “Kingaroy Pilot Gasification Plant Project Execution Plan” (PEP). The document outlined the project noting that the planned development of the Kingaroy site had resulted from the company’s experience gained from the pilot burn and project plan proposed at a site at Chinchilla in Queensland. It noted that synthetic gas produced from UCG can be utilised for a range of uses just as surface gasification processes can be. They include the manufacture of transport fuels, petrochemicals and use in a high efficiency combined cycled gas turbines. Moreton Resources rejected any proposition that it should produce UCG for purposes such as these on the basis that:
39 T documents; T12 at 294-295
Page 15 of 128
“… Whilst all of these processes are technical[ly] feasible, the technical and financial risks associated with the manufacture of transport fuels and petrochemicals from synthesis gas are high. They require sophisticated gas clean up and conversion technology which is highly capital intensive and would require major process development. Conditioning UCG gas to the extent required for feeding to a gas turbine is more straightforward. Major gas turbine suppliers have vast experience of running turbines on gas from surface gasifiers. Solids need to be removed from the gas along with some of the condensable vapours and water. This is well established technology and can be done at modest capital cost. Before investment in electrical generating export capability is made, a pilot facility is recommended. Operation of the facility would demonstrate: · that the coal deposit selected produces a UCG gas that can be used to power a commercially available gas turbine · that the UCG gas can be cleaned up to the requirements of the gas turbine · that the process can be operated in a safe and environmentally responsible manner This UCG gas produced at the pilot scale could be flared or used to produce electricity in gas engines. Producing electricity using gas engines fed by UCG gas from the pilot scale facility has been ruled out. Investigations highlighted capital cost and delivery time as issues. On this basis, the gas produced at the pilot scale will be flared.”40
D. Geological and Geotechnical Aspects of the UCG process
33. Existing research had demonstrated the importance of the proper location of wells and inclination, underreaming, reservoir management as some of the methods that had been found to exist to reduce the occurrence of casing shear. Casing shear usually arises because of displacement of the rock strata along bedding planes or more steeply inclined fault planes. Displacement is a rock shear. Rock shear is triggered by stress concentrations generated by volume changes resulting from production or injection activity. Volume changes may arise from pressure changes, temperature changes or solids movement. Changes in stress and pressure may be induced by typical petroleum-recovery activities such as depletion, injection and heating. Rock shears are a cause of casing impairment, which itself leads to a loss of pressure integrity, pinching of production tubing or, when the distortion of the wellbore is large, an inability to lower workover tools.41
34. Case shearing and rock shearing were explained in a paper entitled “Casing Shear: Causes, Cases, Cures” written by Maurice B Dussault et al and published in June 2001 in SPE Drilling & Completion at 98. The authors concluded:
“ Reducing the incidence and rate of casing impairment through shear can be achieved through a number of tactics. Favored ones include avoidance of the most
40 Statement of Mr Melik; Exhibit E; Annexure VM-3 at 104 41 Statement of Mr Melik; Exhibit E; Annexure VM-25 at 517
Page 16 of 128
troublesome regions, increasing the compliance of the casing-wellbore system through susceptible horizons, and altering the process to reduce the magnitude of shear slip. In some cases, stronger casing may help, but only in those cases where the strata are exceptionally weak and tend to deform by general plastic flow. Geomechanical modeling is necessary to quantify all of these approaches. Finally, the vital role of monitoring in the design process and reservoir stress management must be revisited. Monitoring of data allows location of slip zones as well as assessment of direction of movement, rate, and magnitude of slip. … Deformation data allow models to be calibrated, increasing their utility as management tools.”42
E. Amendment of the Environmental Authority
35. The EA was subsequently amended on 24 October 2008 (2008 Amended EA) and again took effect from the date on which MDL385 was granted.43 The 2008 Amended EA set out the scope of Approved Activities. Under that scope, the gas production area associated with the pilot UCG plant was, among other restrictions, limited to one hectare, activities had to be located and designed in such a way that the environmental authority holder was able to comply with the conditions of the 2008 Amended EA and the duration of the UCG trial could not exceed three years.44
36. The 2008 Amended EA went on to set out a number of other conditions under broad headings representing the EPA’s particular interests. Of relevance in this case are those relating to:
(1) Schedule A: General “(A1-1) In carrying out the activities to which this approval relates, you must take all reasonable and practicable measures to prevent and/or to minimise the likelihood of environmental harm being caused. Any activity that, if carried out incompetently or negligently may cause environmental harm, in a manner that could have been prevented, shall be carried out in a proper manner in accordance with the conditions of this approval. … (A8-2) Activities must be located and designed such that the environmental authority holder is able to comply with the conditions of this environmental authority. (A8-3) The duration of the underground coal gasification trial (excluding activities associated with rehabilitation or ongoing monitoring) must not exceed three years. (A8-4) The authority holder is authorised to gasify up to 20,000 tonnes of coal under this approval.
42 Statement of Mr Melik; Exhibit E; Annexure VM-25 at 525 43 T documents; T15 at 355 and see also T18 at 386 44 Amended EA at (A8-1) to (A8-3) and see T documents; T15 at 357
Page 17 of 128
(A8-5) The coal source for underground coal gasification must be located at a minimum depth of 100 metres below the ground level.”45 (2) Schedule B: Air “(B1-1) The release of dust or particulate matter or both resulting from the approved activities must not cause an environmental nuisance at any nuisance sensitive place. … (B2-1) Notwithstanding any other condition of this approval, the release of noxious or offensive odour(s) or any other noxious or offensive airborne contaminant(s) resulting from the approved activities must not cause an environmental nuisance at any nuisance sensitive place. … (B4-1) Except where it is being trialled for use in a small (less than 200kW) reciprocating generator, all Syngas produced by the underground coal gasification process must be flared following treatment through a gas/liquid separation plant, or be otherwise treated or contained, to ensure compliance with the conditions of this authority.”46 … (B5) Monitoring to Characterise Air Emissions (B6) Concentration of Contaminants Released to the Atmosphere (3) Schedule C: Water (C1-1) “With the exception of releases of stormwater in accordance with Condition (C4-1), contaminants must not be released to any waters (including groundwater outside the underground coal gasification working cavity) or the bed and banks of any waters.” (C2-1) “The holder of this authority must implement a Water Management System to ensure compliance with Condition (C1-1) and other relevant conditions of this authority. The Water Management System must include, but may not be limited to, measures to: a) prevent incident stormwater and stormwater run-off from contacting general refuse and regulated wastes at the site; and b) divert upstream run-off from disturbed areas, or areas containing wastes or contaminants; and c) capture and manage run-off from disturbed areas. … (C4-1) There must be no release of stormwater runoff that has been in contact with any contaminants at the site to any waters, roadside gutter or stormwater drain, unless it complies with the following quality characteristics: (a) the pH value must not be less than 6.5 and not more than 9.0;
45 T documents; T15 at 357 46 T documents; T15 at 359
Page 18 of 128
(b) the concentration of dissolved oxygen must not be less than 6 milligrams per litre; (c) the concentration of suspended solids must not exceed 50 milligrams per litre if an overflow is caused by rainfall and 30 milligrams per litre at all other times; (d) the concentration of total dissolved solids suspended solids must not exceed 1000 milligrams per litre; and (e) the release must not produce any slick or other visible evidence of oil or grease, contain visible floating oil, grease, scum, litter or other objectionable matter nor contain other contaminants in concentrations that adversely affects the environmental values of the receiving environment. … (C5-1) If the underground coal gasification plant is established within 500 metres of a watercourse, the environmental authority holder must undertake surface water monitoring within that watercourse. This monitoring must include samples collected at the locations, for the parameters and at the frequency prescribed in Schedule C Table 1. … Protection of Ground Water (C10-1)Before commencing underground coal gasification, a suitably qualified person must conduct sufficient hydrogeological investigations and studies to confirm that the selected site is suitable for the proposed use, and prepare and submit a report to the administering authority summarising the findings. This investigation must include: · The collection of baseline data regarding groundwater quality, volume and connectivity with surrounding aquifers; · Investigation of hydraulic pressures of groundwater within and surrounding the coal seam; · Confirmation that the layers surrounding the coal seam are sufficiently impermeable to prevent contaminants from migrating beyond the void left by the gasified coal; and · Consideration of existing bores located within the vicinity of the site, and a risk assessment of potential impacts on any existing bores within the vicinity of the underground coal gasification. (C10-2)The report required by Condition (C10-1) must be accompanied by a statutory declaration from the report author. This statutory declaration must: · State his or her qualifications and experience relevant to the site investigation; · State that he or she not knowingly included any false, misleading or incomplete information in the report; · State that he or she has not knowingly failed to reveal any relevant information to the administering authority;
Page 19 of 128
· State whether the author considers that underground coal gasification can be managed at the site such that contamination of surrounding groundwater is prevented; and · Certify that: - the report addresses the relevant matters for the investigation and is factually correct; and - the opinions expressed in it are honestly and reasonably held. (C10-3)At least two months prior to commencement of underground coal gasification a groundwater monitoring program must be developed and implemented for the site. The program must: (a) be developed by a person possessing appropriate qualifications and experience in hydrogeology and groundwater monitoring program design, to be able to competently make recommendations about these matters; (b) include a sufficient number of ‘bore(s) of compliance’ in locations will provide early detection of contamination from potential sources of impact (including the underground gasifier); and (c) provide the following: (i) representative groundwater samples from the aquifer(s); and; (ii) sufficient sampling to characterise background groundwater quality and levels within the immediate vicinity of the underground coal gasification plant prior to the plant being established; and (iii) sufficient spatial and temporal replication of samples to make valid conclusions about the presence or absence of contamination or other impact on groundwater down gradient of any potential source of contamination including groundwater passing the relevant bore(s) of compliance; and (iv) contaminant trigger levels for the detection of contaminant migration from the underground coal gasification or likely material failure of the waste water contaminant system(s); and (v) sufficient monitoring of groundwater pressure within the coal seam being gasified and adjacent aquifers to ensure that groundwater pressure within the cavity is maintained such that groundwater does not migrate from areas where the gasification is occurring. (d) be constructed and sampled in accordance with the requirements of Australian Standard ‘AS5667.11:1998 ‘Water Quality Sampling: Guidance on Sampling Groundwaters’; and (e) be installed, sampled and maintained by a suitably trained and experienced person; and (f) be reviewed annually by a person possessing appropriate qualifications and experience in hydrogeology and groundwater monitoring.
Page 20 of 128
(C10-4)As a minimum, groundwater must be monitored for the parameters and at the frequency stipulated in Schedule C – Table 2. Schedule C – Table 2 Groundwater Quality Characteristics to be monitored and monitoring frequency … (C10-5) In the event that contaminant trigger levels (as identified in the groundwater monitoring program) are exceeded, or the groundwater monitoring program detects a likely material failure of the production water containment system or migration of contaminants from the coal seam that is being used or has been gasified, the authority holder shall promptly assess and report to the administering authority on potential environmental impacts, investigation of the causes and remedial measures to be implemented. (C10-6)On any occasion that groundwater samples are obtained the standing water levels must be measured and recorded to an accuracy of 0.01 metres relative to Australian Height Datum (AHD). (C10-7)Groundwater levels within the vicinity of the underground coal gasification plant must be monitored and groundwater draw down fluctuations in excess of 2m per year, not resulting from the pumping of licensed bores, must be notified within 14 days to the administering authority following the completion of monitoring. (C10-8)Groundwater monitoring must continue in accordance with the groundwater monitoring program until at least six months after the underground coal gasification process has been shut down and only when monitoring results have demonstrated that there is no contamination of groundwater resulting from residual contaminants (eg. tars) remaining underground following completion of underground coal gasification.”47 … (4) Schedule D: Noise (5) Schedule E: Waste (6) Schedule F: Land “(F1-1) There must be no releases of contaminants to land that may cause the land to become contaminated land. (F2-1) The environmental authority holder must implement a monitoring program to measure surface subsidence at monthly intervals from before the gasification commences until 12 months after the gasification process ceases. This monitoring must include at least two perpendicular transects of the proposed gasification area (and possibly more depending on the size and shape of the area) measuring elevation of permanent survey markers that are established prior to the gasification. In addition to surveyed elevations, visual inspection should occur to locate any surface cracking and steps should be taken to ensure the cracks are not a danger to human activities or wildlife or likely to cause erosion. (F3-1) At least six months prior to cessation of the underground coal gasification trial the environmental authority holder must submit to
47 T documents; T15 at 365-369
Page 21 of 128
the administering authority a shut down procedure for the underground coal gasification pilot plant. This procedure must: · detail steps that will be taken to cease combustion/gasification of coal underground; · detail tests that will be completed during and following the shutdown process to confirm that combustion and/or pyrolysis of coal has ceased; and · ensure that on shutdown the cavity is flushed using proven processes to ensure removal of residual pollutants.” (F3-2) In finalising the shutdown procedure, the environmental authority holder must have due regard to any comments made by the administering authority. (F3-3) The procedure detailed in Condition (F3-1) must be implemented immediately on cessation of the underground coal gasification trial or if otherwise requested by the administering authority. (F4-1) Prior to commencing activities authorised by this approval, the following surveys must be undertaken for any areas to be disturbed: i) survey of topsoil to determine its suitability for use in rehabilitation; ii) survey of land suitability; iii) baseline ground level surveys; iv) survey of flora, fauna and nature conservation values; and v) survey of cultural heritage values.
(F4-2) All areas disturbed as a result of the approved activities must be rehabilitated to a stable, non-polluting landform with a self-sustaining vegetation cover in accordance with Schedule F – Table 1, and must comply with the maximum distance between erosion control structures specified in Schedule F – Table 2. (F4-3) Progressive rehabilitation in accordance with the conditions of this schedule must commence as soon as areas become available within the operational land.”48 (7) Agency interest: Dams “(H1-1) The holder of this environmental authority must ensure that each dam is designed, constructed, operated and maintained in accordance with accepted engineering standards and is fit for the purpose for which it is intended. … (H1-6) The holder of this environmental authority must not abandon any dam but must decommission each dam such that ongoing environmental harm is prevented. (H1-7) As a minimum, decommissioning must be conducted such that each dam: (a) either: i. has become a stable landform, that no longer contains flowable substances, or
48 T documents; T15 at 372-373
Page 22 of 128
ii. has been approved or authorised under relevant legislation for a beneficial use and is subject to legally enforceable conditions of management, or iii. is a void authorised the administering authority to remain after decommissioning subject to legally enforceable conditions of management; and, (b) complies with the rehabilitation requirements of this environmental authority. … Regulated Dams – Annual Inspection and Report (H4-1) The holder of this environmental authority must arrange for each regulated dam to be inspected annually by a suitably qualified and experienced person, in accordance with the following conditions. … (H4-6) For each annual inspection, two copies of a report certified by the suitably qualified and experienced person, including any recommended actions to be taken to ensure the integrity of each regulated dam, must be provided to the administering authority by 1 December.”49
37. The word “contamination” is explained in the EP Act when it provides that:
“‘Contamination’ of the environment is the release (whether by act or omission) of a contaminant into the environment.”
A “contaminant” can be a gas, liquid or solid, an odour, an organism (whether alive or dead) and including a virus, energy (including noise, heat, radioactivity and electromagnetic radiation) or a combination of contaminants.50
F. Moreton Resources licenced to use relevant intellectual knowledge
38. On 3 November 2008, Ergo Exergy Technologies Inc (Ergo) granted a general licence to Moreton Resources to certain intellectual knowledge it had, and offered services to assist Moreton Resources to undertake research and development required to develop the technical viability of its UCG plant at the Kingaroy site.51 Ergo had some expertise with regard to the burn process but had no intellectual property in relation to the design, development and operation of the integrated UCG power generation facility incorporating a gas processing plant and power generation using gas turbines.
G. GWB Engineering Pty Ltd and above ground facilities
39. In a letter dated 3 November 2015, GWB Engineering Pty Ltd (GWB) wrote that it had been approached by Moreton Resources to assist in the concept and detailed design of the
49 T documents; T15 at 375-378 50 EP Act; s 11 51 Statement of Mr Melik; Exhibit E; Annexure VM-18 at 290
Page 23 of 128
above ground facilities at its proposed pilot UCG plant outside Kingaroy. The above ground facilities were required to treat the hot syngas and remove moisture, ash, coal particles and coal tars.
H. Queensland Government’s UCG policy
40. On 18 February 2009, the State Government of Queensland issued an “Underground Coal Gasification Policy” (UCG policy). A key objective of that policy had been to provide an approach allowing serious consideration to be given to the technical, environmental and commercial viability of UCG technology. With that in mind, UCG pilot projects had been given the opportunity to demonstrate UCG technology’s potential. Three projects, of which Moreton Resources’ was one, were permitted to proceed but no others. That opportunity included demonstration activities related to syngas production and energy production. Subject to deliberations on the outcomes of the UCG pilot phase, the Queensland Government would apply the strictest environmental standards to any commercial development of UCG technology in its State.52
I. Mineral Development Licence 385
41. On 22 February 2009 and acting under s 186 of the Mineral Resources Act 1989 (Qld) (MR Act), the Minister for Mines and Energy for the State of Queensland granted MDL No. 385 (MDL385) to Moreton Resources (51%) and SEQEPL (49%) over land located a little distance south of Kingaroy in Queensland. MDL385 commenced on 1 March 2009 and expired five years later on 28 February 2014. It was subject to General Conditions, Native Title Special Conditions and, although none was specified, to Special Conditions.53 Subsequently, on 20 October 2009, SEQPL subsequently transferred its interest in MDL 385 to Moreton Resources leaving it as the sole owner.54
42. The activity undertaken at this time, in what was the 2008-09 year, is described as:
“Environmental monitoring including: installation and monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination, and sampling water from boreholes (performed approx. monthly) ensure water is not contaminated by UCG process.”55
43. MDL385 was issued in relation to activities allowable for the exploration of coal. With effect from 26 August 2009 and under s 208(3) of the MR Act, a delegate of the Minister for Natural Resources, Mines and Energy endorsed MDL385 to add “… a product that may be
52 Letter from Executive Director of the Department of Mines and Energy to Moreton Resources dated 31 May 2010: T documents; T174 at 2057-2058 53 T documents; T18 at 386-406 54 T documents; T18 at 393 55 T documents; T68 at 898 and withdrawn, 16 March 2011: T documents; T59 at 880
Page 24 of 128
extracted or produced by an underground gasification process for coal or oil shale and another product that may result from carrying out of the process …”.56 The Approved Work Program in Schedule 3 to MDL 385 was varied to include “Underground Coal Gasification (UCG) Demonstration Trial”.57
44. Among the activities registered in the 2009-10 year were:58
Activity Start End
Design of a gas processing plant including the piping July 2009 November 2009 connecting the wells, the gas processing facility and storage of liquid wastes. Environmental monitoring including: installation and July 2009 May 2010 monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination, and sampling water from boreholes (performed approx. monthly) to ensure water is not contaminated by the UCG process. Construction and commissioning of gas processing pilot September February 2010 plant. 2009 UCG gas pilot burn/ignition. March 2009 March 2010 Ongoing testing and evaluation of gas production and January 2010 June 2010 plant performance to test the viability of the coal seam used and to ensure environmental standards are met.
J. Amendment of Amended EA: 2009 Amended EA
45. On 22 September 2009, the EPA further amended the Amended EA (2009 Amended EA).
K. Amendment of 2009 Amended EA: 2009 Further Amended EA
46. On 15 October 2009, the 2009 Amended EA was further amended to permit the UCG trial (2009 Further Amended EA). It again took effect from the date on which MDL385 would be granted. It was subject to conditions and the conditions I have set out at [36] above continued to apply. Moreton Resources was named as the Principal Holder and the Activity it authorised was described as:
“Mining activity – schedule 6, item 2 (mineral development) investigating the potential development of a mineral resource by large bulk sampling or constructing an exploratory shaft, adit or open pit”.59
47. Excluding activities associated with rehabilitation or ongoing monitoring, the duration of the coal gasification trial was not permitted to exceed three years.60 As required by the 2008
56 T documents; T18 at 391 57 T documents; T18 at 407 58 T documents; T45 at 772-773 59 T documents; T27 at 455
Page 25 of 128
Amended EA and referred to earlier in these reasons, at least six months before the cessation of the coal gasification trial, Moreton Resources was required to submit to the EPA a shutdown procedure for the UCG pilot plant. The procedure submitted had to detail steps that would be taken to cease combustion/gasification of coal underground, detail steps that will be completed during and following the shutdown process to confirm that combustion and/or pyrolysis of coal has ceased and ensure that on shutdown the cavity is flushed using proven processes to ensure the removal of residual pollutants. That procedure had to be implemented immediately on cessation of the trial or if otherwise requested by the EPA.61
I. Groundwater assessment and study
48. Golder Associates (Golder) prepared a Groundwater Assessment and Impact Study dated 4 March 2010 for Moreton Resources’ pilot UCG project. The preamble to the study notes that a geological and hydrological characterisation was required to assist in setting up the proposed pilot and to provide data necessary to satisfy the Department of Environmental and Resource Management’s (DERM’s) conditions for approval, particularly in relation to the protection of groundwater.62 The Preamble in the Introduction to the Impact Study referred to Moreton Resources and continued:
“A geological and hydrogeological characterisation has been required to assist in setting up the proposed pilot trial stage of the UCG operation and to provide data necessary to satisfy the Queensland DERM conditions for approval of the pilot trial, particularly the conditions for approval of the pilot trial, particularly the conditions relating to the protection of groundwater. The conditions require that an assessment of groundwater impacts associated with the pilot trial be carried out by ‘a suitably qualified person’. Cougar have engaged Golder Associates (Golder) to undertake the hydrogeological characterisation required to provide sufficient data to satisfy the DERM consent conditions. A Golder Principal Hydrogeologist has been involved since January 2008, providing advice to Cougar regarding water quality and water level assessments, aquifer parameter investigations including a program of test pumping, and groundwater model conceptualisation.”63
49. This was repeated in the statement of the Scope of Work when it was said:
“Comprehensive hydrogeological investigations and studies were undertaken to address the viability of the pilot UCG operation at the selected location, to confirm that the selected site is suitable for the proposed use as a pilot UCG trial site, to assess potential risks on nearby environmental values (EVs), primarily groundwater users, and to demonstrate compliance with the DERM conditions. The pilot burn trial has been and/or will be predated by groundwater monitoring and aquifer testing, comprising monitoring well water quality sampling, water level and
60 2009 Further Amended EA at A8-3: T documents; T27 at 457 61 Conditions F3-1 and F3-3: T documents; T27 at 471-472 62 Statement of Mr Melik: Exhibit E; Annexure VM-30 at 572 63 Statement of Mr Melik; Exhibit E; Annexure VM-30 at 572
Page 26 of 128
piezometric head monitoring, packer testing, long term pumping and air injection testing. Data from all tests were collated and evaluated.”64
J. Report estimating likely strata behaviour and possible subsidence effects
50. Moreton Resources had approached Golder to provide an estimation of the likely strata behaviour and possible subsidence effects that may occur as a consequence of the pilot UCG project. Golder submitted its report dated 4 March 2010 and entitled “Overlying Rock Characterisation and the Impact of the Void on Overlying Strata, Kingaroy Gasification Trial” to Mr Andrew Brown, the Technology Manager at Moreton Resources.65 Golder assessed what it had identified but concluded that:
“At this stage the shape of the void that will be created underground is largely unknown and for this reason several possible shapes have been assessed based on the gasification of 5000 tonnes of coal between wells. They include rectangular prisms, vertical cylinders and horizontally lying ellipsoids. The open spans likely to be made by each of these void shapes have been calculated using an assumed tonnage of coal that is planned to be gasified for the pilot trial and using the distance between wells and coal seam thickness as constraints. … Whether the void created by gasification at Kingaroy will close due to bulking or be arrested by a strong stratum in the overlying sediments can (and should) be estimated by examining the void after the gasification trial is complete. Alternatively, monitoring by extensometers during the trial may also be used to measure the upward progression of the void.”66
51. A meeting took place on 17 and 18 March 2010 among representatives of Golder, Moreton Resources and Ergo after a test burn. Moreton Resources noted that, by the end of the drilling programme, it would be likely to be in a position to develop more detailed and more reliable conceptual models of the geological environment. Discussions were held about the importance of monitoring rock subsistence and rock behaviour above the burn chamber and the shape of the void created. Future studies would need to focus on the development of wider spans of gasification that might potentially lead to deformation of the aquitard. A strong recommendation was made to install one or more extensometers as soon as practicable to monitor the upward progression of caving during the pilot trial burn. Another was to undertake investigations aimed at attempting to determine the final void shape and size but that those details should be determined further into the pilot burn at a stage when the behaviour of the system might be known. A third recommendation was to create numerical and empirical models of the overlying strata in order to determine the effects of
64 Statement of Mr Melik; Exhibit E; Annexure VM-30 at 574 65 Statement of Mr Melik; Exhibit E; Annexure VM-26 at 527 66 Statement of Mr Melik; Exhibit E; Annexure VM-26 at 537-538
Page 27 of 128
rock fracturing and stress on ground water flows and to assess the deformation effects on the aquitard.67
K. Ignition of UCG burn process
52. By early 2010, Moreton Resources had completed the design and construction of the well necessary for igniting the UCG process as well as the fabrication and construction of the syngas processing plant. The four underground coal gasification wells were connected to the gas processing plant. On 10 March 2010, Moreton Resources started injecting air into well P1 (P1) through its own 2” purge point and flow meter. As the desiccant system gave large flow and pressure fluctuations, it tried various means of achieving the flow consistency required. Those means included dropping the desiccant back-pressure valve set point and gagging in the discharge valves but to no avail. Removal of the desiccant led to fluctuation stabilisation. The desiccant dryer was reintroduced on 11 March 2010 in an attempt to even out the dips still injecting to P1 but no satisfactory result was achieved. Other measures followed over the ensuing days and air was then injected into well P4 (P4).68
53. At or about 3:30pm on 15 March 2010,69 the UCG burn process was ignited in P1 at the Kingaroy pilot plant for the first time for the purpose of testing both its above and below ground facilities. That involved burning newly ignited coal at the base of P1 and injecting high pressure air into the well to expand the fire front. The consequence was that the gas produced, be it called UCG gas or syngas,70 was directed towards a second borehole or well, which was P4. That was a forward combustion process, which was later reversed so that the syngas was produced from P1. That was a process known as “reverse combustion linking”. It was a process that was followed in order to open up a more permeable link for gas within the coal seam and so reduce the operating pressure of the gasifier. The first syngas was detected within 30 minutes of ignition and was initially of a high quality with a calorific value in the range of 4.8 and 7.1MJ/m3 and a stable gas composition, temperature, pressure and flow rate.71 The flow, pressure and temperature were recorded at each ten minute interval after flow started and so were the GC readings of the gas produced.72
54. Once a permeable link was established between P1 and P4, the injection and production wells were swapped back again to the forward production mode so that P4 was again the
67 Statement of Mr Melik; Exhibit E; Annexure VM-156 at 4291 68 Statement of Mr Melik; Exhibit E; Annexure VM-56 at 3054 and following and see also T documents; T100 at 2215-2220 69 Statement of Mr Melik; Exhibit E; Annexure VM-56 at 3063 and see also T documents; T100 at 2225 70 Statement of Mr Melik; Exhibit E at [19.1] 71 T documents; T29 at 513 72 T documents; T213 at 2417 and see also Statement of Mr Melik; Exhibit E; Annexure VM-56 at 3063 and following
Page 28 of 128
production well. That happened on 17 March 2010. On 18 March 2010, however, steam was seen emanating from the base, which was at ground level, of the casing strings of P4. The forward and reverse combustion processes continued until 20 March 2010, when the casing of P4 was momentarily moved by a few centimetres early one morning. That movement caused the well head gauge to shatter. The air injection was stopped and the associated surface pipework at well P4 was dismantled. Subsequent investigations revealed that there was a solid blockage within P1 at a depth of approximately 132 metres and a casing break in P4 at a depth of approximately 62 metres. Both the blockage and the casing break were believed to have been caused by thermal expansion and poor cementing between inner and outer casings.73 As a result of the blockage between the P1 and P4 production/injection wells and Moreton Resources shut down the plant.74
55. From 21 March 2010 until 19 April 2010, Moreton Resources injected air into P4 in order to create an air block. The air block was intended to stop gases, which were still being produced by the UCG generator from escaping into atmosphere. The air was tested.75 Injection into P4 stopped when T5037, which was located some 270 metres from P4 and used for groundwater sampling, was found to be bubbling air and water to the surface. The same phenomena was not seen at T5038 located 15 to 20 metres away but its standing water level had risen 13.9 metres between 23 March 2010 and 9 April 2010.76
L. Plans to restart the UCG burn process
56. In April 2010, Moreton Resources installed a network of vibrating wire piezometers (VWPs) at various depths in six boreholes. It did that in order to monitor a wider area outside the UCG pilot plant in the direction of the dominant groundwater flow. The drilling and installation of the VWPs was undertaken on the advice of Golder which carried out the work and calibration tests.77
57. Mr Melik stated that the network of VWPs was used by Moreton Resources for a number of purposes:
“67.1 to ensure that the internal pressure of the burn chamber did not exceed the external pressure affecting the chamber, as where the internal pressure of the burn chamber exceeded the external pressure affecting the burn chamber, this could have resulted in hydrocarbon chemicals leaking into the surrounding groundwater and contaminating the soil. 67.2 to monitor the impact of events such as a sudden influx of groundwater, flooding, drought, subsidence or other geological influences, including
73 Exhibit E at [95]-[98] 74 T documents; T100 at 2215 and 2213-2251 generally 75 Statement of Mr Melik; Exhibit E at [100]; Annexure VM-58 at 3155 76 Statement of Mr Melik; Exhibit E at [100]; Annexure VM-59 at 3170 77 Statement of Mr Melik; Exhibit E at [66]; Annexure VM-31 at 943
Page 29 of 128
sagging or expansion of the overburden or under-burden around the coal seam, on groundwater flows and the burn chamber. 67.3 to design and conduct tests investigating whether the Company could potentially control or influence the UCG burn process through limiting or increasing hydrostatic pressure by increasing or decreasing the rates of injected air into the UCG cavity. This capability was preliminarily experimented on during the air injection trials of four production wells P1-P4 and during investigations into the well failure when the air injected into P4 increased hydrostatic pressure of basalt above the coal seam; 67.4 although the VWPs were principally used for monitoring hydrostatic pressure, they could also be used (together with conventional groundwater monitoring bores and open piezometers) to determine standing water levels within the coal seam and other aquifers; and 67.5 to better understand the groundwater flows and how contaminants might move into the groundwater, and to establish the conditions that would need to be observed to prevent contamination from occurring.”78
Registration of activities for R&D tax concession
58. On or about 20 April 2012, Moreton Resources applied for registration of its activities as research and development activities to be undertaken in the 2010-11 year (2011 year) in relation to the Kingaroy site. The project was entitled “Design and development of an integrated underground coal gasification process for fuel (including electricity generation) and chemical feedstock manufacturing”. Among the activities to be registered were:79
Activity Start End
Environmental monitoring and research including: July 2010 June 2011 - research into ground water movement and extent of the plume within surrounding aquifers. - installing and monitoring of underground pressure sensors to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination. - sampling water from boreholes to monitor whether groundwater is being contaminated by the UCG process; - analysing the results to determine whether any contamination is occurring; … - if any contamination is detected, develop an understanding of any contamination and underground contaminant transport mechanisms and devise methods/technologies to prevent such contamination.
78 Statement of Mr Melik; Exhibit E at [67] 79 T documents; T79 at 1701-1715
Page 30 of 128
Activity Start End
Test and evaluate gas production and plant July 2010 June 2011 performance, to test the technical and financial viability of the environment and methods, and to determine presence of any environmental impact (new knowledge and technical risk).
Scale up the gasification process to undertake a series July 2010 June 2011 of trials to test both underground and surface operations under a range of conditions.
59. Moreton Resources made its application under s 39J of the IRD Act as it was then enacted.80 In a letter dated 24 April 2012, the Department advised it that Innovation Australia (as it was then known) had approved the registration of activities described in Moreton Resources’ application for registration. The letter advised that registration should not be taken to imply that the activities were eligible for the R&D Tax Concession.81
60. On 16 March 2011, Moreton Resources withdrew eight activities that had been registered as part of its project for the 2009 year.82 This followed an AusIndustry Desk Review for the 2009 year. That Desk Review raised concerns that the project involved the use of existing technology. Seven of the activities comprised all of the activities registered for the Kingaroy site and the eighth was a sub-project at a separate site near Wandoan in Queensland.83 AusIndustry acknowledged the withdrawal and adjusted its records accordingly.84 Moreton Resources provided further information regarding the ninth activity described as:
“Environmental monitoring including: installation and monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination, and sampling water from boreholes … to ensure water is not contaminated by the UCG process.”85
Innovation Australia advised in a letter dated 8 April 2011 that it had no issues with that activity at that time.86
61. Moreton Resources made similar applications and its activities were initially registered with a similar caveat for the years ending 30 June 2010 and 2011 in relation to the Kingaroy site.87 On 6 May 2011, Moreton Resources withdrew its application for the registration of
80 Section 39J of the IRD Act was repealed by the IRD Amendment Act 81 T documents; T80 at 1716 82 T documents; T59 at 880-881 83 T documents; T153 at 2905-2906 84 T documents; T62 at 885 85 T documents; T68 at 898 86 T documents; T67 at 897 following Desk Review at T68 at 898-901 87 T documents; T46 at 774 and T80 at 1716
Page 31 of 128
R&D activities for the year ending 30 June 2010 (2010).88 It did not withdraw its application for the registration of activities as R&D activities for the 2011 year under the project title: “Design and development of an integrated coal gasification process for fuel (including electricity generation) and chemical feedstock manufacturing”.89 With the usual caveat, its activities were registered by Innovation Australia on or about 24 April 2012.90
Water quality tests and detection of benzene and toluene in ground water
62. On 11 May 2010, Moreton Resources detected trace readings of benzene in groundwater monitoring bore T5037 when it was conducting routine water quality sampling. A laboratory report on the sample was issued on 27 May 2010 and subject to a “confirmation test”.91
63. On 31 May 2010, the Executive Director of the Department of Mines and Energy (DME) advised Moreton Resources that the Associate Director-General of the Department of Employment, Economic Development and Innovation (DEEDI) had approved the generation capacity of power plant facilities for demonstration purposes to be limited to 30 megawatts (MW) or less. Generation of electricity would also remain subject to the necessary approval processes and variations to the work programmes relevant to Moreton Resources current licences and, specifically, to MDL 385.92
64. At some time before 15 July 2010 and probably on 13 July 2010, Moreton Resources reported to the Department of Environment and Resource Management (DERM) that water quality tests it had conducted on 29 June 2010 had detected benzene and toluene in a groundwater monitoring bore close to the plant.93 Moreton Resources advised DERM that the water quality tests had been conducted at bores T5037 and T5038 as well as plantation bore 127533.94 DERM conducted its own tests on the water at five of the eight bores and concluded that, in each case, the levels were below the Australian Drinking Water Guideline standards.95 On 15 July, DERM stated that it would order Moreton Resources to keep the pilot UCG project closed until the Government was assured that the groundwater resources were protected.96
88 T documents; T69 at 904-905 and see also T153 at 2906 89 T documents; T79 at 1701-1715 90 T documents; T80 at 1716 91 Statement of Mr Melik; Exhibit E at [102] 92 T documents; T174 at 2057-2058 93 Water quality tests conducted by Moreton Resources on 29 June 2010 referred to in Media Statement issued by the Queensland Government on 15 July 2010: T documents; T32 at 530 and see also Statement of Mr Elks at [14] and Statement of Melik; Exhibit A at [102] 94 T documents; T32 at 530; Statement of Mr Elks; Exhibit A at [14]; Statement of Mr Melik; Exhibit E at [102] 95 T documents; T33 at 533 96 T documents; T32 at 530
Page 32 of 128
Moreton Resources required to carry out Environmental Evaluations of its plants
65. DERM required Moreton Resources and the operators of the other two experimental sites, to carry out Environmental Evaluations of their plants.97 On or about 15 July 2010, DERM announced that the results of the Environmental Evaluations would be reviewed by the Government’s independent expert panel. That panel would assess and report on the technical, environmental and social impacts of the UCG industry and, if it was not satisfied that the projects could resume operations without environmental harm, the three pilot projects, including that undertaken by Moreton Resources, would not be given approval to continue.98
Environmental Protection Order and Environmental Evaluation Notice
66. DERM issued an environmental protection order (EPO) to Moreton Resources on 17 July 2010 and before it reignited the UCG pilot plant. The EPO referred to Moreton Resources’ obligations under the EP Act to do two things. One was to take all reasonable and practicable measures to prevent or minimise environmental harm (general environmental duty). The other was to comply with all conditions of the EA issued in relation to the UCG pilot plant under the EP Act. The EPO was issued to secure compliance with the general environmental duty and with the EA and, in particular, with conditions C1-1 and C10-5.99
67. The EPO recited the history of the shutdown of the UCG pilot plant and the sampling and analysis of groundwater monitoring bores, other bores and waters. DERM noted that the groundwaters from which samples had been taken were groundwater monitoring bores T5037, from which sampling had been taken between 35 to 47 metres below ground level, and T5038, from which sampling had been between 64 to 76 metres below ground level and outside Moreton Resources’ underground coal gasification working cavity. The presence of contaminants could not be attributed to a release of stormwater runoff in accordance with condition (C4-1) as that condition did not allow stormwater contaminated with benzene or toluene to be released. Moreton Resources had not notified TPA of any stormwater exceedances. Therefore, any contamination of the groundwaters was not in accordance with condition (C1-1). Whether direct or indirect, a likely cause of the contamination was the inner casing break in production well P4 and/or the associated controlled shut down.
68. Among other things, the EPO required Moreton Resources to stop and not commence, or recommence, any burning of underground coal as part of its underground coal gasification
97 Press Release by DERM dated 15 July 2010: T documents; T32 at 530-532 98 T documents; T32 at 530-531 99 EPO; Exhibit 1 at cl A.3 and see [36] above for conditions C1-1 and C10-5
Page 33 of 128
activities until further notice from the EPA.100 It required Moreton Resources to sample the groundwaters and to cause those samples to be analysed. Within seven days of being served with the EPO, Moreton Resources was:
“… required to repair and seal the damaged production well P4 to prevent the escape of gas or liquids from production well P4 to the groundwater or aquifer ….”101
69. Moreton Resources was also required to:
“a. sample (in accordance with the requirements of Australian Standard AS5667.11:1998 Water Quality sampling: Guidance on Sampling Groundwaters) the groundwaters from all known existing bores in the potentially affected area twice per week (with samples taken at least 3 days apart) from the date of service of this order until further notice; and b. ensure the samples are analysed by a NATA accredited laboratory for Benzene, Toluene, Ethylbenzene and Xylene (BTEX) and provide all certificates of analysis (for every sample) to the administering authority within 5 calendar days of the sample being taken; c. provide the owners and occupiers of all land in the potentially affected area with any and all certificates of analysis that relate to samples taken from bores on land they own or occupy within 3 calendar days of Cougar Energy’s receipt of each relevant certificate.”102
70. On 16 August 2010, DERM also issued an Environmental Evaluation Notice (EEN) to Moreton Resources under ss 322 and 324 of the EP Act.103
Design and installation of new production wells
71. In the meantime, Moreton Resources designed and installed new production wells for the UCG burn process with the aim of ensuring that the uncontrolled shut down that had occurred in March 2010 was not repeated. It continued with a pre-feasibility study that it had started in January 2010. The primary objective of the pre-feasibility study had been to identify and recommend the preferred power generation option for a nominal 200 MW (gross electrical) power station utilising UCG syngas produced from coal deposits under MDL 385. The study concluded in late June 2010 with the preparation of a report entitled “Kingaroy Power Project Pre-Feasibility Study 210-REP-251” (2010 Pre-Feasibility Study) issued on 16 August 2010. The report acknowledged that some of the areas it addressed were based on highly conceptual and typical data as precise data from the pilot plant had not been available and exploration activities had been curtailed. Furthermore, significant uncertainties remained due to incomplete geological investigation, very low levels of UCG
100 EPO; Exhibit 1 at cl B.25 101 EPO; Exhibit 1 at cl B.28 102 EPO; Exhibit 1 at cl B.27 103 Statement of Mr Elks; Exhibit A at [14] and see also reference at T54 at 807
Page 34 of 128
technology input and the need to rely on typical engineering data rather than actual data derived from the pilot plant.104
Moreton Resource’s evaluation of its options with respect to UCG pilot plant
72. Based on the evidence of Mr Elks, I find that Moreton Resources continued to evaluate its options with regard to its UCG pilot plant. It prepared a document in which a number of options are summarised by their heading. Four options have been expanded to show their pros and cons. Those four are that Moreton Resources: initiate a test burn per the new DERM EA; consider new EA too onerous to restart; continue to provide response to DERM up until 2012 and challenge DERM in court. One of the six matters in favour of the first option of re-ignition was that there would be “proof of concept”.105
73. In summary, in the 2010 Pre-Feasibility Study, Moreton Resources’ project team believed that it had evaluated and presented a viable go-forward option for power generation using UCG syngas. That option would enable Moreton Resources to achieve its vision of being a world leader in UCG generating clean, low cost energy through efficient resource utilisation. At the same time, the document acknowledged that significant uncertainties remained due to incomplete geological investigation and the need to rely on typical, rather than actual, engineering data. Construction and operation of a “3+1” CCGT co-fired with scrubbed UCG syngas and waste hydrocarbons, which would deliver the most flexible, cost-effective and reliable method of generating commercial cash flows would not have been effectively tested through the test phase. A multi-turbine configuration generation would reduce the risk of UCG gas field performance affecting projected returns. Effective technology transfer from Moreton Resource’s technology provider was required to mitigate significant commercial and technological risk. At the early stage, that risk was seen as bordering on being fatal flaws but they could be overcome. At the very least, greater understanding of UCG gas field layout and operation had to be achieved early in the Bankable Feasibility Study (BFS) before effective engineering and, therefore, accurate cost estimates and financial assessments, could be undertaken. The penalty for not achieving higher definition of UCG technology would be higher direct costs for performance of the BFS, greater cost estimate contingencies, extended time and larger technical risk allowances.106
104 T documents; T37 at 566 105 Statement of Mr Elks; Exhibit A at [17]; Annexure JE-5 at 150 106 T documents; T37 at 652
Page 35 of 128
Further Environmental Evaluation Notices
74. DERM issued two further EENs on or about 16 September 2010.107 One of them included Requirement 23d:
“In addition to the information provided in 22 conduct a geological and hydrological investigation in relation to the aquifer/s in the immediate vicinity of the UCG operations (ie. those underlying the Cougar lease) with the potential to be affected by groundwater contamination from the Cougar site and provide a report including the raw data that demonstrates a high level of understanding and interpretation of at least the following … d. Exploration of all possible sources of benzene and toluene in T5037 and T5038 (rather than limiting investigation to the casing break in production well P4 as being the only possible source).”108
Moreton Resources’ response to EPO and to first three Environmental Evaluation Notices
75. On 24 September 2010, Moreton Resources lodged its first response to the EENs it had been given on 16 August and 16 September 2010. That was in relation to T5037 gas monitoring
76. Moreton Resources began investigations to confirm the potential sources of benzene and toluene that had been identified in the groundwater. As part of those investigations, it drilled bore T5061 in October 2010 to investigate the level of benzene, toluene, ethylbenzene and xylenes (BTEX) generated as a result of the uncontrolled shutdown. On 1 October 2010, it lodged a case break report in relation to an EEN. This was followed by a T5058 monitoring results report and an interim status report on 11 October 2010. A report regarding risk management plans was lodged on 15 October 2010. A further three reports in response to the EENs were lodged on 10 November 2010: groundwater monitoring results report; monthly update of T5037 gas monitoring report; and monitoring network report. A groundwater monitoring results report was lodged on 17 November 2010.109
77. On 22 November 2010, Moreton Resources issued a media release announcing that the new monitoring bores showed no detectable levels of BTEX.110 Moreton Resources delivered its findings of its investigations when it presented its final six, of 17, reports to DERM in response to the EENs issued in September 2010. That occurred on 10 December 2010.111
107 Statement of Mr Elks; Exhibit A at [15] and T documents; T43 at 752 and see also reference at T54 at 807 108 Statement of Mr Melik; Exhibit E at [104] and Annexure VM-201 at 5126 109 T documents; T54 at 807 110 T documents; T47 at 776 111 T documents; T54 at 807
Page 36 of 128
Update of response to Requirement 23d of Environmental Evaluation Notice
78. On 10 December 2010, Moreton Resources responded to Requirement 23d of the EEN dated 16 September 2010. The document set out seven potential pathways and sources that could have caused benzene and toluene to be present in T5037 and T5038. It described them as “theories” but ruled out all but two of them. The first and second theories were both based on a theory that the source of the benzene and toluene was pyrolysis of coal within the cavity. The report reviewed the trials undertaken prior to ignition and the body of evidence that was available. Given the data and evidence, the report concluded that the first theory was the most likely mechanism for the contamination.112 That theory was:
“The first theory is that proposed in response to Requirements 19c and 20e of the EE dated 17 July 2010, in the report submitted on 16 August 2010. The source of the benzene and toluene is considered to be the pyrolysis of coal within the cavity. These species exist in the syngas in P4, and with the assistance of injected air, exit the production casing at the break. They travel down annulus between the 7” and 10” casing through the shattered cement grout, exit at the base of the 10” casing, and disperse within the upper aquifer. Transport of the benzene and toluene is via air to the lateritic clay and basalt horizons and hence to T5037 and T5038.”113
Benzene detected in water samples
79. On 13 December 2010, Moreton Resources announced that it had done two things. One was to submit the final six reports required by DERM under the EEN issued in September 2010. It described that as the culmination of extensive work it had undertaken over the previous four months that had resulted in the submission of 17 reports and studies. The second was to advise that it had conducted further water sample tests from the new monitoring bores located close to the pilot plant. No benzene or toluene had been detected.114
80. The following day, 14 December 2010, Moreton Resources announced that one part per billion of benzene had been found in T5066 located close to the pilot plant but neither benzene nor toluene had been identified in the other bores.115 In an announcement made on 7 January 2011, Moreton Resources announced that two water samples from T5066 continued to indicate a level of one part per billion of benzene. Some readings from T5066 had shown no detectable levels of benzene. The other bores consistently returned
112 Statement of Mr Melik; Exhibit E at [104] and Annexure VM-201 at 5143 113 Statement of Mr Melik; Exhibit E at [104] and Annexure VM-201at 5126-5127 114 T documents; T47 at 775 115 T documents; T48 at 777
Page 37 of 128
samples indicating that were no levels of benzene or toluene. Sampling and testing would continue.116
Wandoan
81. In early 2011, Moreton Resources undertook a study of the Wandoan site to identify whether there were adequate coal resources. This had involved drilling ten holes in 2009 in order to identify the density and thickness of coal resources at the site. The results led Moreton Resources to form the view that the coal deposits at the Wandoan site provided suitable hydrostatic pressure for the UCG process.117 The report of the analysis of the boreholes was completed on 8 March 2011 and noted in the Joint Ore Reserves Committee (JORC) Compliant Resource Statement.118
Report of Independent Scientific Panel on Underground Coal Gasification
82. On 24 January 2011, the Independent Scientific Panel on Underground Coal Gasification (ISP) reported to DEEDI in response to a request from DERM. In its report, the ISP drew together a number of pieces of advice previously given to DERM and to DEEDI but in a form that could be communicated in the public domain should DEEDI choose to do so. The purpose of its report was to provide government with the considerations of the ISP regarding the success or otherwise of each technology based on the pilot trials.119 ISP noted that the scale, nature and scope of each of the pilot programmes was in line with its purpose as technological trials and were appropriate for that function.120 It noted that Moreton Resources, then:
“Cougar Energy have a stated position that they are not engaged in running a pilot trial of a new technology but a small-scale facility of well-tested technology. Consequently, they assert, they do not need a lot of in-house technical capability and can rely on consultants as required. Consistent with this view, when the ISP interviewed Cougar Energy at their offices a consultant explained, via use of a whiteboard alone, their underground design and operational approach. The ISP prefers the approach adopted by another company of building strong internal technical capacity.”121
83. ISP’s eighth recommendation was:
“… that Cougar Energy trial not be reignited. … It is recommended that Cougar Energy move to decommission the cavity. First, a plan should be submitted for government approval and action taken immediately thereafter. It is an important (critical) part of all of the pilot trials that effective decommissioning can be undertaken and demonstrated not to leave unacceptable
116 T documents; T51 at 789 117 Statement of Mr Melik; Exhibit E at [188] 118 See [89] below 119 T documents; T53 at 796 120 T documents; T53 at 800 121 T documents; T53 at 798
Page 38 of 128
legacies in the environment. It is not recommended that a ‘clean up’ approach be adopted. That is, the site should be treated as a pilot trial moving into orderly and planned decommissioning following an unscheduled permanent shutdown.”122
84. Moreton Resources responded to the ISP’s report on 28 February 2011. The purpose of its response was twofold. Its first was to identify and correct errors it believed had been made in the report. Its second was to rebut comments that might have influenced DERM’s assessment of the Environmental Evaluation reports Moreton Resources had submitted and its decision not to allow the re-ignition of the Pilot Plant trial.123 In particular, Moreton Resource’s response refuted each of the statements on which the ISP had made its eighth recommendation that its trial not be reignited.124 Moreton Resources stated that the ISP’s report had misstated its position on in-house technical capability125 but does not elaborate on that statement.
DERM foreshadows amendments to the EA and issues a Notice of Proposed Action
85. In February 2011, DERM foreshadowed that it might amend the EA to require Moreton Resources to develop a groundwater management plan.126 Reference is made in Moreton Resource’s Response dated 28 February 2011 to DERM’s Notice of Proposed Action (NOPA) given by letter dated 28 January 2011. Moreton Resources took the view that DERM had made a disproportionate response to the situation, had breached processes and implied principles of the EP Act and exceeded its powers. It believed that it had identified measures capable of addressing DERM’s issues while allowing the mining activity to continue.127
Moreton Resources provides an R&D plan
86. Having withdrawn its tax concession claim for 2008/09 in relation to exploratory drilling, plant design and air linkage trials128 and at ISA’s request, Moreton Resources provided an R&D plan in support of a tax concession application for UCG.129 That was dated 4 April 2011.
Preparation of plotting and burn plan for a second UCG burn
87. Mr Melik said that Moreton Resources had done work in 2010 on optimising the placement, design and construction of wells P5 and P6 to ensure a successful second burn. That
122 T documents; T53 at 804 123 T documents; T54 at 807 124 T documents; T54 at 812-813 125 T documents; T54 at 806 126 Statement of Mr Melik; Exhibit E at [122] 127 Statement of Mr Melik; Exhibit E; Annexure VM-64 at 3249 128 See FN55 above 129 T documents; T65 at 891
Page 39 of 128
meant that there had to be further work undertaken in improving the UCG site layout. Therefore, Moreton Resources began to investigate the optimal location of a new well for the second UCG burn. That involved preparing the plotting and burn plan that appears below.130 It was developed in November 2011. Mr Melik said that it was expected that P7 would be the well used as a production well in the restart together with P5 and P6.
88. In 2015, Mr Melik made enquiries of GE Power & Water regarding its experience in utilising UCG produced syngas in gas turbines. GE Power & Water responded in a letter dated
130 Statement of Mr Melik; Exhibit E at [117]; Annexure VM-65 at 3273-3274
Page 40 of 128
5 October 2015 stating that it did not operate any machines running specifically on underground produced syngas or UCG. Even though that was the case, GE Power & Water was quite confident that it could use UCG syngas in GE gas turbines should a project be able to produce significant volumes of the gas. It would require a highly bespoke and customised design allowing the gas turbine to operate first by an alternate fuel such as diesel or natural gas until a stable operation was achieved. Once stability had been achieved, there would be a gradual transfer to UCG syngas until the gas turbine operated solely on that fuel.131
Wandoan: JORC Compliant Resource Statement
89. A report dated 10 March 2011 summarised the methodology and results of a JORC Compliant Resource Estimate at 10 March 2011 for coal within the Wandoan site. It described the geological aspects of the project on a regional and local basis, described the coal seam units involved in the estimates and outlined the modifying factors used in determining the coal which can be included in the estimate within the constraints of the JORC Code. The report was prepared for submission to DERM to satisfy the resource requirements of its application for a Mineral Development Licence numbered MDL420.132 Moreton Resources made that application in March 2011. The application had been made with a view to developing an initial 40MW open cycle gas turbine power station fired by syngas from the UCG process. That would require the availability of approximately a quarter of a million tonnes of coal each year. The next step was to construct a commercial scale 200MW power station using a system of the combined cycle gas turbines. That would require approximately one million tonnes of coal each year. The report stated that, following the successful development of a power plant operation at Wandoan, Moreton Resources would also develop a project to manufacture transportation fuels and/or other petrochemical products from the UCG syngas.133
A Complaint, further amendment of Environmental Authority and Moreton Resources’ responses
90. On 5 July 2011, Moreton Resources received a Complaint and Summons from DERM alleging contraventions of the EA. Moreton Resources indicated that it would contest each count.134
131 Statement of Mr Melik; Exhibit E; Annexure VM-198 at 5112 132 Statement of Mr Melik; Exhibit E at Annexure VM-193 133 T documents; T74 at 998-999 134 T documents; T75 at 1273
Page 41 of 128
91. On 7 July 2011, Moreton Resources’ EA was further amended (2011 Amended EA). Conditions (A8-1) to (A8-5) were removed and replaced with a new (A8-1) so that the scope of approved activities was:
“All underground coal gasification activities on site are limited to decommissioning, rehabilitation, care and maintenance of the site.”135
92. Conditions (C10-1) to (C10-8) of the EA issued on 30 April 2008 were replaced with Conditions (C10-1) to (C10-9) in the following terms:
“(C10-1) A groundwater monitoring program must be developed and implemented for the site. The program must: (a) be developed by a person possessing appropriate qualifications and experience in hydrogeology and groundwater monitoring program design, to be able to competently make recommendations about these matters; (b) include a sufficient number of bores located in concentric ‘rings’ around the chamber that will provide detection of contamination from potential sources of impact (include the underground gasifier) to: (i) the coal seam aquifer (subject to gasification); (ii) the aquifer below the coal seam aquifer; and, (iii) aquifers between the coal seam aquifer and the land surface. (c) include a bore into the gasification chamber to monitor water level weekly; (d) provide for fortnightly (with this frequency able to be reduced upon review of results and written advice from the administering authority) sampling and analysis from all bores in the program for the parameters included in Schedule C Table 2; (e) provide for sampling as soon as practical following a rainfall event exceeding 100mm in any 24 hour period; and (f) provide for representative groundwater samples from the aquifer(s) and sufficient sampling to characterise background groundwater quality and levels with aquifers affected by the activity. (C10-2) The groundwater monitoring program at (C10-1) must include, but not necessarily be limited to, the already established bores T5037, T5038 and T5062-5072 in the upper aquifer, and bores T5039, T5040, T5049, T5061 and wells P2 and P3 in the lower (coal seam associated with the gasification process) aquifer. Schedule C Table 2. Groundwater Quality Characteristics to be monitored
Quality characteristic Units
Total Dissolved Salts mg/L
pH pH units
Sulphate mg/L
135 EA permit at (A8-1): T documents; T72 at 965
Page 42 of 128
Quality characteristic Units
Ammonia mg/L
Phenols (speciated) µg/L
Total Petroleum Hydrocarbons (speciated) µg/L
BTEX (speciated) µg/L
Polycyclic Aromatic Hydrocarbons (speciated) µg/L
Fluoride mg/L
Cadmium mg/L
Arsenic mg/L
Lead mg/L
Zinc mg/L … (C10-3)Within 24 hours of a groundwater sample showing groundwater contamination above background levels, the administering authority must be notified, and informed of the likely cause, and potential impacts, of the contamination. (C10-4) On any occasion that groundwater samples are obtained the standing water levels must be measured and recorded to an accuracy of 0.01 metres relative to Australian Height Datum (AHD). (C10-5) Groundwater levels within the vicinity of the underground coal gasification plant must be monitored and groundwater draw down fluctuations in excess of 2m per year, not resulting from the pumping of licensed bores, must be notified within 14 days to the administering authority following completion of monitoring. (C10-6) All groundwater sampling must be undertaken in accordance with the most recent version of the Australian Government Geoscience Australia guidelines, Groundwater Sampling and Analysis – A Field Guide. (C10-7) Within 30 days of this amended environmental authority taking effect a documented decommissioning and rehabilitation procedure must be prepared, and submitted to the administering authority, to fully decommission and rehabilitate the underground cavity, to ensure removal of all residual contaminants attributed to underground … [illegible in copy] the underground coal gasification. The procedure must reflect proven practices, and include a methodology and programme of monitoring to demonstrate that the removal of contaminants has been effective. (C10-8)Within 60 days of this amended environmental authority taking effect the decommissioning and rehabilitation procedure must be commenced, and then continued until the objectives identified in (C10-7) are achieved. (C10-9)Groundwater monitoring must continue for all aquifers until it is demonstrated that the levels of all contaminants listed in Table C1, in all
Page 43 of 128
monitoring bores, are consistent with the background levels for a continuous period of not less than six months.”136
Conditions relating to dams and found in Condition (H1-1) and following remained the same.
93. Moreton Resources lodged an application for internal review of the 2011 Amended EA on 2 August 2011.137 It did so under the EP Act and with the intention of having the amendment removed so that it could proceed with the UCG pilot plant at Kingaroy. Consistent with its intention, Moreton Resources prepared a commissioning and operating budget for restarting the pilot plant in approximately 2011.138 As part of its request for internal review, Moreton Resources submitted a document dated 16 August 2011 and entitled “Report to Department of Environment and Resource Management: Response to the Revised Environmental Authority dated 7 July 2011 Cougar Energy Pilot Burn at Kingaroy”.139
94. The report appended a Groundwater Management Plan that had been prepared by GHD Pty Ltd (GHD) for Moreton Resources.140 It was dated August 2011 and recited the issues that had arisen during the trial and DERM’s requirement that Moreton Resources undertake an environmental audit under s 22 of the EP Act to determine the extent of the groundwater contamination associated with the pilot UCG plant. The Introduction stated that the Groundwater Management Plan pertained to Condition (C10-1(a)) of the draft EA that was to become the 2011 Amended EA. That condition required the preparation of a groundwater management plan meeting certain criteria and GHD noted where the proposed plan differed from the specific requirements in the 2011 Amended EA.141
95. The report noted that eight groundwater monitoring bores were screened within the Basalt Aquifer. After noting the positioning and depths of the bores, the report noted:
“The Basalt Aquifer appears to be spatially discontinuous as evidenced by dry conditions observed atT5065 and T5070. Based on field observations reported by Cougar (during monitoring bore installation, development and sampling), the recovery rates in the Basalt Aquifer were highly variable and in some instances took several days to recover to the static water level. This is indicative of highly variable hydraulic conductivity within the Basalt Aquifer. The spatial discontinuity of saturated conditions and variability of hydraulic conductivity estimates indicates that the fractured network within the Basalt Aquifer beneath the UCG Pilot Plant site is highly variable. This is common for fractured rock aquifers.
136 T documents; T72 at 975-977 137 T documents; T75 at 1273 138 Statement of Mr Elks; Exhibit A at [24] and see Annexure JE-10 139 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3277 and see also Statement of Mr Elks; Exhibit A at [29] and Annexure JE-15 at 331 140 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3277 141 See [92] above and see also Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3280
Page 44 of 128
Groundwater levels in the basalt aquifer were reported to be 30 to 40m higher than in the pontentiometric surface observed in the Kunioon Coal Seam. Taking into account the difference in hydraulic head and the virtually impermeable clay layer that separate the two aquifers, it is likely that they are not hydraulically connected beneath the UCG Pilot Plant site. … The implication of the large variation in aquifer hydraulic conductivity is that any potential contamination in the coal seam arising from the UCG process would tend to remain within the coal seam and/or immediate overburden. This would be due mainly to the very low hydraulic conductivity of the clay/tuff aquitard above and the low hydraulic conductivity of the underburden and the Goodger Coal seam below.”142
96. After analysing concentrations of contaminants, GHD concluded that contamination was attenuating naturally due to processes such as mechanical dispersion and biodegradation. On that basis and in the absence of an ongoing primary source and the fact that the risks to existing beneficial uses were considered low, GHD recommended that Monitored Natural Attenuation (MNA) was an appropriate management response to the identified contamination. GHD went on to set out a monitoring plan.143 It recommended compliance bores on the basis of site specific issues at the site and in consideration of DERM’s recommendations. The basic monitoring strategy was based on the concept of concentric rings of compliance, equivalent to the time of travel of one, five and ten years. A diagram illustrated the concept of concentric rings of compliance based on time of travel for benzene.144 Section 6 of the Groundwater Management Plan reviewed the DERM conditions and gave a response to each of the requirements of Conditions (C10-1) to (C10-9). Where compliance would be consistent with the requirements, that was noted in section 6. In other responses, comment was made that the requirement was too onerous or reasons why a different approach should be adopted were put forward. MNA was not referred to in section 6.145
97. On 17 August 2011, Moreton Resources submitted to DERM a procedure for decommissioning and rehabilitating the underground cavity.146
Wandoan: Moreton Resources’ Annual Report for the period ending 24 August 2011
98. Moreton Resources prepared an annual report to 24 August 2011 regarding the work it had done in the development of a JORC compliant resource based on the exploration work undertaken in the previous reporting period, its application for MDL420. Ten additional drilling holes had been completed within the area.
142 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3285-3286 143 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3305 144 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3308 145 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3319-3323 146 Moreton Resources’ Directors’ Report for year ended 30 June 2011: T documents; T75 at 1273
Page 45 of 128
99. GHD went on to plot the various aquifers, their elevation ranges, the groundwater flow direction and groundwater seepage velocity. It also identified the contaminants at the site that were contaminants of potential concern: benzene, toluene, methyl-phenols, phenol, naphthalene and arsenic. Of these, benzene and arsenic were the key risk drivers for human health as they can be relatively mobile in an aqueous environment and are known carcinogens.
DERM request for status report of all dams and storm water ponds
100. On 31 August 2011, DERM wrote to Moreton Resources reminding it, as it was doing with all operators, that the wet season nominally began on 1 November 2011. It bought with it particular challenges for mining sites and DERM gave examples of some of them. DERM sought the assistance of all operators to ascertain the current status of any dams or stormwater ponds together with any mitigation measures either in place or proposed to prevent or minimise environmental harm. To assist with the process, DERM asked Moreton Resources to provide by 30 September 2011:
“· A status report of all dams and stormwater ponds, including but not limited to: ° GPS coordinates and name of each dam and associated spillways; ° The amount stored in each dam in relation to the Mandatory Reporting Level (MRL); ° The preferential drainage pathway and likely receiving environment in the event of a release; ° The current water quality for each dam; and ° A risk assessment of the potential to cause harm to the environment in the event of a release. · Any emergency or contingency strategy or plan that is currently in place to manage unauthorised dam releases during wet weather, including, but not limited to, procedures for: ° Situation responses including protocols for water level management; ° The identification of potentially impacted stakeholders and communication methodologies; ° Investigation, monitoring and reporting of releases; ° Post release impact assessment and remediation; ° Staff training and awareness of contingency plans; ° Notification procedures for the department and local government; and ° Identification of the minimum amount of information that will be provided as part of notification in the event of a release.”147
147 Statement of Mr Melik; Exhibit E at VM-172 at 4558-4459
Page 46 of 128
Stay of DERM’s amendment of 2009 Further Amended EA refused
101. Moreton Resources’ application for a stay of DERM’s decision to amend the 2009 Further Amended EA on 7 July 2011 and issue the 2011 Amended EA was heard by the Planning and Environment Court (Qld) and, on 21 December 2011, refused: Cougar Energy Limited v DebbKie Best, Chief Executive under the Environmental Protection Act 1994.148 In the course of setting out the background to the application, the Court stated that “… The technology and methodology involved is largely unproven, thus the limitation on the process to pilot projects.”149
DERM takes suite of water samples for analysis
102. DERM took water samples from the spring on an adjacent landowner’s property in approximately September 2011. Samples collected on 7 September 2011 were taken as part of a full suite of analyses of water quality at landholder locations and groundwater bores at Moreton Resources’ site. DERM took them to assist with its independent assessment of the decommissioning and rehabilitation plan that Moreton Resources had recently submitted. Test results received by DERM on 21 September 2011 showed thiocynate and formaldehyde to be present at a groundwater seepage feature located approximately 900 metres from Moreton Resources’ site at Kingaroy. Further tests at other sites were conducted during September and 4 and 5 October 2011 and some levels were identified at some bores and groundwater features. After evaluating the results of the analyses of the tests, DERM was of the view on 20 October 2011 that there was sufficient evidence to suggest that the source of the two chemicals was not the result of the Moreton Resources’ UCG pilot project.150
Evaporation ponds
103. Mr Melik said that Moreton Resources monitored the evaporation pond each day as part of its water level management. Late in 2011, its personnel noted that the water level in the evaporation pond was not reducing in line with evaporation rates that it had been designed to achieve. Mr Melik said that “it was hypothesised that the evaporation pond was not adequately sized at the design phase …”.151 An email dated 16 December 2011 from Mr Andrew Brown, General Manager of Technology at Moreton Resources, to Mr Ranasinghe and Mr Livingstone gave them approval to discharge water from the evaporation pond into the general environment. He gave this approval after reviewing the water quality results from the sampling of Cells 1 and 2 in the evaporation pond on
148 [2011] QPEC 150; [2012] QPELR 370; RS Jones DCJ 149 [2011] QPEC 150; [2012] QPELR 370 at [8] 150 Statement of Mr Melik; Exhibit E; Annexure VM-166 at 4534 151 Statement of Mr Melik; Exhibit E at [171]
Page 47 of 128
6 December 2011 in light of the ANZECC 2000 guidelines for irrigation and concluding that the water met all the guideline values. The water had also been analysed for BTEX, PAHs and phenolic compounds that could have been added by the UCG process but none was found to be present.152
104. On 19 December 2011, Mr Ranasinghe wrote to Mr Melik reporting that he had looked into a controlled system to pump out Ponds 1 and 2. He continued:
“… I have attached a drawing of the system. It utilizes the 2 inch poly pipe ‘Soaker Hose’ that we currently use as part of our evaporation system and several rolls of our 3 inch layflat hose. I will manufacture 2 fittings as adaptors to covert the layflat hose to the poly pipe at both ends. We can monitor the amount discharged and regulate it accordingly to ensure no water will be ‘Pooling’ or ‘Running off’ excessively. By discharging well uphill of the pond area, we get to utilize the large surface area of the site without ever having the risk of this water leaving site. (Not that there is any issue with the water quality as you all know.) If this proposed low flow/low pressure irrigation system is suitable I will go ahead and modify the pipe work accordingly. It will be able to be returned to previous specification if required. It utilizes the materials we already have on site and this system will be ‘Cost Neutral’. I believe I can have this system operational by tomorrow afternoon.”153
Approval was given by Mr Melik and Mr Ranasinghe reported that the system was working well in an email to him and to Mr Brown on 21 December 2011.154
105. On 20 June 2012, Mr Ranasinghe undertook another pump trial and reported to Mr Melik that it had worked well. The trolley worked and the output of the pump from the pond was good.155
GHD prepares draft response to DERM regarding a groundwater management plan
106. Moreton Resources had asked GHD to provide specific comment and details on the matters raised by DERM in its letters dated 19 September 2011 and 7 October 2011. GHD prepared a draft letter in February 2012156 and a further draft in June 2012.157 I have largely referred to the earlier draft but there are no differences of substance and the issues raised by DERM are apparent from the response. The letter began by stating that:
152 Statement of Mr Melik; Exhibit E; Annexure VM-173 at 4560-4561 153 Statement of Mr Melik; Exhibit E; Annexure VM-173 at 4560 154 Statement of Mr Melik; Exhibit E; Annexure VM-174 at 4563 155 Statement of Mr Melik; Exhibit E; Annexure VM-175 at 4564 156 Statement of Mr Melik; Exhibit E; Annexure VM-95 at 3727 157 Statement of Mr Melik; Exhibit E; Annexure VM-94 at 3762
Page 48 of 128
“This letter has been prepared to provide specific comment and details as requested by DERM in their letter dated 19th September 2011, with respect to proposed Groundwater Management Plan (GMP) for the Cougar Energy UCG trial site. This letter attempts to address each item in the same order as presented in the DERM letter. Some additional information regarding background water quality in the coal seam is also presented.”158
107. The letter looked at the primary criteria for considering the feasibility of MNA’s being used as a groundwater management option, as opposed to a remediation option, and conclude that they were essentially the same. Both are contained within the overall context of risk to human and/or environmental health. Although DERM had required the source of the contamination to be removed from the site, GHD noted that MNA guidelines do not require removal of the contamination if MNA can be demonstrated in the context of shrinking sources and/or plumes and/or acceptable health risks.
108. In the June 2012 version of the letter, GHD acknowledged that it was not possible to investigate the actual post-burn chamber itself due to the blockages in the pilot trial bore P1. Moreton Resources had, however, drilled two boreholes – T5058 and T5061 – in close proximity to P1 so that it was possible to evaluate the extent of thermal alteration of the coal seam material within the zone of gasification. T5061 was located approximately 2 metres to the southwest of P1 and T5058 approximately 5 metres in the same direction. Moreton Resources’ Consulting Geologist had examined the chips from 132m to 212m. The Kunioon seam was represented in the cuttings from approximately 197m to 212m when the hole was terminated while still in the seam. There was no evidence of heat effects in either the coal or the induration in the classic rocks. The evaluation of contaminant levels in the coal seam in the immediate vicinity of the post-burn chamber was another matter presenting significant difficulties given that it was likely to resemble an upright cylinder and to present as a very small target when viewed from the ground. The interbed of hard (basalt) and soft (clay) material around the chamber would make accurate drilling difficult and especially as boreholes would need to be targeted to 1m to 2m surrounding the post- burn chamber.159
109. Reference was also made to Golder’s report dated 4 March 2010, which showed the relative drawdowns in observation bores during the pumping test on T5023. The plot prepared by Golder indicated the head difference between the coal seam and basalt units and the lack of hydraulic response in the basalt aquifer during the pumping test. Those two
158 Statement of Mr Melik; Exhibit E; Annexure VM-94 at 3727 159 Statement of Mr Melik; Exhibit E; Annexure VM-95 at 3765
Page 49 of 128
features were positive evidence, GHD reported, of the lack of hydraulic connection between the shallow basalt aquifer and the coal seam aquifer.160
110. GHD referred to DERM’s statement that the timeframe of four to five years travel time to the outer ring of compliance bores would be inconsistent with the principles of MNA. Those principles require a shrinking plume. GHD agreed that DERM’s statement was correct with regard to the principles of MNA, it considered that the available time series data demonstrated both a shrinking plume and a decline which was occurring at the greatest rate nearest the post-burn cavity and so the source.
111. GHD also addressed DERM’s requirement that Moreton Resources delineate the plume because MNA assessment relies on a shrinking plume. It said that:
“… We would counter this by re-stating that the decreasing benzene (and arsenic) trends are statistically robust, despite the relatively short monitoring period, and that they indeed provide reasonably strong primary evidence that the benzene plume, particularly in the vicinity of the original source (the cavity), is shrinking. Following logically on, on this basis there is no requirement for further monitoring bores. The question of whether a monitoring bore should be placed to the east to ‘complete the ring’ of monitoring bores does not recognise the primary basis for the ‘rings of compliance’, which is groundwater and contaminant travel times, not monitoring bores. The regional groundwater flow direction in the coal seam aquifer is from northwest to southsoutheast, and therefore locating a bore to the east of the source would not likely detect any contamination. Placement of groundwater monitoring bores for plume detection should always primarily take into account groundwater flow direction. Level of Confidence in the Monitoring Data With respect to issue of ‘insufficient confidence in monitoring data for benzene’, we refer to the above comments. While it is agreed that there is no supporting information regarding MNA at other UCG sites with similar hydrogeology, there is ample evidence for supporting MNA at petroleum hydrocarbon contaminated sites, where benzene is frequently the key contaminant of concern. Given an ample supply of terminal electron acceptors (TEAs), microbes and suitable hydrochemical conditions, petroleum hydrocarbons would be subject to the same biodegradation processes within a sand layer or coal seam. Conceptual Model of Biodegradation Processes DERM stated that they require: · A conceptual model of the processes that are occurring; · An investigation in the processes and whether they are reversible and/or destructive; · Sufficient field and laboratory data to demonstrate that natural attenuation processes are taking place in a manner consistent with the conceptual model; and · Monitoring over a longer period to identify the seasonal patterns
160 Statement of Mr Melik; Exhibit E; Annexure VM-95 at 3766
Page 50 of 128
To this end, GHD expanded upon their previous assessment of MNA contained within the proposed GMP, by including recent data and exploring potential indicators of attenuation (particularly biodegradation) processes.”161
112. GHD proposed a conceptual model. It also proposed a contingency plan for remediation of the existing hydrocarbons to supplement the MNA process. That involved enhanced in situ biodegradation (EISB). Its features were:
“· The UCG trial results in the formation of a zone of gasification within the coal seam, within which high pressures and temperatures are produced. Groundwater within the zone of gasification is converted to steam which generates what may be referred to hydrothermal fluids and gasses – these fluids/gasses contain volatile hydrocarbons including benzene and other chemicals which are also common constituents of petroleum hydrocarbons; · Due to the pre-trial fracture treatment of the coal seam to provide increased permeability, these hydrocarbon-containing hydrothermal fluids were propagated along fractures which form preferential pathways within the zone of gasification. Some of these fractures extend primarily to T5058, T5061 and P2, and to a much lesser extent to P3. This highlights the highly anisotropic nature of the fracture network and hence the zone of gasification. The faces of the fracture planes adsorb some of the hydrocarbons, due to high carbon content of coal. Benzene is poorly sorbed an prefers to be in the dissolved-and-vapour-phase, however sufficient benzene has been sorbed to produce dissolved benzene concentrations in the parts per billion range; · Due to the permeability contrasts between the coal seam and under and over-burden material, and low likelihood of hydraulic connection with surface water bodies and upper aquifers, the risk to human and environmental health from the contaminants within the zone of gasification is considered to be low; · The propagation of hydrothermal fluids/gasses generated within the trial area appears to have ceased within 25 to 50 metres of the post-burn chamber, based on the appearance of benzene in P2 (and to a much lesser extent in P3) but not in other bores outside this distance. The sorbed hydrocarbons now act as secondary source of hydrocarbons in the groundwater, particularly via benzene which can be persistent in anaerobic environments due to slower biodegradation rates compared to aerobic biodgradation; · The hydrocarbons (including benzene) are now subject to anaerobic biodegradation via sulphate reduction, which is the preferred terminal electron acceptor due to low DO and reducing conditions which natural [sic] occur within the coal seam. Anaerobic biodegradation of benzene in T5058 has become rate limited due to depletion and non-replenishment of sulphate; · Arsenic is naturally occurring in the soil as an adsorbed species on hydrous ferric oxide (HFO) mineral surfaces present within the coal seam; · The production of hydrocarbons from the pilot trial, followed by the natural degradation of these hydrocarbons via sulphate reduction as well as the reducing conditions, results in the reduction of ferric iron and dissolution of HFOs from the coal seam;
161 Statement of Mr Melik; Exhibit E; Annexure VM-94 at 3742
Page 51 of 128
· The dissolution of HFO releases previously adsorbed arsenic into groundwater, likely in the As3+ form; and · As the hydrocarbons are biodegraded and reduce in concentration, the redox increases and arsenic reduces in concentration also. This positive correlation between benzene and arsenic is most clearly observed in T5058 and T5061, where pH conditions are more conducive to microbial activity, Arsenic is absent in P2 and P3, and benzene declines more slowly, due to the higher pH in the two latter bores.”162
113. The passage under the heading “Contingency Planning” was more extensive in the June 2012 version of the letter than in the earlier draft. It read:
“The recommended contingency plan for remediation of the existing hydrocarbons, to supplement the MNA process, is described below: · Enhanced in situ biodegradation (EISB) – is a process where the currently observed anaerobic biodegradation via sulphate reduction can be enhanced by the introduction of soluble sulphate (also referred to an amendment) into impacted bores. This would serve to ‘top up’ the sulphate electron acceptor concentrations which are currently much lower than background due to consumption during biodegradation of the hydrocarbons, and which are currently limiting sulphate reduction particularly in T5058 and T5061. In other bores where a high pH is likely to be limiting microbial activity, the introduction of mildly acidic substances may be required to bring pH to more neutral levels.”163
Revised R&D tax concession application for 2011-2012
114. The core and supporting R&D activities described in its application dated 27 November 2012 included designing and verifying a procedure for rehabilitation of the underground cavity consistent with environmental guidelines of MNA.164 The definition of “MNA” adopted by GHD in its later report dated October 2015 is that the expression means the:
“… monitoring of naturally occurring physical, chemical and biological processes to demonstrate via multiple lines of evidence that one or any of the combination of those processes reduce the load, concentration, flux or toxicity of polluting substances in groundwater, within an acceptable timeframe”.165
Plan to reignite UCG pilot plant
115. On 13 December 2011, Mr Brown, who was Moreton Resources’ General Manager Technology, sent a document entitled “Steps for Gasification of Coal in Restart of Kingaroy Pilot Site” to Mr Melik for him to review. Apart from the title, the only text in the document was the following:
“1. Ignite P5 and link P5 to P6 and develop intense gasifier between P5 and P6.
162 Statement of Mr Melik; Exhibit E; Annexure VM-95 at 3782 163 Statement of Mr Melik; Exhibit E; Annexure VM-95 at 3785 164 T documents; T85 at 1827 165 T documents; T157 at 2931
Page 52 of 128
2. Inject air into P2 and link to gasifier between P5 and P6. 3. Inject air into P3 and link to gasifier between P5 and P6. 4. Develop gasifier between P2, P3, P5 and P6. 5. Inject air into P7 and link to gasifier defined by P2, P3, P5 and P6. 6. Complete gasifier development to gasify the coal around P1 and P4. 7. During shutdown of gasifier, stop air injection and slowly reduce gasifier pressure to ensure cavity is swept by steam from incoming groundwater to purge cavity.”166
DERM (later DEHP) and Monitored Natural Attenuation
116. On 14 February 2012, DERM wrote to Moreton Resources in response to its letters dated 27 January and 2 February 2012 regarding the decommissioning and rehabilitation requirements of Environmental Authority MIN100656507. DERM expressed its concern that Moreton Resources had not yet given it a rehabilitation procedure and had been reluctant to commit to specific timeframes. Moreton Resources’ estimate of March 2012 did not give DERM confidence that the matter was being progressed as quickly as reasonably possible. Furthermore, condition C10-7 of the 2011 amended EA required Moreton Resources to submit a rehabilitation procedure meeting particular requirements within certain time limits. Neither had the rehabilitation procedure been produced nor the time frame met.
117. In addition, DERM expressed its concern that Moreton Resources had not identified the issues that it had sent to GHD, had not advised it, DERM, of the final set of data that was required to enable GHD to “review and process” and had not given any advice regarding the analysis that GHD would conduct.
118. DERM also noted that Moreton Resources appeared:
“… to be developing its submission unilaterally, which is inconsistent with the approach offered by the department and espoused by Cougar [Moreton Resources] of working together to achieve a mutually acceptable outcome. The department has indicated its willingness to consider monitoring natural attenuation (MNA) as a decommissioning methodology, but has made it clear that determining the extent of any contamination plume is a critical component of any robust MNA proposal. Similarly, the ability of the coal substrate to absorb contaminants is a second critical component of a robust MNA proposal. Accordingly, the department’s view is that the installation of additional monitoring points is required in order to provide information about the contamination plume and the department sees no reason why the making of arrangements to install additional wells could not commence immediately. These installations would also provide an opportunity for you [sic] client to undertake the necessary collection of samples of
166 Statement of Mr Melik; Exhibit E; Annexure VM-66 at 3275-3276
Page 53 of 128
the substrate proposed to absorb contaminants and conduct microbial analysis of the groundwater to help inform any biodegradation models proposed.”167
119. In a letter dated 19 September 2012, DERM had become the Department of Environment and Heritage Protection (DEHP). It wrote to Moreton Resource’s solicitors. It began by referring to its letter of 17 September 2012 and noted that it was encouraged by Moreton Resource’s approach. DEHP looked forward to a constructive meeting between its consultants and those of Moreton Resources. In consultation with its consultants, Gilbert+Sutherland (G+S), DEHP had identified the following key issues for discussion:
“1. The proposed rehabilitation procedure of Monitored Natural Attenuation (‘MNA’) requires that the extent of the contamination be plotted. The MNA guideline relied upon in the GHD Report supports this as an appropriate approach. This was also highlighted in the Gilbert+Sutherland Report provided to your client as part of its stay application in the Planning and Environment Court in December last year. 2. Further refinement is required in respect of the investigation of the groundwater flow and direction, particularly in relation to the period of monitoring of contaminants. The assumptions as to groundwater flow and direction in the GHD Report are presently considered too broad to be usefully applied for the purpose of MNA. 3. No measured data is provided in the GHD Report to support the hypotheses about whether absorbed phase chemicals pose any risks of secondary source contamination in either the overburden or underburden. 4. The GHD Report does not document any testing for microbes or the presence of factors which regulate microbial growth and nutrition in the MNA area. The proposed rehabilitation procedure currently relies upon the presence of microbes to facilitate attenuation of the contamination, however further investigation is considered to be required in this respect. Should your client’s consultants wish to discuss technical standards, data and reports which have been relied upon in identifying these issues, Mr Neil Sutherland of Gilbert+Sutherland has offered to speak to them directly. …”168
120. Further correspondence was exchanged between DEHP and Moreton Resources’ solicitors. In its letter of 15 October 2012, DEHP explained that it considered the assumptions regarding groundwater flow to be too broad because the original groundwater flow studies had been conducted between 2007 and 2009 and so before the UCG process took place. The UCG process may have altered the flows. Therefore, updated information was necessary in order to determine the success or otherwise of the natural attenuation of the contamination. The reference to “secondary source contamination” is a reference to an expression drawn from GHD’s report. It refers to potential contamination by the release of adsorped phase chemicals, such as arsenic. The expression is to be contrasted with
167 Statement of Mr Melik; Exhibit E; Annexure VM-93 at 3725 168 Exhibit C
Page 54 of 128
“primary source contamination”, which refers to contamination directly released by the UCG process.169
121. Water tests were carried out and, on 4 October 2012, analysed to measure sulphite reducing bacteria.170 Thought was given to carrying out laboratory bench trials but Moreton Resources decided to use sulphate reducing anaerobic bacteria at the Kingaroy site. GHD wrote an email to Moreton Resources on 26 October 2012:
“After thinking about this a bit more, I am of the opinion that, instead of laboratory bench trials, we should Put [sic] our efforts into a field trial. The infrastructure is already in place, and the results will be directly applicable instead Of [sic] possibly getting differences between lab and field results. As for dosage, even if we over- dose it It [sic] wont [sic] really matter – we’ll just have a bit of residual sulphate left over. As for the higher pH wells, we could also do a field trial based on low strength sulphuric acid – this will drop the pH To [sic] more suitable levels. Your thoughts?”171
122. Moreton Resources’ response was written a little later the same day:
“I [sic] my opinion it is a sensible approach. We should go ahead and try it. What about adding some Nitrate in addition, which I understand is another source of food for bugs? Also we need to consider about the delivery mechanism for chemicals to where they should work most efficiently. There is about 110m of water above the cavity. Should we deliver chemicals directly into the cavity or keep dripping the chemicals from the standing water level and hope that they will reach at the bottom at some stage? It would be good to know your thoughts about that.”172
123. Mr Mann from GHD responded to the proposal on 29 October 2012:
“I am not sure that adding nitrate will do anything for us, as it doesn’t seem to be there In background water and so its unlikely that there would be any acclimated nitrate- consuming bacteria. My view is to add enough sulphate to raise the concentration to what was there prior to the trial, and Maybe also some carbon substrate (eg. emulsified veggie oil) to sustain or increase the methanogenesis which also Appears to be occurring. Research studies overseas indicate that sulphanogenesis and methanogenesis Are to the two key processes involved in in situ biodegradation of petroleum hydrocarbons.
169 Exhibit D 170 Statement of Mr Melik; Exhibit E; Annexure VM-100 at 3804 171 Statement of Mr Melik; Exhibit E; Annexure VM-101 at 3805 172 Statement of Mr Melik; Exhibit E; Annexure VM-101 at 3805
Page 55 of 128
Valeri, yes I believe we do need to deliver the nutrients directly to the chamber, via a trammie pipe or other Means.”173
124. Moreton Resources undertook a bench test of a sample from T5061 using BART174 test tubes. Mr Melik told Mr Mann, among others, that the preliminary report of the test showed the presence of sulphate reducing bacteria. Although there were still a few days to go with the test, Mr Melik thought that “the early indications are good and confirming your theory.”175 Mr Mann counselled against Mr Melik’s subsequent conclusion that the test results supported the idea that anaerobic bacterial activity within the bore is reducing benzene levels naturally. The BART jar contains an acetate nutrient, Mr Mann advised, and that is a carbon substrate, and so food, for sulphate-reducing bacteria (SRB). Therefore, he could not conclude that the test itself was proof that the benzene in the jar was being reduced.176
125. GHD and Moreton Resources continued their discussions regarding the acquisition of a dosing pump and an ISE probe for real time measurement of sulphate concentrates and the use of an existing pump to bring the water to the surface. Mr Mann included a diagram of the layout of the components for the field trial.177 That was on 30 October 2012. On 12 November 2012, Mr Melik and Mr Ranasinghe discussed the way in which the wells could be aerated by using compressed air cylinders that Moreton Resources had used to drive a pump. Their contents were at a level where they still delivered a moderate pressure of compressed air but not at a pressure that was suitable to drive a pump efficiently. The pressure would be sufficient to pump the air down a tube fitted with an aerating fitting. The air would not be contaminated.178
126. On 28 November 2012, GHD presented to Moreton Resources a document entitled “Proposal for Sulphate Based Biostimulation Trial”. It was described as a fee proposal to provide a remediation option to address groundwater contamination at the Kingaroy site. The key objective of the proposed field trial was to answer the question:
“Is it possible through intervention to sustainably manipulate natural attenuation processes so that they operate more effectively than without intervention and thereby result in an increased reduction in mass flux of contaminants sufficient to meet closure requirements?”179
173 Statement of Mr Melik; Exhibit E; Annexure VM-108 at 3881 174 Biological Activity Reaction Test 175 Statement of Mr Melik; Exhibit E; Annexure VM-108 at 3880 176 Statement of Mr Melik; Exhibit E; Annexure VM-108 at 3880 177 Statement of Mr Melik; Exhibit E; Annexure VM-108 at 3879 178 Statement of Mr Melik; Exhibit E; Annexure VM-117 at 3990 179 Statement of Mr Melik; Exhibit E; Annexure VM-112 at 3897
Page 56 of 128
127. The document explained that:
“Anaerobic degradation is the dominant driving force in natural attenuation of petroleum contamination in the subsurface. The contribution to natural attenuation by electron acceptors other than oxygen, such as nitrate, iron Ill, manganese IV, sulphate, and even carbon dioxide, has been the subject of considerable research in recent years. The addition of these alternative electron acceptors has been shown to have many potential advantages over the traditional approach of attempting to add dissolved oxygen to the plume. Numerous studies have shown that sulphate reduction accounts for most of the degradation of hydrocarbons, and Cuthbertson et al. (2006) presented case studies that demonstrated the benefits of using Magnesium Sulphate solution (Epsom Salts) to stimulate the biodegradation of petroleum contaminants in groundwater under field conditions at various sites. The distribution and availability of electron acceptors control the rate of in-situ biodegradation. In typical situations, other factors (microbial population, pH, temperature, nutrients, etc.) rarely limit the amount and rate of biodegradation. In the presence of organic contaminants, such as petroleum hydrocarbons, terminal electron acceptors are depleted at a rate significantly higher than can be naturally replenished, thus inhibiting biological degradation. The introduction of additional electron acceptors to the subsurface can accelerate the rate of biological degradation. There are many benefits of providing sulphate as the terminal electron acceptor to the subsurface environment. As anaerobic conditions naturally prevail under petroleum-impacted sites (and as is the case at Cougar Energy site within the coal seam), there is less acclimation time necessary for microbial populations, thus sulphate injection stimulates processes that are already occurring. The high solubility and stability of sulphate solutions relative to traditional electron acceptors allows for improved subsurface delivery and coverage, and higher concentrations of sulphate can be added to groundwater due to its high solubility (as compared to oxygen).”180
128. GHD examined the benzene, sulphate and pH trends in monitoring bore T5061 and illustrated the trend of benzene against sulphate and pH in a graph. T5061 had been installed several months after the shutdown of the pilot UCG project. That meant, GHD opined, that sulphate and benzene concentrations were likely to have been higher as observed in T5058. Initial sulphate concentrations in T5058 had been in the order of 200mg/L. The graph indicated that the bulk of benzene and sulphate reduction occurred in the earlier periods while sulphate concentrations were still high, and in later periods appears to have stalled, due likely to insufficient electron acceptor concentrations to sustain biodegradation.181
129. Both field testing and laboratory testing had been undertaken to confirm the presence of SRB. Some of the samples were subject to BARTs, which provide a semi-quantitative method for assessing biological activity in water. According to a protocol developed by
180 Statement of Mr Melik; Exhibit E; Annexure VM-112 at 3897 181 Statement of Mr Melik; Exhibit E; Annexure VM-112 at 3898
Page 57 of 128
Droycon Bioconcepts in 2006, two key pieces of information were provided by the BART test. One was the interpretation of accepted and known reaction patterns generated by SRB. The other was the establishment of a link between the time lag (i.e. the time interval between the start of the test and the first observation of a positive reaction) and a semi-quantitative prediction of active SRB in the sample under test.182
130. GHD proposed to dose groundwater using magnesium sulphate (Epsom Salt or MgSO4) dissolved in solution to a depth of 210 metres and into the coal seam. The precise dosage would be determined by an analysis of the groundwater at the time. Samples would be collected at different times but on a weekly basis over a 12 week period. They would be analysed for SRB, sulphate, Hydrogen Sulphide (dissolved), BTEX and total petroleum hydrocarbon (TPH).
131. In December 2012, GHD finalised a draft report entitled “Response to Four Points on Proposed MNA Approach” in the context of the UCG Pilot Trial. The four points had been raised by G+S, who acted on behalf of DEHP, regarding the proposed application of MNA to the rehabilitation of the UCG pilot trial wells at Kingaroy. Moreton Resources had asked GHD to provide a response.183 Representatives of GHD, DEHP and G+S met on 10 December 2012. The minutes of the meeting are signed by all present other than the two representatives from DERM who left the meeting at 13:30hrs. The meeting continued until 15:00hrs. The minutes state that the meeting had been arranged to assess whether there was common ground with regard to the data collection, analysis and presentation in response to the queries that G+S had raised in relation to Moreton Resources’ use of MNA. Moreton Resources confirmed that, together with GHD, it was looking at means of accelerating benzene reductions by chemical means if it considered it necessary. G+S confirmed that the evaluation of the MNA results, when plotted against those of the predictive model, “could” allow future variation of groundwater and contaminant monitoring under the licence should the results indicate that was appropriate. The final paragraph of the minutes reads:
“17. We acknowledge that we have not been instructed to adopt, or reject, any particular opinion expressed at the meeting or for the purposes of this report.”184
182 Statement of Mr Melik; Exhibit E; Annexure VM-112 at 3899 183 Statement of Mr Melik; Exhibit E; Annexure VM-114 at 3918 184 Statement of Mr Melik; Exhibit E; Annexure VM-116 at 3975 In view of this statement, I do not accept that the minutes can be read as setting out areas of agreement with respect Moreton Resources’ MNA proposal: Statement of Mr Melik; Exhibit E at [142]. That is so whether the pronoun “we” refers to all of those attending the meeting or to G+S, who had prepared the draft report.
Page 58 of 128
Further registration of activities for R&D tax concession
132. On 27 November 2012, Moreton Resources lodged an application to register R&D activities for the year ending 30 June 2012 (2012 year) in relation to two projects. Project No. 1 was entitled “Kingaroy” and the title of Project No. 2 was “Wandoan”.185 The ISA approved the registration of the activities and advised Moreton Resources that it had done so in a letter dated 29 November 2012. Again, the registration was not to be taken as an indication of compliance with the requirements of the R&D tax incentive.186
Moreton Resources proceeds with biostimulation trial
133. In about February or March 2013, Moreton Resources decided to proceed with the proposed biostimulation trial. That process is also referred to as EISB. The decision was made after it had investigated whether it could set up a system to aerate the coal seam at a level approximately 100 metres below the water table. The purpose of aeration was to determine whether it could encourage any aerobic bacteria present in the post burn gasifier within the coal seam to aid in the MNA process to break down benzene molecules.187
134. Arrangements for establishing an aeration system had started in November 2012 and continued through to February 2013. Subsequent analysis indicated that there was little or not aerobic bacteria in the post burn chamber. Moreton Resources abandoned the aeration trial in favour of continuing with the biostimulation field trial involving sulphate reducing anaerobic bacteria.188
135. GHD prepared a report dated February 2013 and entitled “UCG Pilot Trial, Kingaroy Response to DEHP Decommissioning and Rehabilitation Procedure Requirements”. The Introduction to the report explained why Moreton Resources had asked GHD to report on issues raised by DEHP regarding the decommissioning and rehabilitation procedure requirements at the pilot UCG project site. It read, in part:
“The DEHP request included four technical points of issue regarding the proposed application of monitored natural attenuation (MNA) at the site. This report provides a written response consistent with the outcomes of a without prejudice presentation and meeting with representatives of DEHP and Gilbert and Sutherland Proprietary Limited (G+S) – acting on behalf of DEHP on 10th December 2012 at the G+S Gold Coast offices. The responses are provided under headings in point form. All data used in the generation of tables, figures etc in this report has been supplied by Cougar. The responses include detailed plots of benzene and groundwater level changes in the
185 T documents; T85 at 1818-1847 186 T documents; T86 at 1848 187 Statement of Mr Melik; Exhibit E at [143] 188 Statement of Mr Melik; Exhibit E at [143] and Annexures VM-117, 118 and 119
Page 59 of 128
coal seam, at approximately quarterly intervals, as requested by G+S subsequent to the December meeting.”189
136. The first point GHD addressed in the report was described as “MNA Requires that the Extent of Contamination be Plotted”:
“Monitored Natural Attenuation (MNA) is often accepted as a stand-alone or a component of a cost-effective, environmentally sound and protective solution for managing groundwater contamination issues at sites with acceptable risk profiles. This remedy has a small carbon footprint compared to other technologies, and involves neither injection nor extraction of substances into the groundwater which may cause risk or harm. The CRCCARE … Technical Report No. 15 … referenced by GHD (Beck and Mann, 2011) does not represent a set of hard and fast imperatives for MNA, it simply provides (as the title indicates) technical guidance on how to address such issues. The key pre-requisite for the application of MNA is acceptable risk to human health and the environment, and MNA should always be applied under this overall risk assessment umbrella. An assessment of the risk elements associated with the Cougar Energy pilot trial indicates the following: · The hydrocarbons (in this case benzene) is in the low parts per billion (ppb) concentration range, and at concentrations below the adopted ecosystem- based guideline of 950 ppb benzene (Golder Associates Groundwater Assessment and Impact Study of 4 March 2010 page 68) for ‘Deep on – and off-site monitoring bores: Protection of Aquatic Ecosystems at 95% level of protection’, (Table 3.4.1 Trigger values for toxicants at alternative levels of protection Chapter 3 – Aquatic ecosystems, October 2000); · Hydrocarbons in the shallower overburden (eg basalt) aquifers, which are protected by the more stringent drinking water based guideline (of 1 ppb) have not been detected at levels above this guideline since 2 June 2010, despite a total of 395 samples being tested since that date; · Levels of benzene are present at great depth (>200,), within a thin coal formation hydraulically confined between the overburden and underburden; · The coal seam aquifer is not hydraulically connected to any surface water systems, and the potential rate of benzene migration is extremely low; · There are no identified crucial exposure pathways for human and/or environmental exposure to the confined hydrocarbon levels; and · Extensive and detailed monitoring indicates that the following three lines of evidence used to support MNA are all adequately satisfied: - 1) declining source and/or plume concentrations indicating a shrinking plume (see Figures 1-10); - 2) geochemical evidence of sulphate reduction (see Figure 9); - 3) confirmed presence of sulphate-reducing bacteria in sufficient quantities to support sulphate reduction based on biodegradation (refer response to Point 4 (Section 5))[190].
189 Statement of Mr Melik; Exhibit E; Annexure VM-115 at 3941 190 Point 4 of Section 5 addressed the issue raised by DEHP regarding “Evidence of Microbial Growth in Support of MNA”. GHD responded that it had collected groundwater samples from T5061 and subjected them to BARTs specifically for SRB. The BART tests confirmed the presence of SRB in sufficient densities to support
Page 60 of 128
The level of effort involved with the assessment and remediation of benzene is governed by the level of associated risk. In the above context, the benzene is considered to present a very low risk to human and/or environmental health and as such, further plume extent assessment is not considered warranted or justified.”191
192 137. The second round of dosing with MgSO4 was completed in May 2013.
New board of Moreton Resources engage in settlement discussions
138. Following a request from its members under s 249D of the Corporations Act 2001, Moreton Resources had called a general meeting in March 2013. As a consequence, its board was replaced. In June 2013, the new board of Moreton Resources decided to cease its efforts to reignite the project and to focus on coal. As a consequence, the UCG pilot project was abandoned.193 At about the same time, Moreton Resources also decided to abandon the Wandoan project.194
139. The new board resolved to explore settlement options with DEHP. In an ASX announcement dated 26 July 2013, Moreton Resources advised that it had reached agreement with two defendants in proceedings relating to the Kingaroy project and that the proceedings had been discontinued without payment by any party. The ASX announcement further advised that Moreton Resources would continue to work with DEHP to agree a plan of rehabilitation for the Kingaroy site. It had posted financial assurance with DEHP for rehabilitation works.195
Final report of Independent Scientific Panel on Underground Coal Gasification Pilot Trials
140. The ISP completed its final report in June 2013. Its report related to UCG trials conducted by two companies, Linc Energy and Carbon Energy, but not to those conducted by Moreton Resources.
Moreton Resources, DERM and MNA
141. On 20 June 2013, Mr Melik advised his colleagues at Moreton Resources that he understood that DERM would be giving a favourable response to the report on MNA and to its request to relax water sampling frequency.196 The agenda Mr Melik circulated on
sulphate reduction based on biodegradation of hydrocarbons. Statement of Mr Melik; Exhibit E; Annexure VM- 115 at 3970 191 Statement of Mr Melik; Exhibit E; Annexure VM-115 at 3942-3943 192 Statement of Mr Melik; Exhibit E; Annexure VM-123 at 4000 193 Statement of Mr Elks; Exhibit A at [31] 194 Statement of Mr Melik; Exhibit E at [193] 195 Statement of Mr Elks; Exhibit A; Annexure JE-18 at 427 196 Statement of Mr Melik; Exhibit E at [149]; Annexure VM-132 at 4012
Page 61 of 128
14 August 2013 included as a topic for discussion: “formal acceptance of NMA”. No further details are given.197
142. Moreton Resources was engaged in planning and implantation of rehabilitating the site at Kingaroy from mid 2013. It prepared a Rehabilitation Plan to meet the requirements of the EA, Land Access Code 2010, Petroleum and Gas (Production and Safety) Act 2004, Petroleum and Gas (Production and Safety) Regulation 2004, Moreton Resources’ safety management plan and landholders’ specific requirements.198 Among other activities, the Rehabilitation Plan proposed a rehabilitation and analogue monitoring program to collect data immediately before the commencement of the rehabilitation programme in order to determine its starting point.
143. Based on water tests taken from samples drawn from P3, 61 and P2, Mr Melik advised
Mr Ranasinghe that sulphuric acid would be added to P2 as before and that MgSO4 would be added to 58, 61 and P2 as before.199 That was on 28 August 2013.
144. On 9 September 2013, Mr Melik noted that Moreton Resources had received a letter from DEHP accepting NMA and responding to his request to relax the groundwater sampling frequency. He also noted that a further application would be made requesting relaxation of Condition (C10-2), which prescribed the groundwater monitoring program and the bores that Moreton Resources was required to sample. Moreton Resources wanted the relaxation so that it could plug and abandon those bores.200
145. Further results obtained in September 2013 showed a reduction in benzene in all wells except for 61. Based on the amounts of sulphate, Mr Melik recommended repeating the cycles of sulphuric acid and sulphate dosing into 58 and 61 while leaving P2 and P3 as they were.201 Further instructions to dose P3 with acid and sulphate and 58 and 61 with a double dose of sulphate were given on 30 October 2013202 and 27 November 2013.203
Application to register activities for 2012-2013 year
146. On 1 October 2013, Moreton Resources applied to register the same activities in relation to the same projects for the year ending 30 June 2013 (2013 year).204 Again, ISA approved their registration with the same caveat as the year before.205
197 Statement of Mr Melik; Exhibit E; Annexure VM-134 at 4014 198 Statement of Mr Melik; Exhibit E; Annexure VM-186 at 4720 199 Statement of Mr Melik; Exhibit E; Annexure VM-124 at 4001 200 Statement of Mr Melik; Exhibit E; Annexure VM-134 at 4014 201 Statement of Mr Melik; Exhibit E; Annexure VM-125 at 4002 202 Statement of Mr Melik; Exhibit E; Annexure VM-126 at 4003 203 Statement of Mr Melik; Exhibit E; Annexure VM-127 at 4004 204 T documents; T96 at 2191-2203 205 T documents; T97 at 2204
Page 62 of 128
Decommissioning UCG pilot plant and rehabilitation of Kingaroy site
147. Before rehabilitation commenced, the UCG pilot plant had to be decommissioned. Plans were made for that work to start in the latter half of 2013 but negotiations with the landholder meant that it did not start until 2014. As part of the rehabilitation, Moreton Resources prepared two specific documents: Moreton Resources Land Rehabilitation Project and Moreton Resources Boreholes Rehabilitation Project.206 It entered a contract with Global Engineering and Construction Ltd (Global Engineering) to carry out rehabilitation of the dam, rehabilitation of the site road, removal and rehabilitation of fencing, rehabilitation of wells, re-seeding of rehabilitated areas and reporting. Global Engineering was also required to develop standard operating procedures for all works. Some of its reports to Moreton Resources are included.207
148. On 13 February 2014, Moreton Resources asked DEHP to amend its EA. When DEHP asked for information, Moreton Resources asked GHD to prepare responses specifically related to provisions under Condition 10 (Protection of Groundwater) contained in the EA. The key objective of the response was to demonstrate that groundwater quality listed in Schedule C, Table 2 of the EA in the nominated monitoring bores complied with the background water conditions in (C10-9). If that could be established, then GHD understood that amendments sought for (C10-1), (C10-2) and (C10-7) would be likely to be realised.208
Moreton Resources lodged amended registration for 2012-2013
149. On 30 April 2014, Moreton Resources lodged a revised application in respect of 2013 year.209 ISA again approved their registration with the same caveat as the year before and did so on 11 June 2014.210
Application to register activities for 2013-2014 year
150. On 29 April 2015, Moreton Resources lodged an application to register R&D activities for the year ending 30 June 2014 (2014 year) in relation to a project entitled “Development of a conceptual water model and rehabilitation plan following UCG pilot plant experimentation”.211 This was followed by ISA’s advising that it had registered the activities described in that project as R&D activities.
206 Statement of Mr Melik; Exhibit E; Annexure VM-189 and 190 at 4880 207 Statement of Mr Melik; Exhibit E; Annexures VM-191 and 192 at 4900 208 Statement of Mr Melik; Exhibit E; Annexure VM-138 at 4052 209 T documents; T106 at 2274-2327 210 T documents; T118 at 2358 211 T documents; T136 at 2657-2669
Page 63 of 128
Examination of Moreton Resource’s R&D activities in respect of the 2012, 2013 and 2014 years
151. In a letter dated 14 May 2015, ISA advised that it would commence an examination of Moreton Resources’ R&D Tax Incentive registrations under s 27A of the IRD Act for the 2012, 2013 and 2014 years. The examination was to take place under s 27F. The purpose of the examination was to make one or more findings under s 27J. At the end of the examination, certificates would be issued to the Commissioner of Taxation stating whether the activities were research and development activities as defined by ITAA97.212
152. In summary, the activities the ISA would assess were:213
Project title Kingaroy
Activities 2011/12, 2012/13, 2013/14
Commencing Ending
Core: Design, development and experimentation with July 2009 June 2014 UCG process within the pilot plant
Supporting: Project maintenance, management and July 2009 June 2014 administration
Project title Wandoan
Activities 2011/12, 2012/13
Commencing Ending
Core: Development of the UCG process July 2009 June 2014
Supporting: Project management and administration July 2009 June 2014
153. After its examination, a delegate of ISA decided that Moreton Resources had not demonstrated that its registered activities were either Core R&D Activities or Supporting R&D activities as claimed.214 In accordance with s 27K(2) of the IRD Act, the ISA gave Moreton Resources a certificate of its findings, reasons and the effect of its finding on Moreton Resources’ registration.215
GHD report regarding MNA and In Situ Biodegradation at Kingaroy
154. In October 2015, GHD prepared a report entitled “Kingaroy UCG Pilot Trial Application of Monitored Natural Attenuation in Groundwater” for Moreton Resources.216 The Executive
212 T documents; T138 at 2673-2680 213 T documents; T138 at 2673 214 T documents; T152 at 2881-2904 215 T documents; T154 at 2910-2918 216 T documents; T157 at 2923
Page 64 of 128
Summary sets out the three lines of evidence, or of site-specific information, relied on in forming estimations of attenuation rates and remediation timeframes. They were:
“· Primary lines of evidence: Historical groundwater and/or soil chemistry data (minimum of quarterly monitoring over two years) that demonstrate a clear and meaningful trend of decreasing contaminant mass and/or concentration over time at appropriate monitoring or sampling points. · Secondary lines of evidence: Hydrogeological and geochemical data that can be used to demonstrate indirectly the type(s) of natural attenuation processes active at the site, and the rate at which such processes will reduce contaminant concentrations to required levels. For example, characterisation data may be used to quantify the rates of contaminant sorption, dilution or volatilisation, or to demonstrate and quantify the rates of biological degradation processes occurring at the site. · Tertiary lines of evidence: Data from field or microcosm studies (conducted in or with actual contaminated site media) which directly demonstrate the occurrence of a particular natural attenuation process at the site. Such studies are most commonly used to demonstrate and quantify biological degradation processes. Recent developments in use of isotopes to assess NA can also assist where primary and secondary lines are insufficient.”217
155. GHD examined the primary and secondary lines of evidence and its analysis of the data and concluded that:
“The data clearly shows the Kunioon Coal Seam groundwater to be strongly reduced and anaerobic, which favours sulphate reduction and methanogenesis as biodegradation pathways. This pointed towards analysis of sulphate and methane concentrations in these wells. Inspection of the analytical database indicated limited methane data but extensive sulphate data, so focus was brought to sulphate as a secondary line of evidence. … Anaerobic biodegradation via sulphate reduction is a key biodegradation process involved with destruction of petroleum hydrocarbon spills (Wiedemeier et al, 1995). This has been previously proposed as the key biodegradation process at petroleum hydrocarbon contaminated sites, due mainly to sulphate’s greater solubility (and therefore availability) in groundwater relative to other terminal electron acceptors such as dissolved oxygen and nitrate. The decline in benzene is much slower in P2 (although still statistically robust) and this is attributed to the higher pH in this bore. This is supported by the absence of arsenic in P2, which is strongly associated with benzene in T5058 and T5061. The above observations are considered to satisfy the second line of evidence, that is, geochemical indicators and anaerobic biodegradation via sulphate reduction, however, it is also possible that the observed trends were also the result of dilution (i.e. by groundwater recharge). To test this hypothesis, additional supporting (tertiary) lines of evidence were collected.”218
217 T documents; T157 at 2925 218 T documents; T157 at 2941-2943
Page 65 of 128
156. Examination of the tertiary lines of evidence involved GHD in collecting groundwater from T5061 over several days and subjecting it to BARTs specific to SRB. Those tests confirmed the presence of SRB in sufficient densities to support sulphate reduction based on biodegradation of hydrocarbons. The groundwater was separately analysed for SRB and found to be present. Both the BART and the separate data were considered by GHD to demonstrate the third line of evidence for MNA.219
157. GHD concluded that:
“Extensive and detailed monitoring and analysis indicates that the three lines of indirect evidence used to support MNA and are adequately satisfied: · Declining source concentrations indicating a shrinking source (and therefore plume); · Geochemical evidence of sulphate reduction; and · Confirmed presence of sulphate-reducing bacteria in sufficient quantities to support sulphate reduction based biodegradation.”220
158. Also in October 2015, GHD completed a further report regarding the Moreton Resources Kingaroy UCG Pilot Trial and entitled “Application of Enhanced In Situ Biodegradation to Reduce Benzene in Groundwater”.221 It was the second of two reports regarding groundwater at the Kingaroy site with the first reviewing existing groundwater analytical data and whether there was sufficient evidence to demonstrate MNA.222
159. GHD noted in its report that, in 2012, Moreton Resources used EISB in order to reduce or remove dissolved benzene contained in the UCG burn chamber located at a depth of 200 metres. Among other matters, GHD was asked to provide an opinion on the effectiveness or otherwise of the application of EISB to groundwater contamination in an UCG setting. GHD’s scope of work included reviewing updated groundwater analytical database for the UCG source zone injection and monitoring wells (P2, P3, T5058 and T5061) in relation to demonstrating the effectiveness or otherwise of EISB in reducing benzene in groundwater in a UCG setting. GHD was also asked to compile lines of evidence for the demonstration of EISB at the Kingaroy UCG site.223
160. GHD concluded:
“In summary, the results of EISB are considered to be most discernible in T5058, and to a lesser extent in P2 due to only trace benzene levels in this well. There were no apparent increases in benzene decay rate in P2 (likely due to high pH) or T5061.
219 T documents; T157 at 2943-2944 220 T documents; T157 at 2925 221 T documents; T158 at 2951 222 See [106]-[113] for the first report. 223 T documents; T158 at 2957-2958
Page 66 of 128
… Based on the EISB trial results, there appears to be reasonable evidence that addition of sulphate, or sulphate amendment, had some beneficial effect on increasing benzene decay rates in two of the four amended wells, and in particular T5808 where post-trial sulphate levels have remained relatively high. It is possible that high pH levels and potential competition between microbe species in an around P2 prevented any biological stimulation via sulphate amendment. 4.1 Recommendations If a further trial is to be conducted, the groundwater analytical suite should include hydrogen and iron sulphides, as these two compounds can form by-products of the sulphate reduction process and would provide further evidence of enhanced anaerobic biodegradation. It is also recommended to include analysis of SRB counts, to confirm or otherwise whether the desired biostimulation effect on bacterial populations has occurred.”224
Underground coal gasification banned in Queensland
161. On 18 April 2016, the Queensland Government announced that it had looked at the evidence from the pilot operation of UCG and the compatibility of current technologies with Queensland’s environment and economic needs. The potential risks to Queensland’s environment and valuable agricultural industries, it concluded, far outweighed any potential economic benefits. Therefore, the Queensland Government had decided to ban UCG because of its environmental impact.225
PROJECT 1: KINGAROY
162. The Kingaroy Project comprised both core and supporting activities and I will consider each separately. The duration of the project activity extended from 1 February 2007 to 31December 2014.
Application year: 2011-2012
A. Core Activity 1.1 for application year 2011-12: duration 2011-2012
163. The core activity registered by ISA in respect of the Kingaroy site was described by Moreton Resources as:
“The overall technical objective at Kingaroy is to design and develop a UCG generated syngas cleaning and power generation pilot plant by integrating known technologies for the first time. Environmental monitoring including the Installation and monitoring of pressure sensors installed underground to ensure underground cavity remains at a lower pressure than surrounding coal to mitigate possibility of water contamination.
224 T documents; T158 at 2969-2970 225 Statement of Mr Elks; Exhibit A; Annexure JE-22 at 591
Page 67 of 128
Design and verify a procedure for rehabilitation of the underground cavity consistent with environmental guidelines of the MNA [monitored natural attenuation]. There is no documented knowledge regarding the rehabilitation of underground coal gasification sites. Cougar Energy is undertaking work in relation to the theoretical understanding of processes and monitoring of chemical attenuation around the Kingaroy site. Investigate the cause of a blockage in the P4 extraction well. Investigations will determine whether the well is to be rehabilitated or blocked off completely. Note investigations concluded that a failure had occurred in the metal well casing. This resulted in Cougar Energy having to redesign the well casing for future wells. It was determined that P4 casing could not be replaced and the well was irretrievable. Research was required to determine the best way of sealing P4 to prevent future gas escape, to be monitored using a nearby monitoring bore which was drilled for this purpose. Testing and evaluation of gas production and plant performance to test the viability of the coal seam and to ensure environmental standards can be met. Investigation of ground water movement and extent of plume in upper and lower aquifers.”
B. Supporting Activity 1.1.1 for application year 2011-12: duration 2011- 2012
164. “Undertake ongoing water monitoring activities in water bearing layers above the coal seam which recorded transitory levels of benzene of up to 2 parts per billion. This included the drilling and monitoring of boreholes at various locations around the UCG production site. This monitoring arose out of the failure of the P1/P4 well casings and required research into the hydrogeographical mechanisms which potentially allow the movement of contaminants towards the monitoring bores. Undertake ongoing water monitoring activities in the coal seam immediately surrounding, and also remote from, the UCG production site. Levels of benzene and toluene were recorded in four monitoring bores up to 25m from the gasification zone, while a further four bores from 95m to 120m from the gasification zones recorded no benzene or toluene. Understanding the mechanisms for the magnitude and distribution of these chemicals is crucial to the definition of practical ‘working gasification cavity’. Whether the results from ground water monitoring and underground pressure sensor locations meet the requirements of the relevant environmental authorities. Conduct Environmental Impact Assessment for DERM. Undertake preliminary economic analysis of power plants of various sizes to determine power pricing requirements to enable a commercially viable project to be developed. Data collection for pre-feasibility study: commercial scale power plant.”
Application year: 2012-2013
A. Core Activity 1.1 for application year 2012-13: duration July 2009 to June 2014
165. “This R&D activity looks to investigate the overall technical objective design and develop a UCG generated syngas cleaning and power generation pilot plant. This objective represents a world’s first in relation to integrating known technologies surrounding UCG generated syngas cleaning and power generation.
Page 68 of 128
A dedicated pilot plant was constructed and used solely for the purpose of conducting the R&D activities. This included the R&D activities of initial stage design and development of the UCG process, to experimentation with the process in the pilot plant to determine the success of the gasification process. Extensive experimental activities from project commencement to the current financial year have been conducted within the pilot plant. It was the pilot plant that has been used to test the hypotheses proposed and gain the new knowledge. The success of the process hinged on numerous technical factors ranging from the ability to produce gas to whether the process adversely impacted on the environment. The pilot plant was also responsible for monitoring and assessing all these factors during and following the experimental activities. For example, the monitoring and controlling system for assessing the impact of the process on the environment was an integrated part of the pilot plant. The sensors used for monitoring were fully integrated with the underground pressure and temperature monitoring systems of the pilot plant. It was as a result of information gathered by the pilot plant that the company could make assessments as to whether the activities were meeting the necessary technical objectives. Key components of the pilot plant activity include: · Environmental monitoring including the installation and monitoring of pressure sensors installed underground and above ground. This also includes monitoring of other environmental factors including ground water movement and extent of plume in the relevant upper and lower aquifers. · Design and verify a procedure for rehabilitation of the underground cavity including investigations that help to understand the chemical attenuation around the pilot plant as a result of the pilot plant trials. · Investigate the cause of blockages in the extraction wells to understand how the process has failed · Testing and evaluation of gas production and performance of the pilot plant to understand the success of the gasification process · Investigations and development of processes to decommission the pilot plant ensuring that the environment is returned to its original condition, including building a conceptual model of the natural attenuation of benzene, and modelling/testing the actual results against this model.”
B. Supporting Activity 1.1.1 for application year 2012-13: duration July 2009 to June 2014
166. “To enable the conduct of the core R&D activities, supporting project management and administration activities were conducted. These activities included planning and scoping of activities as well as project documentation and organisation.”
PROJECT 2: WANDOAN
167. The Wandoan Project comprised both core and supporting activities and I will consider each separately. The duration of the project activity extended from 1 February 2007 to 31 December 2014.
Page 69 of 128
Application year: 2011-2012
A. Core Activity 2.1 for application year 2011-12: duration February 2007 to 31 December 2014
168. The core activity was described as:
“The overall technical objective is to use the learnings from Kingaroy to design and develop a second UCG syngas processing plant and to determine the most appropriate economical uses for syngas considering that Wandoan is not close enough to Queensland’s electricity distribution grid to viably and cost effectively produce electricity as a sole product. The specific technical objectives are: · to investigate and assess the site for appropriateness for use of UCG technology. Every geological site is different and therefore the Wandoan coal deposit will need to be assessed for suitability for the UCG process. · to investigate oxygen injection instead of air injection and the effect on the chemical composition of the syngas. · to investigate and assess the most appropriate use for the syngas production from Wandoan’s coal bed. · to utilise the data from drilling and initial resource modelling to select an optimal location for a pilot burn and subsequent drilling of the first injection and production wells. · to investigate whether the gas processing plant which was developed for Kingaroy can be disassembled and transported to Wandoan for use at Wandoan. It is uncertain at this stage whether a new/different processing facility will be required for Wandoan as this will depend on the end use for the syngas produced. · to evaluate all potential end products obtainable using UCG gas, to enable a long term project plan to be developed.”
B. Supporting Activity 2.1.1 for application year 2011-12: duration 1 February 2007 to 31 December 2014
169. “Investigate whether the gas processing plant which was developed for Kingaroy can be disassembled and transported to Wandoan for use at Wandoan, or whether a new and/or different processing facility will be required for Wandoan as this will depend on the end use for the syngas produced. Maintenance and repairs of the core activities described above.”
Application year: 2012-2013
A. Core Activity 2.1 for application year 2012-13: duration July 2009 to June 2014
170. “The core R&D activities look to investigate the overall technical objective to design and develop a UCG generated syngas cleaning and power generation pilot plant. This includes R&D activities of initial stage design and development of the UCG process, to experimentation with the process in the plant pilot to determine the success of the gasification process. Extensive experimental activities will be conducted within a pilot plant. It will be the pilot plant that is used to test the hypotheses proposed and gain the new knowledge.
Page 70 of 128
Similar to the Kingaroy project, the success of the process will hinge on numerous technical factors ranging from the ability to produce gas to whether the process adversely impacts on the environment.”
B. Supporting Activity 1.1.1 for application year 2012-13: duration 1 February 2007 to 31 December 2014
171. “To enable the conduct of the core R&D activities, supporting project management and administration activities were conducted. These activities included planning and scoping of activities as well as project documentation and organisation.”
NEW PROJECT
172. A new project was described as the “Development of a conceptual water model and rehabilitation plan following UCG pilot plant experimentation Project”.
A. Core Activity N1.1 for application year 2013-2014: duration March 2010 to June 2015
173. “Development of conceptual water model and rehabilitation plan following the UCG pilot plan experimentation Project: Hypothesis: The development of a conceptual water model will determine the natural attenuation of benzene and toluene at Kingaroy. Experimental activities: - Development of a conceptual water model will determine the natural attenuation of benzene, and modelling/testing the actual results against this model. - Develop a procedure for rehabilitation of the underground cavity including investigations that help to understand the chemical attenuation around the pilot plant as a result of the pilot plant … [trials]. Results: Results in water bearing layers above the coal seam recorded transitory levels of benzene of up to 2 parts per billion. Levels of benzene and toluene were recorded in four monitoring bores up to 25m from the gasification zone, while a further four bores from 95m to 120m from the gasification zones recorded no benzene or toluene. These results showed that the conceptual water model could be used with reasonable accuracy to determine the attenuation of benzene and toluene.”
B. Supporting Activity N1.1.1 for application year 2013-14: duration March 2010 to June 2015
174. “To enable the conduct of the core R&D activities, supporting project management and administration activities were conducted. These activities included planning and scoping of activities as well as project documentation and organisation.”
Page 71 of 128
C. Supporting Activity N1.1.2 for application year 2013-14: duration June 2014 to December 2015
175. “Failure of the core activity (experimentation with the pilot plant) has brought about an increased requirement to successfully rehabilitate the site of the experimental activities. As such, Moreton is developing a rehabilitation process to achieve the following: · Final landform safe to humans and wildlife. · Site non-polluting. · Final landform stable. · Site able to sustain productive land use. · Adequate vegetation cover and established to minimise erosion. · Established specified self-sustaining natural vegetation or habitat. This supporting activity is directly related to the core R&D activity as it outlines the rehabilitation necessary activities required to meet the overall environmental objectives, including improvements to water quality.”
IRD ACT AND DIVISION 355 OF ITAA97
176. In order to give context to the activities claimed to be core or supporting R&D activities, it is relevant to consider the whole of the project. That project may begin before the registration year or years and may continue afterwards.226
Experimental activities
A. Broad outline of submissions
177. Both parties agreed that the phrase “experimental activity” should be given its ordinary meaning having regard to the language which is used and the context in which it appears. That context includes the general purpose and policy of a provision and the mischief it is seeking to remedy.227 On behalf of Moreton Resources, Ms Baker of counsel submitted that what constitutes an “experimental activity” is determined by the meaning of the word “experiment”. Relying on a decision by Deputy President Frost in Re JLSP and Innovation Australia228 (JLSP), she submitted that the ordinary meaning includes a test or trial, or an act or operation for the purpose of discovering something unknown or testing a principle of supposition. That meaning conforms with the statement made at [2.11] of the Explanatory Memorandum accompanying the Tax Laws Amendment (Research and Development) Bill 2010 (IRD Amendment Bill) about what an experiment entails. It is also consistent with the approach taken in the expression “systematic, investigative or experimental” in the
226 Re Applicant and Industry Research and Development Board [1999] AATA 468; 55 ALD 784; 99 ATC 179; 42 ATR 1116; Deputy President McMahon 227 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 73 ATR 256; [2009] ATC 20-134 at [47]; 46-47; 31; 273; 10,165 per Hayne, Heydon, Crennan and Kiefel JJ 228 [2016] AATA 23 at [32]
Page 72 of 128
definition of the expression “research and development activity” in the now repealed s 73B of the IRD Act before it was amended with effect from 23 July 1996.229 There is nothing in the ordinary meaning of the expression “experimental activity” that constrains the environment in which the experiment must take place or the procedures that must be followed. An activity will be an “experimental activity” provided it is a test or trial undertaken for the purpose of discovering something unknown or testing a principle.
178. The focus of s 355-25(1)(a) is upon the outcome of the experimental activity. That focus is significant because it accommodates an element of futurity in the definition in so far as it applies in a particular income year to the extent that the outcome has not yet been achieved. It also means that the experimental activity under consideration in a particular year of income can only be determined by applying a systematic progression of work satisfying the requirements of both ss 355-25(1)(a)(i) and (ii). That is to say, the experimental activity being considered in respect of a particular year of income for the purposes of making findings under s 27J of the IRD Act need not itself involve a complete systematic progression of work that has proceeded from hypothesis to experiment, observation and evaluation and have led to logical conclusions. The experimental activity undertaken in a particular year may therefore form part of, or be an element in, an overarching experimental activity the outcome of which is still to be determined.
179. The criteria specified in s 355-25(1)(a) apply to the outcome of the experimental activity and not to the activity itself. This is consistent with the explanation given at [2.13] and [2.14] of the Explanatory Memorandum to the IRD Amendment Act. That legislation introduced “clearer language” and replaced concepts such as “innovation” and “high levels of technical risk” that had been used in the definition of the expression “research and development activities” in repealed s 73B(1) of ITAA36.230 That suggests that the question of whether the outcome of an experimental activity can only be determined by applying a systematic progression of work that is based on principles of established science and which proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions is principally a question for expert evidence.
180. Section 355-25(1)(b) requires that the activities are conducted for the purpose of generating new knowledge but that purpose need not be a dominant or prevailing purpose. All that is
229 Paragraph (a) of the definition of “research and development activities” amended by the Taxation Laws Amendment Act (No 3) 1996; s 3; Schedule 4; Item 53 230 Section 73B(1) of ITAA36 defined “Research and development activities” … [as]: “(a) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of: (i) acquiring new knowledge (whether or not that knowledge will have a specific practical application); or (ii) creating new or improved materials, products, devices, processes or services; or (b) other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).”
Page 73 of 128
required is that it be a purpose that is more than insubstantial. Citing JLSP, Ms Baker submitted that the purpose “… must be substantial enough to enable the activity to be accurately characterised as conducted for that purpose.”231
181. On behalf of the Commissioner, Dr Pritchard with Mr Prince of counsel submitted that an activity should not be accepted as an experimental activity merely because it is carried out for the purpose of discovering something unknown. If it were otherwise, measuring the length or weight of an object with a ruler or scales would be experimental activities. The length or weight is unknown until ascertained by reference to a measure calibrated by reference to a known scale. The evidence must establish that a hypothesis was formulated and that activities were carried out to test that hypothesis. In order to satisfy paragraph (a) of the definition of “experimental activities”, it is not enough to attempt to construct or discover a hypothesis after the activities have been carried out.232 It would ordinarily be expected that contemporaneous materials and records would demonstrate the systematic progression of work undertaken.233
182. Dr Pritchard submitted that the purpose of activities must be established by evidence. Again, that will almost always be in the form of contemporaneous documentation.234 Purpose is not to be determined by reference to retrospective reconstruction, inference or attribution after the activity has been carried out.235
B. Reasoning
183. Section 355-25 defines the expression “core R&D activities” as “experimental activities” that have the qualities specified in s 355-25(1) and that exclude the activities specified in s 355-25(2). The provision must be interpreted in light of the principles of statutory interpretation requiring me to consider it at the outset in light of its context. That context includes the state of law that existed at the time and the mischief to be addressed and objects to be achieved.236 The language that has been used is no less important than the context and the language that has been used is the surest guide to legislative intention.237 It is not simply the language of the particular provision that is to be considered but the language of the enactment as a whole. There is an initial presumption that the provisions
231 [2016] AATA 23 at [52] 232 Re DBTL and Innovation Australia [2013] AATA 573; (2013) 137 ALD 88 at [197]; 114; Deputy President Tamberlin QC and C Ermert, Member 233 See [2013] AATA 573; (2013) 137 ALD 88 at [266]; 121 234 [2013] AATA 573; (2013) 137 ALD 88 at [254]; 120 235 [2013] AATA 573; (2013) 137 ALD 88 at [154];109 236 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384; (1997) 141 ALR 618 at 408; 634-635 per Brennan CJ; Dawson, Toohey and Gummow JJ 237 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory2009] HCA 41; (2009) 239 CLR 27; 260 ALR 1; 73 ATR 256; [2009] ATC 20-134 [47]; 46-47; 31; 273; 10,165 per Hayne, Heydon, Crennan and Kiefel JJ
Page 74 of 128
of an enactment are intended to give effect to harmonious goals.238 These principles mean that it is not appropriate to make a “fortress out of a dictionary”239 and, as Gordon J said in Sea Shepherd Australia Limited v Commissioner of Taxation:240
“2. The task is not to pull apart a provision, or composite phrase within a provision, into its constituent words, select one meaning, divorced from the context in which it appears, and then reassemble the provision … Indeed, it is rare that resort to a dictionary will be of assistance in searching for the legal meaning of a provision in a statute … 3. As Gleeson CJ said in XYZ v Commonwealth …: There are many instances where it is misleading to construe a composite phrase simply by combining the dictionary meanings of its component parts. …”241
184. Bearing the warning in mind but as a starting point, I will look for a moment to the meanings given to each of the words making up the expression “experimental activities”. The ordinary meanings of the word “experimental” include:
“… 1 consisting of or like an experiment. 2 relating to, or used in, experiments. 3 trying out new styles and techniques. …”242
“… 1. relating to, derived from, or founded on experiment: an experimental science. … 3. of the nature of an experiment: tentative. 4. Functioning as an experiment or used as a means of experimentation: an experimental aeroplane; an experimental theatre. …”243
“… 3 Based on, derived from, or making use of experiment …”244
185. The ordinary meanings of the word “experiment” include:
“… 1 a trial carried out in order to test a theory, a machine’s performance, etc or to discover something unknown. 2 the carrying out of such trials. 3 an attempt at something original. …”245
“1. a test or trial; a tentative procedure; an act or operation for the purpose of discovering something unknown or testing a principle, supposition, etc.: a chemical experiment. 2. The conducting of such operations; experimentation: a product that is the product of long experiment. …”246
238 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; 153 ALR 490; McHugh, Gummow, Kirby and Hayne JJ; Brennan CJ dissenting 239 Cabell v Markham (1945) 148 F(2d) 737 at 739 per Judge Learned Hand quoted by Kirby J in Residual Assco Group Ltd v Spalvins [2000] HCA 33; (2000) 202 CLR 629; 172 ALR 366 at [27]; 644; 374 240 [2013] FCAFC 68; (2013) 212 FCR 252; 92 ATR 836 Besanko, Gordon and Dodds-Streeton JJ 241 [2013] FCAFC 68; (2013) 212 FCR 252; 92 ATR 836 at [34]; 261; 845-846 242 Chambers 21st Century Dictionary, 1999, reprinted 2004 (Chambers) 243 Macquarie Dictionary; 5th edition, 2009, Macquarie Dictionary Publishers Pty Ltd, Sydney, Australia (Macquarie) 244 Shorter Oxford English Dictionary, 5th Edition, 2002, Oxford University Press (Oxford) 245 Chambers 246 Macquarie
Page 75 of 128
“… 2 An action or procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact. …”247
Among others, the word “activity” may mean “the state of being active or busy” or “something that people do …”,248 “… the state of action; doing. … a specific deed or action …”249 or “… an occupation or pursuit …”.250
186. Putting aside the definition of “experiment” in the Oxford, and given these ordinary meanings, the expression “experimental activities” would include actions, deeds or pursuits that seek to discover something previously unknown or that are carried out to test a theory or supposition. There is nothing inherent in the meaning of the word that requires an activity to be carried out in a certain way.
187. The Oxford defines the word “experiment” in terms that include demonstration of a known fact. That is a meaning incorporated by Deputy President McMahon in Re Applicant and Industry Research and Development Board when he adopted the meaning of “experiment” to be “… an action or procedure undertaken to make a discovery, test a hypothesis or demonstrate a known fact”251 (emphasis added).252 Deputy President McMahon adopted that meaning in the context of the definition of “research and development activities” in s 73B(1) of ITAA36. That definition, which is set out at FN 233 above, gives the expression the meaning of “systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for …” for one or other of the purposes set out in s 73B(1)(a). The purposes of the “systematic, investigative and experimental activities” were “acquiring new knowledge” but also “creating new or improved materials, products, devices, processes or services”. The context is quite different from that in which “experimental activities” is found in the definition of “core R&D activities” in s 355-25(1).
188. The way in which “core R&D activities” are defined in s 355-25(1) is quite different from the style adopted in s 73B(1) for “research and development activities”. Rather than being associated with “systematic, investigative” activities, “core R&D activities” are “experimental activities” having the qualities specified in s 355-25(1)(a) and for the purpose specified in s 355-25(1)(b). The purpose set out in s 355-25(1)(b) confines experimental activities to those that are conducted for the purpose of generating new knowledge. That excludes
247 Oxford 248 Chambers 249 Macquarie 250 Oxford 251 [1999] AATA 468; 55 ALD 784; 42 ATR 1116 at [24] and [26(a)]; 791; 1122 252 An appeal against the Tribunal’s decision was dismissed by Lindgren J in Industry Research and Development Board v Coal & Allied Operations Pty Ltd [2000] FCA 979; (2000) 101 FCR 405; 44 ATR 541 but this point was not addressed.
Page 76 of 128
those experimental activities that are conducted for the purpose of demonstrating a known fact.
189. This interpretation is consistent with the Explanatory Memorandum to the IRD Amendment Bill explained that, when compared with the definition of “research and development activities” in s 73B(1) of ITAA36:
“ The definition of ‘core R&D activities’ in this Bill uses clearer language … In essence, this new definition recognises that the taxpayer needs new information (to solve a problem, develop a new product or improve a process) and needs to do an experiment to discover that knowledge.”253
190. As I mentioned earlier, there is nothing inherent in the ordinary meaning of the expression “experimental activities” or in s 355-25(1) that constrains the environment in which those activities may be undertaken. Provided they accord with s 355-25(1), there is nothing that constrains the procedures that must be followed in carrying out those experimental activities.
191. Expert evidence has no part to play in the interpretation of the expression “experimental activities” in s 355-25. Sundberg J made that point in Lansell House Pty Ltd v Commissioner of Taxation.254 It was made in a different context but his observations are equally applicable to this. His Honour considered whether Mini Ciabatte came within the description of “… food that is, or consists principally of biscuits, cookies, crackers, pretzels, cones or wafers” in Item 32 of Schedule 1 to the A New Tax System (Goods and Services Tax) Act 1999. Sundberg J said:
“… [T]he question for decision is the proper classification of everyday food items for the purpose of the Goods and Services Tax. The everyday English words in item 32 must be given their ordinary and natural meaning – what is the reasonable view on the basis of all the facts known to the court as to whether or not the product is one which falls within the relevant category, which here is crackers. Thus, it seems to me, it is inappropriate for the court to apply refined analytical tools – in this case rather elusive and qualified technical distinctions – to an ordinary English word, rather than local knowledge and common sense. As Toulson LJ said in Procter & Gamble, this is not a scientific question. It is not in my view the function of an expert to give evidence about the meaning of ordinary words such as bread, biscuit and cracker. In Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126 at 137 Jordan CJ said: ‘The question what is the meaning of an ordinary English word or phrase as used in the statute … is to be resolved by the relevant tribunal itself, by considering the word in its context with the assistance of dictionaries and other books, and not by expert evidence … although evidence is receivable as to meaning of technical terms …’
253 Explanatory Memorandum to the IRD Amendment Bill at [1.15] 254 [2010] FCA 329; [2010] ATC 20-173; (2010) 76 ATR 19
Page 77 of 128
See also Pepsi Seven-Up (at FCR 296; ATR 451; ATC 4751; ALR 638).”255
192. His Honour did not ignore the expert evidence given in that case in so far as it related to the ingredients and manufacturing processes of the various types of food. He used those as an aid to the classification of the Mini Ciabatte. On the other hand, he did not need an expert to educate him about the appearance or weight of biscuits, crackers or bread, how they are used or how they are consumed. That was something that Sundberg J knew from his own experience.
193. This view accords with Ms Baker’s submission that the question whether the outcome of an experimental activity cannot be known or determined in advance on the basis of current knowledge, as required by s 355-25(1)(a), is a factual question. Expert evidence is relevant in determining the current state of knowledge, information or experience to ascertain whether the outcome can be known or determined in advance by applying a systematic progression of work of the sort described in s 355-25(1)(a)(i) and (ii).
194. Ms Baker also submitted that each of the elements in s 355-25(1)(a) is focused on the outcome of the experimental activity and not on the activity itself. The first of those outcomes is found in the requirement that the experimental activity is one “whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience”. The second is that the outcome can only be determined by applying a systematic progression of work that is based on principles of established science and which proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions. This is supported, Ms Baker submitted, by reference to [2.13] and [2.14] of the Explanatory Memorandum to the IRD Amendment Bill, which read:
“2.13 The requirement for the scientific method establishes a threshold for the knowledge gap and the degree of uncertainty that an eligible experiment must seek to address. The threshold will not be met if the knowledge of whether something is scientifically or technologically possible, or how to achieve it in practice, is deducible by a competent professional in the field on the basis of current knowledge, information or experience. 2.14 Further, the nature of the eligible experiment is such that there will be a clear risk that the outcome of the experiment will not be the desired one. The potential for this risk to deter firms from undertaking knowledge-generating R&D underpins the rationale for the R&D tax incentive.”
195. I accept that the focus of s 355-25(1)(a) is on the outcome of the experimental activities in so far that outcome cannot be known or determined on current knowledge, information and experience but only by applying a systematic progression of work as described. I accept that the focus is upon the purpose of the experimental activities but I do not accept that the
255 [2010] FCA 329; [2010] ATC 20-173; (2010) 76 ATR 19 at [60]-[61]; 10,844; 33
Page 78 of 128
focus is otherwise upon the outcome of the experimental activities themselves and nor do I understand [2.13] and [2.14] of the Explanatory Memorandum to be taking that view. Paragraph [2.13] addresses the outcome but only in terms of explaining that the requirement for the scientific method establishes the baseline, as it were, marking the start of that which is unknown and that the experimental activities must address. The baseline, or threshold as it is called in [2.13] is determined by reference to that which is deducible on the basis of current knowledge, experience and information. Paragraph [2.14] returns to the nature of the experimental activities. By its very nature, there will be a clear risk that the outcome will not be the desired one. Provided their outcome cannot be determined or known in advance, the experimental activities themselves are not overshadowed by their outcome and they, and the way they are conducted and purpose, remain the central focus of s 355-25(1).
196. It follows that I do not accept the proposition that activities will be experimental activities provided they are a test or trial undertaken for the purpose of discovering something unknown or for testing a principle. The proposition would place more emphasis upon the outcome and the purpose of conducting them at the expense of any consideration of the nature of the experimental activities themselves. “Core R&D activities are experimental activities” that are of the sort described in s 355-25(1)(a) and conducted for the purpose described in s 355-25(1)(b). They are not “activities” that are of that sort and conducted for that purpose. The proposition would have me overlook the adjective “experimental” that precedes the word “activities” in the opening words of s 355-25(1). I am aware that the rules of statutory interpretation permit me to read legislation as if certain words were omitted or even added but it is a somewhat controversial area of the law.256 The judgment of the majority of the High Court in Taylor v Owners-Strata Plan No 11564257 is a recent distillation of the principles that apply. In essence, and omitting citations:
“ The question whether the court is justified in reading a statutory provision as if it contained additional words or omitted words involves a judgment of matters of degree. That judgment is readily answered in favour of addition or omission in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision … It is answered against a construction that fills ‘gaps disclosed in legislation’ … or makes an insertion which is ‘too big, or too much at variance with the language in fact used by the legislature’ … … [T]he task remains the construction of the words of the legislature has enacted. In this respect it may not be sufficient that ‘the modified construction is reasonably open having regard to the statutory scheme’ … because any modified meaning must be consistent with the language in fact used by the legislature. … Sometimes,
256 Statutory Interpretation in Australia; 8th edition, DC Pearce and RS Geddes, LexisNexis Butterworths, Sydney 2014 at [2.34]-[2.36] 257 [2014] HCA 9; (2014) 253 CLR 531; 306 ALR 547 at [37]-[39]; 548-549; 557-558; French CJ, Crennan and Bell JJ; Gageler and Keane JJ dissenting
Page 79 of 128
as McHugh J observed in Newcastle City Council v GIO General Ltd,[258] the language of a provision will not admit of a remedial construction. Relevant for present purposes was his Honour’s further observation, ‘[i]f the legislature uses language which covers only one state of affairs, a court cannot legitimately construe the words of the section in a tortured and unrealistic manner to cover another set of circumstances’ …”[259]
197. Having regard to the statutory scheme established by the IRD Act and Division 355 of Part 3-45 of ITAA97, there is no reason to omit the adjective “experimental” when it qualifies the noun “activities” in s 355-25(1). That qualification requires an examination of the activities themselves to determine whether they are properly characterised as experimental activities. The pool of activities determined to be experimental activities is then narrowed by reference to the specific characteristics prescribed in by s 355-25(1) and by the activities specifically excluded by s 355-25(2). This interpretation is consistent with the general tenor of the words used in s 355-25 and with the statement in the Explanatory Memorandum to the IRD Amendment Bill that, when compared with the definition of “research and development activities” in s 73B(1) of ITAA36:
“ The definition of ‘core R&D activities’ in this Bill uses clearer language … In essence, this new definition recognises that the taxpayer needs new information (to solve a problem, develop a new product or improve a process) and needs to do an experiment to discover that knowledge.”260 (emphasis added)
198. It is an interpretation that would not characterise the action of measuring the length of a piece of string with a ruler, the temperature with a thermometer or the weight of an object with a scale as an experimental activity. True it is that the length of the piece of string may not be known to the person holding it but the person knows that it has a length and knows that the length can be readily ascertained by using a standard measuring device such as a ruler or a tape measure. Measuring the piece of string reveals what is already known to another person who has a good eye for such things or who has already used a tried and tested means of measuring it. It is a process of revelation of what is otherwise known or can become known to the person holding it. Even if measurement were an experimental activity, it would not be an experimental activity whose outcome could not be known or determined in advance on the basis of current knowledge, information or experience and so would not come within the terms of s 355-25(1)(a).
199. Turning to s 355-25(1)(b), it requires that the experimental activities be “conducted for the purpose of generating new knowledge …”. Am I to read the word “purpose” as a purpose that is more than insubstantial but a purpose that is not necessarily a dominant or prevailing
258 [1997] HCA 53; (1997) 191 CLR 85 at 113 259 [1997] HCA 53; (1997) 191 CLR 85 at 113 260 Explanatory Memorandum to the IRD Amendment Bill at [1.15]
Page 80 of 128
purpose? The submission that I should is based on the reasons for decision of Deputy President Frost in JLSP where he said in the context of the definition of s 73B(1):
“… Clearly, it is not enough that the entity merely holds the purpose as one of many; the provision would probably have to refer to ‘a’ purpose rather than ‘the’ purpose for that to be the case. But the purpose of generating new knowledge does not have to be the purpose that outweighs all the others. Instead, I consider that the purpose of generating new knowledge must be more than an insubstantial purpose; it must be substantial enough to enable the activity to be accurately characterised as conducted for that purpose. That will sometimes involve questions of degree which may be difficult to resolve. Nevertheless, it needs to be recognised that the purpose of generating new knowledge may be a substantial purpose even if at the same time other substantial purposes also exist. And the fact that an alternative purpose for the activity may be identified as a substantial purpose does not necessarily lead to a conclusion that the purpose of generating new knowledge may not also be identified in that way.”261
200. I agree with the statement in JLSP that determination of whether experimental activities were carried out for the purpose of generating new knowledge must be a matter to be decided on the evidence. Whether I agree with the further statement in JLSP that it is enough for a purpose to be a substantial purpose or even of one of several substantial purposes is not so clear cut in my mind.
201. Some of my concern arises from the ordinary meanings of the words that have been used by Parliament. The word “purpose” means “… the object or aim in doing something .… the function for which something is intended. … the intentions, aspirations, aim or goal …”.262 It is preceded in s 355-25(1)(b) by the definite article “the”, which is “… used to refer to a particular … thing, or group of … things …”.263 Parliament has not chosen the indefinite article “a” to refer to “purpose”. Taking those ordinary meanings, s 355-25(1)(b) could be read as requiring that the experimental activities are conducted for the object or aim, and so purpose, of generating new knowledge. Whether experimental activities have been conducted for that purpose would be a matter of evidence. That evidence may reveal that there are other outcomes, either intended or unintended, to the experimental activities but those outcomes do not of themselves mean that the purpose for conducting the experimental activities was otherwise than for the purpose of generating new knowledge.
202. This interpretation is consistent with [2.17] of the Explanatory Memorandum to the IRD Amendment Bill:
“ The requirement can be met by the purpose of acquiring or generating knowledge in the practical form of new or improved materials, products, devices, processes or services. Where experimental activities occur in the context of normal
261 [2016] AATA 23 at [52] 262 Chambers 263 Chambers
Page 81 of 128
production activities, the experiments may entail the direct production or use of an actual material, product, device, process or service.”
203. To read s 355-25(1)(b) in the way adopted in JLSP would be to read into that provision words that Parliament has not used. It has not referred to “a substantial” purpose, for example, or to a purpose that is more than an insubstantial purpose. If it had, I would have agreed with the proposition that an experimental activity may have more than one substantial purpose, only one of which is for the generation of new knowledge, or may have a purpose that is more than an insubstantial purpose among other purposes. For the same reason, I do agree with the proposition in JLSP that there is no requirement that the purpose be “dominant”. That is not a word that is used in s 355-25(1)(b). Clearly, it is not intended to be read into s 355-25(1)(b) when Parliament has made a conscious choice to use the word “dominant” in the definition of “supporting R&D activities” in s 355-30(2) to refine those activities that are directly related to core R&D activities but are activities otherwise described in s 355-25(2). As I have said, whether experimental activities are conducted for “the purpose” of generating new knowledge is a matter to be decided on the evidence in a particular case and not according to a characterisation of the purpose as substantial, more than insubstantial and so on.
204. The evidence must point to the experimental activities having the relevant purpose at the time that the activities were undertaken. There is nothing to suggest that the experimental activities that are carried out as required by s 355-25(1)(a) and their purpose may be divorced in time. In fact, the construction of s 355-25(2) suggests to the contrary. Paragraphs of s 355-25(1)(a) and (b) are cumulative with both referring back to the same experimental activities. Therefore, the experimental activities whose outcome cannot be known but can only be determined by applying a systematic progression of work satisfying the relevant criteria must also be the same experimental activities having the relevant purpose. As Senior Member Fice and I said in Re RACV Sales & Marketing Pty Ltd and Innovation Australia264 when considering the meaning of “purpose” in s 73B(1) of ITAA36, a “purpose” is:
“… ‘… the object or aim in doing something … the function for which something is intended …’ … It is not a rationale developed at a later time to explain why, in this case, activities were carried on at an earlier time. It must be the object or aim in undertaking or continuing to undertake the activities and so the object or aim for which those activities were ‘carried on’. …”265
205. The cumulative nature of the criteria in s 355-25(1) also mean that the fact that the fact that activities may generate new knowledge is not enough unless they meet all of the other
264 [2012] AATA 386; (2012) 129 ALD 32; 57 AAR 268; [2012] ATC ¶10-254 265 [2012] AATA 386; (2012) 129 ALD 32; 57 AAR 268; [2012] ATC ¶10-254 at [227]; 111; 343-344; 4,906
Page 82 of 128
criteria. That is consistent with the conclusion reached by the Tribunal in DBTL when it said:
“ The consequence that some new knowledge about the efficiency and utility of mining methods may have incidentally resulted as an outcome of an activity does not mean that this was a purpose of the activity, or that it involved research and development, or that it was pursuant to or resulted from an experiment, or tested any hypothesis.”266
Activities associated with complying with statutory requirements or standards
A. Broad outline of submissions
206. With regard to the exclusion set out in s 355-25(2)(f), Ms Baker submitted that all of the activities specified in that provision are directed at maintaining, calibrating or realising particular standards. The activities referred to in the provision are the maintenance of national standards, calibrating secondary standards and routine testing and analysis of materials, components, products, processes, soils and other things. The items listed in s 355-25(1)(f) are illustrative only of its scope, Ms Baker submitted.
207. The terms of licences, with which a mining company must comply, would not be “statutory requirements or standards”. To regard them in that way would be inconsistent with the object of the R&D tax incentive set out in s 355-5 for it would automatically exclude any activity on the basis that matters conducted within the terms of the licence would be excluded from being experimental activities. That result could only be avoided if authorisations such as licences and conditions were not regarded as “statutory requirements or standards”. Only activities that are undertaken as a consequence of a positive obligation to do something, and not a mere authorisation to do something, should be excluded from the scope of the expression “experimental activities”. The only other way in which unreasonable outcomes could be avoided would be by the adoption of a narrow interpretation of the words “associated with”.267
208. As for s 355-25(1)(f), Dr Pritchard submitted that it was wrong to read the provision as if the word “positive” preceded the words “statutory standards or requirements”. This conclusion is reinforced by the requirement that the activities excluded be those that are “associated with” complying with statutory standards or requirements. Dr Pritchard relied on a passage from DBLT.268 She submitted that a statutory requirement or standard would indicate a requirement or standard imposed directly by a statute and also a requirement or standard imposed in a delegated legislative instrument, breach of which has a criminal or penal
266 [2013] AATA 573; (2013) 137 ALD 88 at [184]; 112 267 Kia Australia Pty Limited v Chief Executive Officer of Customs (1998) 86 FCR 473 at 481 per Finkelstein J and see also DBTL [2013] AATA 573; (2013) 137 ALD 88 at [200]; 114 268 [2013] AATA 573; (2013) 137 ALD 88 at [200]; 114
Page 83 of 128
consequence under statute. Under s 430 of the EP Act, the breach of a condition of an EA is an offence as is the contravention of an EPO under s 361.
B. Reasoning
B.1 The scope of s 355-25(2)(f)
209. The exclusion in s 355-25(2)(f) requires consideration of what is meant by activities that are “associated with” complying with statutory requirements or standards. It also requires consideration of what it meant by “statutory requirements or standards”. I will begin with the meaning of “associated with”.
210. When used as a transitive verb as it is in s 355-25(2)(f), the ordinary meaning of the word “associate” means “… Join, combine, (things together; one thing with, to another or others). …”,269 “… to unite, combine: coal associated with shale. …270 or “… to connect in the mind. …”.271 Relying on the Oxford, the plurality in Deal v Father Pius Kodakkathanath272 summarised the meaning of the phrase “associated with”:
“ In its natural and ordinary sense, the phrase ‘associated with’ may mean either combined in terms of circumstances or combined in terms of classification …”273
211. In the context of s 355-25(2)(f), the association is in terms of classification i.e. the activities are associated with “complying with statutory requirements or standards”. Identification of those activities is a matter of evidence but there is nothing in the meaning of the expression “associated with” or in the context in which it appears that would limit the statutory requirements or standards with which they are associated to any particular sub-class of statutory requirements or standards. As the Tribunal said in DBTL in considering the exclusion provision in s 73B(2C) of ITAA36,274 which is written in terms similar to those used in s 355-25(2)(f):
“ We consider the use of the word ‘associated’ indicates that the provision is intended to have a broad operation and the term can be contrasted with a requirement, for example, that excludes activities ‘carried out in order to comply with statutory requirements’. …”.275
269 Oxford 270 Macquarie 271 Chambers 272 [2016] HCA 31; (2016) 258 CLR 281; 334 ALR 37; French CJ, Kiefel, Bell, Gageler and Nettle JJ 273 [2016] HCA 31; (2016) 258 CLR 281; 334 ALR 37 at [39]; 296; 47-48 per French CJ, Kiefel, Bell and Nettle JJ 274 Section 73B(2C) of ITAA36 provides that: “For the purposes of this section, the following activities are taken not to be systematic, investigative and experimental activities: … (l) activities associated with complying with statutory requirements or standards, such as the maintenance of national standards, the calibration of secondary standards and routine testing and analysis of materials, products, processes, soils, atmospheres and other things; …”. 275 [2013] AATA 573; (2013) 137 ALD 88 at [200]; 114
Page 84 of 128
This is consistent with its earlier statement that:
“ Section 73B(2C) refers to activity ‘associated with’ complying with statutory requirements. This is broad language. The language is not limited to activities which, for example, are ‘necessary’ or ‘essential’ in order to comply, but it extends to cover activities ‘incidental to’ or ‘for the purposes of compliance’.”276
212. The second issue raised by s 355-25(2)(f) concerns the meaning of “statutory requirements or standards”. Are licences and conditions of the sort in A8-1 of the 2011 Amended EA “statutory requirements or standards” so that experimental activities associated with them are excluded by s 355-25(2)(f)? The ordinary meanings of the word “requirement” when coupled with an adjective such as “statutory” include:
“… 2 something that is asked for, essential, ordered, etc. 3 a necessary condition. …”277
“… 1. that which is required; a thing demanded or obligatory …2. the act or instance of requiring. …”278 “… 3 Something called for or demanded; a condition which must be complied with. …”279
213. The ordinary meanings of the word “standard” include:
“… 1 an established or accepted model …”280
“… 1. anything taken by general consent as a basis of comparison; an approved model. …”281 “… 8a A thing serving as a recognized example or principle to which others conform or should conform …”282
214. The ordinary meanings of the word “statutory” include:
“… 1 required or prescribed by law or a rule. …”283
“… 1. of relating to, or of the nature of a statute. 2. prescribed or authorised by statute. 3. Conforming to statute. …”284
“… 2 Pertaining to or consisting in statutes; enacted, appointed, or created by statute; required or permitted by statute. …”285
276 [2013] AATA 573; (2013) 137 ALD 88 at [142]; 107 277 Chambers 278 Macquarie 279 Oxford 280 Chambers 281 Macquarie 282 Oxford 283 Chambers 284 Macquarie 285 Oxford
Page 85 of 128
215. Having regard to their ordinary meanings, statutory requirements or standards are those criteria, whether they are expressed as requirements or in terms of standards, that must be met or are obligatory by virtue of statute. The word “statute” may be a reference to, in its narrowest form, an Act of Parliament or, more broadly, a rule or law. If the broader form is the correct interpretation, it would extend to delegated legislation such as regulations or by- laws and so on. In its context in s 355-25(2)(f) and in s 355-25 and the IRD Act generally, I have come to the conclusion that the narrower sense is to be preferred for the reasons I will now set out.
216. The first is the choice of the word “statutory” itself. Both the Macquarie and the Oxford favour a meaning that denotes a statute rather than the broader interpretation of a law. The word “statutory” is the adjectival form of the word “statute” whose ordinary meanings are: “an enactment made by a legislature and expressed in a form of a document. …”.286 In the case of the Commonwealth, the legislature is Parliament. Delegated legislation such as a regulation is made under the authority of an enactment made by Parliament but it is made by the executive government. The fact that it must be tabled in Parliament and may be disallowed by Parliament does not equate with its having been made by Parliament. That understanding is consistent with the meaning appearing in Stroud’s Judicial Dictionary of Words and Phrases which states that the word “statute” “is, in its primary meaning, synonymous with an Act of Parliament.”287
217. My second reason for preferring the narrower view, is the use of the word “statutory” itself. Parliament has not chosen to describe the requirements or standards as “regulatory”, for example, “imposed by law” or “legal”. It has chosen the word “statutory” in s 355-25(2)(c) when, in s 355-25(2)(e), it has excluded from the scope of core R&D activities “commercial, legal and administrative aspects of patenting, licensing or other activities” (emphasis added). Section 335-35(1)(a), it has used the expression “Australian law” to provide that “a body corporate incorporated under an *Australian law” is an R&D entity (emphasis added). An “Australian law” means a “Commonwealth law, a State law or a Territory law”288 (emphasis added) without reference to whether that law is statutory or otherwise.
218. Whether a requirement or standard is statutory depends on an analysis of the requirement or standard and on statute. I will come back to the EPO and to the 2009 Further Amended EA and the 2011 Amended EA later but will look to the other requirements of s 355-25(2)(f).
286 Macquarie and see also Chambers and the Oxford 287 Stroud’s Judicial Dictionary of Words and Phrases, Seventh Edition, 2006, Sweet & Maxwell, London and see also the ordinary meanings of the word “statute” in Chambers, Macquarie and the Oxford. 288 ITAA97; s 995-1(1)
Page 86 of 128
219. Statutory requirements or standards may be framed in terms of obligations to undertake certain action, achieve positive standards and so on or in terms of desisting from taking certain action or ensuring that certain things do not occur. It is said that the wording of s 355-25(2)(f) limits the classification of the activities that are associated with “complying with statutory requirements or standards” to those that are positive rather than to those that are negative. That argument depends on the proposition that s 355-25(2)(f) is framed in inclusionary terms and the three examples set out in ss 355-25(2)(f) are all obligations to do something. If they all impose positive obligations, application of the principle of statutory interpretation known as “noscitur a sociis” – more colloquially known as “words of a feather flock together” – means that the opening words to s 355-25(2)(c) – “activities associated with complying with statutory requirements or standards” – should be confined to requirements and standards imposing positive obligations.
220. I accept the argument that the three examples impose positive obligations. I accept that calibration of secondary standards and routine testing and analysis of materials and so on require activities to be carried out to achieve compliance. They do not require a person to desist from carrying out an activity. I accept that maintaining national standards imposes a positive obligation on a person to comply with those standards but s 355-25(2)(f) is focused on the activities associated with compliance. National standards imposed by statute may be framed in terms of both doing and desisting from doing as well as in terms of ensuring that a particular outcome occurs or is achieved or does not occur at all. The obligation to comply with those national standards remains a positive obligation. The activities associated with compliance may be positive in the sense of needing to take some course of action or other or to achieve an outcome required by the standards. They may also be positive in the sense of requiring a particular outcome but without specifying any course of action by which that outcome is achieved. As I have said, the outcome that is required may be expressed in the negative just as a course of action may be expressed in the negative. That is to say, a requirement or standard may be expressed in terms of desisting from taking some course of action or other or ensuring that an outcome does not occur.
221. I have tested my conclusion against the background of s 355-25 as a whole. Given that core R&D activities are, subject to qualifications, experimental activities whose outcome cannot be known or determined in advance and can only be determined by a systematic progression of work carried out in a certain way, it is difficult to see how compliance with statutory requirements or standards would necessarily involve experimental activities. Statutory requirements and standards are pre-determined by Parliament. Generally, although not necessarily always, it would be expected that it would have done so on the
Page 87 of 128
basis that compliance with them, whether positive or negative obligations, was known to be achievable.
222. The exclusions in s 355-25(2) are addressed in the Explanatory Memorandum to the R&D Amendment Bill. Activities required to be undertaken to comply with statutory requirements are mentioned among those that remain in the exclusion list after the range of activities previously excluded had been:
“… significantly rationalised on the basis that the clearer, more robust definition of core R&D operates to appropriately target the scope of the incentive.”289
The clear emphasis of that more robust definition is upon experimental activities, whose outcome cannot be known and conducted for the purpose of gaining new knowledge. It does not encompass activities conducted for the purpose of achieving what could reasonably be expected to be known outcomes given that the activities would be conducted to meet current statutory requirements or standards.
223. That said, a condition such as Condition (A1-1) as it appears in the 2008 Amended EA,290 is framed in terms of a positive obligation to achieve both an outcome and the process by which that outcome is to be achieved. Both the outcome and the process are described broadly but that does not make Condition (A1-1) any less a statutory requirement or standard within the meaning of s 355-25(2)(f). What will amount to all reasonable and practicable measures to prevent and/or to minimise the likelihood of environmental harm being caused will be a matter of evidence in every situation but that is no less an obligation imposed by the first sentence of Condition (A8-1) than an obligation that is framed in with great specificity. The same is true of the obligation imposed by the second sentence of Condition (A8-1).
224. Even if activities associated with complying with statutory requirements and standards are excluded by s 355-25(2)(f), they may still be supporting R&D activities if they are undertaken for the dominant purpose of supporting those core R&D activities.291
289 Explanatory Memorandum to the IRD Bill at [2.29] and see also [2.30] 290 In carrying out the activities to which this approval relates, you must take all reasonable and practicable measures to prevent and/or to minimise the likelihood of environmental harm being caused. Any activity that, if carried out incompetently or negligently may cause environmental harm, in a manner that could have been prevented, shall be carried out in a proper manner in accordance with the conditions of this approval” 291 ITAA97; s 355-30(2)(a)
Page 88 of 128
B.2 Do the EPO and the conditions of the 2011 Amended EA set out a statutory requirement or standard?
225. Under Chapter 7 of the EP Act as it was enacted before the amendments made by the Environmental Protection (Greentape Reduction) and Other Legislation Amendment Act 2012, the administering authority may issue an EPO to a person:
“(a) if the person does not comply with a requirement to conduct or commission an environmental evaluation and submit it to the authority; or (b) if the person does not comply with a requirement to prepare a transitional environmental program and submit it to the authority; (c) if, because of an environmental evaluation, the authority is satisfied unlawful environmental harm is being, or is likely to be, caused by an activity carried out, or proposed to be carried out, by the person; or (d) to secure compliance by the person with – (i) the general environmental duty; or (ii) an environmental protection policy; or (iii) a condition of an environmental authority; or (iv) a developmental condition of a development approval; or (iva) a standard environmental condition of a code of environmental compliance for a chapter 4 activity; or (v) a condition of a site management plan; or (vi) an audit notice; or (vii) a surrender notice; or (viiii) a rehabilitation direction; or (ix) a regulation.”292
226. Before issuing an EPO, the administering authority must consider the standard criteria. The expression “standard criteria” is defined in Schedule 4293 to include a range of considerations including principles of ecologically sustainable development set out in the National Strategy for Ecologically Sustainable Development, any applicable environmental protection policy, the character, resilience and values of the receiving environment, submissions made by the applicant and submitters, any public interest, the best practice environmental management for activities under , in this case, an environmental authority or environmental protection order and their financial implications and any applicable site management plan.
292 EP Act; s 358 293 EP Act; s 7
Page 89 of 128
227. An EPO “may impose a reasonable requirement to prevent or minimise environmental harm”.294 Without limiting the terms of what amounts to a “reasonable requirement” of that sort, s 360(2) provides that an EPO may:
“(a) require the recipient not to start, or stop, a stated activity indefinitely, for a stated period or until further notice from the administering authority; or (b) require the recipient to carry out a stated activity only during stated times or subject to stated conditions; or (c) require the recipient to take stated action within a stated period.”
Section 361 provides that the recipient of an EPO must not contravene it. If wilful contravention is established, the penalty is 2,000 penalty units or two years’ imprisonment but, if not wilful, the penalty is 1665 penalty units.295
228. By issuing an EPO, the administering authority “requires” the recipient of that order to do, or desist from doing, certain activities, to undertake them at certain times or subject to certain conditions or to undertake action within a stated time. The administering authority’s requirement is made under the EP Act in the form of the EPO. By virtue of the offences created by ss 361(1) and (2), there is a statutory requirement that the recipient of an EPO must comply with it. Therefore, activities associated with complying with an EPO are activities associated with complying with a statutory requirement within the meaning of s 355-25(2)(f).
229. The EAs made in this case were both made under Chapter 5 of the EP Act. The purpose of that Chapter is to provide for environmental authorities for mining activities.296 There is no question that Moreton Resources was carrying on mining activities as defined in s 147 but I note that s 147(1) defines a “mining activity”. It means an activity mentioned in s 147(2) that, under the Mineral Resources Act … is authorised to take place on land to which a mining tenement relates or land authorised under that Act for access to that land.297
230. The EA for mining activities is an environmental authority (mining activities)298 but an EA may be issued for particular types of mining activities.299 Those types include environmental authority (mining activities).300 An EA may be code compliant or non-code compliant. Whether or not the EA was code compliant within the meaning of s 148(3) is of no consequence for the 2011 Amended EA was non-code compliant within the meaning of s 148(4) of the EP Act.
294 EP Act; s 360(1)(c) 295 EP Act; ss 361(1) and (2) 296 EP Act; s 146(1) 297 EP Act; s 147(1) 298 EP Act; s 146(2) 299 EP Act; s 148 300 EP Act; s 148(1)(c)
Page 90 of 128
231. Part 2 of Chapter 5 sets out the general provisions regulating applications for an environmental authority (mining activities). An application for a non-code compliant EA must be supported by enough information to allow the administering authority to decide the application.301 A person may apply for an environmental authority (mining activities) for all mining activities that form a mining project. A “mining project” means all mining activities carried out, or proposed to be carried out, under one or more mining tenements, in any combination as a single integrated operation.302 The administering authority may issue one environmental authority (mining activities) for all of the activities in the project (project authority) or it may issue two or more for the activities. A project authority must specify each type of environmental authority (mining activities) that forms the project authority and identify the conditions applying to each type.303 The holder of an environmental authority (mining activities) cannot apply for a separate authority for an additional mining activity proposed to be carried out as part of the mining project but may apply to amend or replace the authority.304
232. Part 5 of the EP Act is concerned with processing an application for an environmental authority (exploration) those that is non-code compliant. The applicant must submit to the administering authority an environmental management plan (EM plan) for all relevant mining activities.305 The purpose of that EM plan is to propose environmental protection commitments to help the administering authority decide the conditions of the EA.306 If the administering authority decides to grant the application for an environmental authority (mining activities), it may impose conditions it considers necessary or desirable after complying with any relevant regulatory requirement and considering the material described in s 193(3)(b).307 The EA that is granted must contain all conditions that have been imposed.308
233. Chapter 8 of the EP Act is concerned with “general environmental offences”. At the general level, a person must not carry out a mining activity unless holding, or acting under, an environmental authority (mining activities) for the activity.309 Part 2 of Chapter 8 is concerned with offences relating to environmental requirements. Section 430 applies to a person who is the holder of, or acting under, an environmental authority. That person must
301 EP Act; s 154(2) 302 EP Act; s 149 303 EP Act; s 155 304 EP Act; s 156 305 EP Act; s 187 306 EP Act; s 188 307 EP Act; s 193(2) 308 EP Act; s 194(2)(b) 309 EP Act; s 426
Page 91 of 128
neither wilfully, nor otherwise, contravene a condition of the EA. The offences and the penalties are set out in ss 430(2) and (3) respectively.
234. Regardless of the type that is granted, an environmental authority (mining activities) gives its holder authority or permission to undertake the mining activities specified. It does not oblige its holder to carry out those mining activities but, if its holder decides to carry out them out, that holder must comply with any conditions that are imposed on the EA. That obligation arises from the fact that the EA is granted under s 193 subject to conditions. The authority or permission it gives its holder is necessarily confined by those conditions by their very nature and also by virtue of the fact that their contravention is criminal offence whether or not the contravention was wilful. That is to say, there is a statutory requirement that the holder of an EA comply with the conditions of that EA if carrying out mining activities under it. Therefore, activities associated with complying with the conditions of an EA are activities associated with complying with a statutory requirement within the meaning of s 355-25(2)(f) of ITAA97.
All or part of a registered activity
A. Broad outline of submissions
235. Moreton Resources conceded that certain elements of the activities that were registered in the relevant years were erroneously included in the registrations because they had been completed in an earlier year. Ms Baker submitted that this was not fatal to its case. The test under s 27J of the IRD Act is whether “all or part of a registered activity” was either “a core R&D activity conducted during the registration year” or not. If that is not the case, the test becomes whether or not “all or part of a registered activity” was “a supporting R&D activity conducted during the registration year” and in relation to of the activities specified in s 27J(1)(c)(i) to (iv). There is no statutory requirement, Ms Baker continued, for there to be perfect identity between the activities as registered and the activities that were carried on in the relevant income year. As reference is made in s 27J(1) to “all or part” of a registered activity, the Tribunal is entitled to assess parts of the registered activities in isolation from the whole of the activity description. The question is, therefore, whether a part, or parts,310 of a registered activity satisfies the definition of either “core R&D activities” or “supporting R&D activities” in ITAA97.
236. Dr Pritchard agreed that it may be accepted that it is not fatal to the whole of Moreton Resources’ case merely because part of the activities registered in a year were not carried
310 Acts Interpretation Act 1901; s 23(b) and see also Blue Metal Industries Limited v Dilley [1970] AC 827; (1969) 117 CLR 651; [1969] 3 All ER 437; [1969] 3 WLR 357 at 846; 656; 441; 363 per Lord Morris of Borth-y- Gest
Page 92 of 128
on in that year. It must be shown, however, that what was actually done in the registration year had a correspondence with the activities described in the registration. Dr Pritchard submitted that s 27J requires two inter-related enquiries to be made. One is whether or not all or part of a registered activity was a core R&D activity or a supporting R&D activity. The second enquiry is whether or not all or part of the registered activity was conducted in the registration year. The second enquiry requires a comparison of what was described in the registration and what was actually done in the registration year. What was actually done in a registration year must have a correspondence with the activities described in the registration. That does not mean that all of the activities registered in a year must be carried out in that year. It does mean, however, that what was actually done corresponds with what was registered and that the activities that were carried out were either core or supporting R&D activities.
B. Reasoning
237. It seems to me that I must look to the evidence regarding each activity in dispute and must ask myself two questions in relation to each in order to make a finding. The first is whether the activity is all or part of a registered activity conducted during the registration year? If it was neither all or part of a registered activity nor conducted during the registration year, it cannot be a registered activity of a kind covered by ss 27J(1)(a) or (c).
238. Assuming that the answer to the first question is in the affirmative, the second question is whether the registered activity, or that part of it, conducted during the registration year, was a core R&D activity or, if not, a supporting R&D activity. If it was a core R&D activity, a finding can be made under s 27J(1)(a) that all or part, as appropriate, of the registered activity was an activity of a kind covered by that provision. The finding may include a specification as to the time to which the finding relates in accordance with s 27J(2). If it was not, a finding may be made that it was not and that finding is made under s 27(1)(b) but it is not an end of the second question. A further question must be asked: was all or part of the registered activity a supporting R&D activity. If not, a finding is made under s 27J(1)(d) that all or part of the activity was not an activity covered by s 27J(1)(c). If it was a supporting R&D activity, it is necessary to make further findings in relation to the matters set out in s 27J.311 Again, the finding may specify the time to which it relates in accordance with s 27J(2).
311 See [17] above
Page 93 of 128
STANDARD OF PROOF
239. Section 27J of the IRD Act provides that the Board may make certain “findings” about an R&D entity’s registration under s 27A. Those “findings” include findings that all or part of a registered activity was, or was not, a core R&D activity or a supporting R&D activity as set out in s 27J(1). In order to make a “finding”, an R&D entity’s activities must be assessed against the legislative criteria in ss 355-25 and 355-30 of ITAA97 but no mention is made of the weight of evidence that must be available to make a finding i.e. nothing about the degree or standard of proof of those criteria before the Board may make a finding.
240. That is not an unusual situation. It also arises, for example, under s 14ZZK(b)(i) of the Taxation Administration Act 1953 (TA Act) when it provides that the taxpayer has the burden of proving that the assessment made by the Commissioner of Taxation is excessive if an assessment was the subject of the taxation decision under review. A burden is one thing but what the party carrying the burden has to establish is determined by the standard of proof. Section 27J does not impose a burden of proof but what s 27J and s 14ZZK(b)(i) have in common is that neither provides for a standard of proof. The standard of proof under s 14ZZK(b)(i), has been described in cases such as McCormack v Federal Commissioner of Taxation312 as proving the issue in question “… affirmatively, on the balance of probabilities ….”313 i.e. “… on ordinary civil standards of proof …”.314 In the statutory context in which s 27J appears, there is no reason why the standard would be any different in making a “finding”.
241. Just what it means to establish a matter according to the civil standard or a standard on the balance of probabilities is not a matter that can be explained by reference to a scientific or mathematical formula. It is more an art that is performed having regard to the weight and probity of the evidence and the issue that is to be determined and the legislative context in which it is to be determined. As Dixon J said in Briginshaw v Briginshaw;315
“… The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of mere mechanical comparison of probabilities independently of any belief in its reality. … The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters ‘reasonable satisfaction’
312 [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 79 ATC 4,111; 9 ATR 610; Barwick CJ, Gibbs, Stephen, Jacobs and Murphy JJ 313 [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 79 ATC 4,111; 9 ATR 610 at 303; 597; 4,121; 622 per Gibbs J 314 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217; 79 ATC 4133; 9 ATR 638 at 235; 4,146; 652 per Stephen J 315 [1938] HCA 34; (1938) 60 CLR 336; Latham CJ, Rich, Starke, Dixon and McTiernan JJ
Page 94 of 128
should not be produced by inexact proofs, indefinite testimony, or indirect inferences. …”.316
242. Ms Baker submitted that, when evidence is considered to be sufficiently truthful or reliable, the Tribunal is permitted to look generally at the evidence without descending into every detail. This is particularly so when the evidence is corroborated by documents in the public domain, reports submitted to government departments and by the evidence of independent experts. Ms Baker relied on the discussion in Krew v Federal Commissioner of Taxation317 and Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation.318
243. The general proposition is supported by the judgment of Walsh J in Krew when hearing an appeal from a Board of Review decision which had upheld, in part, decisions made by the Commissioner of Taxation (Commissioner) to disallow objections and so reducing Mr Krew’s taxable income. Mr Krew’s primary argument was that cash kept at his home had been derived from gambling and that he had used cash from that source to increase his assets. He had not used any income derived from his business activities. The money in the safe and Mr Krew’s evidence as to its source became a focus of the case. It is in that context that Walsh J observed:
“ The appellant's story of the hoard of money in a safe and of the way in which he used that money has been a major feature of the case before the Board of Review and, again, before me. It is an important part of the material that has to be considered. But there is a danger of being diverted by it from the questions which, in the end, have to be decided. If the evidence of the appellant had been considered to be completely truthful and reliable it would have been sufficient, I think, to look generally at the whole period covered by the assessments and to reach a general conclusion without examining closely any particular year and without troubling about the absence of specific evidence to explain in respect of each year the discrepancy shown in the betterment statement. But unless his evidence be accepted completely (including his general statements that his gambling was always successful and his estimates as to the amounts of his winnings in various fields of gambling, which estimates were rightly regarded by the Board as no better than wild guesses) it is necessary to look at each year and at whatever evidence throws light upon the financial position of the appellant at the beginning and at the end of that year. …”319
244. The analogy with the circumstances in this case is not exact for this is not a case in which I have reason to decide whether a witness is, or is not, being truthful. I have no reason to think that any witness is not giving an honest explanation of events as he saw them or understood them to be. It is instead a case in which some of the evidence could be said to be, or to be verging on, swearing to the issue i.e expressing an opinion upon the ultimate
316 [1938] HCA 34; (1938) 60 CLR 336 at 361-362 317 (1971) 2 ATR 230; 71 ATC 4213 at 238-239; 4218 per Walsh J 318 [1983] 1 NSWLR 1; (1983) 44 ALR 607; 70 FLR 447; 83 ATC 4015; 13 ATR 825 at 10-11; 515; 452-453; 4,021-4,022; 832-833 319 (1971) 2 ATR 230; 71 ATC 4213 at 238-239; 4218
Page 95 of 128
issue for determination. I give as one example, a statement made in a report prepared by GHD that was commissioned, in part, by Moreton Resources to provide advice as to whether, when applied in a UCG setting, MNA satisfies the core criteria for “core R&D activities”.320 An expert may be called on to express an opinion on an ultimate issue but evidence that otherwise swears the issue can carry little weight in so far as it does.
245. It is also a case in which some of the evidence is not relevant to the issues that I must decide. As one example, I refer to the evidence of Mr Elks given in his second statement. Mr Elks referred to work done by Carbon Energy Limited (Carbon Energy) using keyseam technology. Mr Elks understood keyseam technology to be a variant of the UCG activities undertaken by Moreton Resources and that Carbon Energy had received a tax incentive cash rebate for R&D activities. Mr Elks annexed a copy of a Directors’ Report by Carbon Energy and a copy of an ASX announcement to that effect. I do not question the evidence regarding Carbon Energy but administrative decisions of the sort made under ITAA96 and the IRD Act are made on the evidence relating to the particular activities under consideration and on the basis of the criteria in that legislation. Consistency in administrative decision-making comes from analysing evidentiary material consistently against consistent criteria. It does not help the process to consider one project and the activities undertaken under that project against those of another.
246. In so far as there may be cases in which the Tribunal is permitted to look generally at the evidence without descending into every detail, I do not think that a case of the sort involving the IRD Act and ss 335-25 and 335-30 is one of them. The criteria that must be met under those two sections are quite specific. The specificity extends to whether those criteria are met at specific times in a registration year because s 27J(2) permits the Board to make such a finding.
247. While I have had regard to the evidence given by all of the witnesses, I have turned to the documentary evidence when a witness cannot have direct knowledge of events and has relied on documents or on oral history received over the years. I refer, for example, to the evidence of Mr Melik when he deposed in [32] to [37] of his first statement, Exhibit E, to events that occurred in 2006, 2007 and into 2008 when he was not associated with Moreton Resources.
Core R&D Activity 1.1 for application year 2011-12: duration 2011-2012
248. Consistently with the way in which it has been presented, I have separated the core activity into four components.
320 T documents; T157 at 2929 and 2946
Page 96 of 128
A. Design and develop UCG generated syngas cleaning and power generation pilot plant
A.1 The project
249. Moreton Resources starts from the proposition that the design and implementation of the pilot UCG project at Kingaroy was an experimental activity. It set out to prove that it could demonstrate that it could design and implement a UCG burn operating method to produce syngas that could be cleaned up to the correct chemical specifications for power generation in a safe and environmentally friendly manner. It did not test this in a haphazard way but designed and developed its UCG pilot project having regard to geological, geotechnical and hydrogeological considerations as well as principles of engineering and chemistry. Only then did it embark on a pre-determined trial program, which was comprehensively monitored before and after shut-down to provide information both for the purpose of restarting the UCG trial burn and to provide information on ongoing environmental impacts. That activity was “experimental activity” that commenced before the 2012 and 2013 years but that was continuing in those years.321
250. Moreton Resources relied on the evidence of Dr Steven Pearce and Mr Rick Dobbs. Dr Pearce is a Technical Director employed by Pattle Delamore Partners Pty Ltd and has been since December 2013. He is an engineer with some 16 years’ experience in coal based alternative energy technology development and, in particular, with UCG, coal bed methane (CBM) and BioCBM. Dr Pearce holds a Bachelor’s degree and a PhD in Mechanical Engineering from the University of Canterbury in New Zealand. His experience with UCG began in 2005 when he was employed by Solid Energy New Zealand Limited and later Phoenix Energy New Zealand Limited where he remained from mid 2013 until the end of that year. While at Solid Energy New Zealand Limited, Dr Pearce led the initial evaluation of the feasibility of UCG.
251. Mr Dobbs also worked with Solid Energy New Zealand Limited and later Phoenix Energy New Zealand Limited. He began with the former in 2008 and was Technical Manager, UCG, employed to oversee their projected pilot UCG operation from a technical standpoint. Mr Dobbs was employed by the latter company in mid-2013 and left at the end of 2013. He holds a Bachelor of Chemical Engineering from the University of Canterbury and has over 40 years’ experience in a wide range of engineering processes. Many of those processes have involved development from the conceptual stage through to commercial plant including pilot plant development.
321 Applicant’s Written Submissions at [93(a)] and see Statement of Mr Melik; Exhibit E at [26]
Page 97 of 128
252. Both Dr Pearce and Mr Dobbs have co-authored papers, sometimes with others, detailing aspects of the pilot plan development, operation and remediation. They co-authored their report in this matter although giving separate opinions where their particular expertise was called upon. Dr Pearce referred to the development of UCG since it was first proposed in approximately 1868. He wrote in the report:
“In particular the US government funded Department of Energy (DoE) UCG programme from 1971 – 1993 was a long running programme which contributed to the understanding of UCG. The technical knowledge developed through that programme is largely in the public domain. However, these international trials were conducted in different geological settings, with different hydrogeological settings, with coal seams of different chemical compositions and permeabilities, at differing depths, using different combinations of oxidants (air or oxygen/steam) and using different physical configurations of the process wells. Because of the site specific nature of each trial, it is not possible to draw anything more than broad general conclusions as to how the UCG process will proceed in any particular location. [sic] from this historical body of work. The specific nature of a particular site’s coal seam composition and structure coupled with the surrounding geology and hydrology, and the choice of oxidant, result in the necessity of a bespoke UCG facility design. For example, the concentration of trace metals present in the coal seam interact with the UCG process itself, the subsurface configuration and the gas processing facility to ultimately determine the contaminant loadings in the UCG syngas which impacts material selection requirements. This bespoke design can only be finalised after detailed site selection and characterisation of the site has been completed. To the best of my knowledge there is no standard technologically and environmentally proven design in existence that can be applied to all coal fields targeted for UCG. A UCG facility’s operating parameters, such as operating pressures and flowrates, are also specific to the site and depend on factors such as the coal seam depth and permeability, and the hydrology of the area.”322
253. Moreton Resources also relied on a paper written by Evgeny Shafirovich and Arvind Varma in 2009 in Industry Engineering Chemical Research published by the American Chemical Society. After describing the UCG process, the authors wrote:
“ The UCG process, however, also has areas of potential improvement and customization to local conditions that must be addressed through additional research and development. These improvements must advance the effectiveness of the gasification process while minimizing any potential detrimental effects on the setting. Some of the domains where improvements could optimize the process include the linking of injection and production wells within a coal seam, minimization of variation in the composition of the produced gas, and prevention of any degradation of potable groundwater supplies.”323
322 Exhibit F at [3.1.5]–[3.1.9] 323 T documents; T54 at 814
Page 98 of 128
254. This view is consistent with the opinion expressed by Mr Dobbs and Dr Pearce:
“Our understanding of Moreton Resources’ hypothesis was ‘That a commercial Underground Coal Gasification plant could be developed and coupled to an advanced gas treatment plant and a gas turbine to generate electricity and be carried out in an environmentally acceptable manner.’ Based on the buoyant state of the energy market in 2008, this would be a sensible hypothesis and is evidenced by the other significant companies such as Carbon Energy, Linc, Eskom and Solid Energy with similar agendas at that time. This hypothesis could only be tested by constructing and operating a pilot plant and observing both operational and environmental parameters. This in turn necessitated the site selection and establishment of a baseline detailed previously followed by operation, shutdown, site cleaning and remediation. In all these processes extensive monitoring was a strict necessity to observe, tune and evaluate both the operations and the environmental impact. In our expert opinion, in regards to the current state of knowledge regarding UCG, there is no other way that the hypothesis could be proven. In undertaking this activity Moreton Resources utilised the only reasonable and responsible methodology available to prove the hypothesis.”324
255. Mr Dobbs and Dr Pearce have given their understanding of Moreton Resources’ purpose in undertaking the pilot UCG project at Kingaroy but it can be no more than an understanding. Mr Melik has also given evidence as to Moreton Resources’ purpose at [19]-[20] of his statement. He said that the company had been working towards developing a UCG trial in Australia since it was formed by Dr Len Walker in 2006 and referred to FEED document issued on 27 May 2008 prepared before he was employed by the company and PEP dated 25 September 2008 and so a month or so after he was engaged. The purpose of the pilot UCG project was set out in the FEED document and I have set it out at [29]-[30] above.
256. The FEED document noted that UCG is a specialised technology. Moreton Resources would use the eservices of Ergo as it technology provider. The two companies had worked together for more than ten years and had been responsible for the development and execution of the successful pilot test of the technology at Chinchilla between 1999 and its decommissioning in 2002. Ergo uses a system largely developed in the former Soviet Union. The FEED document described that system. Reference to UCG’s being an established technology or even “old technology” was also made by Dr Walker. That was in 2000325 and Dr Walker also referred to the South Australian Department of Mines and Energy’s having conducted a feasibility study regarding UCG at Leigh Creek in 1983. Core activity 1-1 registered by ISA for the 2011-2012 year was described by Moreton Resources as the design and development of UCG generated syngas cleaning and power generation pilot plant by the integration of “known technologies”.
324 Exhibit F at [24.1.1]–[24.1.6] 325 See [25] above
Page 99 of 128
257. On the evidence that I have been given, there is material explaining the known technology that is the UCG process. The FEED document itself does that. The requirements of the UCG process and variables were known and the risks such as rock shear causing casing shear were also known. This entailed research on matters such as the geological and hydrological characterisation of the site and the collection of data in order to facilitate geomechanical modelling of the site. Testing and data collection remained crucial at all times to ensure that, for example, the pressure in the underground cavity remained at a lower pressure than its surrounds, to chart movement and record temperature as well as sample and analyse groundwater to ensure that it was not contaminated by BTEX. Contamination of the groundwater was a known risk and I do not understand the project as described to have been undertaken to, in part, demonstrate that UCG as a process could be undertaken in an environmentally friendly manner. Rather, the project was undertaken to demonstrate that UCG could occur at the particular site. The conditions on the EA and on its amended versions were intended to ensure that it was operated within parameters that were environmentally acceptable.
258. On the evidence, I accept that the how the UCG process will proceed in any particular location will depend on the particular characteristics of the site and the way in which the burn process affects that site. In the ordinary meaning of an “experimental activity”, the pilot UCG project can be regarded as such an activity. It was undertaken in order to determine whether it would produce syngas at an appropriate rate and quality to drive a gas turbine and so produce electricity. Therefore, it was a test or trial undertaken for the purpose of discovering what would be produced from the site when known technology was implemented.
259. Beyond that site specific knowledge that would be generated, however, I do not accept that the pilot UCG project was undertaken for the purpose of generating new knowledge. It was not undertaken to develop UCG technology itself and nor was it undertaken to develop any new form of, for example, pilot plant, devices or processes. Ms Baker drew my attention to the article entitled Industry Engineering Chemical Research, to which I have referred at [253] above. The authors of that article expressed the opinion in 2009 that the UCG process had areas of “potential improvement”. As I understand the article, that was in addition to any customisation that was required to suit local conditions. In the case of the pilot UCG plant, though, I do not find that there has been any work that can be regarded as directed to improving or altering the existing UCG technology as it was applied to the local site. This statement is consistent with Moreton Resources’ own statements that it was
Page 100 of 128
using known technology and integrating known technologies. What was meant by “integration of” known technologies is not explained further.
260. The ISP observed in its report that it understood Moreton Resources to have told it that it had not been engaged in running a pilot trial of a new technology but in developing a small- scale facility of well-tested technology. For that reason, Moreton Resources had told ISP that it did not need a lot of in-house technical capability and could rely on consultants as required. Moreton Resources stated that the ISP’s report had misstated its position on in-house technical capability, it did not elaborate on what had been misstated. Without elaboration, it does not dissuade me from the conclusion I have reached which is that, if Moreton Resources was engaged in an experimental activity, it was experimental only to the extent that the outcome of the application of the technology to the specific site at Kingaroy could be predicted but not known until implementation of the technology.
261. Had the pilot UCG project been successful and led to a commercial operation producing syngas for use in electricity generation, work may have been required for the development of a highly bespoke and customised design allowing the gas turbine to operate first by an alternate fuel such as diesel or natural gas until a stable operation was achieved. That was the view expressed by GE Power & Water. That may have generated new knowledge but GE Power & Water expressed its view in October 2015 in response to Mr Melik’s request. It was not a matter that was actively in mind in developing the pilot UCG project. The FEED document stated that there were no UCG facilities in the world utilising a gas turbine to make electricity from the UCG syngas but the size and configuration of any commercial scale gas turbine was a matter to be determined in the future. The FEED document related only to the pilot facility, its authors stated.326
262. It follows that Moreton Resources’ work in undertaking the project as a whole would not have been regarded as an experimental activity because it was not an activity that it needed to do in order to solve a problem, develop a new product or improve a process. It was testing the application of existing technology at a particular site and nothing more.
A.2 Activities in 2011–2012 year
A.2.1 Preparation of the diagrams and the statement of seven steps for re-ignition
263. In the previous section of my reasons, I have looked at the pilot UCG plant as a whole. On the evidence that I have, I agree with Dr Pritchard’s submission that there are only two activities that took place in 2011-2012 and that can be regarded as falling within the description of the design and development of a UCG generated syngas cleaning and power
326 T documents; T12 at 286
Page 101 of 128
generation pilot plant. One activity is the preparation of a two page diagram of the area of coal to be burned, the location of the wells to be used in re-ignition of the pilot UCG plant, the location of those previously used being P1 and P4 and the site of nine proposed monitoring wells.327 That was prepared late in 2011. So too was the preparation of a document entitled “Steps for Gasification of Coal in Restart of Kingaroy Pilot Site”. It set out seven steps for the re-ignition of the pilot UCG plant.
264. Both documents are statements of intention. They are statements of intention without a great deal of context. The two page diagram, for example, shows an area said to enclose 19,300 tonnes of coal. That tonnage is within the 20,000 tonnes that Moreton Resources was permitted to gasify under Condition (A8-4) of the 2008 Amended EA. Where that area lies on the Kingaroy site is not noted. The basis on which it was decided to use wells P2, P3, P5, P6 and P7 in the pilot burn restart is not documented and nor has the basis on which a decision to locate the proposed monitoring wells has been made.328 In a similar way, the seven steps set out in the document entitled “Steps for Gasification of Coal in Restart of Kingaroy Pilot Site” are not supported by any documentation showing the rationale for the selection of the wells or the way in which the gasifier between P2, P3, P5 and P6 will be developed.
265. The other activity occurred on 21 December 2011 and 20 June 2012 when systems were installed to pump water from two of the evaporative ponds. The installation of pumps for the purpose of reducing their water levels certainly post-date the letter sent by DERM on 31 August 2011 drawing Moreton Resources’ attention to the approaching onset of the wet season and the need to ensure flood mitigation measures were in place in relation to such areas as evaporative ponds. That may have been the instigator of the action to reduce the water levels but so too may the fact that Moreton Resources’ personnel noted that the water level in the evaporation pond was not reducing in line with evaporation rates that it had been designed to achieve. While DERM’s advice had not lost its currency in December 2011, it is open to find that the activities beginning in December were not instigated by a letter sent in August but by the observation that the water in the evaporation ponds was not behaving as it was expected to.
266. Whatever the reason that they were undertaken, they are not activities that could be categorised as experimental. They involved the use of pumps to pump the water. Two fittings were manufactured as adaptors to convert the lay flat hose to take poly pipe at both ends. Although on a larger scale, these are the sorts of activities that are carried out in any
327 See [87] above 328 I have looked at the Groundwater Management Plan prepared by GHD in August 2011 - Statement of Mr Melik; Exhibit E; Annexure VM-67 at 3277 and, putting aside the switching of the identification of P5 and P6, the diagram roughly accords with that of GHD’s representation of existing bores.
Page 102 of 128
job involving hoses, pumps and water. The water flow had to be monitored but that was a matter of observation. None of the activities involved testing a principle or discovering whether the water would be pumped or how it would flow. In the circumstances, those sorts of things cannot be said to be unknown. They can be determined in advance on the basis of existing knowledge or experience. There is no pattern of work that could be regarded as a “progression of work” of the sort described in s 355-25(1)(a). Although Mr Melik said that “it was hypothesised that the evaporation pond was not adequately sized at the design phase …”,329 that was not a hypothesis in the sense required by s 355-25(1)(a)(ii). A hypothesis of the sort required by that subparagraph would have required a statement or proposition of the size of the evaporation ponds that would be required followed by experiment, observation and evaluation and then to logical conclusions. For these reasons, I find that the activities related to the evaporative ponds do not meet the criteria in s 355-25(1)(a).
A.2.2 Environmental monitoring, installation and monitoring of pressure sensors and subsidence monitoring
267. Mr Melik gave evidence that Moreton Resources continued to monitor the hydrostatic pressure of the coal seam and the geo strata of the UCG cavity following the shutdown of the pilot UCG project in 2010. VWPs were located at various depths in six boreholes in April 2010 to permit Moreton Resources to monitor a wider area outside the UCG pilot plant in the direction of the dominant water flow. The VWPs had five purposes. One was to ensure that the internal pressure of the burn chamber did not exceed the external pressure affecting the chamber as that could have resulted in the leakage of hydrocarbon chemicals into the surrounding groundwater and contaminating the soil. The VWPs were also used to monitor events such as a sudden influx of groundwater, flooding, drought subsidence or other geological influences, including sagging or expansion of overburden or under-burden around the coal seam, on groundwater flows and the burn chamber.
268. A third purpose, Mr Melik said, was to design and conduct tests investigating whether Moreton Resources could potentially control or influence the UCG process limiting or increasing hydrostatic pressure by increasing or decreasing the rates of injected air into the UCG cavity. This capability, Mr Melik continued, was preliminarily experimented on during the air injection trials of four production wells P1– P4 and during investigations into the well failure when the air injected into P4 increased the hydrostatic pressure of basalt above the coal seam. Fourthly, although principally used for monitoring hydrostatic pressure, VWPs could be used together with conventional groundwater monitoring bores and open piezometers to determine standing water levels within the coal seam and other aquifers.
329 Statement of Mr Melik; Exhibit E at [171]
Page 103 of 128
269. Fifthly, Mr Melik said, Moreton Resources used the VWPs to better understand the groundwater flows and how contaminants might move into the groundwater and to establish the conditions that would need to be observed to prevent contamination from occurring.330 He also said that “… The function of this aspect of the Environmental Authority was to obtain sufficient understanding of the groundwater in the area to produce a model to predict how contaminants, assuming any were produced, might flow into the groundwater system.”331
270. Mr Melik said that only the fifth purpose had any relationship with Moreton Resources’ obligations under the EA. Even then, he said, the requirements of the EA were cast in such high level terms that Moreton Resources could largely dictate the manner in which it would comply. In particular, one of the EA’s conditions was that Moreton Resources was required to obtain an assessment of groundwater impacts associated with the pilot trial and that assessment was to be carried out by a suitably qualified person. Such a person would be a hydrologist, Mr Melik said.
271. I have referred above to Moreton Resources’ monitoring subsidence within the wells following its receipt of the report prepared by Golder dated 4 March 2010 and entitled “Overlying Rock Characterisation and the Impact of the Void on Overlying Strata, Kingaroy Gasification Trial”. Mr Melik said that the monitoring of subsidence throughout the project was integral to the production of a high quality syngas. That followed from the fact that there was the possibility that the roof of the burn chamber might sag or even partially collapse. If it were to, there was the possibility that organic components in the rock would be released and affect the makeup of the syngas and its production rate. Subsidence monitoring was undertaken at monthly intervals in accordance with Condition (F2-1) of the 2008 Amended EA but that requirement extended, Mr Melik said, only for a 12 month period following the cessation of the gasification process. When that obligation ended in March 2011, Moreton Resources continued monitoring subsidence at three monthly intervals up until 2014.
272. The final type of activity coming in this section is that of soil testing and monitoring. Mr Melik referred to DERM’s taking water samples from an adjacent landholder’s property and identifying the presence of thiocyanate and formaldhyde. As a consequence, he said, Moreton Resources decided to perform its own testing of water samples and soil samples.
330 Statement of Mr Melik; Exhibit E at [67] 331 Statement of Mr Melik; Exhibit E at [68]
Page 104 of 128
273. On the same basis that I have found that the design and development of the pilot UCG plant generated syngas cleaning and power generation pilot plant are not experimental activities, I do not consider that the environmental monitoring and the installation and monitoring of pressure sensors can be regarded as experimental activities. They are activities of watchfulness, of measurement and of analysis and reporting. Each of them is conducted for the purpose of measuring and monitoring what is occurring. In the sense that what is occurring in terms of, for example, subsidence of the overburden or pressure in the UCG cavity is not known, the measurement and monitoring makes known what is happening. In other words, what is happening can be made known by using known measures and techniques. Therefore, the activities cannot be regarded as coming within the opening words to s 355-25(1)(a). For the same reason, they cannot be regarded as having been conducted for the purpose of generating new knowledge as required by s 355-25(1)(b).
274. My conclusion means that the activities are already excluded by s 355-25 but I will consider the other criteria for completeness. Activities of this sort may be a necessary part of an activity that is an experimental activity but I am not satisfied on the evidence that I have that they are. Over the period from March 2010, they are associated with the shutdown on the pilot UCG plant and proposals to reignite that plant. For the reasons I have given, that is not an experimental activity.
A.2.3 Section 355-25(2)(f): activities associated with complying with statutory requirements or standards
275. I agree with Ms Baker that cl B.25 of the EPO issued to Moreton Resources on 17 July 2010 is not a source of statutory requirements or standards that is relevant in this case in the context of s 355-25(2)(f). It required Moreton Resources to stop, and not to commence or recommence, any burning of underground coal as part of the UCG activities at Kingaroy until further notice from the EPA. That is a requirement to cease and desist and not a requirement that any action be taken at all. Therefore, even if I had found that the activities coming within the description of environmental monitoring, installation and monitoring of pressure sensors and subsidence monitoring were core R&D activities by virtue of s 355-25(1), they are not excluded by s 355-25(2)(f) by reason of cl B.26 of the EPO.
276. Clause 27 of the EPO is a different matter. It did require Moreton Resources to take actions. In summary, it required Moreton Resources to sample the groundwaters from all known existing bores in the potentially affected area twice per week in the manner set out in cl B.27a and to ensure that the samples were analysed in accordance with cl B.27b. Finally, it had to provide owners and occupiers of land in the potentially affected area with
Page 105 of 128
certificates of analysis relating to samples taken from bores on their land. For the reasons I have given above, a requirement in an EPO is a requirement of the sort captured by s 355-25(2)(f). It was a requirement that remained in force until further notice from the EPA.
277. The 2011 Amended EA, which came into effect on 7 July 2011, also imposed positive obligations on Moreton Resources. Therefore, the question becomes whether any of its activities were incidental to or for the purpose of compliance with, and so associated with complying with the 2011 Amended EA or with the positive obligations imposed by the EPO. That is consistent with the interpretation adopted in the reasons for decision in DBTL and set out at [211] above. The 2011 Amended EA was concerned with the decommissioning of the pilot UCG plant and with rehabilitation of the cavity.
278. Beginning with groundwater, Schedule C imposed a number of obligations on Moreton Resources. At their most general, under Condition (C1-1), Moreton Resources was obliged to ensure that contaminants not be released to any waters or the bed and banks of any waters. As is apparent from the definition of the word “contaminant” in s 11 of the EP Act,332 its meaning is very broad and extends to those for which Moreton Resources was testing. On the basis of Mr Melik’s evidence, I find that it was testing for dissolved oxygen and methane. They were then not specified in Schedule C, Table 2 to the 2011 Amended EA but Moreton Resources tested for those chemicals on the basis that they might indicate that in situ biodegradation was occurring, or capable of occurring, under anaerobic conditions. Moreton Resources also tested for characteristics such as temperature, oxidation reduction potentials and conductivity even though it was not required to do so by the 2011 Amended EA.333
279. Even if the testing of the groundwater were not required by the EPO, it would be required by Condition (C1-1) of the EA. I agree with Moreton Resources’ position that a condition such as Condition (C1-1) does not specifically stipulate specific actions that Moreton Resources was required to take. On its face, Condition (C1-1) did not require it to measure hydrostatic pressure but, Mr Melik’s evidence, measuring and monitoring hydrostatic pressure in the burn chamber ensured that the internal pressure did not exceed the external pressure. Had that happened, there could have been a consequential leakage of hydrocarbon chemicals into the surrounding groundwater and contaminating the soil. The VWPs, Mr Melik also said, were also used to monitor events such as a sudden influx of groundwater, flooding, drought subsidence or other geological influences, including sagging or expansion of overburden or under-burden around the coal seam, on groundwater flows
332 See [37] above 333 Statement of Mr Melik; Exhibit E at [128]-[129]
Page 106 of 128
and the burn chamber. It follows that, even though monitoring hydrostatic pressure was not specifically mentioned in the 2011 Amended EA, Moreton Resources’ activities in measuring and monitoring that pressure was associated with its ensuring that it complied with Condition (C1-1), which is a statutory requirement. Therefore, it was excluded from being a core R&D activity by the terms of s 355-25(2)(f) of ITAA97.
280. Sampling and analysis from all bores was also required by Condition (C10-1)(c) to (f) at various intervals or according to various events. Whenever groundwater samples were obtained, Condition (C10-4) of the 2011 Amended EA required standing water levels to be measured and recorded. Furthermore, if Moreton Resources were to comply with Condition (C1-1), it had to undertake regular groundwater testing in order to ensure that contaminants had not been released to any waters or the bed and banks of any waters. That condition complements, as it were, Condition (F1-1) when it requires that there must be no release of contaminants that may cause the land to become contaminated land. In relation to dissolved oxygen, Condition (F4-1) expressly specified that there must be no release of stormwater runoff that has been in contact with any contaminants at the site to any waters, roadside gutter or stormwater drain, unless it complies with quality characteristics, which included that a characteristic that the concentration of dissolved oxygen must not be less than 6 milligrams per litre.334
281. When read in light of the Conditions, Moreton Resource’s testing of the groundwater would be “associated with” its complying with what I have found to be statutory requirements. Its groundwater testing was associated with compliance to the extent that it was necessary or essential to carry out the testing in order to comply with the conditions. Whether Moreton Resources was testing the groundwater more frequently than it thought Condition (C1-1) required (or any of the other Conditions mentioned in the previous paragraph), is not to the point in a context in which I have already found that the testing is not an experimental activity of the sort coming within s 355-25(1). Had my finding been different, it might have been necessary to consider whether the activity could be separated into aspects coming within s 355-25(1) and not excluded by s 355-25(2)(f).
282. Condition (C10-1) provided that a groundwater monitoring program must be developed and implemented for the site. Again, that condition is set out at [92] above as is Condition (10-7). Condition (10-7) required a documented decommissioning and rehabilitation procedure not only to decommission and rehabilitate the underground cavity but to ensure removal of all contaminants attributable to underground coal gasification. Condition (F1-1), which is set out in Schedule F relating to land, requires Moreton Resources to ensure that
334 See Condition (C4-1) at [36] above
Page 107 of 128
there are no releases of contaminants to land that may cause land to become contaminated land.
283. Moreton Resources submitted that, arguably, the Groundwater Management Plan prepared by GHD and dated August 2011 complied with the requirements of Condition (C10-1) of the 2011 Amended EA. On that basis, the groundwater management plan can be said to be “associated with” compliance with a statutory requirement within the meaning of s 355-25(2)(f).335 Mr Melik, though, said that the plan did more than merely set out a proposed groundwater monitoring plan. It addressed remediation and rehabilitation issues but did so in a way that did not comply with either Condition (C10-7) or with Condition (F3-1), which required a shutdown procedure for the pilot UCG project. It went beyond those requirements by recommending MNA, which he said was an untested and unproven rehabilitation practice in the context of UCG or at the depth at which GHD recommended it be used. Moreton Resources preferred that approach because it considered MNA potentially to be a more effective rehabilitation approach and that its use would not prejudice its ability to restart the UCG burn if it were to receive approval to do so.
284. It is arguable that the Groundwater Management Plan did not comply with Condition (F3-1) in that it did not set out a procedure that ensured, for example, that the cavity would be flushed using proven processes to remove residual pollutants. Instead, it recommended that MNA be used and submits that is not a proven process but an experimental activity in the context of shutting down the cavity and the pilot UCG project. Accepting for the sake of argument that the Groundwater Management Plan does not set out a plan that complies with Condition (F3-1), this does not mean that it and its preparation are not associated with complying with statutory requirements within the meaning of s 355-25(2)(f). It was necessary or essential to prepare a ground water plan under Condition (F3-1).
285. The fact that it is arguable that it has not complied with the requirements of that condition, or some of them, does not detract from the fact that the preparation and presentation of the Groundwater Management Plan was not associated with complying with statutory requirements. That plan was Appendix A to the Report to Department of Environment and Resource Management: Response to the Revised Environmental Authority dated 7 July 2011 Cougar Energy Pilot Burn at Kingaroy submitted by Moreton Resources to DERM. The Groundwater Management Plan had been prepared by GHD. In its Introduction, GHD set out its understanding that DERM had issued a draft EA to Moreton Resources which would amend earlier EAs. The Groundwater Management Plan, GHD wrote:
335 Statement of Mr Melik; Exhibit E at [126] and see Applicant’s Written Submissions at [166]
Page 108 of 128
“This GMP pertains to condition (C10-1) of the draft EA, which states ‘(C10-1) A groundwater monitoring program must be developed and implemented for the site. The program must: (a) be developed by a person possessing appropriate qualifications and experience in hydrogeology and groundwater monitoring program design, to be able to competently make recommendations about these matters. This document provides the following information: · Summary of background information relevant to the GMP and adopted chemicals of potential concern; · Summary of GMP objectives; and · Detailed GMP framework proposed to meet the objectives required by DERM. It is noted that section C-10 of the draft EA specifies a number of requirements for the monitoring program. Comment has been provided in Section 6 where the proposed GMP differs from the specific requirements in the EA.”336
286. In its Introduction to its Report to Department of Environment and Resource Management: Response to the Revised Environmental Authority dated 7 July 2011 Cougar Energy Pilot Burn at Kingaroy and to which the Groundwater Management Plan was attached, Moreton Resources also stated that its report was:
“… submitted in response to the revised Environmental Authority (EA) permit number MIN1006656507 dated 7 July 2011 applicable to Cougar Energy’s Kingaroy Pilot Gasification Plant. … Cougar has disputed the grounds of issuance of the revised EA, and has requested an independent internal review of the decision. During the period of this review, the Company is required to meet the requirements of the revised EA as if they were in operation. … The new conditions of the revised EA involve the requirement to develop and implement a new groundwater monitoring program for the site (Conditions C10-1 and C10-2), and the requirement to develop and install a procedure to fully decommission and rehabilitate the underground cavity (Conditions C10-7 and C10-8). Each of these new conditions is discussed in detail in the following Sections of this Report.”337
287. Excluding the Groundwater Management Report and its two annexures, the groundwater monitoring network details and the Report to Department of Environment and Resource Management: Response to the Revised Environmental Authority dated 7 July 2011 Cougar Energy Pilot Burn at Kingaroy is a ten page document. It summarised the main points made in the Groundwater Management Plan and effectively adopted that plan. It follows from the statements made in the Introduction to the Groundwater Management Plan and to the Report to Department of Environment and Resource Management: Response to the Revised Environmental Authority dated 7 July 2011 Cougar Energy Pilot Burn at Kingaroy
336 Statement of Mr Elks; Exhibit A; Annexure JE-15 at 344 337 Statement of Mr Elks; Exhibit A; Annexure JE-15 at 333
Page 109 of 128
that both were prepared in response to the requirements that DERM had foreshadowed and that were included in the 2011 Amended EA. In particular, as the text of their Introductions indicates, they were prepared in response to the requirements of Condition C10 and, in particular, to Conditions (C10-1), (C10-2), (C10-7) and (C10-8). They were necessary or essential for that purpose and so associated with Moreton Resources’ compliance with statutory requirements. Their association with compliance was not reduced if the Groundwater Management Plan dealt with issues, and its monitoring plans provided for more comprehensive testing, than was required by compliance with the statutory requirements. The association with compliance remained regardless of any wider coverage by the plan or wider purposes to which Moreton Resources might have intended for it.
288. Under Condition (C1-1) and Condition (F1-1) of the 2011 Amended EA, Moreton Resources was obliged not to release contaminants to any waters or to any land that may cause the land to become contaminated. Mr Melik said that one of the purposes of establishing a network of VWPs was to ensure that the internal pressure of the burn chamber did not exceed the external pressure affecting the chamber, as where the internal pressure of the burn chamber exceeded the external pressure affecting the burn chamber, this could have resulted in hydrocarbon chemicals leaking into the surrounding groundwater and contaminating the soil. Even though it might have been only one of the purposes for establishing the network of VWPs, that purpose is necessarily associated with complying with the statutory requirements found in Condition (C1-1) and Condition (F1-1). Again, that association with compliance remained regardless of any wider coverage by the plan or wider purposes to which Moreton Resources might have intended for the network of VWPs.
289. Subsidence monitoring was required by Condition F2-1 of the 2011 Amended EA until March 2011. That period had passed by the time the 2011-2012 year began but Moreton Resources was obliged by Condition (F4-2) to, among other things, rehabilitate all areas disturbed as a result of the approved activities. Among other requirements, rehabilitation had to restore the areas to a stable, non-polluting land form. Under Schedule F, Table 1, Moreton Resources was also required to restore all disturbed areas, estimated to be one hectare, to be of the same capability class as it was before the pilot UCG project and to have a final slope as close as practicable to the landform of the site before the commencement of activities associated with UCG.
290. Quite apart from rehabilitation of the site, Conditions (C1-1) and (F1-1) of the 2011 Amended EA continued to oblige Moreton Resources to ensure that contaminants not be released to any waters or to any land that may cause the land to become contaminated.
Page 110 of 128
One of the risks of subsidence was, as Mr Melik said, the possibility that organic components in the rock would be released and affect the makeup of the syngas and its production rate. In particular:
“The monitoring of subsidence throughout the project was integral to the production of a high quality syngas because, [sic] of a possibility that the roof of the burn chamber may sag or even partially collapse releasing the organic components in the rock, which in turn could affect the syngas make up and production rates.”338
291. Mr Melik said that subsidence monitoring had commenced following Moreton Resources’ receipt of the report prepared by Golder dated 4 March 2010 and entitled “Overlying Rock Characterisation and the Impact of the Void on Overlying Strata, Kingaroy Gasification Trial”. I note that Mr Melik said that the monitoring of subsidence throughout the project was integral to the production of a high quality syngas because there was the possibility that the roof of the burn chamber might sag or even partially collapse. If it were to, there was the possibility that organic components in the rock would be released and affect the makeup of the syngas and its production rate. That is a purpose apart from Moreton Resources’ compliance with Conditions (C1-1) and (F-1) but it does not detract from the fact that Moreton Resources had to address subsidence if it was to meet those Conditions. Another purpose of subsidence monitoring was to demonstrate that the relatively small amount of coal extracted by gasification of 5,000 tonnes approximately 200m below the surface would cause any measurable subsidence. Shrinkage and swelling of the overlying soils were likely to far exceed and mask any movement that may occur but Golder recommended that subsidence be measured in order to demonstrate that point. Monthly readings were recommended.339 That purpose too was a purpose apart from Moreton Resources’ compliance with Conditions (C1-1) and (F-1) but it does not detract from the fact that Moreton Resources had to address subsidence if it was to meet those Conditions.
A.3 Design and verify a procedure for rehabilitation of the underground cavity: MNA
A.3.1 What is Monitored Natural Attenuation?
292. One of Moreton Resources’ own consultants, GHD, described anaerobic biodegradation via sulphate reduction in its paper dated October 2015 and entitled “Kingaroy UCG Pilot Plant Application of Monitored Natural Attenuation in Groundwater” as having been a key biodegradation process involved with the destruction of hydrocarbon spills. It also stated that it had been previously proposed for hydrocarbon sites. In an earlier draft letter and report it had prepared for Moreton Resources in February 2012, GHD had said that, although there was no supporting information regarding MNA at other UCG sites with
338 Statement of Mr Melik; Exhibit E; [154] 339 Statement of Mr Melik; Exhibit E; Annexure VM-26 at 538; [6.0] and 541
Page 111 of 128
similar hydrogeology, there was ample evidence for supporting MNA at petroleum hydrocarbon contaminated sites, where benzene is frequently the key contaminant of concern.
293. Dr Lloyd Townley is a Principal Environmental and Water Engineer who has more than 30 years of experience in relation to groundwater and hydrogeology as well as surface hydrology, hydraulics and some aspects of geotechnical engineering, across a spectrum from water resources and environment to the mining and coal seam gas industries. Dr Townley’s evidence was in the same vein as the views expressed by GHD. He explained under the heading of “Responses to Questions” and when giving a description of the MNA process that:
“2.1 Monitored Natural Attenuation (MNA) is a technique or methodology for remediation of contaminated groundwater that has been evolving since the mid-1980s and certainly throughout the 1990s. 2.2 Following discovery of a large number of contaminated sites on or beneath industrial and military sites, especially in the USA and Europe, the initial approach to remediation was to remove contaminated groundwater by pumping, followed by conventional water treatment above the ground; these methods are generally described as ‘pump and treat’ methods. In time it was discovered that concentrations of some contaminants, including benzene and toluene (constituents of BTEX), diminish in time, in situ, apparently by natural processes. 2.3 These natural processes …[FN: Other possible natural processes include volatilisation and radioactive delay] are a combination of (i) physical processes (diffusion and dispersion, the latter being a phenomenon caused by tortuous paths of groundwater through porous and fractured media, with different average velocities along different paths, and by diffusion across lateral gradients in velocity caused friction near solid surfaces and higher velocities further from those surfaces), (ii) chemical processes (adsorption, reactive transport and in some cases, precipitation) and (ii) biological processes (mainly biodegradation, whereby bacteria use contaminants as sources of food/energy, such that dissolved solutes are changed chemically from one form to another). The combination of all of these processes, leading to progressive reductions in concentrations of contaminants of concern, is known as Natural Attenuation (NA). 2.4 MNA is an extension of this concept, emphasising that while NA may occur naturally, without any planning or design, it is possible to hypothesise that NA will be useful in remediation of a contaminated site, reducing concentrations at specific agreed locations to agreed levels within an agreed timeframe, so as to protect environmental receptors and human health, and to undertake monitoring (the M in MNA) to confirm that NA is taking place as hypothesised. 2.5 The design and implementation of monitoring is a critical part of MNA. MNA is not a straightforward process but requires iteration and adaptation, because additional measurements sometimes confirm what was believed to
Page 112 of 128
be happening and sometimes require initial concepts and hypotheses to evolve, with subsequent changes in approach.”340
294. Dr Townley explained that MNA may be referred to in various ways, such as enhanced natural attenuation or enhanced monitored natural attenuation or monitored natural attenuation. Definitions adopted by regulators have also varied over the years. Some emphasise the need to meet remedial objectives in 30 years or so but others require only that the mass, concentration, flux or toxicity in groundwater be reduced to an acceptable level within an acceptable or reasonable timeframe. Some refer to specific substances and some allow dilution. As for MNA, Dr Townley said, “lines of evidence” are important in determining the applicability of MNA. He referred to an extract from a publication by Beck O and Mann B entitled “A technical guide for demonstrating monitored natural attenuation of petroleum hydrocarbons in groundwater”341 quoted by Dr Robert McLaughlan and explaining the importance of the lines of evidence determining the applicability of MNA. Dr Townley preferred the explanation given by the New South Wales Department of Environment and Conservation (DEC) in its March 2007 publication entitled “Contaminated Sites. Guidelines for the Assessment and Management of Groundwater Contamination”:
“‘Remediation by natural attenuation requires demonstrating progress towards attaining the remedial goals. This is achieved by using converging lines of evidence, which are obtained through monitoring and evaluating the resulting data. Monitoring should continue until the remedial goals have been met.’ · ‘Primary evidence that remediation by natural attenuation is working is seen when there is a reduction in the lateral and vertical extent of the plume, and reductions in concentrations of the contaminants of concern within the plume.’ · ‘Secondary evidence is provided by geochemical indicators of naturally occurring degradation and estimates of attenuation rates.’ · ‘Additional optional lines of evidence can be provided by microbiological information, including field and laboratory microcosm studies, where this information directly demonstrates the occurrence of a particular biodegradation process at a site. Further analysis of primary and secondary lines of evidence may also be required using, for example, solute transport modelling or estimates of assimilative capacity.”342
A.3.2 Was Moreton Resources’ application of MNA associated with statutory requirements?
295. Although MNA was mentioned in the Groundwater Management Plan that GHD prepared in August 2011, it was not referred to in the responses that GHD prepared for Moreton Resources in response to Conditions (C10-1) to (C10-9) of the 2011 Amended EA. Given
340 Exhibit 4 at 8-9 341 This was a publication also entitled “Cooperative Research Centre for Contamination Assessment and Remediation of the Environment, Technical Report series, no. 15” and the logos of CRCCARE and GHD both appeared on the cover as did the authors’ association with GHD. 342 Exhibit 4 at [2.21] at 12
Page 113 of 128
its Introduction and its recommendations, I find that the Groundwater Management Plan was an activity associated with compliance with the 2011 Amended EA, of which Moreton Resources had been given notice. I also find that an integral part of the MNA process was the collection, testing and analysis and monitoring of groundwater samples. Their purpose is to demonstrate whether the natural attenuation processes are acting at a rate sufficient to demonstrate that the remedial objectives will be achieved either within a timeframe that has been determined or within a period of time that is reasonable for that specific site.343
296. I also find that there was correspondence and that there were discussions between DERM and Moreton Resources regarding various issues. They included the fact that DERM had undertaken a full suite of analysis of water quality at landholder locations and groundwater bores at Moreton Resources’ site and also looked at MNA. I have referred to that at [106]-[113] and at [116]-[131] above. It was correspondence that took place against a background of Moreton Resources’ obligations to comply with the 2011 Amended EA and, in particular, with Condition (C10-7) and the consequential requirements of Conditions (C10-8) and (C10-1). DERM was entertaining the proposition that Moreton Resources could meet its obligations by applying MNA but it felt that Moreton Resources was proceeding with the proposition unilaterally. Proceeding in that way was contrary to DERM’s understanding that it had offered, and Moreton Resources had espoused, that they would work together to achieve a mutually acceptable outcome. Whether it was working with DERM or proceeding unilaterally, Moreton Resources’ activities regarding MNA were directed to rehabilitating the site of the pilot UCG project and associated with the statutory requirement imposed upon it under Condition (C10-7). That means that its activities in this regard cannot be regarded as core R&D activities by virtue of s 355-25(2)(f) of the ITAA97.
A.3.3 Were Moreton Resources’ activities associated with MNA experimental activities?
297. Despite my finding, I have also considered whether Moreton Resources’ MNA activities would have been regarded as core R&D activities under s 355-25(1). The first limb of that section requires that the activities be regarded as “experimental activities”. Dr McLaughlan and Dr Townley both agreed that the former had identified activities linked to various aspects of applying MNA to the Kingaroy site. He had listed them in his report dated 13 October 2016 when he also added his understanding of the activities undertaken by Moreton Resources. I will come back to Moreton Resources’ particular activities and both Dr McLaughlan and Dr Townley’s evidence regarding those activities:
“Source zone characterisation.
343 Technical Report No. 3 published in 2006 by CRCCARE and written by RG McLaughlan, NP Merrick and GB Davis; Exhibit 2 at 1
Page 114 of 128
· Examined coal chips which showed minimal extensive coal alteration and therefore likely minimal impact on subsurface flora at a distance from the UCG cavity. · Analysed alternate sources of benzene release to the groundwater · Arsenic: Its availability and potential attenuation was incorporated into biogeochemical footprint and CSM models [conceptual site models] Tested contaminant transport processes · Packer tests, pump test, Standing water levels, air acceptance test Tested contaminant transport processes · Collected data and analysed electron donor (Benzene, Toluene) and various electron acceptors (e.g. sulphate) relationships · Collected hydrochemical data (methane, oxygen, redox) to confirm geochemical conditions with the aquifer. Tested Electron Acceptor enhancement · Oxygen injection was trialled and unsuccessful. An alternate electron acceptor (sulphate) was used in the EISB trial. · Sulphate reducing bacteria (SRB): better define availability of SRB through BART & Lab analysis. This underpinned the EISB trial.”344
298. Dr McLaughlan was of the view that each of the activities required some contextualisation of an issue, some experimentation/data collection and then a revision of the conceptual site model (CSM). In his second report dated 19 January 2017, Dr McLaughlan stated that he believed that many of the activities that he had described were experimental.345 When elaborating on each of the activities, though, he also described the collection of data and analysis of electron donors (benzene and toluene) and various electron receptors such as sulphate as “fairly straightforward”346 and BART and laboratory analysis as “standard measures”.347 In conclusion on this aspect, Dr McLaughlan said that “Each of these activities outlined above required the contextualisation and definition of an MNA issue, some experimentation/data collection and then a revision of the CSM.”348
299. During cross-examination, Dr McLaughlan agreed with the proposition that the first three activities involved data collection.349 He also agreed that the oxygen injection trial had taken the form of delivering air into the coal seam using a length of polytube.350 As for the BART tests, Dr McLaughlan would have expected them to be carried out in accordance with standard protocol
344 Exhibit G at 14-15 345 Exhibit H at 11 346 Exhibit H at 12 347 Exhibit H at 13 348 Exhibit H at 13 349 Transcript at 104 350 Transcript at 104-105
Page 115 of 128
300. MNA was a known process is apparent in the Technical Report No. 3 published by CRCCARE in 2006. The authors, of whom Dr Robert McLaughlan was one, stated that there is a broad scale acceptance of the concept of using lines of evidence to evaluate natural attenuation processes and it involves the approach of identifying primary, secondary and tertiary lines of evidence. At [2] of their conclusions, they stated that:
“Six years ago, MNA was recognised as a well-established remediation approach for only a few types of contaminants, but importantly these include the petroleum compounds benzene, toluene, ethylbenzene and the xylene isomers (BTEX) and some oxygenated hydrocarbons. …”351
301. In the Australian context, Dr McLaughlan and his co-authors of Technical Report No. 3 sounded a note of caution:
“10. Published literature on natural attenuation processes at Australian sites for petroleum hydrocarbons is patchy and lacks a degree of specificity about site location, degradation rate and contaminant data, which therefore limits the usefulness of the literature for contributing to a generalised understanding of contaminant behaviour across those specific subsurface environments. 11. In Australia, there have only been two published studies on petroleum hydrocarbon characteristics at multiple MNA sites. There is not enough data to conclude whether the generalised behaviour of petroleum hydrocarbon plumes under Australian conditions is similar to that reported from overseas. Therefore, the general applicability of overseas data (e.g. degradation rates) to Australian sites is a knowledge gap. 12. Published Australian natural attenuation literature has focused on shallow sand aquifer systems. These include the Quaternary aquifer around Perth and the Botany aquifer near Sydney. Studies on these sites could provide the fundamental data for scenario modelling at these locations. Generally there were few papers which described the contaminant behaviour in fractured rock and clay sites.”352
302. Dr Townley’s expert report is dated 1 December 2016. He acknowledged this summary of MNA’s place as well-established remediation and referred to subsequent literature to the same effect. What would not have been known in advance in the period between 1 July 2011 and 30 June 2014 was the rate of degradation of benzene and toluene. That rate could only be determined by monitoring. The timeframe required for natural attenuation to achieve acceptable levels would not have been known. To that extent, there is consistency between the views expressed by Dr McLaughlan and by Dr Townley with the latter stating that he agreed “… that MNA, by its very nature, is undertaken in the field and requires an adaptive approach. …”.353
351 Exhibit 2 at 35 352 Exhibit 2 at 36 353 Exhibit 4 at [2.54]
Page 116 of 128
303. In his report dated 13 October 2016, Dr McLaughlan focused on MNA at the site of the pilot UCG project at Kingaroy. He stated in his earlier report that he had formed the view that Moreton Resources had undertaken a systematic progression of work based on principles of established science and proceeding from hypothesis to experiment, observation and evaluation. In his opinion, what could have been known or determined in advance of the period from 1 July 2011 to 30 June 2014 was:
“· That one or more Natural Attenuation (NA) processes would cause a decrease in any groundwater contamination concentrations down-gradient of a contaminant source at the site. This situation occurs at all contaminated sites. In this comment it is important to distinguish between NA processes and Monitored Natural Attenuation (MNA) … · That MNA should be considered as a potential remediation strategy at this site should a groundwater contamination issue arise. There was enough knowledge/information/experience about the conditions related to contaminant generation that can occur at UCG sites and natural attenuation processes which affect contaminant fate to suggest that there was a possibility of success in implementing a Monitored Natural Attenuation strategy.”354
304. In his opinion, Dr McLaughlan continued:
“… the outcome of MNA as a remediation strategy at the Kingaroy site could not be known or determined in advance of the specified time period. My conclusion is based on the lack of knowledge fundamental to MNA at UCG sites which have similar environmental conditions to those at Kingaroy. The Kingaroy site still had uncertainties and complexities related to having been subjected to a UCG process. These are related to the contaminant source characterisation, the extent to which mass destruction of the contaminants was occurring and whether the metabolic capacity of the aquifer could be increased. … The uncertainties were also largely related to the depth of the underground cavity … Understanding these uncertainties is critical to predicting whether acceptable levels of attenuation will occur at the site in a given timeframe. This is a requirement of MNA … Another reason for my conclusion is the lack of site specific knowledge gained from the Kingaroy site up to that point. There was not enough temporal sufficiency on benzene data collected from groundwater at the Kingaroy site. The available data at 1 July 2011 … does show a trend of contaminant attenuation from 21/06/2010 to 6/6/2011 in wells T5058, T5061, P2. But the causes of this and whether there was a need to enhance the MNA process through a processes such as Enhanced In-Situ Biodegradation (EISB) to meet the MNA targets were not evident.”355
305. He added:
“… Whether or not the use of MNA at Kingaroy was focused on generating ‘new knowledge’ is a different matter. In my opinion, the knowledge sought would nearly always be focused on achieving successful remediation at the site where activities are taking place, with secondary emphasis on developing processes that could be applied elsewhere in similar situations in the future.”356
354 Exhibit G at 4 355 Exhibit G at 4-5 356 Exhibit 4 at [2.54]
Page 117 of 128
306. Dr Townley has also expressed his view on whether the outcome of the application of MNA could have been known in advance and whether there were any uncertainties or complexities associated with its application at the Kingaroy site and particularly with the depth at which it was applied. With regard to the questions, Dr Townley wrote:
“Could the outcome of the application of MNA to groundwater affected by the UCG processes have been known or determined in advance? There would have been reasonable confidence that MNA would be successful, however the rate of decrease in concentrations could not have been determined in advance, so the timeframe for recovery to acceptable concentrations could not have been predicted in advance. Did the application of MNA to groundwater affected by UCG processes have any particular uncertainties or complexities associated with it? If so, what were these uncertainties or complexities? In my opinion, there may be specific issues related to UCG that could have been or should have been contemplated in advance of operation of the UCG pilot plant, and subsequently as part of analysis of what happened (when elevated concentrations were observed) and what should be done to remediate the site. The complexities relate to the nature of the disturbance. The physical/chemical/biological environment in which burning took place is not exceptional, i.e. the nature of coal seams and surrounding geological media is well known. However the process of high temperature combustion in the subsurface is not a natural process, an analysis and prediction of physical and chemical processes would be very complex. Formal analysis would require what is called multi-physics computational software. Of particular interest would be the evolution of temperatures and pressures, and analysis of scenarios that might allow (i) temperatures and pressures to affect the characteristics of surrounding strata, possibly leading to changes in strength, or to deformation and fracturing, and (ii) possible releases of gases into surrounding strata, if or when pressure gradients cause flow outwards from the cavity. While these complexities may have been recognised, I have not sighted reports that describe these processes or risks. What was the state of knowledge, information or experience concerning the application of MNA at depths ranging from 200-250 metres beneath the ground? I have not explored the literature in depth, but in my opinion, it would have been reasonable to assume reducing conditions at those depths, so that normal aerobic pathways for biodegradation of petroleum hydrocarbons would not be anticipated. On the other hand, the work by (Johnson et al. 2003) would have given some help that biodegradation could proceed, either naturally via NA or MNA, or with enhancement. I do not consider the depth range from 200-250 metres below the ground surface to be particularly significant. The same could be said about shallower or deeper ranges of depth. Could the outcome of the application of MNA to groundwater at depths ranging from 200-250 metres beneath the ground have been known or determined in advance? As indicated above, in my opinion it would have been reasonable to assume that MNA could be effective, although the timeframe and the precise mechanisms for encouraging MNA (by enhancement, if necessary) would not have been known. I do not consider the depth range from 200-250 metres below the ground surface to
Page 118 of 128
be particularly significant. The same could be said about shallower or deeper ranges of depth.”357
307. The earliest reference to MNA in the material is found in the report prepared by GHD in August 2011, I find that it first recommended that MNA was an appropriate management response to the identified contamination as per the monitoring plan that GHD set out in the Groundwater Management Plan that it set out in the same report.358 It continued to adopt the same approach in the draft letter it prepared for Moreton Resources in February 2012 and in June 2012. Those letters were written on the basis that MNA now had new technical guidelines and was a known process even though there were subtle differences between its use as a remediation tool, as it would be at Kingaroy, and its use as a management tool. The technical guidelines published by CRCCARE and written by Messrs Beck and Mann from GHD had been designed for assessment of MNA in the context of petroleum hydrocarbon contamination of groundwater. The organic chemicals of potential concern, such as BTEX, identified at the site of the pilot UCG project, included the same organic chemicals as those that were the subject of the guidelines.
308. The basis on which I find the letters were written accords with the evidence of Dr McLaughlan and Dr Townley. By 2012, MNA was accepted as a well-established remediation approach for petroleum compounds known as BTEX. I also accept that the processes by which MNA was carried out were settled. So too were the three lines of evidence that would be relied on in any set of circumstances for the purpose of forming estimations of attenuation rates and remediation timeframes. The recording and analysis of samples of groundwater and its contaminants was data collection and did not involve any experimental activity.
309. Until the procedures inherent in MNA were followed, the circumstances that prevailed at the Kingaroy site could not be known or determined. MNA, however, is a process that monitors what is happening naturally. Having monitored what was happening naturally at the Kingaroy site, MNA allowed a prediction to be made as to the time that will be taken for that natural process to lead to a certain outcome. EISB was not conducted in the 2011-2012 year.
310. In the instance of the remediation process required by Condition (C10-7) of the 2011 Amended EA, the outcome to which MNA was directed was the removal of all residual contaminants attributed to the underground coal gasification. Dr McLaughlan thought that
357 Exhibit 4 at [2.55]-[2.58] 358 Statement of Mr Melik; Exhibit E; Annexure VM-67 at 3305 and see [94] above
Page 119 of 128
there was a “reasonable uncertainty” that the MNA would be successful.359 He had explained what he meant earlier in cross-examination when he was referred to the letter dated 21 June 2012 prepared by GHD and to the passage under the heading “Level of Confidence in the Monitoring Data”:360 “… I mean, to me that sort of is saying are the conditions suitable? And you may not know that until you actually test it if there’s uncertainty about what conditions are really necessary or viable for these types of degradation reactions to go on, and that’s really been the heart of a lot of my reports, talking about that we aren’t absolutely certain what conditions will allow it and what aren’t, and this is really the heart of – to me, the uncertainty underpinning this particular site is there’s a lot of conditions there that really haven’t been tested before for benzene-specific degradation. And that’s a key point, as opposed to just general bio-degradation. …”361
311. Dr McLaughlan also explained that over 90% of documented hydrocarbon MNA sites are typically shallow with oxygen, nitrate and a full range of electronic acceptors already in place when contamination occurs. Contamination is then degraded by consuming those electronic acceptors. That was not the case at Kingaroy.
312. Having regard to the letter dated 21 June 2012 and written by GHD to Moreton Resources for the purposes of the latter’s responding to DERM, I find that the groundwater management plan developed in August 2011 was regarded, for all practical purposes, as the conceptual model or CSM that DERM required up to that point. That follows from GHD’s suggested response to DERM’s request for a conceptual model of the processes that were occurring by expanding their previous assessment of MNA within the proposed groundwater management plan by including recent data and exploring potential indicators of attenuation, and particularly biodegradation, processes.
313. It is also apparent from the groundwater management plan put forward by GHD in August 2011 that it expected that MNA would lead to a successful outcome. That view is also inherent in the response it prepared for Moreton Resources addressing the issues raised by DERM. It clearly regarded its groundwater management plan as the conceptual plan or CSM. In that plan, GHD recommended that MNA was an appropriate management response to the identified contamination. It set out a monitoring plan and recommended compliance bores on the basis of site specific issues at the site and in consideration of DERM’s recommendations. The basic monitoring strategy was based on the concept of concentric rings of compliance, equivalent to the time of travel of one, five and ten years. A
359 Transcript at 129 360 See [111] above 361 Transcript at 125
Page 120 of 128
diagram illustrated the concept of concentric rings of compliance based on time of travel for benzene.362
314. The whole of the documentation reveals that Moreton Resources was relying very much on GHD’s advice but, more explicitly, Mr Elks said that it submitted the groundwater management plan to DERM.363 It is clear from that plan, and particularly from its analysis of the contaminant trend summary, that it saw MNA as an appropriate management response in view of the trends showing decreasing contamination following natural attenuation due to mechanical dispersion and biodegradation.364
315. While I accept that Moreton Resources could not know the extent to which natural attenuation of contaminants would continue, I also accept that it did not see the process as an experiment. The trends suggested that natural attenuation was occurring and would occur. MNA was adopted because it was seen as an appropriate response to its obligations regarding remediation of the site. It was not adopted so that Moreton Resources could gain new knowledge. The only new knowledge that it would gain would be knowledge relating to the way in which MNA played out in the precise circumstances of the Kingaroy site but that knowledge would always be specific to that site. There is no suggestion in the groundwater management plan that there were any particular concerns regarding the depth at which natural attenuation was being monitored. The outcome depended on the particular circumstances encountered. Depth was one of the circumstances but there was an expectation of success just as, to adopt the analogy given by Dr Townley, there is an expectation that the drugs a doctor prescribes a patient will lead to a successful resolution of the condition as they have done for other patients suffering from the same condition but a doctor cannot guarantee a successful resolution for each patient. That does not mean that the doctor is undertaking an experimental activity each time a prescription is written for a patient. The doctor is not prescribing drugs for the purpose of gaining new knowledge and nor was Moreton Resources. It was undertaking an activity that had been undertaken previously in circumstances involving hydrocarbon contaminants and adopting an accepted procedure.
316. It follows that I do not accept that the design and verification of a procedure for rehabilitation of the underground cavity using MNA was an experimental activity or that it satisfied s 355-25(1)(b). As it does not satisfy those criteria it cannot be a core R&D activity within the meaning of s 355-25(1).
362 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3307 363 Statement of Mr Elks; Exhibit E at [29] 364 Statement of Mr Melik; Exhibit E at Annexure VM-67 at 3305
Page 121 of 128
317. I have reached that conclusion referring to MNA but am aware that enhanced MNA was also applied at the Kingaroy site. The dates are not clear but, in view of the letter written by DERM to Moreton Resources on 19 September 2012, it would seem that enhanced MNA had not been undertaken until the 2012-2013 years. In large measure, the same reasoning would lead me to the conclusion I have reached in relation to MNA. In particular, I am satisfied that the enhanced MNA was a process that was already accepted scientific practice. This is apparent from GHD’s advice to Moreton Resources but also accepted by Dr McLaughlan and Dr Townley. The paper “Use of High Concentration Magnesium Sulfate Solution to Remediate Petroleum Impacted Groundwater” published in 2007 is to the same effect.365 The Introduction to the paper reads, in part:
“ The use of natural processes to remediate petroleum impacted groundwater in-situ is generally accepted practice. However, the length of time needed to reach regulatory required cleanup criteria is sometimes unsatisfactory. Enhancing natural processes to speed the rate of degradation would be very desirable. Anaerobic degradation is the dominant driving force in natural attenuation of petroleum contamination in the subsurface. The contribution to natural attenuation by electron acceptors other than oxygen, such as nitrate, iron III, manganese IV, sulfate, and even carbon dioxide, has been the subject of considerable research in recent years. Kolhatkar et al. (2000), Wiedemeier et al. (1999), and Wilson et al. (2002) have shown that of these natural anaerobic processes, sulfate reduction amounts for most of the degradation. The addition of these alternative electron acceptors has been shown to have many potential advantages over the traditional approach of attempting to add dissolved oxygen to the plume. Successful applications of relatively low concentrations of sulfate solution (<1,000 milligrams per liter (mg/l)) have been previously reported (Anderson et al., 2000; Cunningham et al., 2001). A process using high concentrations of sulfate solution (>1,000mg/l) has been developed to accelerate remediation and site incident closure. The case studies presented in this paper demonstrate the benefits of using high concentrations of Magnesium Sulfate Heptahydrate (MgSO4) solution to stimulate the biodegradation of petroleum contaminants in groundwater under field conditions at various sites. In addition to the relatively rapid degradation of petroleum compounds such as BTEX, this technology is quite cost effective in comparison to other currently available remediation techniques. Magnesium Sulfate was selected for use due to availability, low cost, high solubility and the relative safety associated with handling. This technology has advantages over others for many sites where physical limitations (buildings, utilities, etc.) preclude other technologies.”
318. The purpose for which Moreton Resources used enhanced MNA was to remediate the site and to comply with the statutory requirements. It did not use it for the purpose of generating new knowledge but employed a recognised scientific process that was being applied in a particular circumstance for a particular purpose. That purpose was remediation of the site. There was nothing in the material that suggests that the depth at which enhanced MNA would take place would present either a problem or an opportunity to gain new knowledge. The established science had already established that anaerobic
365 James F Cuthbertson, Jeffrey A Kaestner and Lyle G Bruce; Proceedings of the Annual International Conference on Soils, Sediments, Water and Energy: Volume 12, Article 24: Exhibit 3 at 1
Page 122 of 128
degradation is the dominant force in natural attenuation of petroleum contamination in the subsurface and the successful applications of sulphate solution to enhance the natural process.
319. I am satisfied, though, that GHD, and so Moreton Resources, proposed a conceptual model of the enhanced MNA process from late June 2012. That is found in GHD’s letter dated 21 June 2012 to Dr Walker of Moreton Resources. It was a conceptual model at a high level but was to be read with the “contingency plan” at the end of the letter. That gave further detail of enhancement of the anaerobic biodegradation by way of sulphate reduction by the introduction of soluble sulphate into impacted bores. In bores where high pH is likely to be limiting microbial activity, the introduction of mildly acidic substances might be required.
320. That conceptual model is, I find, the hypothesis for what followed but I do not find that what followed was a progression of work that proceeded from that hypothesis to experiment, observation and evaluation and on to logical conclusions. It was a process that could not be described as trial and error.366 If something is done by trial and error, it is done by “… trying various methods, alternatives, etc until a correct or suitable one is found. …”367 There is an element of order and planning in a trial and error approach. The process that was adopted suggests a much more random approach that was not underpinned by order or planning. The letter dated 19 September 2012 from DERM to Moreton Resources identified ongoing issues with the process that had yet to be resolved. The groundwater flow studies predated the UCG process and might have changed in the meantime. Data supporting hypotheses that underpinned the conceptual model was absent. There is no reference in the material to that point indicating that tests had been conducted to test for microbes or the presence of factors which regulated microbial growth and nutrition in the MNA area. Water tests were carried out and the samples analysed on 4 October 2012 to measure sulphite reducing bacteria. Thought was given to carrying out laboratory bench trials but Moreton Resources decided to use sulphate reducing anaerobic bacterial at the Kingaroy site. The email correspondence between GHD and Moreton Resources on 26 October 2012 suggests that a robust approach was adopted in deciding what should be added to the bores and in what quantities. It was not a progression of work that proceeded from hypothesis to experiment, observation and evaluation and on to logical conclusions within the meaning of s 355-25(1)(a)(ii).
366 Trial and error may be regarded as experimental in some contexts. See, for example, Re Babinda Co- operative Sugar Milling Association Ltd and Australian Industrial Research and Development Incentives Board [1980] AATA 38; (1980) 2 ALD 851 at [39]; 868-869; Senior Member Todd and Messrs Williams and Stock, Members 367 Chambers
Page 123 of 128
A.3.4 Testing and evaluation of gas production and plant performance to test the viability of the coal seam and to ensure environmental standards can be met.
321. On the evidence, the pilot UCG plant had been shut down in March 2010 but I accept that Moreton Resources continued to plan for the time when it was permitted to re-ignite the pilot UCG project. That time never came but that does not determine the matter. What does determine the matter is that the activities in which Moreton Resources engaged were no different in their character from those that they undertook in relation to establishing the pilot UCG project before its shutdown. For the reasons that those activities were not core R&D activities, those undertaken in 2011-2012 in relation to re-ignition and including testing and evaluation of gas production and plant performance are also not core R&D activities.
A.3.5 Investigation of ground water movement and extent of plume in upper and lower aquifers
322. I have reached the same conclusion in relation to Moreton Resources’ activities relating to the investigation of groundwater movement and the extent of the plume in the upper and lower aquifers. These are activities of data collection and of monitoring and, in the 2011-2012 year, have already been considered in the context of the activities related to environmental monitoring, installation and monitoring of pressure sensors and subsidence monitoring and the activities related to design and verification of a procedure for rehabilitation of the underground cavity by means of MNA or enhanced MNA.
Core R&D Activity 1.1 for application year 2012-13
A.1 Design and develop UCG generated syngas cleaning and power generation pilot plant A.2 Environmental monitoring, installation and monitoring of pressure sensors and subsidence monitoring A.3 Design and verify a procedure for rehabilitation of the underground cavity: MNA
323. These three activities reflect activities undertaken in the previous year by Moreton Resources. In so far as the activities were undertaken, and ISA queries that in relation to A.1, there is nothing in the evidentiary material that leads me to conclude that their essential characteristics is anything different from those I have found when they were undertaken in the previous year. That is to say, they are not core R&D activities.
Page 124 of 128
A.4 Investigations and development of processes to decommission the pilot plant ensuring that the environment is returned to its original condition, including building a conceptual model of natural attenuation of benzene
324. I have already considered this when considering enhanced MNA conducted by Moreton Resources. Those activities extended over both 2011-2012 and 2012-2013 but my findings remain the same. For the reasons I have given above, I am not satisfied that they are core R&D activities. They did not meet the criteria set out in s 355-25(1) and were, in any event, excluded by s 355-25(2)(f) as activities associated with statutory requirements for the same reasons that their activities associated with MNA were associated with them.
Core R&D Activity 1.1 for application year 2013-14
A.1 Development of a conceptual water model of the natural attenuation of benzene and modelling/testing the actual results of this model. A.2 Develop a procedure for rehabilitation of the underground cavity including investigations that help to understand the chemical attenuation around the pilot plant as a result of the pilot plant … [trials].
325. At [111]-[113] above, I have identified one conceptual model that was developed in 2012 by GHD regarding the natural attenuation of contaminants including benzene. I have not identified another in the evidentiary material that was generated in the 2013-2014 year either as a single document, or part of a document, or by drawing from a number of documents relating to activities during the year. In the absence of my finding that activities were undertaken, I have nothing to assess against the criteria set by s 355-25(1) and so am not satisfied that core R&D activities of that type were undertaken.
326. I have already considered activities of the sort that come within the description of development of a procedure for the rehabilitation of the underground cavity including investigations that help to understand the chemical attenuation around the pilot plant as a result of the pilot plant trials. Whether they are activities associated with sampling groundwater and analysing the samples and other activities associated with MNA and enhanced MNA, they are activities associated with Moreton Resources’ complying with the statutory requirements of conditions such as Condition (C10-1), (C10-7) and Condition (A8-1) as well as Conditions such as (F3-2), (F3-3), (F4-1), (F4-2) and (F4-3). That would take them outside any characterisation as core R&D activities as they would be excluded by virtue of s 355-25(2)(f).
327. Quite apart from their being excluded from any description as core R&D activities, the activities would not come within the terms of s 355-25(1) for the same reasons that the activities undertaken in relation to MNA, enhanced MNA and rehabilitation of the pilot UCG project did not.
Page 125 of 128
Are the activities making up Activity 1.1.1, 1.1.2 and 2.1.1 for each year supporting R&D activities?
328. In view of my findings and conclusions, there are no supporting R&D activities because none of the activities claimed to come within that category is an activity directly related to a core R&D activity because there are no core R&D activities.
DECISION
329. For these reasons, I affirm the decision of the respondent dated 21 December 2015 confirming the decision dated 21 August 2015 that activities in respect of which Moreton Resources had applied for registration were not R&D activities as defined in s 355-20 of ITAA97.
GLOSSARY OF TERMS
ABBREVIATION TERM
AWS Applicant’s Written Submissions
BFS Bankable Feasibility Study
Administering authority Environmental Protection Agency
BART Biological Activity Reaction Test
BTEX benzene, toluene, ethylbenzene and xylenes
CPOC contaminants of potential concern
CSM conceptual site model
DEC Department of Environment and Conservation (New South Wales)
DEEDI Department of Employment, Economic Development and Innovation
DEHP Department of Environment and Heritage Protection (successor of DERM)
DERM Department of Environment and Resource Management and later known as Department of Environment and Heritage Protection (Qld)
EA Environmental Authority being Permit No. MIN100656507 issued 30 April 2008
2008 Amended EA Environmental Authority as amended on 24 October 2018
EEN Environmental Evaluation Notice
Page 126 of 128
ABBREVIATION TERM
EISB in situ biodegradation
EPA Environmental Protection Agency
EP Act Environmental Protection Act 1994
EPO environmental protection order
FEED document “Kingaroy Pilot UCG Project Front End Engineering Definition” released on 27 May 2008
GHD GHD Pty Ltd
GWB GWB Engineering Pty Ltd
ISA Innovation and Science Australia
ISP Independent Scientific Panel on Underground Coal Gasification
JORC Joint Ore Reserves Committee
Kingaroy Project Project 1
MDL Mineral Development Licence
MDL385 MDL No. 385 granted under s 186 of the Mineral Resources Act 1989 (Qld)
MDL420 MDL No. 385, for which application was made under s 186 of the Mineral Resources Act 1989 (Qld) in March 2011
MNA monitored natural attenuation
MR Act Mineral Resources Act 1989 (Qld)
NOPA DERM’s Notice of Proposed Action dated 28 January 2011
PEP Kingaroy Pilot Gasification Plant Project Execution Plan
Project 1 Kingaroy Project
Project 2 Wandoan Project
SEQEPL SE Qld Energy Pty Ltd
SRB Sulphate Reducing Bacteria
TPH total petroleum hydrocarbon
UCG underground coal gasification
Wandoan Project Project 2
Page 127 of 128
ABBREVIATION TERM
UCG policy Underground Coal Gasification Policy issued by Queensland Government on 18 February 2009
2008 Amended EA Environmental Authority amended on 24 October 2008
2009 Amended EA Amendment of 2008 Amended EA: 22 September 2009
2009 Further Amended EA Amendment of 2009 Amended EA:15 October 2009
2011 Amended EA Amendment of 2009 Further Amended EA: 7 July 2011
I certify that the preceding three hundred and twenty-nine (329) paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie
...... [sgd]...... Personal Assistant
Dated: 10 September 2018
Date of hearing: 13 February 2017, 14 February 2017 and 16 February 2017
Counsel for the Applicant: Ms Melanie Baker
Solicitor for the Applicant: Ms Angelina Lagana KPMG Law
Counsel for the Dr Sarah Pritchard and Mr Thomas Prince Respondent:
Solicitor for the Ms Rebekha Pattison Respondent: King & Wood Mallesons
Page 128 of 128