27 May 2021

Three significant climate change developments in Australia and overseas with implications for resource projects

The Federal Court has just held Australian children are owed a duty of care by the Federal Minister for the Environment when considering the expansion of a coal project which would lead to CO2 emissions.

Although the Court declined to grant an injunction, this decision will (unless overturned on appeal) give significant ammunition to climate change activists (Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment [2021] FCA 560).

Additionally, overnight Shell lost a landmark climate case and a climate activist investment firm snagged at least two board seats on ExxonMobil.

The landmark Shell case may have far-reaching consequences in Australia across not only for the gas industry but all fossil fuel industries. Similarly, stakeholders should be on notice that major shareholders are willing to take action when they determine companies are not pulling their weight toward decarbonisation and a greener future.

A duty of care to Australian children to exercise powers with reasonable care to avoid climate change harm

Vickery Coal Pty Ltd is a wholly owned subsidiary of Whitehaven Coal Pty Ltd. Whitehaven holds development consent under the Environmental Planning and Assessment Act 1979 (NSW) for a coal mine near Gunnedah, which is yet to go into production. It has applied for expansion of the mine under sections 130 and 133 of the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act).

The duty of care proposed in this case is that the Federal Minister, when exercising her powers under sections 130 and 133 of the EPBC Act, "must take reasonable care to not cause the Children harm resulting from the extraction of coal and emission of CO2 into the Earth’s atmosphere". The applicants sought an injunction to prevent the breach of that duty.

Justice Bromberg accepted that this duty exists:

"‘Coherence’, ‘control’, ‘vulnerability’ and ‘reliance’ all assume especial relevance in an assessment of whether a novel duty of care should be recognised (see [109] above). On the present facts, I regard ‘coherence’ as agnostic, but even if it is to be treated as tending against the recognition of a duty of care, ‘control’, ‘vulnerability’ and ‘reliance’ are affirmative of a duty being recognised and significantly so. ‘Indeterminacy’ and the policy considerations dealt with under the heading “Other Control Mechanisms” are also largely agnostic but if they tend in any direction it may be said that they tend against a duty being recognised. ‘Reasonable foreseeability’ strongly favours the recognition of duty of care. In totality, in my view, the relations between the Minister and the Children answer the criterion for intervention by the law of negligence.

That conclusion is confirmed when re-examined through the lens of the neighbourhood principle and the criteria of reasonableness fundamental to the law of negligence. By reference to contemporary social conditions and community standards, a reasonable Minister for the Environment ought to have the Children in contemplation when facilitating the emission of 100 Mt of CO2 into the Earth’s atmosphere. It follows that the applicants have established that the Minister has a duty to take reasonable care to avoid causing personal injury to the Children when deciding, under s 130 and s 133 of the EPBC Act, to approve or not approve the Extension Project."

He however declined to grant the injunction requested by the applicants, because the Minister could have a range of options short of unconditional approval that would avoid breaching the duty, the Minister as a result of the case now has more information to inform her decision, and that decision will be subject to judicial review. The Court will take further submissions before deciding what the Minister's duty of care may mean for whether the mine extension can go ahead.

We will explore the full ramifications of this decision in later articles.


Shell loses climate case

A court in the Netherlands has ruled that Royal Dutch Shell must cut its carbon dioxide emissions by 45% by 2030, compared to 2019 levels.The landmark judgment sets a new precedent in which industry must not only comply with the laws of their jurisdiction, but may also be bound by global climate policy such as the Paris Agreement. Importantly, the court ruled that Shell was also responsible for the carbon dioxide emissions of their suppliers, generating even further risk for the giants of oil and gas.

It follows the Urgenda case (2019), in which the Dutch Government was found to be obliged by the European Convention on Human Rights to reduce GHG emissions by at least 25% compared to 1990 levels by the end of 2020, consistent with the recommendations of the IPCC's 4th assessment report.

Although the Dutch court suggested the decision applies to entire Shell group, which would include Shell's business in Australia, other commentary suggests it will only apply in Shell's home country.How Australian courts may look to the decision will unfold in the coming years, although the NSW Land and Environment Court decision in Rocky Hill did have regard to commitments under the Paris Agreement and the global carbon budget when determining (on the merits) whether to approve a new coal mine in the Gloucester valley. There is thus at least non-binding precedent in NSW that consideration can be given to such matters if they are relevant as a matter of law to the decision whether to approve a project.

In a statement today, Shell announced it expects to appeal the decision, and released a statement that reiterated its already announced commitment to net zero by 2050, adding that Shell was already investing "billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels".


Exxon climate activist wins board seats

Climate activist hedge firm Engine No. 1 had snagged at least two ExxonMobil board seats with just a 0.02 per cent stake in the company, a campaign to force the company's hand to invest more in renewables such as hydrogen, wind and solar. Importantly, the candidates nominated by the activists were backed in by a diverse coalition of shareholders including major pension funds and BlackRock – a clear example that reducing carbon dioxide emissions is certainly a goal of mainstream business in 2021.

This shareholder activism may dramatically alter how the energy industry responds to climate change and the impending transition away from oil, gas and other fossil fuel sources. Australian participants in the sector might be expected to be impacted in a similar manner. We've certainly observed growing pressures on directors and managers to engage meaningfully with climate change and report on the risks, and set out some suggested responses by management to those risks.

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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.