Insurance & Reinsurance
A recent decision in the NSW Land and Environment Court explored considerations involved in determining approval for a proposed coal mine such as the emissions of greenhouse gases and the effect that has on climate change, the impacts on existing, approved and likely preferred uses of land in the vicinity and the social implications it would have on the nearby towns and the Aboriginal community.
The NSW Land and Environment Court recently refused development consent for an open cut coal mine in Gloucester Resources Limited v Minister for Planning  NSWLEC 7. Gloucester Resources Limited (GRL) lodged a development application under the Environmental Planning and Assessment Act 1979 (the EP&A Act) for consent to carry out the Rocky Hill Coal Project (Project) in 2012. The Project proposed to extract 2.5 million tonnes per year of run-of-mine (ROM) coal from a new open cut mine located in Gloucester, and construction of a coal handling and preparation plant and overland conveyor to transport coal to the Port of Newcastle.
The Planning and Assessment Commission (PAC), as the delegate for the Minister for Planning, refused consent to the Project in 2017. These proceedings were an appeal by GRL against the Minister's refusal of consent. The Minister for Planning, and an intervening community group, defended the decision of the PAC.
The decision follows a recent journal article by Justice Preston, which mapped the history of climate change litigation in Australia and internationally.
Fundamentally, the Court concluded that the exploitation of the coal resource in the Gloucester Valley would not be a sustainable use of the land, and would cause substantial environmental and social harm. Given the context of climate change and need to reduce greenhouse gas emissions, the Court characterised the Project as being "in the wrong place at the wrong time". While media commentary has focused on the Court's comments concerning climate change, it is worth noting the Court also considered the Project ought to be refused on a number of other grounds, including social impacts on the community due to noise and dust, and impacts on Aboriginal heritage and culture. The Court observed that the benefits of the mine would largely accrue outside the Gloucester area, whereas all the impacts would be felt by people in Gloucester.
Preston CJ considered the adverse impact that coal mines have on climate change and the causal link between climate change and the Project's greenhouse gas emissions (GHG emissions). The Court identified why climate change and reduction of GHG are requirements of the EP&A Act, including by virtue of cl14(2) of the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (SEPP Mining), and cl 1.2(2) of the Gloucester Local Environmental Plan.
The Court considered that the Project would impact the environment, as all anthropogenic GHG will contribute to climate change. All Scope 1, 2, and 3 emissions should be considered, ie the emissions caused by transporting the coal, and the downstream emissions through its use after its sale.
It was no reason to disregard the contribution of the Project towards climate change, merely because it would contribute only a small percentage of global GHG. The Court acknowledged that:
GRL argued that the Rocky Hill Coal Project should be approved, notwithstanding its contribution towards global GHG. The Court found in response to the various arguments:
The Project's emissions might not be offset:
GRL argued that the GHG emissions associated with the Project may not cause the carbon budget to be exceeded, as reductions in carbon budget may be achieved through other sources which would balance the impacts of this Project. This was categorically rejected by the Court, who held:
A consent authority cannot rationally approve a development that is likely to have some identified environmental impact on the theoretical possibility that the environmental impact will be mitigated or offset by some unspecified and uncertain action at some unspecified and uncertain time in the future. This is not a case where the applicant for development consent commits to taking specific and certain action to mitigate and offset the environmental impact of the proposed development.
Possibility of the abatement of emissions unrelated to the Project was not relevant:
His Honour rejected the argument that emissions reductions might be better abated through means other than refusing the proposed coal mine (ie it may be better to pursue an offset scheme than to refuse a proposed coal mine). Rather, when a consent authority is making a determination concerning a coal mine development application, it does not do so on the basis that it formulates policy as to how to minimize emissions reductions to reach the global abatement task. Where the development can result in GHG emissions, the task of the consent authority is to decide on the acceptability of those emissions and the probable effects on the climate system, the environment and people for that specific proposal.
Assumptions of market substitution and carbon leakage were unproven:
The assumptions that GHG emissions of the Project will happen whether or not the Project was approved, due to market substitution and carbon leakage was rejected (ie, that if the project is refused, dirtier coal would be burned elsewhere overseas, or the market would substitute this coal for other coal available on the market). The Court was not satisfied that carbon leakage or market substitution would actually happen if approval was not granted for the Project. Further, the impacts of a proposal do not suddenly become acceptable simply because an alternative hypothetical development might also cause the same unacceptable environmental impact.
Producing coking coal not a justification for GHG emissions:
The Project would produce high quality coking coal rather than thermal coal, which is essential for the predominant way of producing steel. This argument was held to be inflated, as it was not necessary for this project to be approved in order to maintain the supply of coking coal.
The Court observed that, given the impacts of global GHG emissions from proposed coal mines generally, it was 'rational' not to approve those coal mine proposals which have the greatest emissions, and/or other environmental, social or economic impacts, although proposals with fewer emissions or other impacts may still be approved.
The Court also held that the Rocky Hill Coal Project was incompatible with the existing, approved and likely preferred uses in the vicinity due to its visual, amenity and social impacts,.
Preston CJ considered the positive and negative social impacts of the coal mine, and found that adverse social impacts were "major" and "likely". The Court considered the various drivers of these social impacts, including noise, dust, likelihood of revegetation, and impacts on Aboriginal people and cultural heritage. In considering the drivers of these social impacts, the Court found that the Project complied with the development standards dealing with noise and dust required by the SEPP Mining. While the Court is unable to impose a more onerous development standard (per cl 12AB of the SEPP Mining), it found that the noise and dust impacts would still be perceptible and contribute to the social impacts of the development on nearby residents.
The Court did not accept the approach taken by GRL's expert to assess visual impacts as low because they might be mitigated or remedied, regardless of whether they are actually mitigated or remedied. The Court noted "Only the actuality and not the potentiality of mitigation of the… effects can reduce the level of… effect".
The Court also observed how the project created distributive inequity, insofar as the benefits were likely to accrue outside Gloucester (eg royalties or profits), however most of the impacts would be accrued by people in Gloucester (eg social impact, dust, etc). Further, that the benefits of coal mining would be realised in the short term over 20 years, but the negative impacts would continue to exist into the long term (eg permanent loss of Aboriginal heritage, permanent changes to topography).
The Court found that the claimed economic benefits of the proposed coal mine, such as employment and wage benefits to the community were largely overstated. The Court considered the relevant analysis to be:
The Court concluded that the worker and supplier benefits in the area were small, whereas there were high environmental, social and transport costs. While the project had a net positive economic impact, this did not necessarily mean that it was in the public interest. When balanced against the other impacts, and considering distributing inequity, the Court considered the economic benefit did not warrant approval. Other uses would also yield net economic benefit, although these were not able to be quantified.
This decision is significant for developers of coal mines and other fossil fuels projects, as it affirms that climate change implications of a project can influence whether it will be approved. Given the rise of climate change litigation, and increasing scrutiny of development applications by activist community groups, this case emphasises the need to fully address the principles of ecologically sustainable development in proposals. Management and mitigation strategies may need to be set out in greater detail during the assessment stage of SSD applications, which will likewise lead to even further scrutiny by community groups.
The decision also has some broader relevance to assessment of other developments.
This decision highlights the increasing risks and challenges in obtaining approvals for fossil fuels related projects, and increased potential for those projects to become stranded assets.
Directors should be considering their duty to act with reasonable care and diligence, and in the best interests of the business, in light of the risks associated with climate change. For directors of companies operating in the fossil fuels industry, this may mean considering whether diversifying or transitioning away from fossil fuels is prudent, in order to reduce the risk that some mineral or gas resources may never be exploited. For example, AGL is currently decarbonising their generation portfolio, with a planned exit from coal fired power stations, and transition to renewable and near zero emission technologies.
This will in turn be of interest to insurers offering D&O policies to businesses in the fossil fuels industry, as directors who fail to respond to the changing policy landscape and environmental risks associated with climate change, may expose themselves to potential claims for breach of directors duties. Given the rise of both shareholder class actions and climate change litigation, there is potential for a 'perfect storm' if the two converge.
To discuss this case further and its implications for coal mines and other proposed developments, please contact Jacinta Studdert or Kristyn Glanville.
1. Preston B J 'Mapping Climate Change Litigation' (2018) 92 ALJ 774
2. Para 699
3. Para 530
4. Para 137