Taking responsibility for Scope 3 greenhouse gas emissions from burning coal: NSW makes a move

Reflecting an increasingly tough approach to regulating indirect or downstream "Scope 3" greenhouse gas emissions from burning fossil fuels, the NSW Independent Planning Commission (IPC) has imposed "a first of its kind" export restriction condition on an open-cut coal mine expansion project, United Wambo.

Although the Scope 3 condition has been met with broad criticism from the Department of Planning, Industry and Environment (DPIE), the mining industry and environment groups, claiming the condition is problematic, potentially unenforceable and has little practical effect, we see this (along with the recent decisions in Rocky Hill and the Bylong Coal Project) as a harbinger of future conditions and regulatory decision-making for the mining sector in NSW.

The Export Management Plan for extracted coal as a condition for mine expansion

The Australian-first greenhouse gas (GHG) emissions condition in relation to Scope 3 emissions generated from burning the extracted coal overseas stipulates that the project proponent must develop and implement an Export Management Plan (EMP) for approval by the Planning Secretary.

The EMP must contain protocols requiring the project proponent to use all reasonable and feasible measures to ensure any coal extracted for export is only sold to countries that, as at the date of sale, are either:

• parties to the Paris Agreement under the United Nations Framework Convention on Climate Change; or
• countries the Planning Secretary considers to be operating emission reduction policies commensurate to those of Paris Agreement parties.

For example, the project proponent could export coal to Japan as a party to the Paris Agreement but would require consent from the Planning Secretary to sell to countries not party to the Paris Agreement, such as Taiwan.

Further, the EMP must be implemented for the life of the United Wambo project unless the Planning Secretary determines it is no longer required as State or Federal legal legislation has been introduced to regulate the export of coal and management of emissions.

Reasons behind the IPC decision

The IPC acknowledged that "while the principal responsibility for the mitigation and management of Scope 3 GHG emissions rests with the downstream consumer… the cost of such emissions is arguably the responsibility of each party that operates in the relevant supply chain". Consequently, while the project proponent has a limited ability to control or manage Scope 3 emissions generated by the combustion of its coal in export markets it still retains a level of responsibility and should, therefore, be obliged to take action minimising resulting GHG emissions.

Overall, the IPC concluded that the Scope 3 condition was an "appropriate mechanism" to mitigate environmental impacts caused by the project and was responsive to mining approval criteria under the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (NSW) (Mining SEPP). The requirement to consider Scope 3 emissions under the Mining SEPP was confirmed by the NSW Land and Environment Court in the Rocky Hill decision. However, the IPC differentiated the United Wambo project from other aspects of the Rocky Hill decision on the grounds the United Wambo mine is not a greenfield site.

Response to IPC decision

The Secretary of DPIE in his submission acknowledged Scope 3 emissions are relevant when deciding whether or not to grant consent but stated that it does not automatically follow that Scope 3 emissions should be regulated through conditions of that development consent. According to the Secretary, every condition must "fairly and reasonably relate to the development, and must not be manifestly unreasonable"; it was not the State Government's intent to regulate trade.

Environment groups countered that rejecting the project or requiring Scope 3 emissions to be fully offset would be a more effective means of minimising GHG emissions.

Others have opined on whether the condition is lawful and from a practical perspective what happens if the Paris Agreement is superseded by something else or if a buyer of the coal is from a country that signed up to the Paris Agreement but pulls out part way through a contract.

What can we expect post-Rocky Hill, United Wambo, and beyond?

Whatever its impact ultimately is, the condition is indicative of independent decision-makers favouring a tougher stance on climate change action than legislators. Given the majority of overseas buyers of coal from the United Wambo mine are parties to the Paris Agreement, it is currently unclear to what degree the Scope 3 condition will impact operations (if any). What is clear is that the IPC will not be using a "one-size-fits-all" approach. As we were going to press, it determined to refuse Kepco's Bylong Coal Project. As with Rocky Hill, another greenfields project, various grounds were in play, including that:

• the groundwater impacts would be unacceptable;
• there would be no evidence to support Kepco's claim that the impacted Biophysical Strategic Agricultural Land (BSAL) can be rehabilitated post-mining to BSAL-equivalent;
• given the expected level of disturbance to the existing natural landscape, the IPC did not consider that a recreated landscape post-mining would retain the same aesthetic, scenic, heritage and natural values; and
• Kepco had not minimised Scope 1, 2 and 3 GHG emissions to the greatest extent practicable as required under the Mining SEPP, nor had it proposed offset measures for Scope 3 emissions.

Although it came to a different conclusion than in United Wambo, the IPC's decision in Bylong further demonstrates that the IPC is now looking to proponents of mining projects to investigate offsets and/or measures to help reduce downstream Scope 3 greenhouse gas emissions.

And, in the absence of any further Federal or State legislation or policy dealing with such matters, it remains the IPC's job to determine how much weight should be accorded to climate change impacts and GHG emissions generated by a project, including Scope 3 emissions – and its recent decision show it is a job it intends to fulfil.

For more information on the impacts this IPC decision may have on future mining project approvals, please contact Claire Smith.

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