Australia: NSW EPA to tie environmental protection licence fees to performance
Clayton Utz Insights

Key Points:

The NSW EPA will be able to offer greater incentives to comply with environmental protection obligations, with discounted licence fees for attracting high-performers and poor performers paying penance.

The Protection of the Environment Operations (General) Amendment (Licensing Fees) Regulation 2014, which takes effect from 1 July 2014, establishes a tiered regime for calculating licence fees using a performance-based Environmental Management Calculation Protocol.

As a consequence of the Regulation, licensees who perform well and minimise environmental risk over the past three years will be rewarded with a reduction of their administrative fees, whereas poorly performing licensees will pay licence fees that more accurately reflect the cost of regulating their premises.

Method for calculating administrative fee

Under the current system, the administrative fee is calculated according to the nature, size and/or capacity of the activity undertaken. For each activity classification, the levels of administrative fees are set out in Schedule 1 of the Protection of the Environment Operations (General) Regulation 2009. The administrative fee for a licence is calculated by multiplying the amount of one administrative fee unit by the number of administrative fee units (determined in accordance with Schedule 1) for the activity authorised or controlled by the licence. Under this system, the licence-holder's previous environmental performance does not influence the quantum of administrative fees payable.

However, under the new system, when calculating the applicable administrative fee, a licence-holder's environmental management category will be determined according to the Protocol (see below). A Category A licence-holder will have satisfied the highest standards set out in the Protocol and will receive a 5% discount on the administrative fee when compared with the fee payable by a Category B licence-holder.

Licence fees will then increase by 30% and 60% for Category C and D licence-holders respectively, when compared with Category B. Licence-holders in Category E (the lowest performance category) will be charged double the administrative fee when compared to their Category B equivalents.

The administrative fee payable for each site will then be calculated by multiplying an administrative fee unit (considered below) by the penalty factor occurring as a consequence of the licence-holder's Category, and then multiplying that by the number of fee units required for the type of licensed activity in question. Under the Regulation, a licence-holder will be required to pay the administrative fee within 90 days (rather than 60 days) after the beginning of a licence fee period.

For example, under the Protocol a licensee with a total environmental management score of 70 will fall within Category C. The administrative fee will be calculated as follows:

Determining Category under the Protocol

The Protocol is available on the EPA's website and indicates that, when determining a licence-holder's environmental management Category, the EPA will take into account:

• a licensee's environmental performance based on their compliance history;
• regulatory action the EPA has taken to respond to incidents and non-compliances - penalty notices (including penalty notices for late or non-submission of an annual return), official cautions and incident related site inspections, together with other regulatory action will effect a licence-holder's Category;
• environmental management systems and practices the licensee has in place to control and mitigate environmental risks; and
• environmental improvement programs initiated by the licensee and completed environment improvement works.

The Protocol indicates that the type of regulatory action and length of time over which that regulatory action may have occurred will be key factors in determining the Category of a licence-holder, with a licence-holder's Category being based on their performance over the past three years – with a weighing system applying so that performance within the last year is weighted more heavily than the previous year, and so on. The Protocol also indicates that trends in regulatory actions will also influence a licence-holder's Category.

If insufficient information is provided to the EPA, the EPA may determine the licence-holder's Category on the information available. The amount of the administrative fee determined by the EPA will be taken to be correct unless the contrary is established during proceedings or the EPA chooses to determine the licence-holder's Category based on the new information. Accordingly, it will be in the licence-holder's best interests to ensure that the EPA is fully informed – particularly since the relevant information is generally required to be reported to the EPA in the annual return.

Increases in administrative fee units

Currently, one administrative fee unit is $113. However, the Regulation provides for administrative fee units (and therefore administrative fees) to increase annually until 1 July 2018:

Licensee's risk Category also used to determine risk level of each licence

The Protocol also indicates that the licensee's Category (A, B, C, D or E), together with the day-to-day operations of a licensed site and the pollutant incident risk at the site, will inform the Environmental Risk Level of each licence. The EPA determines the environmental risk level of each licence on a scale of 1 to 3, with 3 being the highest risk. This in turn will inform the level and type of EPA regulatory intervention required – for example, a higher risk level may result in more onerous monitoring and reporting requirements.

Conclusion

The Regulation demonstrates the increasing importance of a licensee's environmental record when seeking to minimise the costs and burdens of compliance. Now more than ever, licence-holders should seek to protect their environmental reputation by ensuring compliance with the EPA's requirements and the implementation of proactive environmental strategies – with previous non-compliance now resulting in penalty factors and generally more onerous requirements.

Further, under the old regime businesses may have accepted a penalty infringement notice without considering whether, in their view, the notice was justifiable. However, businesses may wish to more fully consider whether to accept a penalty infringement notice given the impact that such an acceptance can have on administrative fees.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.