The rise of net zero conditions in planning and environmental approvals

Over recent years, there has been a tidal wave of governments and corporations committing to net zero emission targets. Now attention is turning to the immediate challenges faced by regulatory authorities and project proponents on how to achieve these net zero commitments, including the fundamental question of whether the commitments should be translated into planning and environmental approval conditions.  

Australia’s climate change policy development has been fractured and rudderless. The patchwork of sometimes conflicting policy and legislation at state, territory and Commonwealth levels, presents uncertainty for project proponents and provides little guidance for decision makers.  

The implications of the recent Federal Election, which we commented on in this Insight, are likely to lead to a number of important developments in climate change policy, although it remains to be seen whether a majority Labor Government will adopt the more ambitious policies advocated for by the Greens and teal independents.

However, change is afoot at a state level. The Western Australian Environmental Protection Authority (WA EPA) has led the way in developing the Environmental Factor Guideline - Greenhouse Gas Emissions (April 2020) (GHG Guide), which is used in assessing proposals where GHG emissions from a proposal will exceed 100,000 tonnes of scope 1 emissions each year (measured in tonnes of CO₂-e) from an operational facility. One of the objectives of the GHG Guide is “to reduce net greenhouse gas emissions in order to minimise the risk of environmental harm associated with climate change”.  

Queensland, New South Wales and Victorian regulators are currently developing some form of resource industry policy or GHG guidelines that are likely to adopt a similar approach to WA.

As a result, there is an increased likelihood that net zero conditions (or near to this) will be imposed on greenhouse gas emitting projects as a standard environmental licensing or planning approval condition in the future. Any such conditions are likely to apply to the life of the development including construction, operation, maintenance and decommissioning.

In this Insight, we consider how net zero conditions may be formulated and the implications for both decision makers and project proponents.

What could net zero conditions look like?

The net zero conditions will likely be formulated to require some or all of the following:

• a staged decrease in greenhouse gas (GHG) emissions (Scope 1 and Scope 2) associated with a project. The decrease of GHG emissions for the project may be required in stages at intervals of say, five years, with net zero to be achieved by an end date, for example 2040;
  
  
• annual reporting to the regulator; and
  
  
• the implementation of a greenhouse gas abatement and management plan (GHG Plan), which facilitates the achievement of the staged decrease of GHG emissions including the identification of reduction, avoidance and offsetting strategies. The GHG Plan must be made public and be subject to revision by the proponent at regular intervals including an obligation for continuous improvement and consideration of new technologies.

Implications for decision makers and proponents?

For decision makers, this policy development provides much needed direction in satisfying any applicable duty of care and ensuring that they take into account, and appropriately consider, any relevant climate change matters when determining approvals.  

However, an appropriate balance will need to be achieved in imposing net zero conditions to ensure that they are both reasonable and proportionate having regard to the nature of the project. If not, there is a risk of both objector and proponent led challenges to approvals including by way of judicial review challenge.

For proponents, the feasibility and viability of a project will likely hinge on the imposition of net zero conditions. It appears almost inevitable that net zero commitments made by corporations as part of their ESG frameworks will feed into GHG Plans that will then be conditioned as part of approvals for specific resource projects.  

Careful consideration by a proponent during the development of GHG Plans and net zero commitments (at both a corporate and project specific level) is crucial given that any breach of a project condition will be the subject of enforcement action by regulatory authorities or civil enforcement by third parties and bring with it severe reputational damage.   

As an example, reliance in any GHG Plan on low emissions technologies to meet net zero commitments may undo commitments made and bring unwanted attention from regulators if those technologies or the acquisition of offsets prove unfeasible, unviable or technical difficulties are encountered. In a worst case scenario, any condition or GHG Plan breach may result in the primary operation being shut down for a period of time.  

Overall, the ability of project proponents to be able to adapt GHG Plans to respond to operational, policy and legislative change will be key to compliance with any net zero conditions.  

This flexibility is also relevant for decision makers so as to ensure a net zero condition does not become obsolete. In order to tackle this issue, the WA EPA has required proponents to commit to continuous improvement and uptake of new emission abatement technologies in GHG Plans.

Key takeaways and issues

We have identified below some key takeaways and issues for consideration in this developing area.

State government involvement

• Project approval conditions for fossil fuel-generating projects are all trending in the one direction: increasing restrictions on GHG emissions. As a result, the role of state governments in the regulation of greenhouse gas emissions management is increasing. The benefits of this are that the state governments, with their environmental licensing and planning approvals powers, are well equipped to implement net zero conditions and greenhouse gas abatement requirements.
  
  The drawbacks being that this type of regulation may result in uncertainty for projects across Australia given the different approaches of each of the state Governments.
  
  There is also a potential for a multitude of regulatory tools at a Federal and State level being imposed in respect of the management of GHG emissions.
  
  
• As identified previously in this Insight, the WA EPA has already implemented a GHG Guideline and there have been a number of examples of net zero conditions imposed on project approvals. However, examples of other policy and regulatory developments include:
  
  
  • Queensland: The Queensland Department of Resources has released a draft Resources Industry Development Plan which identifies, as a key focus area, the strengthening of Queensland’s ESG credentials and protection of the environment.  A pillar of this key focus area is a recommendation to require industry to develop plans to decarbonise operations (action 18). This may include establishing model conditions requiring authority holders to implement greenhouse gas abatement plans and report on progress publicly;
    
    
  • NSW: The New South Wales Environment Protection Authority (NSW EPA) has been ordered by the Land and Environment Court in Bushfire Survivors for Climate Action Incorporated v Environment Protection Authority [2021] NSWLEC 92 to develop policies and frameworks that more meaningfully and responsively engage with climate change. The NSW Department of Planning and Environment (DPE) recently proclaimed that the NSW EPA has the power to start limiting GHG emissions through its licences.
    
    In its assessment report for Narrabri Underground Mine – Stage 3 Extension (SSD10269) dated January 2022, the DPE indicated that, given the uncertainties in respect of the application of climate change and GHG emission reduction policies, the DPE had established an interagency working group in October 2021 to discuss climate change issues. They recognised that the issue spanned multiple agencies with roles and responsibilities in policy making and regulation of GHG emissions.
    
    While we are yet to see any revised policies from any of the NSW regulators, there is little doubt that in the near future there will be policies released requiring robust measures to be implemented by proponents and licence holders to monitor, reduce, capture and offset GHG emissions.
    
    
  • Victoria: In August 2022, the EPA expects to finalise its Draft Guideline for Managing Greenhouse Gas Emissions (January 2022). Designed to assist businesses with direct or indirect GHG emissions, this document is intended to form part of the ‘state of knowledge’ and identify ways of eliminating or reducing those risks. This is relevant to compliance with the Victorian general environmental duty, which applies to any person or corporation engaging in an activity giving rise to risks of harm to human health or the environment from pollution or waste, noting that GHG substances are defined as a waste under the Environment Protection Act 2017 (Vic).

No regulator in NSW, Victoria or Queensland has yet imposed any planning approval conditions requiring net zero emissions or material GHG emissions offsets.

Decision maker’s role and duty of care

• The decision maker’s role in implementing conditions to reduce GHG emissions and meet net zero targets was brought into sharper focus given the analysis of the application of the tort of negligence in Sharma v Minister for the Environment (No 2)[2021] FCA 774 .  
  
  Although that decision was recently overturned on appeal (see our Insight on the dramatic evolution of climate change litigation and further information around the Sharma appeal decision), it is likely that similar arguments will continue to be made, see for example Pabai Pabai and Guy Paul Kabai v Commonwealth of Australia case filed in the Federal Court in late 2021. That is, that a decision maker who considers an application for any type of planning approval or environmental licence where that project will result in a significant increase in GHG emissions, owes a duty of care to protect a class of Australians from the risks of harm arising from climate change.  
  
  As a result, the imposition of net zero emission conditions in any environmental or planning approval may provide the answer to satisfying a decision maker’s duty of care.
  
  
• The lack of strong policy directives and, as was seen in Sharma, the limits of the common law in responding to the climate change threat is likely to create continued uncertainty for proponents and the community and ultimately stymie the uptake of net zero conditions. The risk of legal challenge from both proponents and objectors in this policy vacuum is inevitable.

Industries targeted

• In the short term, landfill and resource and energy industries and the agricultural sector are likely to be impacted by the imposition of net zero conditions. See for example the NSW Waste and Sustainable Materials Strategy 2041 Stage 1: 2021 - 2027 which, with an emphasis on minimising the impact of landfill gas, proposes requirements for landfills to achieve net zero emissions “within a prescribed timeframe” which are subject to an EPL.
  
  
• Within the next five years, there will be a broader range of industries captured including manufacturing, agriculture, large infrastructure projects and transport/logistic operations. It is even possible that a new type of environment licensing category could emerge as a result. For example, if an activity is likely to exceed threshold GHG emissions (Scope 1 and Scope 2), then that activity may require an environment protection licence under Schedule 1 of the Protection of the Environment Operations Act 1997 (NSW).

Consequences of a condition breach

• Any failure by a proponent to meet conditions imposed on a regulatory approval will result in consequent enforcement action and reputational damage. This means that, practically, any net zero commitments made and accompanying GHG plans prepared by a proponent must not only meet industry standards but also be realistic and achievable.

Likely GHG abatement measures

• Regulators are likely to require any GHG abatement measures to be subject to continuous improvement and innovation. Given this focus:
  
  
  • a GHG management plan will not remain static and will need to be regularly reviewed and updated. Ideally, the plan should demonstrate that all available technologies have been explored;
    
    
  • conditions may be imposed requiring periodic replacement of plant and equipment to ensure uptake of new GHG abatement technologies; and
    
    
  • the expansion of an existing project may result in a condition requiring the entirety of the project, rather than just the expansion component, to meet net zero targets and be the subject of a GHG management plan.  The impacts of the project from an emissions perspective will be viewed as a whole, and not in parts.

Scope 3 emissions

• As yet, no steps have been taken by regulators or planning approval authorities to address Scope 3, or ‘downstream’, emissions.  Scope 3 emissions are traditionally considered to be beyond the scope of proponents to control and unsuitable for regulation as part of environmental licences or planning approval conditions.
  
  As Australia is a net exporter of GHG emissions, meaning emissions generated by Australia’s fossil fuel exports exceed the levels caused by domestic consumption, Scope 3 emissions are a significant component of Australia’s – and many fossil fuel companies’ – overall emissions footprints. It is likely that more attention will be placed on this component of emissions-reduction in the near future.
  
  
• Australian courts have considered the power of consent authorities to impose conditions relating to Scope 3 emissions. As part of the legal challenge to the NSW Independent Planning Commission’s (IPC) approval of the Narrabri Gas Project in Mullaley Gas and Pipeline Accord Inc v Santos NSW (Eastern) Pty Ltd [2021] NSWLEC 110, Chief Justice Preston held that a consent authority can impose conditions related to Scope 3 emissions but it may not always be reasonable to do so, particularly where the proponent lacks direct control over the downstream emissions generated by a fossil fuel development. See our Insight which explores this decision in more detail.

Conclusion

There remains growing pressure on governments at all levels in Australia to implement actions to reduce GHG emissions and meet net zero targets.

Beyond actions by government, corporations are facing increasing pressures from shareholders, customers and their industry competitors to set and achieve net zero targets.  

A number of major emitters in the resource, gas, petroleum and aviation industry have all committed to net zero emissions by 2050. Such commitments are likely to attract increased scrutiny on how these targets will be met, including on a project-by-project basis.

As the conversation continues around whether planning and environmental approvals are the appropriate mechanism to achieve net zero targets and climate change action, the development of policies and guidance at a state level will provide greater certainty for project proponents and decision makers alike.