A busy month in Australian climate litigation

October has been a very active month for Australian climate litigation, with important implications for federal climate policy. A decision of the Federal Court provided clarity on the role of climate change impacts in decision-making under certain provisions of the EPBC Act, but prompted increasing calls for urgent EPBC Act reform. That same week, the court approved a settlement between the Commonwealth and sovereign bond holder Kathleen O’Donnell, which required the Federal Government to publish a statement on the systemic risk that climate change presents for Australia's economy and fiscal circumstances.

Meanwhile in Victoria, the rejection by the High Court of Victoria’s electric vehicle tax has critical implications for state electric vehicle policies (and state tax policies more broadly).

We recap these key developments and what they mean for Australian and state climate and environmental policy.

Environment Council of Central Queensland v Minister for the Environment and Water applications dismissed, and appeals filed

Overview of ECOCEQ’s judicial review challenge

On 11 October 2023, the Federal Court dismissed the Environment Council of Central Queensland Inc’s (ECOCEQ) judicial review challenges to the Minister for the Environment and Water’s (Minister) decisions that reconsidered and reconfirmed the scope of specific original controlled action decisions. The relevant original controlled action decisions were made in respect of two coal mining proposals from Narrabri Coal Operations Pty Ltd (Narrabri Coal) and MACH Energy Australia Pty Ltd (MACH Energy).

By way of background, in July 2022, ECOCEQ requested reconsideration of 19 new coal and gas proposals that were awaiting Federal approval under the EPBC Act pursuant to section 78A of the EPBC Act, which enables such reconsideration, revocation and substitution of decisions made under the Act based on the availability of new information about the impacts of each proposed action on matters protected by Part 3A of the Act. These new proposals included the coal mining proposals from Narrabri Coal and MACH Energy. In support of its requests, ECOCEQ provided a considerable amount of documentation and submissions amounting to, in its view, substantial new information about the impacts that the proposed actions have, will have, or are likely to have, on Matters of National Environmental Significance (MNES) protected under the EPBC Act.

The Minister accepted the reconsideration requests. However, in May 2023, while the Minister accepted that there was substantial new information that was not available at the time of the controlled action decision, she decided not to revoke the previous controlled action decisions for three of the proposals, including the coal mining proposals from Narrabri Coal and MACH Energy. 

It is important to note that the Minister did not dispute that greenhouse gas emissions associated with the extraction and burning of coal unequivocally have contributed to climate change with severe adverse consequences for our climate. Nor did the Minister dispute that many MNES have been or will be affected by climate change and its effects.

In her reasons for her decisions, the Minister stated that she was not satisfied that the additional information was about the impacts that the proposed actions have, will have, or are likely to have, on matters protected under the EPBC Act. This was for two primary reasons:

• the Minister was not satisfied that the proposed actions will cause any net increase in global greenhouse gas emissions and global average temperatures; and
• even if that were so, any contribution from the proposed action to global greenhouse gas emissions would be very small. It is therefore not possible to say that the proposed action will be a substantial cause of the physical effects of climate change on the world heritage values of declared World Heritage properties.

ECOCEQ then brought two judicial review challenges against the Minister’s decisions reconsidering and reconfirming the scope of the original controlled action decisions for the coal mining proposals from Narrabri Coal and MACH Energy. The two judicial review challenges were brought in two separate proceedings:

• VID 400 of 2023, which concerned the Minister’s decision reconsidering and reconfirming the scope of the original controlled action decision regarding the coal mining proposal from Narrabri Coal; and
• VID 401 of 2023, which concerned the Minister’s decision reconsidering and reconfirming the scope of the original controlled action decision regarding the coal mining proposal from MACH Energy.

The two proceedings were heard together due to the similarity of the proceedings. Both judicial review challenges were made on ten grounds. These included that the Minister erred in engaging in counter-factual reasoning by netting off the likely emissions from the proposed action from total global emission sources; that the Minister misdirected herself as to the range of future scenarios she was required to consider, in particular in the context of the impacts if the mines did or did not proceed;  that the Minister failed to properly apply the precautionary principle; that the Minister misdirected herself in respect of determining whether a cause was ‘substantial’; and that the Minister’s finding were affected by irrationality.  

In dismissing the claims, the Court rejected each of the grounds. McElwaine J found that there is no express requirement in the EPBC Act that compels the Minister to reason in any particular way in order to be satisfied of the matters that would give rise to substitution of a controlled action decision. His honour noted that the Minister was required to undertake an evaluative assessment to reach the state of satisfaction required by the Act, and in doing so it was open to her to apply the ‘no net increase’ (also known as the ‘market substitution argument’) reasons she had provided.  

Importantly, yesterday, ECOCEQ filed appeals against McElwaine J’s decision and we expect to see strong interest in the outcomes of the Full Court of the Federal Court’s decision on the matter.

Significance of the Living Wonders case

While the outcomes of ECOCEQ’s appeals remain to be seen, McElwaine J’s first instance judgment in Environment Council of Central Queensland v Minister for the Environment and Water (also termed the ‘Living Wonders’ case), has prompted increased attention on the urgent need for EPBC Act reform, as the Federal Court’s decision shows that the EPBC Act offers little protection against the greenhouse gas emissions that are fuelling climate change.

The Federal Government plans to release draft legislation to reform the EPBC Act by the end of October, and will then begin consultation on the detail of the draft legislation. Despite longstanding calls for the EPBC Act to be amended to include a ‘climate trigger’, the Government does not currently plan to introduce one, nor was it one of the recommendations of a 2020 review of the EPBC Act (although it is worth noting that a Climate Trigger Bill introduced by Senator Sarah Hanson-Young is currently under consideration by the Senate Environment and Communications Legislation Committee). The review instead recommended that proposed national environmental standards explicitly require developers to disclose the full emissions of the development and consider the likely effectiveness of avoidance or mitigation measures on nationally protected matters.

O’Donnell v Commonwealth of Australia – settlement approved and case discontinued

Overview of O’Donnell v Commonwealth of Australia

Last week, the Department of Treasury published a statement in settlement of a Federal Court proceeding commenced by Kathleen O'Donnell against the Commonwealth over three years ago, agreeing to discontinue proceedings with no order as to costs.

The proceeding had essentially alleged that the Commonwealth failed to disclose climate change information in connection with the issue of Exchange‑traded Australian Government Bonds (eAGBs). This information included (among other things) physical and transition risks that would impact the value of these bonds – for example, by reducing the economic output of a number of industries, and by reducing global demand for Australia’s fossil fuel exports.

While O’Donnell’s claim was initially brought on three grounds, two of those grounds were struck out by Murphy J following a hearing in 2021 (on the basis that the applicant lacked standing). As a result, O’Donnell’s claim ultimately rested on a single ground: that the Commonwealth engaged in conduct that was misleading or deceptive (or likely to mislead or deceive) in breach of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) through its failure to disclose particular climate change information in bond issue documents.

The agreed settlement statement that has been approved by the court and published by both parties makes important comments about the systemic risk that climate change presents for Australia's economy. It notes that uncertainty around the physical impacts of climate change and the global transition to net zero emissions translates to uncertainty about the fiscal impacts of climate change. This in turn gives rise to uncertainty about whether the fiscal impacts of climate change ‘may affect’ (if at all) the value of government bonds.

The statement does not contain any acknowledgement that the Federal Government is required to disclose climate-related risks to bond holders, but does include acknowledgments from the Government that:

1. as part of investors' strategic responses to the risks and opportunities presented by climate change, investors are making commitments to reduce emissions associated with their investment portfolios;
2. credit rating agencies and other stakeholders are increasingly examining the relationship between climate change and sovereign bonds;
3. there is currently no internationally agreed framework for assessing any climate‑related risks and opportunities associated with sovereign debt instruments; and
4. the Commonwealth will continue to engage with asset owners and relevant stakeholders to ensure that investors are informed as to the Commonwealth's policy settings and actions in relation to the risks and opportunities posed by climate change.

Finally, the statement sets out some of the work that the Government is doing to support sustainable finance and transparency, including reporting on its climate-related budget spending; developing a package of sustainable finance reforms; and publishing annual statements under the Climate Change Act 2022 (Cth).

Interestingly, Murphy J’s settlement approval judgment considered the two ‘obstacles’ to the success of the applicant’s claim that the Commonwealth had raised in its defence:

• first, the Commonwealth disputed the allegation that it ‘carries on a business’, which is a requirement for it to be liable for misleading or deceptive conduct under section 12DA of the ASIC Act. The Court considered that it was not in a position to assess this point based on the materials before it.
• second, the Commonwealth disputed that its conduct was misleading or deceptive or likely to mislead or deceive within the meaning of section 12DA, arguing that the applicant had taken one possible cause of risks for the Australian economy and sought to extrapolate from those risks an unprovable effect on eAGBs.

As to this second point, Murphy J notably stated:

I doubt that it will be as difficult as the Commonwealth submits to establish that global warming and climate change gives rise to real, systemic risks to the Commonwealth’s coffers and therefore to the value of the change traded government bonds. For the purposes of the application I take judicial notice of the fact that the consensus position of leading climate scientists around the world is that global warming and climate change brings risks of more frequent and more intense bushfires, storm surges, coastal flooding, inland flooding, cyclones, droughts and other extreme weather events. To my mind, it seems likely that such events will give rise to a huge drain on Commonwealth resources and on the tax base over a very lengthy period, perhaps forever, and therefore also weigh on forecasts in relation to the Commonwealth’s financial and economic position.

Murphy J proceeded to consider climate modelling by the CSIRO and evidence of climate impacts given by Professor William Steffen in Sharma v Minister for the Environment [2021] FCA 560, and commented that in light of the expensive costs of dealing with physical impacts of climate change such as sea level rise and intensifying fires and floods, there ‘must be a risk that the government will be forced to meet the substantial costs that result where individuals and businesses cannot do so, including through home buyback schemes, public housing projects, farm relocation assistance and the like’, as well as protecting government infrastructure from climate impacts. However, given that Australia is a wealthy nation that has never defaulted on its sovereign debt obligations before, the Court considered that it would likely be complex and difficult for the applicant to establish that these types of climate impacts are ‘likely to be such a drain on the public purse that there is a material risk that the Commonwealth may, in the future, be unable to perform its obligations with respect to exchange traded government bonds’.

Significance of O’Donnell v Commonwealth of Australia

Although the outcome of O’Donnell did not see the Federal Government acknowledge any explicit link between climate change impacts and the value of government bonds, it is significant that the settlement statement explicitly acknowledges that the economic and climatic changes brought about by climate change will have fiscal impacts. Further, the skepticism of Murphy J that it will be ‘as difficult as the Commonwealth submits to establish that global warming and climate change gives rise to real, systemic risks to the Commonwealth’s coffers and therefore to the value of the change traded government bonds’, may prompt future bond holders (and investors more broadly, whether in public or private markets) to push for issuers to transparently disclose climate related risks that could impact their investments.

Further, like the Living Wonders case, the O’Donnell proceeding is yet another example of strategic litigants using judicial processes to push for increased government accountability with respect to its role in responding to the impacts of climate change. On this point, it is worth noting that the applicant had never sought damages in the proceeding, but rather a declaration that the Commonwealth had engaged in misleading or deceptive conduct. Other examples include the ongoing proceeding of Pabai Pabai v Commonwealth of Australia, which involves a challenge by Torres Strait Island leaders to the Federal Government’s alleged failure to cut emissions; and the Sharma proceeding, which whilst ultimately unsuccessful in the Full Federal Court in 2022, prompted significant national dialogue around the extent to which climate change impacts should be considered when making decisions under the EPBC Act.

Intergenerational Duty of Care

Following on from the Sharma decision, in August, Senator David Pocock introduced into Parliament a private members bill that aims to ‘plug the gap’ exposed by the Sharma case by introducing two new statutory duties designed to ensure that decisions that are likely to result in substantial greenhouse gas emissions are made with consideration of the impact they have on the health and wellbeing of Australian children and future generations.

Specifically, the Climate Change Amendment (Duty of Care and Intergenerational Climate Equity) Bill 2023 proposes that where particular administrative decisions are made under the Environmental Protection and Biodiversity Conservation Act 1999, Export Finance and Insurance Corporation Act 1991, Infrastructure Australia Act 2008, National Reconstruction Fund Corporation Act 2023, Northern Australia Infrastructure Facility Act 2016, and Offshore Petroleum and Greenhouse Gas Storage Act 2006:

1. the decision-maker must consider the likely impact of emissions on the health and wellbeing of current and future Australian children and consider their health and wellbeing as the paramount consideration; and
2. where the decision involves exploration or extraction of coal, oil or gas, the decision maker is prevented from making decisions where the resulting greenhouse gas emissions are likely to pose a material risk of harm to the health and wellbeing of current and future Australian children.

Importantly, these duties would come into play where the relevant administrative decision is likely to result directly or indirectly over the lifetime of a facility in the emission of scope 1, 2 or 3 greenhouse gas emissions of 100,000 tCO2e or more.

The Bill was referred to the Senate Environment and Communications Legislation Committee, which will be due to report in March 2024, and submissions closed on Friday. 

Vanderstock v Victoria - High Court finds that the Victorian electric vehicle tax is unconstitutional

On 18 October 2023 in Vanderstock v Victoria, the High Court of Australia delivered a groundbreaking verdict, ruling against the State of Victoria's imposition of a distance-based charge on electric and hybrid cars. This charge, set out in section 7 of the Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) (ZLEV Charge Act), entailed a levy of 2.8 cents per kilometre for electric and hydrogen cars and 2.3 cents per kilometre for hybrid vehicles (Charge).

During the legal proceedings, the plaintiffs, who were individuals registered as operators of Zero and Low Emission Vehicles (ZLEV), and the State of Victoria as the defendant, mutually framed a single legal question for the Full Court's consideration: the question was whether the Charge was a duty of excise imposed by the State of Victoria and therefore invalid.

Under section 90 of the Australian Constitution, states are prohibited from imposing a tax that qualifies as a "duty of customs or excise." Excises are taxes on the domestic manufacturing, production, consumption, or distribution of goods. The plaintiffs submitted that the Charge was, in essence, a tax on the consumption of goods since their electric and hybrid vehicles are considered goods. The State of Victoria submitted that the Charge was a tax on an activity, specifically, driving on public roads.

The High Court ultimately found that the Charge was a duty of excise within the meaning of section 90 of the Constitution, rendering it unconstitutional and invalid. The majority judgement of Chief Justice Kiefel, Justice Gageler and Justice Gleeson provided that the issue to be considered was whether the Charge had a substantial connection to the production, manufacture, sale, distribution, or consumption of goods and whether it had the potential to influence the commercial appeal of these goods. The High Court found that the Charge qualified as a tax on goods due to its close association with the use of electric and hybrid vehicles. Furthermore, the Court noted that the Charge could impact the demand for these types of vehicles. Not all justices concurred with the majority judgement. Justice Edelman dissented, asserting that the broader the exclusive powers granted to the Commonwealth, the more limited the ability of the states (and territories) to raise revenue for their expenditures. Justice Edelman also stated that this ruling could pose a significant challenge to the proper functioning of a federal system of distribution of powers.

Significance of Vanderstock v Victoria

The High Court's ruling in Vanderstock has removed a disincentive to use electric and hybrid vehicles in Victoria. This could result in more people using such vehicles, which could ultimately contribute toward Australia meeting its emissions reduction goals. The ruling also sets a precedent that could prevent other Australian states and territories from implementing similar taxes. The New South Wales Government and the Western Australia Government have both previously announced their plans to introduce a road user charge equivalent to the Victorian ZLEV Charge from mid-2027. These states will not be able to proceed with these proposals. It is unclear at this stage whether the Commonwealth will impose a road user charge similar to the ZLEV charge.

The decision in Vanderstock may also have broader implications for the constitutional validity of other State-imposed taxes, and could therefore significantly impact state taxes and policies beyond ZLEV Charges. Legal challenges may arise against various state taxes, including those related to luxury vehicle registration, livestock sales, mining royalties, and other state taxes associated with the sale or use of goods. As identified by Justice Edelman in Vanderstock, this could limit the ability of the states and territories to raise revenue for their expenditures.

Looking ahead: Australian climate litigation

The outcomes in the Living Wonders first instance judgment, O’Donnell and Vanderstock are the latest in what has been a busy year for Australian climate litigation so far. While government responses to each of these developments – and the outcome of ECOCEQ’s appeals – remains to be seen, we expect to see significant discussion around EPBC Act reform and state taxation policy over coming months, and for pressure on both public and private issuers of financial products to disclose relevant climate risks to continue to grow.

Contact our team to learn more about what these outcomes could mean for your organisation.