Australia: Carbon offset conditions imposed on coal mining operation

Last Updated: 27 February 2012
Article by Lucinda Morphett

In brief – Ulan Coal Mines required to offset carbon emissions

The recent Land and Environment Court decision in Hunter Environment Lobby Inc v Minister for Planning [2011] NSWLEC 221 has effectively upheld the validity of a condition requiring a NSW coal mine to offset carbon emissions.

Ulan Coal obtains approval to consolidate and expand extraction

Ulan Coal Mines Limited, based in the Mudgee district of NSW, sought and obtained approval from the Minister of Planning under Part 3A of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) to consolidate a number of pre-existing approvals and to further expand its maximum rate of extraction from 10 million tonnes per annum (Mtpa) to 20 Mtpa.

The Minister imposed a range of standard operating conditions on Ulan Coal, requiring the mining operator to manage and mitigate the environmental impacts of the mining operation, including a requirement that Ulan Coal "implement all reasonable and feasible measures to minimise the release of greenhouse gas emissions from the site to the satisfaction of the Director General."

Environment lobby seeks to impose range of conditions on Ulan Coal

The Hunter Environment Lobby Inc (HEL), dissatisfied with the Minister's decision, commenced proceedings as an "objector" in the Land & Environment Court, challenging various aspects of the Minister's approval.

HEL's original application sought to have the Minister's approval declared void, but this position was later modified. What HEL ultimately pressed was the imposition of a range of conditions addressing the mining project's impact on climate change, groundwater and biodiversity.

Offset of carbon emissions to address climate change concerns

One of the more contentious issues pressed by HEL was a condition requiring Ulan Coal to offset scope 1 carbon emissions (direct emissions as a result of the mining activity) and scope 2 carbon emissions (indirect emissions, such as the use of diesel and electricity at the facility) produced by the mining operation. This condition was to be achieved by requiring Ulan Coal, upon exceeding certain carbon emission limits, to purchase carbon credits to offset the emissions.

The thrust of HEL's argument was that the mining project would exacerbate global climate change and would increase Australia's contribution to greenhouse gas (GHG) concentrations in the atmosphere, contrary to the principles of inter-generational equity and the conservation of biological diversity and ecological integrity. It argued that the current conditions imposed by the Minister, though well intended, did not go far enough in addressing GHG.

Ulan Coal and the Minister opposed the conditions being pressed by HEL. They did so on the grounds that the carbon offset condition had not been imposed on any other mining operation in NSW and was therefore discriminatory. They also argued that a national carbon pricing scheme was a preferable means, from a policy and economic perspective, to drive reductions in GHG emissions.

Court examines powers to impose carbon offset condition

In considering the issues, the Court embarked upon a wide ranging analysis of the Minister's powers in dealing with, amongst other things, GHG emissions in the context of development applications.

The Court ultimately found that the scheme of the EPA Act is to ensure a proper consideration of all factors relevant to environmental planning and assessment, including the proper management, development and conservation of natural and artificial resources, for the purposes of promoting the social and economic welfare of the community and a better environment. The Court held that this included the impact of GHG emissions.

The Court found that it was within the Minister's power, and that of the Court, to impose a carbon offset condition on Ulan Coal, in a modified form to that pressed by HEL. In relation to Ulan Coal's mining operation, the Court held that it was appropriate to impose an offset condition on scope 1 carbon emissions, being emissions within the direct control of the mine, but not on scope 2 emissions, on the basis that scope 2 emissions are not emissions which Ulan Coal could control entirely.

The Court found that a condition requiring the offsetting of scope 2 emissions would be open to the criticism that, to the extent that those emissions are under the control of others, the requirement did not fairly relate to the project.

Court finds that imposing carbon offset condition not discriminatory

In terms of the novelty of the condition, and the fact that such a condition had not previously been imposed in NSW, the Court found that the condition was not discriminatory, but merely the first occasion on which the condition had been pressed.

At the time the judgment was handed down, the Court acknowledged that no carbon pricing scheme was operating in Australia, but accepted that, once a carbon price is in place (from 1 July 2012), the prospect of similar conditions being imposed may be not as likely.

Before finalising the precise terms of the orders, the Court invited the parties to submit appropriate wording for the offset condition, having regard to the terms of the order. The matter is back before the Court in February 2012.

Decision sets significant precedent for carbon intensive industries

The extent to which the decision will apply to projects which directly produce significant GHG in NSW (and which do not fall within the "top 500 carbon emitters" to be caught by the Federal scheme) still remains uncertain.

In any event, the decision sets a very significant precedent which will be closely monitored by many carbon intensive industries in NSW over the coming months.

For more information on planning and environment law, please see the website of CBP Lawyers or contact Anthony Perkins at or Lucinda Morphett at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Lucinda Morphett
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