28 Oct 2021

Not all types of greenhouse gas emissions need to be given the same weight by consent authority, says NSW Court

By Claire Smith, Cloe Jolly and Alice Brennan

The NSW Land and Environment Court's ruling clarifies what a consent authority should have regard to in respect of GHG emissions, particularly Scope 3 emissions, when assessing whether or not to approve a project.

The interaction of greenhouse gas emissions and project approvals is before the courts again, with the NSW Land & Environment Court upholding the development consent for a coal seam gas project despite arguments the Independent Planning Commission's failure to adequately consider the greenhouse gas (GHG) emissions of the project (Mullaley Gas and Pipeline Accord Inc v Santos NSW (Eastern) Pty Ltd [2021] NSWLEC 10 (MGPA v Santos)).

The CSG project and Scope 3 (or downstream) emissions

The Independent Planning Commission (IPC) previously approved a state significant development application for the Santos Narrabri Gas Project of 850 coal seam gas (CSG) wells, subject to stringent conditions on matters including GHG emissions. The Mullaley Gas and Pipeline Accord (MGPA), a group of residents and businesses, argued the IPC's decision was invalid on four grounds, three of which concerned the IPC's consideration of the GHG emissions of the Project:

  • Ground 1 (Consideration of impacts of GHG emissions) — The IPC misconstrued section 4.15(1)(b) of the Environmental Planning and Assessment Act (EP&A Act) by failing to consider the environmental impacts of the GHG emissions of the Project and to balance them against the benefits of the Project;
  • Ground 2 (Downstream emissions condition) — The IPC misunderstood or misconstrued sections 4.15(1)(a)(i) and (b) of the EP&A Act and clause 14(1) of the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (Mining SEPP) by failing to impose a condition on the development consent to regulate downstream (or Scope 3 GHG emissions) because they were outside of the direct control of Santos;
  • Ground 3 (Legally unreasonable decision) — The IPC’s failure to impose a condition on the development consent to regulate Scope 3 GHG emissions was legally unreasonable; and
  • Ground 4 (Pipeline impacts) —The IPC failed to consider a relevant matter: the likely environmental impacts of the construction of the proposed transmission pipeline that would transport gas from the Project to market.

Consideration of impacts of GHG emissions

The MGPA suggested the IPC asked itself the wrong question when considering the likely impacts of the Project on the natural and built environments. However, Santos argued the Project could be justified by comparing the GHG emissions of CSG over coal, as the combustion of CSG produces lower levels of emissions than the combustion of coal. When considering the Project, the IPC accepted this argument. Santos' Environmental Impact Statement (EIS) also included a Greenhouse Gas Assessment which calculated the direct and indirect GHG emissions associated with the Project, including Scope 1 (direct emissions), Scope 2 (indirect emissions) and Scope 3 (other indirect emissions outside Santos' control) emissions. In considering this issue, the IPC compared the potential GHG emissions of the Project against the emissions of similar coal projects, and ultimately concluded that the negative impacts did not outweigh the benefits.

In considering ground 1, Chief Judge Preston said the point of the IPC's comparison of coal-fire and gas-fired generation "was to assess whether the carrying out of the project might lead to a reduction in total [GHG] emissions in the energy sector and for NSW as a whole" and held that the IPC did not err in considering the expected emissions of CSG in comparison to coal and that it was a valid part of the evaluation process.

Downstream emissions condition

The MGPA suggested that the IPC misunderstood or misconstrued clause 14(1) of the Mining SEPP, which says:

"(1) Before granting consent for development for the purposes of mining, petroleum production or extractive industry, the consent authority must consider whether or not the consent should be issued subject to conditions aimed at ensuring that the development is undertaken in an environmentally responsible manner, including conditions to ensure the following—

(a) that impacts on significant water resources, including surface and groundwater resources, are avoided, or are minimised to the greatest extent practicable,

(b) that impacts on threatened species and biodiversity, are avoided, or are minimised to the greatest extent practicable,

(c) that greenhouse gas emissions are minimised to the greatest extent practicable.

(2) Without limiting subclause (1), in determining a development application for development for the purposes of mining, petroleum production or extractive industry, the consent authority must consider an assessment of the greenhouse gas emissions (including downstream emissions) of the development, and must do so having regard to any applicable State or national policies, programs or guidelines concerning greenhouse gas emissions.”

Santos argued that clause 14(1)(c) does not extend to requiring the IPC to consider whether or not consent should be issued subject to conditions minimising Scope 3 emissions. Further, even if the IPC was under a duty to consider whether to impose conditions to minimise Scope 3 emissions, the IPC discharged this duty.

Chief Judge Preston noted that the phrase "GHG emissions" in clause 14(1) "includes all three scopes of emissions, not only the direct (Scope 1) emissions but also the indirect (Scopes 2 and 3) emissions". However, he noted that while all three scopes of emissions must be considered, this does not mean that the outcome of that consideration will be the same for all types of emissions. The different scopes of the emissions, as well as the degree of control the proponent has over indirect emissions, will influence whether conditions to consent are required by clause 14(1) of the Mining SEPP.

Further, the degree of control a proponent has over Scope 3 emissions will vary in each project and the degree of control will be evaluated by the consent authority on a case by case basis. It was held that the IPC considered whether it was necessary to impose conditions to minimise Scope 3 emissions to the greatest possible extent, and decided not to, finding that the Scope 3 emissions were outside the direct control of Santos as the proponent did not have sufficient control over the end users and their consumption of the product gas. As such, the IPC could make the decision not to impose restrictions on scope 3 emissions.

Finally, Chief Judge Preston found the IPC's decision not to impose Scope 3 related conditions was not legally unreasonable, particularly where "reasonable minds may differ". While the arguments advanced by the MGPA may have provided support for a decision to impose a condition on scope 3 emissions, they were not sufficient to establish that the decision not to impose a condition was legally unreasonable.

Emissions of associated projects

The MGPA also argued that the IPC should have considered the environmental impact of the pipeline associated with the Project (Ground 4). A the time consent was granted, the proponent was considering two options for the pipeline route and had not made a final decision; the IPC imposed a condition on consent which prevented Santos from commencing Phase 2 until planning approval had been obtained for the pipeline.

Chief Judge Preston held that the IPC was not required to consider the likely impacts of any potential gas transmission pipeline as these impacts would not form either on-site or off-site likely impacts of the Project. Even if a singular route could have been identified, the impacts of this pipeline would not have had a real and sufficient link to the project.

Takeaways for coal or other fossil fuel projects

This judgment clarifies what a consent authority should have regard to in respect of GHG emissions, particularly Scope 3 emissions, when assessing whether or not to approve a project. There are a number of clear takeaways which are applicable to other coal and fossil fuel projects including:

  • references to GHG in clause 14 of the Mining SEPP refers to all three scopes of emission (Scope 1, Scope 2 and Scope 3) however not all types of emissions need to be given the same weight;
  • if clause 14 of the Mining SEPP does apply, then the consent authority also has the power to impose conditions of consent which control, regulate or restrict Scope 3 emissions for that project. However, it does not have to impose conditions on a project and in some circumstances, the degree of control the proponent has over the Scope 3 emissions will affect whether the consent authority considers it appropriate to impose a condition on Scope 3 emissions;
  • in considering a project, the consent authority may compare the project's GHG emissions against other types of projects as part of its environmental assessment; and
  • if a project leads to a reduction in overall GHG emissions within NSW then this will also be a relevant consideration to the consent authority.

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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.