Australia: Mining carbon emissions: market mechanisms v regulatory control

Key Points:

The Carbon Price Mechanism is a relevant matter for a consent authority to consider in deciding to impose conditions with respect to GHG emissions.

The power to control the emission of greenhouse gases from projects such as mines has always been available to state planning authorities and environmental regulators through imposition of appropriate conditions of approval.

The impending commencement of the Carbon Price Mechanism from 1 July 2012 however raises new issues as to whether this is still appropriate or indeed necessary. Indeed, there is the potential for Constitutional issues to arise between the Clean Energy Act 2011 (which establishes the Carbon Price Mechanism to introduce a market mechanism providing incentives for the reduction of GHG emissions through low-cost abatement) and state-based regulatory regimes.

The tension between these alternative mechanisms of regulating the emission of GHG arose most recently in New South Wales in a case about the Ulan Coal Mine, Hunter Environmental Lobby Inc v Minister for Planning [2011] NSWLEC 221.

What sorts of conditions are being imposed to monitor or abate greenhouse gas?

There have been numerous examples around Australia of planning authorities imposing conditions of approval for projects which require the applicant to monitor and/or abate greenhouse gas (GHG) emissions from that project. Recent concept plan approvals for new coal/gas fired power stations in New South Wales required those projects to be capable of retro-fitting carbon capture technology. Other examples include the conditions on approvals for mining project including a requirement that GHG emissions are monitored and minimised and fugitive emissions be captured and flared if necessary.

Further, environmental regulators quite often require the amount of one or more GHG to be monitored (and which also may attract licence fees depending on the quantity which is emitted), or indeed have required the implementation of pollution reduction programmes to reduce the levels of emissions. Recent experience has been that the level of regulation of GHG has increased in parallel with community and government concern about the phenomenon of climate change.

What was the Ulan Coal Mine case about?

This case involved an appeal by an objector to an application by Ulan Coal Mines Ltd to amalgamate a number of existing approvals as well as an overall expansion of its mine at Ulan, about 40km north east of Mudgee.

The Minister granted approval to that application which would see an overall increase in scope 1 GHG emissions1 from the project by over 350%, and the total scope 1 emissions of CO2-e over the life of the project by over 650%.

The objector in the proceedings sought the imposition of a number of additional conditions on the planning approval. These included a requirement that Ulan purchase carbon credits to offset the scope 1 GHG emissions from the expanded mine.

In a preliminary judgment in November 2011, Justice Pain stated that the power to impose conditions under the relevant provisions of the NSW Environmental Planning and Assessment Act 1979 (EP&A Act) extended to include the power to impose conditions to regulate GHG emissions. It was therefore within the power of the consent authority (and the court acting in its place on the merits) to impose conditions of the kind contended for by the applicant to require Ulan to offset or otherwise minimise the environmental impact associated with the scope 1 GHG emissions. Justice Pain required the parties to make further submissions as to the appropriateness of the conditions proposed.

After hearing further submissions from the parties including submissions addressing the potential Constitutional tension between the Carbon Price Mechanism established under the Clean Energy Act and the power to impose conditions under the EP&A Act, Justice Pain delivered a judgment in March 2012 granting project approval subject to conditions but not including conditions which required Ulan to offset the scope 1 GHG emissions.

Justice Pain accepted Ulan's argument that the Carbon Price Mechanism and the associated legislative initiatives aimed at addressing GHG emissions are adequate responses to the issue of GHG emissions raised by the applicant. She noted that there may be a constitutional issue about the proposed conditions and the interaction between the Federal and State laws, but didn't explore this, as it was unnecessary – the practical outcomes which the conditions were meant to achieve would already be achieved by compliance with the Federal scheme. She also noted the uncertainty about the development of the market for Australian Carbon Credit Units.

What does the Ulan Coal Mine case mean for liable entities under the Carbon Price Mechanism?

Although the Ulan case involved a merits review of the decision to grant a project approval and the appropriateness of the conditions dealing with GHG emissions, it does provide a degree of reassurance to liable entities under the Carbon Price Mechanism that additional requirements to abate the emission of GHG from projects is unlikely to be imposed under other approval and regulatory regimes.

However, the fact remains that at least insofar as NSW planning law is concerned, consent authorities do have the power to impose such conditions (subject to any Constitutional issue in a particular case). Further, to the extent that an applicant for a project is not a liable entity under the Carbon Price Mechanism (on the basis that the emissions from the facility do not exceed the prescribed threshold) there may be an increased risk of conditions requiring the abatement of GHG emissions being imposed.

At the very least, the Ulan case shows that the existence of the Carbon Price Mechanism is a relevant matter for a consent authority to consider in determining whether or not it is appropriate to impose conditions with respect to GHG emissions when assessing and determining whether to grant approvals to projects.


1 Emissions released directly into the atmosphere as a direct result of the activities of the mine.

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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.

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