25 Mar 2010

A licence to change the climate? Court considers whether licence permits emission of carbon dioxide

by Brendan Bateman, Brendan Dobbie

Court finds that a licence to operate a coal-fired power station necessarily authorises the emission of carbon dioxide, although leaves open the question whether the licence may be subject to an implied condition to limit emissions to avoid climate change.

Climate change litigation in Australia has taken a new turn with a decision by the NSW Land and Environment Court that a licence to operate a coal-fired power station may incorporate an implied condition that the emission of carbon dioxide can only be done in a manner that has reasonable regard to the interests of other persons and the environment.


In July 2009, members of a Climate Change activist group known as Rising Tide commenced civil enforcement action in NSW against Macquarie Generation in relation to the emission of carbon dioxide from its coal-fired power station at Bayswater in the Hunter Valley of NSW.

In the proceedings, the applicants allege that the emission of carbon dioxide from the burning of coal constitutes the wilful or negligent disposal of a waste without lawful authority in a manner that harms or is likely to harm the environment, in contravention of section 115 of the Protection of the Environment Operations Act 1997 (NSW). The Summons filed with the Court seeks a declaration in relation to the alleged unlawful conduct and an injunction restraining Macquarie Generation from emitting carbon dioxide without lawful authority.

In accordance with the normal procedure of the Court, the applicants were directed to plead their case by way of a Points of Claim (PoC). The PoC relevantly allege that the emission of carbon dioxide from Bayswater Power Station, owned and operated by Macquarie Generation, contributes to global warming, which in turn is contributing to a number of impacts on the environment, including acidification of the oceans. The emission of carbon dioxide from Bayswater Power Station constitutes approximately 3 percent of Australia's total greenhouse gas emissions. The power station is one of the largest emitters of greenhouse gases, in particular carbon dioxide, in Australia.

Summary dismissal application

In September 2009, Macquarie Generation filed a Notice of Motion with the Court seeking that the applicants' claims be summarily dismissed on the basis that Macquarie Generation at all relevant times held the requisite approvals and licences to operate a coal fired power station, which provided lawful authority to emit carbon dioxide. Section 115(2) of the Act provides that no offence is committed if the waste is disposed with lawful authority. In particular, Macquarie Generation held an environment protection licence under the Act for electricity generation work involving the combustion of coal. As a result, said Macquarie Generation, the applicants' claims should be summarily dismissed as they had no prospect of success.

Implied conditions of a licence

In response to this, the applicants applied to the Court for leave permitting them to amend the PoC to include a new allegation. The allegation in essence was an alternative claim that, even if Macquarie Generation had lawful authority, it could only emit carbon dioxide having reasonable care and regard for other persons and the environment. This condition, it was alleged, was to be implied into the licence. The applicants alleged that Macquarie Generation emitted carbon dioxide in a manner that failed to have reasonable care or regard, and consequently, such emissions were without lawful authority.

The applicants relied on the decision of Van Son v Forestry Commission of NSW (1995) 86 LGERA 108 which concerned a claim for nuisance, where the NSW Supreme Court relevantly held that the Commission could not rely on the authority of an approval to excuse the nuisance complained of.


Justice Pain heard the two applications together. She accepted Macquarie Generation's arguments that it had lawful authority to emit carbon dioxide into the atmosphere under its licence and accordingly the applicants' claim under section 115 of the Act was very unlikely to succeed. However, she did not summarily dismiss the implied condition claim, concluding that she was not satisfied that the applicants' case was so untenable as to warrant summary dismissal.

Relevantly, Justice Pain found:

1. The licence expressly authorises the carrying out of electrical power generation from the burning of coal. Carbon dioxide is the inevitable product of the burning of coal in the presence of oxygen. Carbon dioxide is referred to as a substance which the licence requires to be monitored at specific points (stacks). Monitoring of carbon dioxide can only occur if it is being emitted from those stacks.

2. Where there is a necessary process for the principal activity the subject of a licence, the licence should be interpreted as permitting that activity. There is no doubt that the emission of carbon dioxide is essential to the generation of electricity by Bayswater power station.

3. The licence would have no sensible operation if it is construed as not allowing the emission of carbon dioxide. Such a construction of the licence gives effect to its purpose. These arguments are compelling and are not addressed by the applicants' case.

4. Macquarie Generation provided cogent reasons for why the licence should not be interpreted in a way such that carbon dioxide should be considered a waste and these provide a complete answer to the applicants' claim.

5. At the final hearing, it is very likely that Macquarie Generation would be able to demonstrate that it has lawful authority to emit carbon dioxide into the atmosphere.

6. Although Macquarie Generation put forward comprehensive submissions as to why the implied limitation on the licence was untenable as a matter of statutory construction and general principle, the correctness of these submissions was not so self evident that summary dismissal was warranted. In this respect, Justice Pain concluded:

(a) Macquarie Generation's submissions were premised on the assumption that the statutory scheme for licensing under the Act must "cover the field" for the authorisation of activities enabled under the licence. While Justice Pain accepted Macquarie Generation's submissions that limitations on statutory authority should not be readily implied in the absence of specific limitations in the relevant instrument or enabling statute, that did not rule out completely a cause of action such as that contended by the applicants. Justice Pain gave as an example section 332 of the Act, which preserves a person's right or remedy to institute proceedings under any other Act or law (although we query whether the ability of the applicants to pursue a remedy under another Act or law is relevant to whether there should be a cause of action under section 115); and

(b) in relation to Macquarie Generation's submission that the implied limitations are vague and uncertain and could give rise to a possible conviction, Justice Pain appears to conclude that, as she has upheld Macquarie Generation's summary dismissal claim in relation to the lawful authority issue raised by the applicants, the allegations of an implied limitation will be considered in that context. Justice Pain then states:

"I do not therefore understand that a finding of conduct potentially giving rise to a criminal offence under section 115 can arise in relation to these paragraphs if the Applicants' argument is upheld. The focus of the case will be on whether there are implied limitations as contended by the Applicants on the emission of CO2 separately from the licence as a matter of law and, if these limitations exist, as a matter of fact". [emphasis added]

Justice Pain did not make final orders in relation to either application, although foreshadowed that an order upholding Macquarie Generation's application in part for summary dismissal could be made in so far as the claims based on lawful authority and waste were concerned. In light of those findings, her Honour observed that the applicants would need to recast their Summons and PoC.


Justice Pain's judgment provides both clarity and uncertainty in relation to the construction of licences which authorise the undertaking of polluting activities.

Certainly, her finding that the authorised activity includes all necessary activities to carry out the authorised activity will provide reassurance that licences do not need to be prescriptive in relation to every aspect or impact of an authorised activity. However, the finding that it may be open for licences to be subject to implied conditions introduces a new element of uncertainty. What "reasonable care and regard to other persons and the environment" means is vague and undermines the statutory basis for granting licences. In particular, contrary to what appear to be her reasons for not striking out the implied condition allegation, there is the very real risk that a breach of such a condition will result in a finding of criminal conduct.

The writers acted for Macquarie Generation in the proceedings.

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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 communication. Persons listed may not be admitted in all States and Territories.