21 October 2021

Santos victorious in scope 3 gas emissions case

Written by Michelle Astridge, Kate Dean and Lucy McKindlay.

Mullaley Gas and Pipeline Accord Inc v Santos NSW (Eastern) Pty Ltd [2021] NSWLEC 110

The Land & Environment Court has this week dismissed an appeal brought by community action group Mullaley Gas and Pipeline Accord Inc (MGPA) challenging the validity of the development consent for the Santos Narrabri Gas Project largely on greenhouse gas emission grounds. 

Grounds of challenge

MGPA brought judicial review proceedings in the Class 4 jurisdiction of the Land & Environment Court seeking to challenge the Independent Planning Commission’s (IPC) decision to grant development consent to the Santos Narrabri Gas Project. 

The Santos Narrabri Gas Project provides for the development of a new coal seam gas field and associated infrastructure over 95,000ha in Narrabri. The project includes the construction of up to 850 gas wells on up to 425 well pads over the life (approximately 25 years) of the Project

MGPA argued that the IPC’s decision to grant development consent was invalid on four grounds, three of which concerned greenhouse gas emissions:

  1. the IPC failed to consider the environmental impacts of greenhouse gas (GHG) emissions of the project as compared to the project’s benefits;
  2. the IPC “misunderstood or misconstrued” section 4.15(1)(a)(i) and (b) of the Environment Planning & Assessment Act (EPA Act) and clause 14(1) of the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (Mining SEPP) by failing to impose conditions of consent concerning Scope 3 GHG emissions;
  3. the IPC’s failure to impose conditions of consent in respect of Scope 3 GHG emissions was “legally unreasonable”; and
  4. the IPC did not have regard to a matter under s 4.15(1)(b) of the EPA Act when considering the impacts of the proposed gas transmission pipeline.

Preston CJ rejected all four of MGPA’s grounds.

Ground 1 - Consideration of Environmental Impacts of GHG Emissions

MGPA’s first ground of challenge was premised on the IPC’s comparison of potential GHG emissions from the coal seam gas project to potential GHG emissions from hypothetical coal projects and the IPC’s conclusion that the detrimental impacts of the project did not outweigh its benefits.

In rejecting this ground, Preston CJ found that the purpose of the IPC’s comparison was to make an assessment as to the potential for the project to reduce total GHG emissions in the overall NSW energy sector by displacing coal-fired electricity with gas-fired electricity. The Court found that this was a legitimate way for the IPC to assess the environmental impacts of the project’s GHG emissions under s 4.15(1)(b) of the EPA Act and that such a comparison was relevant in assessing the overall benefits of the project.

Ground 2 - No misunderstanding of Mining SEPP

MGPA argued that the IPC had misunderstood or misconstrued the EPA Act and clause 14(1) of the Mining SEPP which required the IPC to consider consent conditions ensuring that “greenhouse gas emissions are minimised to the greatest extent practicable”.

This argument was raised by MGPA due to the IPC’s reason for not imposing conditions that regulated Scope 3 emissions being that they were outside the direct control of Santos and therefore could not be “reasonably conditioned” (at [172] of the Statement of Reasons).

In rejecting MGPA’s argument, Preston CJ reinforced that the “GHG emissions” in clause 14(1) of the Mining SEPP should be construed to include consideration of not only Scope 1 (direct) emissions but also Scope 2 (upstream) and Scope 3 (downstream) emissions (see KEPCO Bylong Australia Pty Ltd v Bylong Valley Protection Alliance Inc [2021] NSWCA 216). However, His Honour held that the different scopes of emissions will impact on the manner of consideration required.  In respect of Scope 2 and 3 emissions, the Court indicated that “the degree of control that the proponent has over the indirect emissions will influence the consideration required by cl 14(1)” (at [104] of the Judgment).  The Court noted that the question of the degree of control of the proponent over the indirect emissions is an evaluative one to be answered by the consent authority on the particular facts and circumstances of the development, the proponent of the development, and the suppliers or end users concerned.

The Court ultimately concluded that the IPC was required to consider consent conditions relating to all scopes of GHG emissions, which it did do.  Importantly, Preston CJ also found that:

  1. Scope 3 emissions were outside the direct control of Santos (and were up to the discretion of the end user);
  2. the IPC did not misconstrue or misunderstand the Mining SEPP or the EPA Act in considering and then making the decision not to impose conditions relating to Scope 3 emissions; and
  3. this was a decision reasonably open to the IPC. 

Ground 3 - IPC’s position was not “legally unreasonable”

Preston CJ rejected MGPA’s contention that the IPC’s decision not to impose Scope 3 related conditions of consent was legally unreasonable.  The Court found that although MGPA’s submissions “might arguably provide support for a decision to impose such a condition” the submissions did not justify why the decision not to impose the condition was “legally unreasonable”, particularly where it was a decision about which “reasonable minds may differ” (at [119] of the Judgment).

Ground 4 – Pipeline impacts

MGPA’s fourth argument was that the IPC failed to consider a relevant matter under s 4.15(1)(b) of the EPA Act of the likely impact of a proposed transmission pipeline that would transport gas from the Project to the domestic market.  In rejecting this argument, the Court held that the IPC did not err in its decision-making process as the impacts of any potential gas transmission pipeline were sufficiently remote in the chain of likely consequences as not to be “likely” impacts of the Project.

Key Takeaways

This judgment adds to the evolving litigation landscape with respect to the effects of climate change.  It emphasises that there is no ‘one size fits all’ approach when that issue comes within the narrow confines of judicial review proceedings.

Whilst Santos was victorious in this matter (largely due to the limitations and narrow scope of judicial review proceedings), the judgment has reinforced that Scope 3 emissions are a relevant consideration when assessing a project and imposing conditions of consent under clause 14 of SEPP Mining.

This decision is likely to impact the determination of future carbon intensive projects under the Mining SEPP.  A Court faced with any merits appeal that may arise will not be limited in the same manner as judicial review proceedings.  In particular, the Court will be able to have regard to the merits of the case and any expert evidence before it in considering whether “greenhouse gas emissions are minimised to the greatest extent practicable”. 

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