Dealing with Scope 3 emissions one year on from the Rocky Hill decision

More than one year on from the Land and Environment Court’s judgment in Gloucester Resources Ltd v Minister for Planning [2019] NSWLEC 7 (Rocky Hill), the issue of Scope 3, or ‘downstream’, emissions is more topical than ever, as shareholders call for new targets to reduce greenhouse gas emissions. However, the regulatory position on Scope 3 emissions has never been more uncertain, especially in NSW.

When the Rocky Hill decision was handed down in February 2019, it suddenly placed the issue of Scope 3 emissions in the spotlight. Among the court’s reasons for refusing the proposed coal mine was the likely contribution of the project to downstream greenhouse gas emissions. 

Notwithstanding the limited precedential value of the decision, it was quickly seized upon by the Independent Planning Commission (IPC), particularly in the assessment of Scope 3 emissions. 

On 28 August 2019, the IPC approved the United Wambo Open Cut Coal Mine Project on the condition that it use its best endeavours to ensure that coal is only exported to countries that are parties to the Paris Agreement or have equivalent greenhouse gas emissions reductions policies. 

Shortly thereafter, the IPC refused development consent to the Bylong Coal Project, in part, because it failed to identify mitigation measures to reduce Scope 3 emissions.

Following these decisions, NSW Planning Minister Rob Stokes introduced the Environmental Planning and Assessment Amendment (Territorial Limits) Bill 2019 (Bill) to prevent consent authorities from imposing consent conditions relating to downstream emissions. 

Yet, despite the Bill’s intent, it would not prevent consent authorities from considering Scope 3 emissions, meaning that, if passed in its current form, projects may still be approved or refused on the basis of their likely impact to downstream emissions. It is conceivable that a project, which may have otherwise been approved subject to Scope 3 emissions conditions, may be refused as a result of the Bill. This is one of the reasons why the Senate Planning and Environment Portfolio Committee has opposed the Bill.

The assessment of mining projects and the consideration of Scope 3 emissions in NSW stands in contrast to that of Queensland, where the Court of Appeal decided in Coast and Country Association of Queensland Inc v Smith [2016] QCA 242 that Scope 3 emissions are largely irrelevant to the court’s assessment of mining leases. 

The regulatory inconsistency in considering Scope 3 emissions has led the Australian Productivity Commission (Commission) to call into question the treatment of Scope 3 emissions nationwide. In the Commission’s draft report on Resources Sector Regulation, published in March 2020, the Commission noted that “…regulatory uncertainty with respect to treatment of Scope 3 emissions stems from the lack of clear and consistent policy guidance on the issue”.

According to guidance published by the Science Based Targets initiative, Scope 3 emissions often account for several times the impact of Scope 1 and 2 emissions, yet until recently, most of the focus had been on the latter. Now Australia is playing catch-up, as it contemplates new ways to regulate downstream emissions.

Currently, the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER) does not require companies to report their Scope 3 emissions. However, this might soon change with the National Greenhouse and Energy Reporting (Transparency in Carbon Emissions Accounting) Bill 2020 (Cth) proposing to amend the reporting requirements of greenhouse gas emissions to include Scope 3 emissions. 

For the time being, this gap in regulation has forced shareholders to take matters into their own hands, as they attempt to force Scope 3 emissions onto the corporate agenda. There are already several examples in the Australian market of investors backing motions to set science-based emissions targets to reduce greenhouse gas and Scope 3 emissions. 

Evidently, recent decisions and legislative uncertainty have created an uneasy regulatory landscape, which is in desperate need of clarity. While the link between greenhouse gas emissions and climate change is largely accepted, Australia lacks a consistent approach as to how emissions should be assessed, especially when it comes to downstream emissions.