The NSW Environment Protection Authority (EPA) last week released the final version of its NSW Guide for Large Emitters (Guide), following a public consultation period that took place in mid-2024. Despite being a guide only and not a statutory instrument, the Guide plays an important role in supporting NSW’s path to reach the legislated greenhouse gas (GHG) emissions targets (NSW Targets) set out in the Climate Change (Net Zero Future) Act 2023 (NSW), being:
- 50 per cent below 2005 levels by 2030;
- 70 per cent below 2005 levels by 2035; and
- net zero by 2050.
In summary, the Guide supports project proponents in NSW by setting out:
- how proposals with large GHG emissions should be identified; and
- how proposals must address their emissions and develop GHG reduction goals during the planning assessment or modification process under the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act).
When does the Guide apply?
The EPA expects that the Guide will be considered by proponents if the project meets all the following three criteria:
- the project requires development assessment and approval, or a change to an approval, under the EP&A Act;
- the project involves one or more scheduled activities under Schedule 1 of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act) and/or will be carried out at an existing licensed premises; and
- the project is likely to emit 25,000 tonnes or more of scope 1 and 2 emissions carbon dioxide equivalent (CO2-e) in any financial year during the operational life of the project (Threshold Trigger).
The assessment of the Threshold Trigger is limited to those activities that take place in NSW (in the case that facility activities span across multiple Australian jurisdictions). Further, carbon offsets (if applicable) will not be counted when determining whether the Threshold Trigger has been reached.
What is the role of the Guide in the GHG assessment process?
The Guide provides an overview of the steps proponents should undergo when carrying out a GHG assessment for the purpose of a planning application. These steps are as follows:
Step 1: Describe the assessment boundary and emission scenarios
The first step of the GHG assessment is to describe the GHG boundary for the project with respect to all stages of the project including construction, operation, decommissioning, closure and post-closure activities (such as remediation or rehabilitation).
For new project proposals, the assessment boundary relates to the activities that would be authorised under an environment protection licence (EPL). For proposed modifications, the assessment boundary relates to the changed activities. The Guide refers to three types of emission scenarios for modifications being:
- A ‘business-as-usual’ scenario which addresses sources and projected emissions which are anticipated to occur without the proposed modification. The Guide provides no further guidance on the definition of a ‘business-as-usual’ scenario, although we assume this to mean the unmodified project.
- A ‘modified business’ scenario whereby overall sources and emissions associated with existing operations as well as the proposed modification are addressed. The Guide provides no further guidance on the meaning of a ‘modified business’ scenario, although we presume this means the modified project as a whole.
- A ‘project only’ scenario which addresses new sources of emissions associated with the proposed modification as well as emission sources associated with existing activities that would be changed. Mitigations are required for this scenario. The Guide provides no further insight on the meaning of a ‘project only’ scenario, although we assume this to mean the part of the project subject to the modification application only.
Once determined, the GHG assessment boundary will inform the proponent which emission sources will be included and excluded in the further steps of the GHG assessment.
Step 2: Identify and prioritise sources of GHG
The next step is for proponents to identify sources of GHG emissions and decide which of these sources should be prioritised when assessing mitigation steps. The assessment must address scope 1, 2 and 3 emissions with respect to all relevant GHG types in the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act), being:
- carbon dioxide (CO2);
- methane (CH4);
- nitrous oxide (N2O);
- sulphur hexafluoride (SF6);
- hydrofluorocarbons (HCFs); and
- perfluorocarbons (PFCs).
Step 3: Select measures to avoid and reduce emissions
The third step involves identifying and selecting measures to avoid and mitigate emissions from the project. This step is where the mitigation hierarchy (avoid, minimise, offset) comes into play, with proponents needing to demonstrate that they have made all genuine efforts to avoid and reduce emissions before implementing offsetting measures.
Step 4: Estimate emissions with mitigation measures
This step involves quantifying scope 1, 2 and 3 emissions by using the National Greenhouse Account (NGA) factors and NGER Act methods. The GHG assessment must set out estimates of:
- scope 1 emissions for all GHG types;
- scope 1 emissions intensity per unit of production or activity for the primary scheduled activity under Schedule 1 of the POEO Act;
- total scope 2 emissions;
- scope 2 emissions intensity per unit production or activity for the primary scheduled activity under Schedule 1 of the POEO Act; and
- scope 3 emissions by relevant category and in total for all categories based on maximum capacity and planned operational throughput.
When estimating emissions, the proponent must incorporate any mitigation measures and set out their abatement effectiveness in the assessment. In addition, the GHG assessment must clearly document the assumptions, data and methods used in the estimation process.
Step 5: Implement emission benchmarking and goal setting
The GHG emission goals of the project must be developed in accordance with the Safeguard Mechanism and the NSW Targets. Proponents must set an overarching long-term goal for scope 1 and scope 2 emissions while goals for scope 3 emissions are not required. The goal must represent a meaningful contribution to the NSW Targets.
Step 6: Develop an offsets strategy
Proponents should develop an offsets strategy for residual impacts that cannot be avoided or reduced. When developing an offsets strategy, proponents must consider the following:
- the projected residual emissions profile over the life of the project;
- the number of offsets that will need to be acquired in each year to meet Commonwealth obligations, and any additional offsets proposed to make a meaningful contribution to the NSW Targets;
- the origin of the offsets; and
- the level of confidence that the identified offsets will be available.
The EPA prefers that any proposed offsets must be sourced from NSW-based projects as those outside NSW do not currently count towards meeting the NSW emissions reduction inventory. However, offsets acquired and retired in other Australian jurisdictions (but not international jurisdictions) may be used if required. We expect that the preference for NSW-based offsets will be included as a condition of the relevant planning approval for the project.
In addition, any carbon offsets used by a proponent must meet the offset integrity principles set out in the Commonwealth Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) and the Climate Active Carbon Neutral Standard for Organisations.
Step 7: Undertake independent expert reviews
For projects that emit more than 100,000 tonnes CO2-e per year, mitigation assessments must be verified by an independent expert. The independent expert will undergo a review and confirm that any offsets strategy is appropriate for the project.
Step 8: Publish the GHG assessment report
The GHG assessment must be prepared to include all the information set out in steps 1-7 above. The Guide provides a template for the GHG assessment report.
What is the interaction between the Guide and the Safeguard Mechanism?
The Commonwealth legislated emissions reduction targets (Commonwealth Targets) are less ambitious than the NSW Targets and are set out in section 10 of the Climate Change Act 2022 (Cth) as follows:
- 43 per cent below 2005 levels by 2030; and
- net zero by 2050.
The Safeguard Mechanism, administered by the Commonwealth Clean Energy Regulator, requires a 4.9 per cent decline on a facility’s annual emissions limit (or baseline) each year until 2030. The Safeguard Mechanism applies to industrial facilities emitting more than 100,000 tonnes CO2-e per year. This threshold is significantly higher than the Threshold Trigger in the Guide of 25,000 tonnes CO2-e or more of scope 1 and 2 emissions.
Therefore, there is a misalignment between the Safeguard Mechanism and the goal-setting component of the Guide set out at Step 5. The Threshold Trigger will capture a significant number of smaller projects that would not be affected by the Safeguard Mechanism, although the Safeguard Mechanism is intended to be the primary mechanism to manage emissions reduction in Australia.
The EPA notes in the Guide that projects covered by the Safeguard Mechanism should use the Safeguard Mechanism as a starting point for any offsets strategy used to reach the goals in Step 5 of the GHG assessment. The EPA then expects proponents to consider whether they can further reduce their emissions to contribute to achieving the more onerous NSW Targets. While not stated specifically by the Guide, this could involve the use of more offsets to reduce GHG emissions in line with the NSW trajectory of net zero. However, the EPA will not recognise Safeguard Mechanism Credits (SMCs) as part of a proponent’s offset strategy, beyond what is required to meet the Safeguard Mechanism. If proponents are unable to go beyond the requirements of the Safeguard Mechanism, they will have to explain (with supporting evidence) why their goals do not align with the overall NSW net zero emissions trajectory.
A recent review conducted into Western Australia’s environmental approvals processes discussed the difficulties of having regulatory measures at a state level in addition to the Commonwealth’s Safeguard Mechanism. The review found that “setting duplicate greenhouse gas limits at the state level on proposals regulated under the Safeguard Mechanism creates confusion for proponents and administrative burden for regulators without delivering any additional environmental benefit.”[1] As a result, the WA EPA was prevented from assessing projects and proposals subject to the Safeguard Mechanism. Interestingly, a different approach has been adopted in NSW.
What’s next in this space?
While adherence to the Guide is currently discretionary, the EPA intends that the Guide will form part of the secretary's environmental assessment requirements (SEARs) for future State Significant Development (SSD) and State Significant Infrastructure (SSI) projects.
The requirement that any proposed offsets must be sourced from NSW-based projects as a priority has the potential to disadvantage NSW proponents as they will not have access to the wider Australian carbon credit market, distorting the national carbon credit markets. However, the EPA has identified this discrepancy and will continue to work with governments to address this carbon-accounting issue. Further, the EPA acknowledged in the Guide that the ability for certain sectors to meet the NSW Targets is limited and therefore it plans to publish sector specific targets to address this issue.
The EPA released its draft Climate Change Assessment Requirements (CCARs) at the same time as the draft of the Guide which required proponents that met the Trigger Threshold to prepare a GHG Mitigation Plan as part of the environment impact assessment stage. However, following consultation, a final version of the CCARs was not published because the EPA concluded that the criteria for a GHG Mitigation Plan was already adequately addressed in Section 2 of the Guide.
Please contact Samantha Daly or Julia Green if you would like to discuss the implications of the Guide on ongoing or future projects.
[1] Western Australian Government, Greenhouse Gas Emissions Policy for Major Projects (15 October 2024).