Market Overview

Major Legal Setback For Coal Mining In Australia

Major Legal Setback For Coal Mining In Australia

An Australian court has refused permission for the creation of a coking-coal mine in New South Wales on the grounds that it would adversely contribute to greenhouse gas (GHG) emissions and would set back the fight against climate change. Legal scholars are hailing the decision as a "hugely significant" ruling.

Mining company Gloucester Resources Limited ("Gloucester") had sought permission from the local Department of Planning for permission to open the Rocky Hill mine for the production of a total of 21 million tons of metallurgical coal, which is used in the creation of steel.

According to the judgment of the Land and Environment Court, Gloucester expected that there would be about 156 to 278 light vehicle movements and 10 to 18 heavy vehicle movements per day. The heaviest traffic was forecast to take place at shift start/end times, which would occur four times a day around the times of 6:00 a.m., 2:00 p.m., 6:00 p.m. and 10:30 p.m. Coal handling would have involved an overland conveyor and rail loop to transport coal to the Port of Newcastle for export.

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No coal from Rocky Hill

The planning authorities refused to grant permission for the project to proceed. Gloucester then sued the state government (in the form of the Minister for Planning) in the Land and Environment Court.

In a nearly 76,000-word judgment, the court considered a huge range of issues, including dust, noise, visual impact, community impact and many others. However, in a judgment that has proven controversial, the reasoning for the decision to turn down planning permission for the mine largely lay in mine's potential GHG emissions and how that ran contrary to the global efforts stop man-made climate change.

In summing up his verdict, chief justice Preston wrote: "In short, an open cut coal mine in this part of the Gloucester valley would be in the wrong place at the wrong time. Wrong place because an open cut coal mine... will cause significant planning, amenity, visual and social impacts. Wrong time because the GHG emissions of the coal mine and its coal product will increase global total concentrations of GHGs at a time when what is now urgently needed, in order to meet generally agreed climate targets, is a rapid and deep decrease in GHG emissions. These dire consequences should be avoided."

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A flawed argument

In a key part of the judgment, Judge Preston rejected Gloucester's so-called "market substitution" arguments. In essence, this argument is that rejecting a given, specific, project on the grounds of avoiding GHG emissions does not prevent the emissions taking place as someone, somewhere, will create another project elsewhere and no emissions will be prevented.

Australian miners take that argument one step further and argue that, as Australia has particularly high environmental standards there will be little in the way of rogue emissions and, as Australian coal is physically a very high-quality product, it requires less coal to be burnt for a given output. Australian miners argue that coal from Australian mines would therefore not create as many emissions as would otherwise be released by other projects elsewhere. This was an argument run by Gloucester in the Rocky Hill case.

However, in the part of the judgment that excited environmental lawyers, the judge called this argument "flawed."

Judge Preston dismissed the argument by saying there was no certainty that other projects would be developed elsewhere. He also pointed to evidence tendered that heavy coal-using countries such as China, India, Japan and South Korea are implementing policies to reduce the use of coal.

For example, South Korea has created a tax on all coal. The judge added that, instead of creating substitute projects, other countries might instead follow Australia's lead and refuse to open a new coal mine and noted that developed and developing countries have committed to reduce their GHG emissions under various international agreements.

"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 [Gloucester's] project," the judge said.

He added that the ability of a new mine to substitute for any volume of coal from Gloucester's project will depend on the supply and demand of substitute sources of coal and price differentials.

"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," the judge said.

He further added that there is a logical flaw because a development that is environmentally unacceptable does not become acceptable simply because a hypothetical and uncertain alternative development might also cause the same effects elsewhere.

"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," the judge pointed out.

In any event, the judge noted expert evidence that there are other existing and approved coking coal mines in Australia that could meet current and future demand for the highest quality coking coals produced by mines operating under high environmental standards. "There is, therefore, unlikely to be a moving of coal mining abroad or carbon leakage," the judge said.

Judge Preston ultimately refused planning permission for the mine.

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A dud or a landmark judgment?
FreightWaves contacted NSW Mining, which is an advocacy group funded by the local mining companies to represent their interests.

"We'll take a close look at the judgment, including what appears to be a range of different reasons for the outcome. However, we don't believe this is in any way a ‘landmark case' given the Department of Planning had already recommended against the approval of the project," a spokesman for NSW Mining said.

However, environmental law scholar Dr. Justine Bell-James of the University of Queensland, has a markedly different view. Describing it as a "landmark judgment," she noted that the market substitution argument is "a common "defense" in climate litigation." She pointed out that the ruling was "firmly grounded" in the scientific and international context and should be "highly persuasive precedent".

By volume, Australian coal is a major seaborne commodity. The Australian Office of the Chief Economist estimates that 2017-2018 will see 179 million tons of metallurgical coal exported and 203 million tons of thermal coal exported. Coal (metallurgical and thermal combined) will likely be the second-most valuable commodity export from Australia in the 2017-2018 financial year. Metallurgical coal exports are forecast to have a value of about AU$37.79 billion (about U.S.$27.01 billion) and the value of thermal coal exports are forecast to stand at AU$22.58 billion (about $16.06 billion).

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