10 Jun 2021

Proponents can expect greater scrutiny of Scope 3 Emissions following novel Federal Court Sharma decision

By Claire Smith and Caitlin McJannett

A recent Federal Court decision regarding the Minister's common law obligations when determining an EPBC Approval is likely to have implications for proponents of developments with significant scope 3 emissions.

In an Australian first, the Federal Court has found that the Commonwealth Environment Minister owes the children-applicants (Children) a novel duty of care not to cause the Children personal injury when exercising her power to approve an action pursuant to the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act).

The decision is significant as the Court accepted that the protection of human safety is an additional mandatory consideration not expressly provided for in the EPBC Act. In addition, the purpose of the Act includes protection of the environment, which includes people.

The coal mine seeks an extension to increase production

In November 2020, eight young defendants (Children) made a claim in the Federal Court against Whitehaven's application under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) to increase coal extraction from the approved Vickery Coal Mine (Extension Project).

The Extension Project included an increase in coal extraction from 135 to 186 Mt, an increase in peak annual extraction rate from 4.5 to 10 Mt per annum and an additional disturbance area of 776 ha, and development of a new coal handling processing plant and train load-out facility. It would reduce Scope 1 emissions but increase Scope 2 and Scope 3 emissions.  The Children claimed that the Commonwealth Minister for Environment owed them a duty of care in her prospective decision as whether to approve the Extension Project pursuant to section 130 and 133 of the EPBC Act and sought an injunction to restrain an apprehended breach of that duty.

Earlier, the Extension Project had been determined to be a "controlled action" due to the likely or actual significant impact on matters of national environmental significance (MNES) pursuant to section 68, EPBC Act.  An assessment by the NSW Department of Planning Industry and Environment (DPIE) had also been carried out under the bilateral agreement between the Commonwealth and the State government.

Why the Court found a special relationship between the Minister and the Children

The Court accepted that there is a foreseeable risk of harm to the Children due to the unchallenged climate-change evidence regarding the future trajectory of global average surface temperatures, including that one million of today's children are expected to suffer at least one heat-stress episode serious enough to require acute care and that many thousands will suffer premature death from heat-stress or bushfire smoke.

A significant disagreement between the parties was the materiality of the impacts to climate change arising from the Extension Project, which was expected to contribute 100 million tonnes (Mt) of carbon dioxide (CO2) through the burning of the additional extracted coal (known as Scope 3 Emissions). The Minister argued that the impact of the emissions to global temperature rising was immaterial because it would only increase global temperatures by a tiny amount (eg. if it assumed that global temperatures will stabilise at 2°C, the addition of 100 Mt would result in the temperature stabilising at 2.00005°C). However, the Court found that the impacts were material because the increase in temperatures, albeit small, contributed to the risk of temperatures exceeding beyond 2°C and triggering a 'tipping cascade' of events that would lead to global surface temperatures being propelled into an irreversible 4°C trajectory.

The final factors that led to the Court recognising the Duty related to the special relationship between the Minister and the Children. Specifically, the Court held that Minister had control over the potential harm (through the exercise of her power as to whether to approve the Extension Project) and the Children were a class of vulnerable people (due to their age and inability to prevent the harm). However, the Duty did not extend to the protection of the Children from property and economic loss.

The alleged apprehended breach of the Duty to the Children

Having established the Duty, the Children sought an injunction to restrain the Minister from an apprehended breach of that Duty on the basis that there was a reasonable apprehension that the Minister would approve the Extension Project. However, the Court was not prepared to grant the injunction because the applicant had not properly undertaken an assessment as to the reasonably available responses to the Minister, and such an assessment was required to establish a reasonable apprehension of the breach of the Duty. In particular, the Court noted that there had not been consideration as to whether a reasonable response may include approving the Extension Project subject to conditions (in accordance with section 134(1) and (2) of the EPBC Act).

In these circumstances, the Court considered it would pre-emptive for the Court to grant the injunction. The Court also found that the prospect of the breach was also diminished by the fact that as a result of the litigation, the Minister had new information that was not previously before her and that she must take into account that a duty of care owed by her to the Children is now recognised by the law.

Impacts from Climate Change

While the evidence concerning global temperature rising was uncontested, the parties disagreed as to whether the relatively small amount of 100 Mt of CO2 emissions from the burning of coal extracted as part of the Extension Project would materiality increase the increase of the Children being injured by a climate-change induced hazard.

The Minister's argument was that the Extension Project would only increase global temperatures by a tiny amount (if it assumed that global temperatures will stabilise 2°C, the addition of 100 Mt would result in the temperature stabilising at 2.00005°C), and that the climate-change evidence does not operate at a sufficient level of specificity to determine what this increase means in terms of measurable risk. This was rejected on the basis that it is the accumulation of CO2 which causes exposure to the risk of harm, and the Extension Project will contribute to that accumulation, and will bring about the increased temperature and harm.

A key argument put by the Children is similar to a marginal analysis argument in economics and was made by reference to the contribution that 100 Mt of CO2 may have on the level at which the global average surface temperature will stabilise. It was argued that once global average surface temperatures reach or exceed 2°C above pre-industrial level, a tipping scale is approached whereby the risk of a 4°C Future World increases exponentially. The Children argued that within that context, the emission of 100 Mt of CO2 is material.

The Minister unsuccessfully challenged this argument by stating that the Children had to demonstrate that the 100 Mt of CO2 from the Extension Project would be emitted outside the 2°C budget, to which there was none. In response, the Court found that the evidence did indicate that the 100 Mt of CO2 from the Extension Project would not be emitted as part of the carbon budget:

"Professor Steffen’s opinion was that it was “obvious” from the carbon budget analysis, that 'no new coal mines, or extensions to existing coal mines, can be allowed'. ….If there is no capacity to include 90% of existing Australian reserves of coal in the carbon budget, it seems unlikely that a capacity for new reserves to be included exists. Even “existing” reserves, by which Professor Steffen must have meant those already being exploited, logically have only a 1 in 10 chance of being included in the budget. There is no evidence sufficient to support a contention that the 100 Mt of CO2 from the Extension Project is earmarked for some priority treatment relative to other coal sufficient to put it in the top 10% of candidates for inclusion in the budget."

In any event, the Court determined that it was not essential to the applicant's contention that the 100 Mt of CO2 was emitted outside the 2°C budget. The Court said that what was essential was that there was a plausible prospect that surface temperature will reach a 'tipping cascade' triggered by a marginal increase in the accumulation of CO2. Therefore, for the Children's second argument to be successfully refuted, the evidence would need to show that the 100 Mt of CO2 emissions from the Extension Project would occur after the 'tipping cascade' is triggered (which it did not).

Establishing the Duty: the relationship between the Minister and the Children

A key component of the decision concerned the relationship between the Minister and the Children, particularly whether the imposition of the Duty would be consistent with the Minister's statutory task in determining whether to grant the EPBC Act.

Contrary to the Minister's position, the Court found that there was consistency between the imposition of the Duty and the Minister's statutory task for the following reasons:

1. The statutory discretion to approve the Extension Project was consistent with the imposition of the Duty because:

  • unless a contrary intention is shown, it is assumed that the avoidance of death and personal injury to humans is the intent of any legislative scheme that confers functions or powers capable of creating a danger to human safety.
  • Indeed for the EPBC Act, human safety is a relevant mandatory consideration in relation to a controlled action which may endanger human safety. This mandatory consideration arises from the subject-matter, scope and purpose of the EPBC Act rather than rather the categories of mandatory considerations specified in section 136(1) of the EPBC Act (being (a) matters relevant to the protection of MNES and (b) economic and social matters).

2. The purpose of the EPBC Act is also consistent with the imposition of the Duty because:

  • A purpose of the EPBC Act is "protection of the environment" (section 3), and the definition of "environment" is given in section 528 to specifically include "people and communities". Another is to "promote ecologically sustainable development", which is given further definition in section 3A as including the principle of inter-general equity (that the present generation ensure that the health, diversity and productivity of the environment is maintained or enhanced for the benefit of future generations"); and
  • when these definitions and the EPBC Act are read as a whole, it is not the protection of environment per se (including those listed species and their habitats that are afforded protection by the EPBC Act), but the protection of the interests of human being in the environment, including those aspects of the environment that are protected by the requirement to obtain an approval in Part 3, such as MNES.

3. Having established the premise that human safety is a mandatory consideration in relation to a controlled action which may endanger human safety, which is separate from the Minister's mandatory considerations in section 136(1), the Minister can be expected to at least give elevated weight to a duty (imposed under the common law) to take reasonable care to avoid a risk of physical harm to members of the Australian community.

However, the Court made it clear that the duty of care did not extend to property damage or economic loss as the inclusion of such a consideration pursuant to a duty of care would be inconsistent with the EPBC Act as it would skew or distort the Minister's broad discretion.

An assessment of a number of other factors regarding the relationship between the Minister and the Children were also critical to the Court's conclusion that the Duty should be recognised. These include, in summary:

  • the reasonable foreseeability of the harm (discussed above at section 5);
  • the substantial and direct control of the Minister over the risk of harm to the Children that would flow from the exercise of her statutory power to determine the Extension Project; and
  • the extreme vulnerability of the Children to the risk of climatic related hazards was established by the evidence due to the magnitude of the potential risk and the Children's powerlessness to avoid that harm. This vulnerability is linked to the Minister because the source of the Children's exposure to the risk includes the conduct of the Minister in determining whether to approve the Extension Project.

Implications for proponents

The implications of Sharma for proponents, particularly large-emitters, include that:

  • regulators are likely to apply greater scrutiny to Scope 3 emissions when assessing the environmental impacts of a projectand may apply conditions of approval relating to avoidance, mitigation and offsets of CO2 emissions;
  • proponents should give significant consideration to reduction and offset measures to increase the likelihood of approval and reduce the risk of legal challenge; and
  • the decision may spur further litigation challenging government decisions in other environmental approval settings, such as state environmental approvals. However, the case needs to be understood in context, and turned very much on its own facts (including the decision making power and vulnerability of the applicants) and the statutory context in which the decision was made.

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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.