Australia - No More New Coal Mines In NSW?
Legal News & Analysis - Asia Pacific - Australia - Energy & Project Finance
28 March, 2019
A decision from the NSW Land and Environment Court on 8 February 2019 raises the question: have we seen the last new coal mine approval in NSW?
In his judgment, Chief Justice Brian J Preston dismissed an appeal against a refusal of Gloucester Resources Limited's (Gloucester Resources) application to develop an open cut coal mine near Gloucester valley, a picturesque area to the west of NSW's mid-north coast.1 His Honour found that the application to build the mine should be refused because of its "significant and unacceptable planning, visual and social impacts, which cannot be satisfactorily mitigated".2
However, he also found that the project should also be refused because of its likely greenhouse gas emissions, concluding:
"In short, an open cut coal mine in this part of the Gloucester valley would be in the wrong place at the wrong time. Wrong place because an open cut coal mine in this scenic and cultural landscape, proximate to many people's home and farms, will cause significant planning, amenity, visual and social impacts. Wrong time because the [greenhouse gas] GHG emissions of the coal mine and its coal product will increase global total concentrations of GHGs at a time when what is now urgently needed, in order to meet generally agreed climate target, is a rapid and deep decrease in GHG emissions. These dire consequences should be avoided. The Project should be refused."
Contrary to the thrust of much media coverage, this decision does not necessarily mean the end of any new coal mine approvals in NSW, because it was highly specific to the particular facts of this application. However, while a future mine may be able to get approval if the impacts are dealt with, this does not mean the activity can obtain third party finance to proceed. Even where such projects are approved Investors are increasingly taking the view that new coal mines are not viable investments.
However, the judgment does raise concerning issues about the diminishing "carbon budget" and what is required to hold global warming to well below 2 degrees Celsius, as well as providing clear guidance on relevant considerations related to greenhouse gas emissions that will progress the law relating to climate change in ways that will be significant for proponents of any new mines.
This briefing note provides analysis of the key legal developments in the judgment, as well as providing context on how it might influence how decision-makers in other states take climate change into account, and new considerations for fossil fuel project proponents.
Of particular note, this case shows that the debate over climate change has entered a new phase. Gloucester Resources "did not contest that climate change is real and happening and that anthropogenic GHG emissions must be reduced rapidly in order to meet the internationally agreed temperature targets of 1.5 or 2 degrees Celsius."3 It simply argued that the Rocky Hill mine could be approved anyway. On the specific facts of the application, that argument failed.
Background to the case
Gloucester Resources first lodged its application for the mine, at Rocky Hill, in December 2012, and lodged an amended application in August 2016. Because the project qualified as a State significant development under the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act), the Minister for Planning was the decision-maker (i.e., the "consent authority") for the application. During a three-month public exhibition period in 2016, the Department received some 2,300 submissions in response to the proposed project, of which approximately 90 percent opposed it. In October 2017, the Planning Assessment Commission (PAC) - now the Independent Planning Commission, acting as the Minister's delegate, refused the application citing as reasons that the proposed mine was in contravention of applicable zone objectives, would have significant residual visual impacts, and was not in the public interest.
That December, Gloucester Resources appealed to the Land and Environment Court against the Minister's decision under section 8.7 of the EPA Act, which empowers the court to assess the application on its merits with the same functions and discretions as the initial consent authority. In April 2018, the Court ordered that Gloucester Groundswell—a community group that opposed the mine—be joined as a party to the proceedings. Gloucester Groundswell was represented by the Environmental Defenders Office, which brought in key experts to provide evidence on matters relating to climate change, including the scientific and economic ramifications of approving the new coal mine as proposed.
Climate change will be considered as a relevant factor under the Environmental Planning and Assessment Act
Whilst there have been a number of other cases in the NSW Land and Environment Court and other courts around Australia that have considered climate change impacts
associated with mines, this is the first major decision since the entry into force of the Paris Agreement and the release of the Intergovernmental Panel on Climate Change's (IPCC) Special Report on Warming of 1.5 Degrees. Before setting out the basis for considering climate change within the planning framework, Preston CJ first provided a detailed discussion of:
- The scientific consensus that human-induced climate change is having, and will have, catastrophic consequences, including citations of the IPCC's 1.5 degree report;
- Australia's commitments under the Paris Agreement—including that Agreement's call for net zero emissions in the second half of this century—and noting that the NSW Government has endorsed the Paris Agreement and set a more ambitious objective to achieve net zero emissions by 2050; and
- The concept of the "carbon budget", which sets out the maximum remaining levels of greenhouse gas emissions that can occur before the climate warms above 2 degrees Celsius.
Preston CJ then provided a detailed and comprehensive analysis how greenhouse gas emissions and their direct and indirect impacts are relevant matters for consideration under NSW planning laws and applicable planning instruments. In this regard, greenhouse gas emissions were specifically required to be considered under both State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2009 (Mining SEPP) and the Gloucester Local Environmental Plan 2010, and formed an integral part of the consent authority's consideration of the likely impacts of the development and the public interest under section 4.15(1) of the EPA Act. His Honour also provided clear guidance on how climate change is relevant to the concept of ecologically sustainable development (ESD), in particular the precautionary principle and the principle of intergenerational equity.
The decision-maker can take account of downstream emissions
Although Gloucester Resources had included an assessment of indirect or downstream greenhouse gas emissions of the project in its amended environmental impact statement, the company argued that these should not be considered by the Court. Chief Justice Preston disagreed, pointing to Australia's commitments under the Paris Agreement and the fact that NSW has endorsed that agreement and has set even more ambitious targets for reducing emissions.4 Surveying the case law, his Honour found that "many courts have held that indirect, downstream greenhouse gas emissions are a relevant consideration to take into account in determining applications for activities involving fossil fuel extraction or combustion or electricity generated by fossil fuel combustion." He also found that the company's figures underestimated those likely emissions.5
Preston CJ found that there was a clear causal link between the project's cumulative greenhouse gas emissions and climate change and its consequences, notwithstanding that their overall contribution to global emissions may be low. In this regard, Preston CJ accepted the evidence of Professor Will Steffen that the exploitation and burning of new fossil fuel, which will increase greenhouse gas emissions, cannot assist in the rapid and deep reductions in greenhouse gas emissions needed to achieve net zero emissions in the second half of the century.
His Honour dismissed the argument put by Gloucester Resources that their project would not necessarily cause the carbon budget to be exceeded as reductions in greenhouse gas emissions (e.g. by sinks such as oceans, vegetation and soils) could balance this increase as "speculative and hypothetical". He noted that the proponents of the Rocky Hill mine had not provided specific plans to offset the project's emissions, but rather relied on unquantified claims that reductions would occur in other sectors.6
As a practical matter, reporting for scope 3 emissions will require all accounting of all downstream emissions, which may not be a simple exercise. Preston CJ quoted from decision in a separate case, which found that the term "downstream emissions" is "commonly understood to denote the greenhouse gas emissions relating to sold goods and services and thus caused by end users' use of the product (e.g., coal) produced by a project."7
The economics of the project didn't stack up
Preston CJ did not accept the vast majority of conclusions drawn by Gloucester Resources' experts on questions relating to the economics of the deal, which are relevant to the legal test of "whether the benefits of the Project outweigh its costs to the members of a specified community and, secondly, whether the public benefits of the Project outweigh the public benefits of other land uses."
His Honour stated, "[t]here has been no economic assessment of the indirect costs if the environmental and social impacts of the Project were to be as significant as I have found they will be."8
More fundamentally, Preston CJ provided a detailed overview of the evidence from Tim Buckley, an energy economist and financial analyst, about the expected price trends of coal, including coking coal for steel. His Honour referred to evidence that demand for coal and steel could actually decline as countries implement their obligations under the Paris Agreement; that the International Energy Agency's World Energy Outlook 2017 Report that modelled a Sustainable Development Scenario had found that global demand for coking coal would decline by about 39 percent relative to 2016 by 2040; and that the decline could be even steeper because that scenario is not the most ambitious, and would fall short of the actions required to keep global temperature rises to between 1.5 to 2 degrees Celsius above pre-industrial levels. In addition, reference was made to emerging developments in relation to new technologies that could reduce or avoid the need for coking coal.9
Associated with this was His Honour's rejection of the arguments that if the Rocky Hill project were refused, then steel manufacturers would source coking coal from other jurisdictions, which could produce equal or greater greenhouse gas emissions (referred to as the "coal leakage" argument).10
First, Preston CJ noted that some of the developing countries referred to by the proponents as places that might host a coking coal mine if NSW did not (such as China, India, Japan and South Korea) are in fact taking their own steps to reduce or eliminate the use of coal. India, for instance, has introduced a tax on all coal, controls on chronic and rising air pollution, and has plans to greatly expand its renewables sector. In other words, those jurisdictions may not provide a more welcoming regulatory or economic context for a new coal mine than NSW.
Second, Preston CJ linked the leakage argument to his earlier point about the likelihood of reduced demand for coal as a result of the commitments that countries have made under the Paris Agreement, noting that developing countries are taking ambitious steps to meet their commitments.11
Indeed, we note that there are already examples of steel mills around the world moving to hydrogen and low carbon energy sources for their industrial processes, replacing the need for coking coal.
Summary of Key Legal Conclusions
This decision is of particular note because it has implications for the chances for future energy and resources projects to gain approval in NSW, especially those with large
downstream emissions, including most fossil fuel projects.
First, it appears that consent authorities in NSW must now consider the downstream emissions of proposed mines when assessing the impact that the mine is likely to have on climate change. Previously, proponents have argued that these downstream emissions should not be included in considering the "impacts" of a development. However, Preston CJ made clear that in assessing the total impacts of a new mine, a decision-maker must consider all emissions. It would be artificial to exclude the emissions caused by burning the coal which is the fundamental product sought to be extracted and sold by the project. We note that while it has previously been claimed that it is difficult to quantify downstream emissions, in the case of a coal mine, such an exercise would be an easier exercise than measuring some other scope 3 emissions based on calculations of the likely amount of greenhouse gases emitted by the burning of each tonne of coal sourced from the mine in question.
Second, Preston CJ has made it clear that a consent authority can take into account how international and national commitments, along with new technologies, will lead to reduced demand for fossil fuels when assessing the claimed economic benefits of a project. This could dramatically alter a decision-maker's view of the claimed benefits, which could in turn influence the result of a costs-benefits assessment and, ultimately, whether an application is approved.
Third, in assessing the "likely impacts" and "public interest" of a proposal, decision-makers will likely consider whether a proponent has put in place measures to directly offset the anticipated emissions from the project. We note that this decision comes after a different result in a 2012 case, in which a community group argued that a new mining project should be required to offset its scope 1 greenhouse gas emissions to the extent that they were not required to pay a carbon price for those emissions under the Clean Energy Act 2011 (Cth).12 However, the earlier decision was made with the broader context of a national legislative framework to limit greenhouse gas emissions being in place. It is arguable that much of the policy context in which planning decisions are now being made has changed dramatically since that earlier decision was made.
Despite characterising as "logical" the argument that fossil fuels should be left in the ground, Preston CJ ultimately rejected the position that "no fossil fuel development should ever be approved". Instead, his Honour took a more nuanced, though still strong position in favour of limiting new emissions:13
"I consider the better approach is to evaluate the merits of the particular fossil fuel development that is the subject of the development application to be determined. Should this fossil fuel development be approved or refused? Answering this question involves consideration of the GHG emissions of the development and their likely contribution to climate change and its consequences, as well as the other impacts of the development. The consideration can be in absolute terms or relative terms."
Practical implications for project proponents in NSW and other states and territories
In our view, if the project had been able to mitigate its emissions, the grounds for refusing the project in respect of greenhouse gas emissions may not have been as strong.
In other words, a proponent of any new mine in NSW would be well advised to arrange some way in which to mitigate the greenhouse gas emissions such as through direct measures such as, where possible, capture of those emissions as may be possible for underground coal mines. Carbon capture and storage (CCS) could also be technologically feasible for some projects in the energy and oil and gas sector. It may also be possible, where direct abatement is simply not possible that the project emissions could be offset such as for example, looking at arrangements to purchase Australian Carbon Credit Units (ACCUs) from projects registered under the Emissions Reduction Fund (ERF), but this would need to be tested as a viable means of reducing the impact.
As a commercial matter, there may be questions as to how obtaining these offsets could affect the profitability of the endeavour; the same considerations could effect decisions around the economic viability of CCS.
We note that this decision is technically limited to NSW. Legislation and regulations differ from state to state, and may be more or less permissive in regards to whether offsets are required. For instance, in West Australia, we are seeing more consent authorities require offsets for extractive projects as a condition of approval under section 45 of the Environmental Protection Act 1986 (WA). By contrast, Queensland has a mixed record when it comes to cases that have sought to challenge development approvals, though as Preston CJ has noted elsewhere, even in that state, there have been recent moves towards incorporating climate change as a factor that must be, or at least can be, taken into account when deciding whether to approve a development application.14
The bigger picture: trends and forecasts
While this decision understandably caused some waves in the media and business communities, it is not a great surprise for those who closely follow developments in relation to climate change law in Australia and the rest of the world. Last October, the Australian Law Journal dedicated an entire volume to surveying those developments. If there were one theme that is emerging across the many areas of law now dealing with climate change, it may be "mainstreaming". Climate change is no longer a niche issue, legally, factually or politically. We are increasingly seeing instances similar to this decision where courts are incorporating climate change into their fact-finding and reasoning as they would any other matter. These developments are having far-reaching and rapid consequences for decision-makers in the public and private sectors.
Perhaps most relevantly in Australia:
Directors' Duties: It is now broadly accepted that Australian company law includes climate change as one of the risks that directors must consider and disclose in order to comply with their obligations under the Corporations Act 2001 (Cth). What will amount to sufficient assessment and disclosure is still an open question, but the most noteworthy development has been the publication and expansion of the recommendations published by the Taskforce on Climate-related Financial Disclosure (TCFD), which give perhaps the best and most comprehensive guidance to date on how directors can fulfil their obligations. New research from the Centre for Policy Development, which commissioned the 2016 legal opinion that set out the obligation on directors of private companies, shows that the obligations on directors of public authorities are likely to be at least as stringent, if not more so than their private-sector peers, in respect of climate change.15
Our team is actively engaging with clients who wish to learn more about these obligations, and to put in place appropriate policies and procedures to meet the new requirements. For more on this topic, please refer to "Obligations on Australian Companies to Address Climate Change."16
Increased climate litigation (Australia): Last year Mark McVeigh, a 23-year-old ecological landscaper, sued his superannuation fund in the Federal Court over climate change issues. In his original pleadings, McVeigh alleged that the fund had failed to disclose whether it had taken climate change into account when making its investment decisions. In later filings, McVeigh expanded his claims to "allege that the [fund] breached its duties as a trustee by not having a more developed climate change policy than it had indicated."
The case, McVeigh v Retail Employees Superannuation Pty Ltd, is proceeding. We are closely monitoring its progress, because, as the presiding judge, Nye Perram, recently said, "[t]he case appears to raise a socially significant issue about the role of superannuation trusts and trustees in the current controversy about climate change."17
International litigation: Writing extra-judicially, Preston CJ provided a detailed stocktake of climate litigation around the world, noting cases in areas of law as varied as administrative appeals, tort (e.g. negligence), constitutional matters, as well as natural law arguments relating to the "public trust" doctrine, a law that creates a duty for public officials to safeguard the "commons" on behalf of humanity.
His Honour concluded, "the territory of climate change litigation is being rapidly mapped. Litigation started using traditional actions and claims, such as in tort and administrative law, but has progressed to upholding human rights and the public trust. The next phase will be actions in consumer law and in corporations law. Over time, by this process, the areas of terra incognita are becoming smaller and fewer. This trend is likely to continue."18
Please do not hesitate to contact us should you require any further advice in relation to these issues, or to legal issues relating to climate change more generally.
For further information, please contact:
Martijn Wilder Partner, Baker McKenzie
1 Gloucester Resources Limited v Minister for Planning  NSWLEC 7.
2 Paragraph 556.
3 Paragraph 451.
4 Paragraph 440 ,487 and 513.
5 Paragraph 430.
6 Paragraph 529.
7 Paragraph 503, referring to Wollar Property Progress Association Inc v Wilpinjong Coal Pty Ltd  NSWLEC 92.
8 Paragraph 656.
9 Paragraphs 456–473.
10 Paragraphs 534–545.
11 Paragraphs 539.
13 Paragraphs 553–555.
14 Preston, B., "Mapping Climate Change Litigation," (2018) 92 ALJ 774.
16 Wilder, M., and Venuti, S., "Obligations on Australian Companies to Address Climate Change" (2018) 92 ALJ 789.
17 McVeigh v Retail Employees Superannuation Pty Ltd  FCA 14, .
18 Preston, B., "Mapping Climate Change Litigation," (2018) 92 ALJ 774.