NSW EPA proposes significant new greenhouse gas requirements

The NSW Environment Protection Authority (EPA) has released draft Climate Change Assessment Requirements and an associated draft Greenhouse Gas Assessment Guide for Large Emitters (draft Large Emitters Guide), which is open for public feedback until 1 July 2024.

This initiative is part of the NSW Government's Climate Change Action Plan 2023-2026 and statutory obligations under the Climate Change (Net Zero Future) Act 2023 (NSW) and is aimed at assessing and mitigating greenhouse gas (GHG) emissions from new and modified projects through the environmental impact assessment and development approval process.

The EPA will recommend that the following Climate Change Assessment Requirements (CCARs) be included with the Planning Secretary's Environmental Assessment Requirements (SEARs), where a proposed project is likely to be a large emitter of GHGs:

Climate change

The proponent must carry out a Greenhouse Gas (GHG) Assessment and prepare a Greenhouse Gas Mitigation Plan in accordance with the EPA’s Greenhouse Gas Assessment Guide for Large Emitters (available on the EPA website).

The draft Large Emitters Guide outlines how projects considered to have large GHG emissions will be identified and how the proponents of such projects must assess their emissions and develop and GHG Mitigation Plan.

Projects that are not projected to result in large emissions, i.e. will have scope 1 and 2 GHG emissions below 25,000 tonnes of CO₂-e in all financial years during the operational life of the project, will soon be covered by the General Greenhouse Gas Assessment Guide, which is currently being prepared by the EPA.

Who does the Large Emitters Guide apply to?

The draft Large Emitters Guide sets out whether a project may be subject to the CCARs. The CCARs for large emitters will apply to new projects, or significant modifications to existing projects, that are expected to have large GHG emissions (for example coal mines, landfills, chemical manufacturers, and waste management facilities).

In most cases, a project will be considered by the EPA to have large emissions if it meets the following three criteria:

1. the project requires development assessment and approval under the Environmental Planning and Assessment Act 1979 (NSW);
2. the project involves one or more scheduled activities under Schedule 1 of the Protection of the Environment Operations Act 1997 (NSW) and/or will be carried out at a premises with an existing environment protection licence; and
3. the project is likely to emit 25,000 tonnes or more of scope 1 and 2 emissions (CO₂-e) in any financial year during the operational life of the project.

However, each proposal will be considered on its own merits.

When a project involves a modification to an existing operation, the 25,000 tonne CO₂-e threshold applies specifically to the activities falling within the GHG assessment boundary and not necessarily to the whole operation. The GHG assessment boundary defines which emission sources and activities are included, and which are excluded, from the assessment. If a modification will increase or decrease emissions from existing operations, the assessment boundary must be defined to account for the impact of the project on emissions elsewhere in the facility in order to allow the overall impact of the project on GHG emissions to be assessed.

What will large emitter projects be required to do?

If the EPA considers a project to have large emissions, the proponent will be required to do all of the following:

1. meet the CCARs;
2. prepare a GHG Mitigation Plan; and
3. prepare a Climate Change Mitigation and Adaption Plan (CCMAP).

In regard to the CCARs, proponents of large-emitting projects must provide detailed information about potential GHG emissions, aligning with net zero targets and legislation (such as the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act)) to better inform planning decisions. The following assessment requirements must be addressed in applicants' environmental impact assessments:

Step 1: Establish GHG Assessment Boundary and Scenarios — Describe the GHG assessment boundary for the project, including activities included and excluded from the assessment.

Step 2: Identify Emission Sources — Identify all sources of scope 1, 2, and 3 emissions and prioritise sources for mitigation.

Step 3: Apply Mitigation Hierarchy — Prioritise avoiding emissions first, then reducing them through measures like using renewable energy sources (see further below).

Step 4: Provide Emission Estimates — Give emission estimates for the proposed project design, considering planned and committed emissions avoidance and mitigation measures.

Step 5: Set Emission Goals — Set long-term and interim emission goals, considering regulatory obligations, anticipated mitigations, and comparison to NSW emissions.

Step 6: Implement Carbon Offset Strategies — Clearly set out any carbon offset strategies for residual emissions that cannot be avoided or reduced.

Step 7: Independent Expert Review — Projects with scope 1 and 2 emissions exceeding 100,000 t CO₂-e per year may require an independent expert review of mitigation assessments, especially if offsets are proposed.

For modification applications, the GHG assessment must include information on scope 1 and 2 emissions from existing operations, including:

• inventories emissions by source;
• mitigation measures and offset strategies being implemented;
• any obligations under the Safeguard Mechanism; and
• current and planned emissions goals.

The GHG assessment must be well-documented and a GHG Mitigation Plan, reflecting the analysis and findings of the GHG assessment, must be prepared using the template which has been provided by the EPA. The GHG Mitigation Plan must address:

• scope 1, scope 2 and scope 3 GHG emission estimates over the life of the project as assessed according to the guidance in Section 3;
• emissions goals, demonstrating a commitment to continuous improvement to ensure reductions over the life of the project;
• the projects expected Safeguard Mechanism or NGER reporting obligations, if applicable;
• expected obligations for electricity firming infrastructure under the Electricity Infrastructure Investment Regulation 2021 (NSW), if applicable;
• proposed measures to avoid, reduce, or substitute emissions, demonstrating consideration of best available design, technology, and management measures;
• proposed strategies to offset emissions, after applying the mitigation hierarchy (see below);
• proposed monitoring and reporting of emissions performance, to demonstrate progress towards meeting goals; and
• suitable timetable for review of the GHG Mitigation Plan.

Requirements for scope 1, 2 and 3 emissions

The EPA expects proponents to apply a mitigation hierarchy to:

1. first avoid the generation of GHG emissions through best-practice design (i.e. what ways scope 1, 2 and 3 emissions can be avoided (or limited) through the design of the project and by reference to the Australian Government's Safeguard Mechanism Guidelines for setting international best practice benchmarks);
2. then reduce emissions as much as possible (e.g. by using more efficient technologies and processes);
3. including through measures to substitute lower-emission energy sources and materials for higher-emissions ones;
4. before finally offsetting residual emissions to meet emission goals (as a last resort and by purchasing verified, high-integrity carbon offsets).

Proponents of large emission projects are required to set interim and overarching long-term scope 1 GHG emissions goals for a projects residual emissions that represents a meaningful contribution to the NSW emissions reduction objectives. Scope 2 emission goals are also expected, whereas scope 3 emission goals are encouraged but not required.

In terms of the GHG assessment, in addition to sources of scope 1 and 2 emissions, sources of all other indirect (scope 3) emissions that occur due to project activities from sources not owned or controlled by the proponent must be identified and quantified (estimated on an annual basis (per financial year) and be based on maximum capacity and planned operational throughput). This includes upstream emissions associated with goods and services used by the project and downstream emissions from the transportation, distribution and processing of sold products, and the use of products.

The GHG assessment must clearly document the assumptions, data and methods applied in the estimation of emissions. Where relevant, reference must also be made to the Safeguard Mechanism: Prescribed production variable and default emissions intensities when estimating scope 1 emissions intensities for the project.

Further, for the life of the project, information about the project's expected Safeguard Mechanism obligations under the NGER Act must be provided, including, where relevant:

• any expected baseline determinations, including trade-exposed adjustments to decline rates;
• how estimated scope 1 emissions intensity per unit production compares to default and best-practice emissions intensities specified in the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rules 2023 (Cth);
• how proposed emission goals align with any expected decline rate for the facility baseline;
• any sectoral baseline, and how proposed emissions will impact on the sectoral baseline;
• expected use of flexible compliance arrangements, including Safeguard Mechanism Credits and borrowing arrangements.

GHG Mitigation Plans and CCMAPs

The EPA will progressively require all environment protection licensees to develop CCMAPs to demonstrate how they will minimise their GHG emissions and exposure to climate risk through the introduction of new environmental protection licence starting with the large emitters first. The preparation of these plans is not covered by the Large Emitters Guide and will be addressed in separate guidance.

Conversely, GHG Mitigation Plans are to be developed in the planning approvals process and will serve a slightly different purpose from CCMAPs. The CCMAP will address existing operations at a facility and any approval operations, focusing on the operational stages and the ongoing performance of the activity, whereas GHG Mitigation Plans will cover how low- or zero-emissions considerations have been designed into the development proposal to achieve best outcomes. GHG Mitigation Plans will also let proponents show that they have considered contingency measures, should additional GHG mitigation measures be required once operations begin.

The CCMAP also differs from a GHG Mitigation Plan in two other ways. First, it includes measures for adapting to the risks posed by climate change, which a GHG Mitigation Plan does not. Second, a CCMAP is designed to be reviewed and updated over time, whereas a GHG Mitigation Plan is developed for the planning approvals process. However, a GHG Mitigation Plan can be used as the basis for the first iteration of a CCMAP.