Gloucester Resources Limited v Minister for Planning [2019] NSWLEC 7: Contribution to Climate Change

Thursday 21 February 2019 @ 10.37 a.m. | Judiciary, Legal Profession & Procedure | Legal Research | Trade & Commerce

On 8 February 2019, Chief Justice Preston of the NSW Land Environment Court, delivered his decision in Gloucester Resources Limited v Minister for Planning [2019] NSWLEC 7, in which he confirmed a decision to refuse permission for a new open-cut coal mine, known as the "Rocky Hill mine", near Gloucester in the Hunter Valley. The proposed mine's estimated contribution to climate change was one of the key reasons given for refusal of the application. This decision has been described as a "landmark" decision and that "could further tighten the screws on the coal industry".

Background to the Decision

The case is the result of an appeal by the mining company, Gloucester Resources Limited (GRL), against the refusal by the NSW Planning Assessment Commission (PAC) in 2017 of an application for a coal mine to be established at Rocky Hill in the Gloucester Valley of NSW. The proposed mine was an open cut coal mine, which was estimated to produce 21 million tonnes of coal over a 16 year period.

The issue relating to the impacts of the mine on climate change were only raised on appeal, by community group Groundswell Gloucester Inc, which was only permitted to intervene in the process at that stage. The original PAC’s refusal of GRL’s application was based on planning grounds and had not included the issue of the impact of climate change. 

Reasons for Decision

In general, Chief Justice Preston concluded that the mine should be refused due to its significant and unacceptable planning and visual and social impacts, which "cannot be satisfactorily mitigated". This argument was the principal reasoning used for refusal, while avoiding greenhouse gas emissions and their likely contribution to adverse impacts of climate change added a further reason for refusal of the mine.

Climate Change and Market Substitution

Chief Justice Preston examined the evidence of climate change before the court, and, in doing so, considered both national and international and decisions, international agreements and Australian climate policies before rejecting a series of arguments by GRL [see judgment paragraph 422]. The third argument rejected by Chief Justice Preston relating to "market substitution" has particular significance for other litigation against Australian coal mines, particularly in Queensland. Chief Justice Preston states at paragraph [534] :

"The third reason GRL advanced for approving the Project was that the green house emissions of the Project will occur regardless of whether the Project was approved or not, because of market substitution and carbon leakage. On market substitution, Dr Fisher [GRL’s climate expert] suggested that having regard to the limited substitutes for coking coal in steel making and the strong projected demand for coking coal as large countries such as India industrialise and intensify their steel use,  . . . if demand is not met from Australian coal mines, investment will flow to other large coal producers and mines will be developed in countries such as India and Indonesia" . . . 

The point of GRL's argument being that there will therefore, be at least the same amount of green house gas emissions, namely, coming from those other mines rather than from the Rocky Hill mine.

At paragraph [538] Chief Justice Preston indicates that the market substitution argument is flawed because there is no certainty that substitution will actually happen:

"The market substitution argument is also flawed. There is no certainty that there will be market substitution by new coking coal mines in India or Indonesia or any other country supplying the coal that would have been produced by the Project. . . ."

At paragraphs [539], [540] , [541] Chief Justice Preston points out that contrary to the market substitution argument there is the high possibility that by refusing climate affecting projects, developed countries like Australia may actually set a lead that steers countries like India and Indonesia away from green house emitting projects.

"If approval for the Project in the developed country of Australia were to be refused, on grounds including the adverse effects of the mine’s green house gas emissions on climate change, there is no inevitability that developing countries such as India or Indonesia will instead approve a new coking coal mine instead of the Project, rather than following Australia’s lead to refuse a new coal mine.

Developed countries such as Australia have a responsibility, including under the Climate Change Convention, the Kyoto Protocol and the Paris Agreement, to take the lead in taking mitigation measures to reduce green house gas emissions . . .
Developing countries might consider that domestic mitigation measures to achieve their nationally determined contributions for reducing GHG emissions should include not approving new development for the exploitation or burning of fossil fuel reserves. Developing countries may be encouraged to take such mitigation measures by developed countries taking the lead in doing so in their countries. Hence, there is no certainty that refusal of consent to the Project will cause a new coal mine in another country to substitute coking coal for the volume lost in the open market by refusal of the Project.

Thirdly, the ability of a new coking coal mine in another country to substitute for any volume of coal lost by refusal of the Project will depend on the market, including the demand and supply of substitute sources of coal and any difference in price between coal from the Project and from other substitute sources, which price difference might affect substitutability. Without any evidence about the existence and effect of these market forces on substitutability, no assumption can be made that there would be market substitution by coal from new coal mines in other countries if the Project were to be refused."

In paragraph [542] Chief Justice Preston points out that the market substitution assumption was rejected by the US Court of Appeal in WildEarth Guardians v US Bureau of Land Management 870 F 3d 1222 (10th Cir, 2017) - saying at paragraph [544] that the US Court of Appeals concluded that “the assumption itself is irrational (that is, contrary to basic supply and demand principles” and observing that “it was an abuse of discretion to rely on an economic assumption, which contradicted basic economic principles, as the basis for distinguishing between the no action alternative and the preferred alternative” (see paragraphs 1237-1238 of that judgment).

In paragraph [545] Chief Justice Preston refers to a very important logical flaw in the market substitution assumption, that being: 

". . . that if a development will cause an environmental impact that is found to be unacceptable, the environmental impact does not become acceptable because a hypothetical and uncertain alternative development might also cause the same unacceptable environmental impact. The environmental impact remains unacceptable regardless of where it is caused. The potential for a hypothetical but uncertain alternative development to cause the same unacceptable environmental impact is not a reason to approve a definite development that will certainly cause the unacceptable environmental impacts. In this case, the potential that if the Project were not to be approved and therefore not cause the unacceptable green house gas emissions and climate change impacts, some other coal mine would do so, is not a reason for approving the Project and its unacceptable green house gas emissions and climate change impacts …”

Reaction and Comment

The Australian Financial Review reports that Baker & McKenzie's global head of climate law, Martin Wilder, has said that:

 . . . "future proponents of coal projects would have to seriously consider the decision's impact. . . . In both Australia, and around the world, financiers have largely decided that, except in some exceptional circumstances, investments in coal are not viable and that such investments will now be stranded. This further reinforces that decision and even further increases the risk of coal investments and why no public or private funds should go into projects like Adani . . .[Chief] Justice Preston's decision reinforces the growing trend in global legal jurisprudence that is willing to directly link fossil fuels and climate change. This further opens the door for future compensation claims of the kind now going on in the US."

The ABC News reports that the decision potentially opens up a new chapter in Australia's climate litigation history, saying:

'There is no Planet B . . . Australia's position on climate change is unconscionable for a wealthy country, writes David Shearman. [Chief] Judge Preston's ruling nimbly vaults over hurdles that have confounded Australian courts in the past - most notably, the application of the market substitution defence.  . . . It is hard to predict whether his decision will indeed have wider ramifications. Certainly the tide is turning internationally  - coal use is declining, many nations have set ambitious climate goals under the Paris Agreement, and high-level overseas courts are making bold decisions in climate cases."

What's Ahead

According to the Environmental Law Australia website the prospects of an appeal or revised application are high and  GRL will almost certainly appeal against this decision but the decision is so learned and well written that it is very likely to survive the appeal. Environmental Law Australia also notes that GRL can also lodge a revised application and re-start the application process for a slightly different mine on the same location. 

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