27 September 2021

Climate change litigation and intergenerational equity: the relevance of “indirect” emissions for project approvals

This article was written by Anna Vella, Erin Eckhoff, Sati Nagra and Aisling Scott

The recent decision of the New South Wales Court of Appeal KEPCO Bylong Australia Pty Ltd v Bylong Valley Protection Alliance Inc[1] provides a timely reminder of how Australian Courts approach challenges to decisions approving projects and developments in the context of climate change. Specifically, in the context of “Scope 3” greenhouse gas (GHG) emissions and intergenerational equity considerations. 

1. Background

KEPCO Bylong Australia Pty Ltd (KEPCO) applied for development consent to construct and operate a thermal coal mine in the Bylong Valley, northeast of Mudgee, for export of coal to its own electricity generators in South Korea.

The proposal was determined to be a State significant development for which the consent authority was the Independent Planning Commission (Commission). Considerations relevant to the development consent were set out in the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (NSW) (Policy).

In September 2019, the Commission refused to give development consent. The Commission found that KEPCO’s proposal failed to contain steps which minimised “Scope 3” GHG emissions. 

KEPCO sought judicial review of the Commission’s decision. That review application was dismissed in the Land and Environment Court. KEPCO appealed that decision to the New South Wales Court of Appeal arguing that the primary judge erred on several grounds, including in respect of KEPCO’s contentions that:

  • the Commission had misconstrued the Policy; and
  • the Commission had failed to consider possible impacts on GHG emissions if KEPCO were forced to seek an alternative, and potentially inferior, source of coal.

2. Scope 3 emissions and the Commission’s decision

The focus in KEPCO is interesting as it concerns “Scope 3” GHG emissions. “Scope 3” is a reference to “indirect emissions resulting from value chain activities” pursuant to the GHG Protocol (being a standardised global framework for the measurement and management of GHG emissions from private and public sector operations). Essentially, Scope 3 emissions are indirect emissions, including end-user emissions of sold products. Refer to the below extract from the GHG Protocol Scope 3 Standard:

Scope 3 emissions vary from “Scope 1” and “Scope 2” emissions, which the GHG Protocol describes as:

  • direct emissions from owned or controlled sources” (Scope 1); and
  • indirect emissions from the generation of purchased energy consumed by the reporting company” (Scope 2).

In KEPCO, 98% of the GHG emissions in the consent application were Scope 3. The coal was intended entirely for export to feed electricity generation plants operated by KEPCO in South Korea.

The Commission noted that the measures proposed by KEPCO in the consent application appeared to relate only to Scope 1 and 2 GHG emissions and while the Commission did not raise any specific issue with respect to Scope 1 or 2 emissions, it treated the emissions across all scopes cumulatively. 

In this context, and in considering the economic aspects of the proposal, the Commission accepted that the project would result in a “net economic benefit to NSW during the operation of the mine”. However, it also concluded that “the distribution of costs and benefits over and beyond the life of the mine is temporally inequitable in that the economic benefits accrue to the current generation and the environmental, agricultural and heritage costs are borne by future generations”.

The Commission concluded that “there is a reasonable level of uncertainty in the estimation of the economic benefits of the Project and Recommended Revised Project, and that this is exacerbated by the intergenerational inequity of costs and benefits”.

3. NSWCA Decision

Basten and Payne JJA, Preston CJ of LEC dismissed the appeal, upholding the Commission’s decision, finding that:

  • To say that KEPCO had not minimised GHG emissions meant that it had not proposed mechanisms which, if implemented, would minimise GHG emissions.[2] Specifically, KEPCO had not proposed to undertake the project subject to a condition which addressed minimising the Scope 3 emissions connected with the coal mine.[3]
  • The Commission’s reasons illustrate that if the development were undertaken in accordance with the proposed conditions of consent, GHG emissions (and specifically Scope 3 emissions) would not be avoided or minimised to the greatest extent practicable.[4]
  • The Commission was required to have regard to any applicable State or national policies concerning GHG emissions not merely policies which related to the assessment of GHG emissions. Accordingly, it was appropriate for the Commission to have had regard to the NSW Climate Change Policy Framework.[5]
  • Even if the Commission was not required to have regard to the policy, no legal error was identified by KEPCO with respect to the use to which the NSW Climate Change Policy Framework was put.[6]
  • KEPCO’s evidence comprised series of statements to the effect that “if KEPCO is required to obtain substituted coal supplies, it is likely to have a higher ash and sulphur content and will be sourced from [other] countries … hav[ing] an adverse effect on the Australian and New South Wales economies and the Korean environment.”[7] On the face of such evidence, the Commission was not unreasonable or irrational in determining that it had “no evidence” to determine whether KEPCO would secure an alternative source of coal of inferior quality in that “there was no evidence capable of satisfying [the tribunal] on the issues in question”.[8] 

4. Takeaways

The Court of Appeal rejected the KEPCO challenge to the Commission’s reasoning about the economic benefits of the project, by reference to the “holistic” approach adopted by the Commission and the objects of the Environmental Planning Act 1979 (NSW). Such objects include the promotion of the social and economic welfare of the community and the facilitation of ecologically sustainable development by integrating environmental and social considerations in decision-making about environmental planning and assessment.[9]

The conclusions with respect to Scope 3 emissions are of interest as previous legal challenges to coal mine approvals largely focused on Scope 1 and 2 GHG emissions. See for example Coast and Country Association of Queensland Inc v Smith & Ors [2016] QCA 242 where arguments that Scope 3 emissions resulting from the transportation and burning of the coal amounted to “adverse environmental impact caused by” mining the coal, however, were determined to not be relevant in assessment of the project.[10]

The decision of the Commission (as upheld in KEPCO’s case) centred around intergenerational equity in the context of Scope 3 emissions, and comes after the landmark 2021 decision in Sharma,[11] where the Federal Court found that the Minister for the Environment owed a duty of care to avoid causing harm from carbon emissions to children in determining coal mine approvals. The Court in that case did not go so far as to prevent the Minister for the Environment from granting the approval, however the case remains illustrative of the evolving litigation landscape with respect to effects of climate change.

5. Legislative intervention?

The timing of the Commission’s decision in KEPCO was such that the Commission’s determination was made before the (then unprecedented) decision in Gloucester Resources Limited v Minister for Planning [2019] NSWLEC 7 (Rocky Hill) where the Land and Environment Court found that Scope 3 emissions must be considered in determining whether or not to approve new projects. 

In response to the Rocky Hill decision, the Environment Planning and Assessment Amendment (Territorial Limits) Bill 2019 (NSW) was introduced to the New South Wales Legislative Assembly to:[12]

  • prohibit the imposition of conditions of a development consent that purport to regulate any impact of the development occurring outside Australia or any impact of development carried out outside Australia.” and
  • remove the specific requirement to consider downstream greenhouse gas emissions in determining a development application for development for the purposes of mining, petroleum production or an extractive industry.”

The Bill has stalled in the New South Wales Legislative Assembly. Therefore, where New South Wales consent authorities are charged with having regard to State or national policies concerning GHG emissions and assessing projects on that basis, those entities can continue to impose conditions on the undertaking of a project, where appropriate.

At a federal level, private members’ bills[13] have also sought to amend the National Greenhouse and Energy Reporting Act 2007 (Cth) to include reporting requirements with respect to Scope 3 emissions to require the tabling of Australia’s national greenhouse gas inventory estimates in Parliament every 3 months. To date, those Bills have not gained traction in the Commonwealth parliament. 

A further private member’s bill is also seeking to provide “a right to recover damages in relation to climate change damage suffered by a person” has also been introduced in the Commonwealth parliament.[14]  While that Bill is unlikely to garner support (at least in its current form), it does illustrate that future developments in this area could occur in the form of legislative intervention.

6. Final comments

Plainly, GHG emissions and the impacts of climate change loom large in the context of any application for new or expanded coal mines or carbon intensive industries in Australia. There has been an inexorable shift over the latter half of the last decade with respect to climate change, and there is no doubt that litigation connected to climate change will only continue to be prominent in Australia, especially in the lead up to the United Nations climate Change Conference (COP26).

2021 has also seen the release of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), which marks a major milestone in the global understanding and acceptance of the science climate change, its impacts and future risks, and the undeniable human influence on global warming.

While climate change litigation has largely focused on challenges to approvals for new or expanded coal mines to date, the approach of Australian Courts and the political imperatives driving legislatures[15] are such that industry participants should expect the scope of such litigation to expand beyond this remit. Specifically, the potential for such litigation to extend to duties of care owed to private citizens in respect of GHG emissions and the impacts of climate change.[16]

Next month the rescheduled United Nations COP26 will commence, which will bring conference parties together with the intent of accelerating action towards the goals of the Paris Agreement and the United Nations Framework Convention on Climate Change. That conference in the context of the evolving legal position on these issues means that the treatment of climate change issues continues to be an important factor to consider in project development.

 

[1] [2021] NSWCA 216.

[2] [2021] NSWCA 216 at [37].

[3] [2021] NSWCA 216 at [44].

[4] [2021] NSWCA 216 at [138].

[5] [2021] NSWCA 216 at [63]-[65].

[6] [2021] NSWCA 216 at [68]; [160]-[162]; [173]-[188].

[7] [2021] NSWCA 216 at [75].

[8] [2021] NSWCA 216 at [78]-[81]; [205]-[206]

[9] Environmental Planning Act 1979 (NSW), s 1.3.

[10] Coast and Country Association of Queensland Inc v Smith & Ors [2016] QCA 242 at [27].

[11] Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment [2021] FCA 560 (now under appeal).

[12] Refer to the explanatory notes to the Bill.

[13] National Greenhouse and Energy Reporting Amendment (Transparency in Carbon Emissions Accounting) Bill 2020 (Cth); National Greenhouse and Energy Reporting Amendment (Transparency in Carbon Emissions Accounting) Bill 2021 (Cth)

[14] Liability for Climate Change Damage (Make the Polluters Pay) Bill 2021 (Cth)

[15] See e.g., https://www.afr.com/policy/economy/australia-s-access-to-capital-may-be-strangled-over-climate-stance-20210922-p58tun?elqTrackId=18ffe55b0a554aec8f13336185995075&elq=693b0af5e58e4b68995992d5b629039f&elqaid=6833&elqat=1&elqCampaignId=5497 https://www.afr.com/companies/energy/nation-must-reap-the-rewards-of-leaning-in-on-climate-20210915-p58rzm

[16] See for example Milieudefensie et al v Royal Dutch Shell ECLI:NL:RBDHA:2021:5339.

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