Ensuring Polluters Pay: Key Messages from Redwater Insight’s submission to Australia’s Consultation on financial assurance reform for offshore decommissioning
By Olivia Lunn
23rd January 2026
The central purpose of any offshore decommissioning regime is simple in principle but difficult in practice: to ensure that oil and gas operators, rather than taxpayers, bear the full cost of decommissioning infrastructure at the end of its productive life.
Redwater Insight’s submission to this government consultation draws on global case studies to show how Australia’s current framework falls short of this objective and sets out a clear case for reform built around three core pillars: (1) pre-funded, full-cost financial assurance; (2) tighter controls on asset transfers; and (3) a permanent, industry-funded backstop for operator defaults.
1) Pre-funded, full-cost financial assurance
While Australian law requires operators to decommission offshore assets, it currently lacks any meaningful requirement to pre-fund these liabilities. Instead, regulators rely heavily on discretionary financial assessments of operators’ balance sheets and an assumption that future production revenues will fund closure, paired with a trailing liability regime that is difficult to enforce. This approach is increasingly untenable in a mature basin facing declining production and energy transition pressures.
We believe pre-funded, full-cost financial assurance is the most important reform and consider sinking funds, which are restricted accounts into which operators contribute over the life of an asset, to be the most effective mechanism. International examples, including examples from the nuclear and renewables industries as well as commercial transactions between oil & gas operators, show how sinking-fund mechanisms have been used to ensure cash is available and closure is not indefinitely deferred.
2) Tighter controls on asset transfers
Asset transfers are the second major area of concern. In mature basins, assets with large decommissioning liabilities are often sold to smaller, less creditworthy operators. Without safeguards, this increases the risk of default and can ultimately shift costs onto the government. We consider discretionary financial assessments, like those currently used in Australia and the UK, to be ineffective.
In the UK, reliance on financial assessments and trailing liability has led to commercial litigation over complex contractual arrangements which in turn delays decommissioning.
To mitigate these risks, we recommend conditioning transfers on additional financial assurance and bright-line rules based on asset productivity, such as those used in California and North Dakota.
3) A permanent, industry-funded backstop for operator defaults
Our third pillar is the creation of a permanent, industry-funded backstop to address orphaned infrastructure. Even with strong pre-funding and transfer controls, operator defaults will occur. Whilst the Northern Endeavour levy was positive, there is a need for a more permanent solution that could implement the positive features of Canada’s Orphan Well Association.
Our Conclusions
Underlying these recommendations is a need for better data and greater transparency, given Australia lags behind other jurisdictions in both the regulator’s collection of, and the public’s access to, decommissioning data.
We also caution against excessive regulatory discretion. Where exceptions are easily granted, standards tend to erode over time. Bright-line rules, including mandatory sinking fund contributions, minimum pre-funding thresholds and automatic triggers for increased assurance, are essential to creating a durable, credible system.
Taken together, the reforms we propose aim to ensure that offshore decommissioning liabilities in Australia are fully funded, responsibly managed, and borne by industry. Otherwise, the risk remains that decommissioning costs will continue to be externalised, leaving taxpayers to pay for industry’s toxic legacy long after the profits have been realised.
You can read our full submission here:
