Australia: How the EPA draft Climate Change Policy and Action Plan will impact businesses in NSW

The NSW Environment Protection Authority (EPA) recently released its draft Climate Change Policy (Policy) and Climate Change Action Plan 2022-25 (Action Plan) in September 2022. Once implemented, this will solidify the EPA's role in regulating and reducing greenhouse gas emissions and support the NSW Government's plan to reach net zero by 2050.

The Policy and Action Plan are in direct response to the significant case of Bushfire Survivors for Climate Action Incorporated v Environment Protection Authority [2021] NSWLEC 92, in which the EPA was found to have a statutory duty to develop specific policies to protect the environment from climate change. In particular, these developments mark the EPA's shift to treating carbon dioxide as a pollutant, thereby requiring its strict regulation and reduction in the atmosphere.

In this article, our Planning and Environment team discuss the intentions and effect of the EPA's latest regulatory position, and highlight the potential impact of this on businesses in regulated and heavy industries.

What does the Policy and Action Plan seek to achieve?

Looking towards the State's goal of halving its carbon emissions by 2030 (from 2005 levels), the EPA's CEO, Tony Chappel emphasised the major economic opportunities for NSW from advancing clean industries such as renewable energy, green hydrogen and regenerative agriculture. The Policy and Action Plan seeks to contribute to a deliberate, well-organised transition to a low carbon economy in what is a quickly-shrinking time frame.

The documents provide a framework for consulting with and listening to regulated industries, particularly holders of an environmental protection licence (EPL), with the aim of quantifying, monitoring and "regulating down" emissions from these industries.

The Policy

The draft Policy outlines the EPA's key focus areas of its decarbonisation efforts, specifically working with regulated industries to:

• inform and plan, by identifying emerging issues, risks and opportunities related to climate change and effectively communicating those matters to the businesses that are regulated by the EPA;
• mitigate, by taking action and ensuring that regulated industries take action to meaningfully reduce their emissions through implementing practicable, evidence-based reduction targets; and
• adapt, by assisting communities and businesses to plan for and recover from climate change-related risks and natural disasters.

The Policy also promises comprehensive consultation across industries, communities, young people and Indigenous Australians, to ensure the EPA is considering both the climate and stakeholders when making regulatory decisions.

The Action Plan

The EPA's Action Plan particularises how the Policy will be implemented, and is more specific about the EPA's vision for future regulatory action. The Action Plan represents a staged, progressive move towards placing increased requirements on EPL holders, including:

• setting emission reduction targets for key industries;
• continued benchmarking against such targets;
• requiring industry to prepare and implement climate change mitigation and adaptation plans; and
• ensuring new and existing EPL holders are engaging in best practice climate policies.

What is the impact on licence holders?

The EPA's increasing regulation of greenhouse gas emissions for EPL holders will undoubtedly have an effect on emissions, but will also create an administrative burden and affect the operations of emissions-intensive projects throughout NSW. We have identified the following critical impacts of this Policy and Action Plan:

• Stakeholders in certain sectors which are licensed by the EPA will need to target, and show how they intend to meet, certain emissions reductions goals. Although the targets themselves will not be enforceable, they will inform the EPA's regulatory activities and licensing decisions going forward.
• All EPL holders will be required to develop and publish on their corporate websites, a climate change mitigation and adaptation plan (CCMAP), and regularly report on the outcomes. The CCMAP will need to demonstrate that the EPL holder has considered emissions reduction for its operations and its exposure to climate risks. In response, the EPA may impose specific EPL conditions to explicitly require practical mitigation and adaptation steps be taken by an EPL holder.
• The EPA will also progressively place greenhouse gas emission limits and other requirements on EPLs for key industry sectors regulated by the EPA. To ensure compliance with its EPL, a project will need to monitor and prove its performance on reducing emissions, and adapt its operations to remain under the limits set for its sector. Emissions limits may be imposed on a CO₂-equivalent basis or contain an absolute ceiling on carbon emissions, requiring proponents to include accurate projections in their environmental impact assessment documentation.

These measures to be taken by EPL holders to reduce emissions and to manage climate related risks, may ultimately require operational changes. However, the administrative burden on EPL holders will be exacerbated if further development consent is required prior to implementing the necessary operational changes.

This week, the EPA's Western Australian equivalent opted for a different approach for now, announcing it would not impose limits on emissions in its environmental licensing regime in the short term. Instead, the Western Australian Government looks likely to introduce a "polluter pays" scheme, linked to the intensity and type of various pollutants emitted at each project site. The remaining States and Territories are continuing to grapple with how to regulate this challenging issue.

Going forward

The draft Policy and the Action Plan represent the EPA's most concrete and impactful method yet of regulating and reducing greenhouse gas emissions among regulated industries. While stakeholders set to be affected by these changes may make submissions on the draft Policy and Action Plan via the EPA's website until 5pm on Thursday, 3 November, these draft documents clearly signals an increase in compliance-related work for those businesses operating with an EPL, and an impact on the long-term operations and viability of some projects.

If you are contemplating ESG themes such as sustainability or decarbonisation, or considering how your business will address the impacts of this draft Policy and Action Plan, our experienced Planning and Environment team, and strategic advisory team, McR ESG, are available to assist. This multidisciplinary team works together to provide the legal and non-legal advice required to prepare a business-specific response to these issues, in a way that not only ensures ongoing compliance, but also uncovers unique opportunities.

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.