NSW EPA releases draft climate change assessment requirements

What you need to know

• The NSW Environment Protection Authority has released draft Climate Change Assessment Requirements for Large Emitters and a draft Greenhouse Gas Assessment Guide for Large Emitters for public consultation. Submissions are due by Monday 1 July 2024.
• The proposed new requirements would apply to all new projects or significant modifications with large GHG emissions and would regulate how proponents are to assess their proposed development's GHG emissions and mitigation opportunities.
• It is likely that, once finalised, the requirements for assessing GHG emissions and climate change impacts for large scale State significant development and infrastructure in NSW will be more onerous and prescriptive than is currently the case.

What you need to do

• Consider the baseline information / data on GHG emissions and climate change that you already have for your proposed development or modification, to determine whether further information and studies will be required.
• Consider what reasonable and feasible technological or other measures may be available to enhance mitigation of GHG emissions and climate change impacts.
• Consider what additional resources you may need within your organisation to meet the likely new regulatory / compliance obligations in this area.

Context of the proposed reforms

The EPA's proposed new approach to assessing the GHG emissions of "large emitters" is part of the suite of actions the NSW EPA is currently taking under its Climate Change Action Plan 2023-26 to help the NSW Government achieve its GHG emissions reduction targets.

The Climate Change Action Plan 2023-26 was produced by the NSW EPA in response to climate change litigation brought against it in 2021 in the NSW Land and Environment Court and the Court ordering the NSW EPA to develop environmental quality objectives, guidelines and policies to ensure environment protection from climate change (Bushfire Survivors for Climate Action Incorporated v Environment Protection Authority [2021] NSWLEC 92).

Prior to this decision, the NSW EPA had not regulated CO2 as a pollutant where its generation was an incidental part of carrying out a scheduled activity (see, e.g., Gray and Anor v Macquarie Generation [2010] NSWLEC 34).

However, the regulatory tides have shifted in this space at both the Federal and NSW level in recent years. At the federal level, the reformed Safeguard Mechanism seeks to drive gradual reductions in GHG emissions from covered facilities to assist Australia to meet the now legislatively enshrined GHG emission reduction targets under the Climate Change Act 2022 (Cth). At the state level, the NSW Government has similarly enacted legislation that enshrines GHG emission reduction targets via the Climate Change (Net Zero Future) Act 2023 (NSW). The Guide reflects the latest in the deluge of reform in this space.

Although GHG assessments and management plans are not new, the names and prescribed content for such assessments and management plans will change.

The Guide outlines how to identify projects considered to have large GHG emissions, and how project proponents must assess their emissions and develop a GHG Mitigation Plan. This plan will become one component of a project's Climate Change Mitigation and Adaptation Plan (CCMAP), if/when consent is granted and the EPA issues a licence substantially consistent with that consent.

Any new projects or modifications that are likely to result in large emissions will require a GHG assessment and GHG mitigation plan as part of the Planning Secretary's Environment Assessment Requirements (SEARs) for the relevant State significant development (SSD) or State significant infrastructure (SSI) for which approval is sought.

What qualifies as a facility with "large emissions"?

The draft Guide outlines the criteria that the EPA will use when assessing whether a project may be subject to the climate change assessment requirements for large emitters.

These requirements will apply to projects involving new facilities that would be regulated by the EPA (if consent is provided), projects involving proposed modifications at existing facilities and projects involving modifications to development consents.

A project will have "large emissions" if its meets the following three criteria:

• The project requires development assessment and approval under the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act) (noting that, generally, this will typically be for SSD and SSI projects);
• The project involves one or more scheduled activities under Schedule 1 of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act) (in case of new activities) and/or will be carried out at a premises with existing environment protection licence (in case of significant modifications); and
• The project is likely to emit 25,000 tonnes or more of Scope 1 and 2 CO2-e emissions in any financial year during the operational life of the project.

Considerations when assessing emissions

The draft Guide notes that the Safeguard Mechanism provides "a minimum standard" for highest-emitting facilities but does not preclude the need for the EPA and consent authority to properly understand the emissions profile of proposed new or significantly modified developments in NSW and ensure avoidance, minimisation and management of emissions over all stages of development.

The assessment of emissions seems to build off the processes applied under the National Greenhouse and Energy Reporting Act 2007 (NGER Act). A critical factor is where the GHG assessment boundary is drawn for a project. The Guide contains only limited information on the approach to devising the assessment boundary for a project with "large emissions" (we return to this subject below).

Project emission estimates must include energy savings measures and emissions mitigations, but must exclude offsets. This may be because the offset is not specifically tied to reducing a facility's emissions but involves purchasing reductions in emissions from an offset project to apply the net reduction of emissions.

What happens if a project has "large emissions"?

If a project meets the criteria for a facility with "large emissions", it must:

• meet the GHG assessment requirements in sections 3 and 4 of the draft Guide;
• prepare a GHG mitigation plan as per section 3 and 5 of the draft Guide; and
• prepare a Climate Change Mitigation and Adaptation Plan (CCMAP).

The EPA will progressively require industry to prepare and implement CCMAPs, which will be covered by a further guide.

What is the difference between a GHG Mitigation Plan and a Climate Change Mitigation and Adaptation Plan?

The Guide explains that GHG Mitigation Plans developed in the planning approvals process will serve a slightly different purpose from CCMAPs developed by existing licensees.

The CCMAP for the licence will address existing operations, focusing on the operational stages and the ongoing performance of the activity. The GHG Mitigation Plan, developed in the planning approvals process, will cover how low- or zero-emission considerations have been designed into the development proposal.

A licensee’s CCMAP also differs from a GHG Mitigation Plan in two other ways. First, it includes measures for adapting to 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.

A project's GHG mitigation plan will eventually become an ongoing Climate Change Mitigation and Adaptation Plan for a licence. This will be explained further in future guides.

Requirements for assessments

The EPA expects proponents to apply the mitigation hierarchy of Avoid, Reduce, Substitute and Offset (last resort). That is, proponents must first avoid then reduce emissions as much as possible, including through measures to substitute lower-emission energy sources and materials for higher-emission ones, before finally offsetting residual emissions to meet emission goals. Proponents must demonstrate how they have considered and applied this mitigation hierarchy.

The draft Guide sets out eight steps for preparing GHG assessment and a GHG mitigation plan:

1. Define assessment boundary and scenarios – this describes the project assessment boundary and emission scenarios.
2. Prioritise emission sources – this assesses the scope of emission sources and involves prioritisation of sources for mitigation purposes.
3. Assess and select mitigations – this involves identifying, assessing and selecting mitigations, as well as providing justifications for any departures from "best practice".
4. Estimate emissions with mitigations – this involves estimating emissions using NGER methods as applicable.
5. Benchmarking and goals – this involves setting long-term and interim emission goals for the project.
6. Offset strategy – this involves developing and describing strategies for offset of emissions following the taking of avoidance, reduction and substitution measures.
7. Independent review – this is only contemplated to occur for projects that meet the Safeguard Mechanism threshold for reporting.
8. GHG Assessment Report and Mitigation Plan – this involves compiling the assessment report and mitigation plan, no doubt informed by the findings of the seven steps undertaken before this eighth step.

Key Insights

There are several aspects of the Guide that are of interest. We identify some of these below.

First, in respect of the criteria for determining whether a project has "large emissions", one of these criteria is whether the project is likely to emit 25,000 tonnes or more of Scope 1 and 2 CO2-e emissions in any financial year during the operational life of the project. These thresholds are generally the same as the minimum thresholds for triggering reporting obligations on a facility level under the NGER Act. However, the Safeguard Mechanism under the NGER Act defines a "designated large facility" as one that has over 100,000 tonnes of CO2-e emissions per annum. In this respect, there is an apparent incompatibility in the manner in which the EPA's Guide defines a project with "large emissions" versus how the Safeguard Mechanism defines a "designated large facility".

Second, it is unclear what "grandfathering" arrangements (if any) will be made by the EPA when introducing these policies, bearing in mind that case law generally requires development applications and modification applications in NSW to be determined on the basis of the law as applies at the date of determination of the application (at least in the absence of grandfathering).

Thirdly, one difficult task often facing proponents under the NGER Act is to define the assessment boundary for a project for the purposes of emissions reporting. The Guide contains fairly limited detail on how the boundary is to be defined and, in particular, what scope of emissions are to be accounted for within the assessment boundary, which may give rise to uncertainty. This is not an insignificant point, given that defining the assessment boundary is an important threshold issue that then informs what emissions are to be addressed through assessment and mitigation.

We note that this is a snapshot of only a small handful of the issues arising with respect to the Guide and we recommend that industry seek legal advice on the potential implications of the Guide.

We also recommend that industry participants complete a detailed stocktake of their existing management plans and mitigation measures against the Guide to ascertain the extent to which new or additional actions may be required for future significant modifications or new proposed developments in NSW.

We also recommend that industry seek to lodge a submission with the EPA on the Guideline.