NSW Coal mine required to offset direct GHG emissions as a condition of planning approval

Introduction

On 24 November 2011, the Land and Environment Court delivered a landmark decision requiring the owners of a large coal mine to offset part of the greenhouse gas emissions generated by the mine as a condition of planning approval to expand the existing mine. This is the first time the Court has imposed such a condition on a planning approval in NSW.

Owners of existing coal mines and proponents of proposed coal mines, and more broadly proponents of other types of emissions intensive developments, should be aware that the decision has the potential to broaden the range of conditions of approval which may be imposed by the Minister or the Court under the Environmental Planning and Assessment Act 1979 in relation to new or modified development proposals.

In brief

The Ulan Coal Mine is owned by Ulan Coal Mines Ltd (Ulan) and is located near Mudgee in NSW.

The proceedings were an objector appeal against the merits of a decision to grant a Part 3A approval, under section 75L of the Environmental Planning and Assessment Act 1979 (EP&A Act)¹. Hunter Environment Lobby Inc (Hunter) appealed against the grant of approval by the Minister for Planning (Minister) for the consolidation and expansion of an existing coal mine project in Ulan, New South Wales (Project). The Minister had granted an approval under Part 3A of the EP&A Act in November 2010 (Approval) which, amongst other things, authorised the expansion of the mine's existing underground mining operations; the recommencement and expansion of its open cut mining operations; and doubling of the mine's production rate.

Hunter initially sought to have the Approval overturned, but later, changed its case to successfully argue that the Approval be modified with the imposition of additional conditions which required Ulan to report on and mitigate a portion of the greenhouse gas (GHG) emissions of the mine which exceed the scope of "the original emissions budget projection".

Justice Pain rejected Hunter's argument that offsetting should apply to both scope 1 emissions and scope 2 emissions, but her Honour was persuaded to impose conditions requiring mitigation and offsetting of scope 1 emissions (being emissions that are a direct consequence of the carrying out of the activities authorised by the project approval.)

Scope 2 emissions (resulting from diesel and electricity use at the project) were excluded from offsetting requirements on the basis that they "are not emissions which Ulan can control entirely" and because Ulan "cannot influence how an electricity generator and supplier chooses to generate the electricity" used by the mine.

The provisions of Part 3A continue to apply to the Project despite the repeal of Part 3A on 1 October 2011, because the Project is a transitional Part 3A project.

Background and facts

The Approval granted by the Minister in November 2010 imposed stringent obligations on Ulan to implement all reasonable and feasible measures to minimise the release of GHG emissions, and prepare and implement a detailed air quality and GHG management plan for the Project.

Hunter sought an order that the conditions of the Approval be modified to incorporate additional or amended conditions to ameliorate the GHG emissions impacts of the mine by requiring Ulan to offset its scope 1 and scope 2 emissions. Hunter did not ultimately seek the offsetting of scope 3 emissions.

Pain J noted that Hunter's proposed offset conditions were "novel", but held that the EP&A Act empowered the Court to impose them.

Issues raised in the proceedings and decision of the Court

Pain J was required to consider whether Hunter's proposed conditions fell within the scope of the statutory power of the Minister to approve a project "on such conditions as the Minister may determine"². Her Honour was prepared to impose the GHG conditions notwithstanding evidence from the Department of Planning that, in its view, conditions of approval were "unsuitable for implementing a regulatory regime to require proponents to offset some or all of the GHG emissions of their projects".

Hunter argued in the proceedings that the principles of ecologically sustainable development (ESD) must be applied in the assessment of the Project. Whilst both of the respondents in the proceedings argued that the project was not inconsistent with ESD principles, the Minister also disputed Hunter's assertion that ESD principles were mandatory considerations in the assessment of a Part 3A project.

Pain J held that ESD principles are an aspect of the public interest and could therefore be a relevant consideration in the Court's decision, although her Honour did not ultimately decide the question of whether they were a mandatory consideration in the determination of a Part 3A application.

Pain J held that the power to impose conditions on a Pt 3A project approval is wider than the power to impose conditions on a development consent granted under Part 4 of the EP&A Act, and that this wide power encompassed a power to impose conditions which retain "practical flexibility leaving a choice of the means by which an outcome or objective is met for the proponent"³.

Pain J considered the general principles to be applied in testing the validity of a condition (the Newbury principles). These are that the condition:

1. must be for a planning purpose and not for any ulterior purpose;
2. must reasonably and fairly relate to the development permitted; and
3. must not be so unreasonable that no reasonable planning authority could have imposed it.

Pain J noted that these principles have not been expressly endorsed or rejected by the NSW Court of Appeal or High Court specifically in relation to testing the validity of a condition on a Part 3A project approval. As such, the general starting point required assessing the condition in accordance with the scope and purpose of the statutory power under which it is imposed. Pain J stated that the relevant purpose must be ascertained by reference to the scope and purpose of the power conferred under Part 3A in the context of the scope and purpose of the EP&A Act as a whole (which is derived from its objects).

Pain J stated:

Further, Pain J was satisfied that a condition requiring the offset of the scope 1 emissions was within the scope and purpose of the Minister's (and now the Court's) power under Part 3A.

Pain J then considered whether the conditions requiring the offsetting of scope 1 and 2 emissions could be imposed, having regard firstly to the scope and purpose of the power to impose conditions under the EP&A Act; and alternatively having regard to the Newbury principles.

For a planning purpose

In relation to scope 1 emissions, the Court was satisfied that a condition which aims to ameliorate an environmental impact of a development by requiring offsetting of scope 1 emissions meets the first Newbury principle as it is for a purpose within the scope of the EP&A Act⁵.

In relation to the scope 2 emissions, the Court held that it was not necessary to determine whether the offsets in relation to scope 2 emissions were lawful as the proposed condition would be open to criticism to the extent that those emissions are under the control of others and would not "fairly relate" to the mine. Also, the evidence in this case did not clearly identify the parts of the scope 2 emissions that Ulan had the ability to minimise or control.

Reasonably and fairly relates to the development, and not unreasonable

The Court then considered whether the proposed offset conditions were fair or reasonable, or whether, as argued by Ulan, they were discriminatory (as no other coal mine in New South Wales is subject to an offsetting condition) and therefore so unreasonable that no planning authority would impose them. The Court also considered whether the offsets were proportional to the environment impacts the Applicant was seeking to have addressed.

The Court concluded that the proposed conditions could reasonably be implemented. Specifically, Her Honour concluded:

In reaching this view, the Court noted the conditions related only to the additional emissions generated over the extended 10 year period of the mine and could be implemented reasonably. Pain J also held that that a consent authority was at liberty to impose similar conditions when approving a modification or extension of operations of an existing coal mine, or when a new mine is opened.

Pain J ordered that the additional conditions be incorporated into the Approval, requiring Ulan to report on and mitigate scope 1 emissions of the mine that exceed the scope of "the original emissions budget projection".

Relevance of a proposed emissions trading scheme

The proceedings were argued in June 2011, prior to the Federal Government's announcement of its Clean Energy package and prior to the release of draft legislation to introduce the Carbon Pricing Mechanism. That legislation, being the Clean Energy Act 2011 and associated legislation, has now been passed by the Federal parliament and a carbon price will commence on 1 July 2012. For a detailed discussion of the carbon pricing mechanism, see our legal updates.

The Court did not accept the Minister's submission in this case that a carbon pricing scheme is the most appropriate way to drive a reduction in GHG emissions as opposed to imposing offsetting conditions to an Approval. The Court noted that at the time of the hearing, an emissions trading scheme was not yet operational in NSW or Australia, whereas the subject approval was being sought now.

Pain J did note, however, that one of the conditions proposed by Hunter and accepted by the Court would allow for flexibility to respond to changing regulatory regimes and would allow the adoption of a carbon pricing scheme once available, instead of the offset scheme required under the conditions of the Approval. Specifically, one of the conditions endorsed by Court authorises the Director-General of the Department of Planning to waive compliance with the requirement to report on and offset GHG emissions if he/she is satisfied that a "regulatory liability has been imposed under another law (of any jurisdiction) in relation to the relevant emissions".

It may therefore be the case that, at least once a carbon price is in operation, the likelihood of similar conditions being imposed in future approvals is reduced. However, given that only a relatively small number of Australian businesses will be directly liable under the Carbon Pricing Mechanism, there is still an open question as to whether applications for other types of emissions-intensive projects, which are not directly liable under the Carbon Pricing Mechanism, may be subject to conditions requiring their emissions to be offset.

Implications

The decision provides a clear rationale for the appropriateness of imposing GHG offsetting conditions on mine extensions, at least in respect of those scope 1 emissions which exceed the approved project's emissions.

Whilst these proceedings concerned the offsetting obligations of the owners of a mine that received approval to expand operations under Part 3A of the EP&A Act, the decision is also relevant to owners of existing large scale mining projects approved under Part 3A (i.e. 'transitional Part 3A projects') who wish to lodge an application to modify conditions of an approval under Part 3A of the EP&A Act and, potentially, proponents of new coal mines. The decision is also of potentially broader application to other emissions-intensive developments regulated under Part 3A.

The decision also confirms that the principles of ESD may be a relevant consideration in the assessment of Part 3A projects, although the Court did not decide whether they are a mandatory consideration.

Footnotes

¹Hunter Environment Lobby Inc v Minister for Planning [2011] NSWLEC 221, 24 November 2011.
²Section 75J(4) of the EP&A Act (now repealed)
³At [87]
⁴At [92]
⁵At [93]
⁶At [100]

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