Lies, damned lies and … Environmental Economics?

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A single LNG development in Australia could raise the global temperature by a tiny amount. Should it be allowed? What has the ‘economics of substitution’ got to do with it?

By Peter Burnett

People frustrated by weak government responses to the Paris Agreement (with its goal of limiting global warming to ‘well below’ 2° Celsius and ‘pursuing efforts’ to achieve 1.5°’), continue to look for ways to pressure governments for stronger action. One strategy is to challenge fossil fuel developments in court.

In the latest Australian challenge, the Australian Conservation Foundation (ACF) is challenging the federal approval given to Woodside Energy’s $16 billion Scarborough liquefied natural gas (LNG) project, off the Pilbara coast in Western Australia.

The formal basis for the challenge is, in essence, that Woodside obtained approval from the wrong federal regulator. Beyond that, it gets complicated. But it’s worth considering the details here because there are some very important principles at play.

Offshore Approvals and the Reef ‘carve-out’

Under Australia’s national environmental law, the Environment Protection and Biodiversity Conservation Act (EPBC Act) the federal environment minister would normally need to approve major developments such as Scarborough. However, in 2014, then environment minister Greg Hunt switched off this requirement for offshore projects by, in effect, accrediting the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) to approve projects in his stead.

The basis for NOPSEMA’s accreditation is that its regulatory regime was assessed as meeting the requirements of the EPBC Act. But the accreditation had several ‘carve-outs’, including for projects likely to have a significant impact on the Great Barrier Reef (GBR). In other words, if a major offshore project was likely to have an impact on the GBR, then NOPSEMA could not approve it and the task but would revert to the minister for the environment.

ACF’s claim is that even though Scarborough is off WA, its total greenhouse gas emissions, especially the ‘scope 3’ emissions generated when the gas is burnt by overseas customers, will be so large that as to have a significant impact on the GBR, even though it lies on the other side of the country.

If the ACF win the case, this would trigger the carve-out and bounce the project back to Australia’s new environment minister Tanya Plibersek for a fresh approval process, something that could take years (which could well scuttle the proposal).

Overheating

An analysis by Climate Analytics found that the total emissions from the Scarborough project were just under 1.4 billion tonnes, three times Australia’s annual emissions. ACF argues that this will result in 0.000394 degrees of additional global warming that will harm the Reef.

Woodside may counter that this is not a significant impact, even on the back of existing emissions-driven climate change.

Is an extra 4 x 10,000ths of a degree significant? I think there is a good argument that when the GBR is already at a critical point, every additional measurable impact on the whole reef is significant. Keep in mind this is a single development which, by itself, has the capacity to create a measurable global temperature increase (at a time when the world is already overheating).

A second likely defence argument will be that 1.4 billion tonnes is a gross figure, which would be offset significantly, if not completely, by various factors, including that gas from Scarborough, relatively low in carbon intensity, will displace other fossil fuels with significantly higher carbon intensity. This is the ‘market substitution’ argument.

We have been here before. In 2015, environment minister Greg Hunt used a similar argument in successfully defeating ACF’s challenge to Adani’s huge Carmichael coal mine in Queensland. The Federal Court upheld the minister’s decision at both first instance and on appeal.

So, if this argument has failed before, why run it again?

Will the market substitution argument prevail?

The basic argument may be the same, but the legal context is different, notwithstanding that both cases concern the application of the EPBC Act. In the Carmichael case, the relevant arguments revolved around the meaning of certain words in the Act, including ‘relevant impact’.

However, the appeal judges did say that their decision was made on the basis of the particular arguments which ACF had put; they dropped a hint that a different argument might have led to a different result. With so much at stake, this alone is enough to make one think it was worth having another go at the market substitution argument.

I don’t know what arguments ACF and their lawyers have in mind this time around, but the Scarborough case turns on some different legislative words, especially on what is a ‘significant’ impact, as distinct from the meaning of ‘impact’ itself.

In this slightly changed context, I think the economic substitution argument could be attacked from a different angle to the one used in Carmichael. It goes like this:

If the total emissions from the Scarborough project, including scope 3 emissions, are ‘likely to have a significant impact’ on the GBR, the current approval from NOPSEMA is invalid and Woodside must refer the project afresh to Minister Plibersek.

Notwithstanding that significance must be decided on the basis of a likely net, rather than gross emission increase; the likelihood is that each of the factors said to offset the gross impact does not, on balance, reduce the gross figure significantly, for the following reasons.

Even if gas from Scarborough has a much lower carbon content than the fuel currently consumed by Scarborough’s customers, it is not enough to find that this low carbon gas would displace high carbon fuel for these customers. Rather, to achieve a net reduction, the high carbon fuel must be displaced from the entire market — ie, it must be likely that it will be left in the ground.

This is because, prima facie, if supplies of a fossil fuel are displaced by an alternative, basic economics (the principle that markets ‘clear’) suggests that the displaced fuel will be sold elsewhere, even if this requires a price reduction. This is especially true given that the global market for fossil fuels continues to grow, despite a Covid19-induced dip.

Then there is the policy argument, that because many countries have adopted Paris targets such as ‘net zero by 2050’, emissions from Scarborough will be offset by reductions that are driven by these targets.

Even if countries delivered on such targets in full and the 1.5° goal were achieved, the reef would still be under significant threat and Scarborough would still exacerbate that threat.

However, countries are not on a global trajectory for anything like 1.5°, so the backdrop to Scarborough’s impact is closer to a 3° increase. Worse, many countries have a history of promising more than they deliver, in some cases adopting targets that are little more than aspirations.

Finally, there is the argument that technological change will drive major emissions reduction through the shift to renewables. This is valid in some countries, but, globally, the renewables shift is more than offset by global increases in demand: otherwise, global emissions would not continue to rise.

At the end of the day, unless there is evidence that gas from Scarborough is leading directly to high-carbon fuels being left in the ground, the supposed offsets look rather vague at best, leaving it likely that Scarborough’s net emissions will be similar to its gross emissions.

Where are we headed with this?

I wouldn’t like to predict where the Federal Court will land, but I do think it is possible that the market substitution argument, at least under the EPBC Act, will prove to make little difference.*

If I were the federal government I would deal with cases like this by moving quickly to legislate a comprehensive climate policy regime, not to mention a wider and contemporary environment protection regime as recommended by the 2020 Samuel Review.

I would be thinking that it is better for governments to get on the front foot rather than risk the unpredictable results that can follow when people are driven to litigation by their frustration with outdated or missing laws.

*I know the argument has been rejected by the Land and Environment Court in NSW in the Gloucester Resources case (Rocky Hill). But the Court there had the power to review the decision on the merits, which makes a big difference, for reasons too complicated to explain here.

Banner image: New research shows global warming of 1.5°C relative to pre-industrial levels will be catastrophic for almost all coral reefs – including those once thought of as refuges. Should any new fossil fuel developments be approved in such a time? (Image by Maria Beger)

International declarations and other environmental promises: A game for those who talk but don’t walk

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By Peter Burnett

When is an international declaration on the environment worth the paper it’s printed on? Don’t worry, it’s a rhetorical question. Based on the way the Australian Government treats them, they’re not worth anything. Consider what we’ve recently said about forests and climate change.

When it comes to forests, Australia stands with Bolsonaro

I was a little taken aback when, at last November’s climate summit in Glasgow, Australia joined 140 other countries in signing the Glasgow Declaration on Forests and Land Use.

The declaration pledges to halt and reverse forest loss and land degradation by 2030 and the signatories represent 85% of the globe’s forested land.

Surely this was great news!

Unfortunately, of course, it was too good to be true. Countries were playing the old environmental promises game again. All you have to do is sign up — no action required.

Even President Bolsonaro of Brazil had signed! The same Bolsonaro who has been widely condemned for accelerating the destruction of the Brazilian Amazon.

As a declaration, this document is not legally binding. It’s also full of weasel words like ‘sustainable land use’ and ‘opportunities … to accelerate action’.

And, of course, even if you cut down all the trees, it’s not deforestation … as long as you plant new ones!

Are they any more serious at the OECD?

More recently, environment ministers from OECD countries had one of their five-yearly (or so) pow-wows in Paris at the end of March. Australia’s minister Sussan Ley was one of the vice-chairs and of course the OECD Secretary-General, Australia’s own Mathias Cormann, was there to advise ministers in their deliberations.

The top agenda topics were climate and plastics and the meeting yielded a formal outcome, the OECD Declaration on a Resilient and Healthy Environment for All.

Now we’ll see some action, I thought — unlike the UN, the OECD regards ministerial declarations as legal instruments, having a ‘solemn character’, though in this case the declaration is not actually legally binding.

So, I thought (naively) if this is a solemn commitment they’ll have to act!

The declaration committed OECD countries to net-zero by 2050, ‘including through accelerated action in this critical decade with a view to keeping the limit of a 1.5°C temperature increase within reach’ (my emphasis).

You might think this would require Australia to increase the ambition of its ‘26-28% by 2030’ target, but I’m sure you’d be wrong.

The Australian Government would probably cite later words from the statement that ‘we underscore the need to pursue collective action’ to achieve the Paris Agreement. We’ll step up if everyone else does so first.

Alternatively, we might announce ‘accelerated action’ in December 2029. I’m sure the lawyers will come up with something to get us off the hook.

Ministers also committed to ‘strengthen our efforts to align COVID-19 recovery plans with environmental and climate goals to build a green, inclusive and resilient recovery for all.’ If you thought this would require Australia to increase its policy ambition and pursue a green recovery, again I think you would be wrong.

I expect the government would say (without hint of irony or embarrassment), that its stimulus efforts were already ‘green, inclusive and resilient’. Green is, after all, in the eye of the beholder.

Plastic promises in Paris

Finally, ministers at the OECD pow wow committed to developing ‘comprehensive and coherent life cycle approaches to tackle plastic pollution’ and ‘promoting robust engagement in the intergovernmental negotiating committee to develop an internationally legally binding instrument on plastic pollution with the ambition of completing negotiations by the end of 2024’.

Australia is on more solid ground here, as it has some genuine policy ambition on plastics. These were forced on it when China stopped all imports of plastics and other waste in 2018, including ours, but … it’s the result that counts!

And no doubt Australia is happy enough to commit to an objective of negotiating a convention on plastics over the next nearly-three years. After all, it’s only a process commitment.

Much of the rest of the declaration consisted of pious incantations or directions to the OECD bureaucracy to do more work on policy tools, data-gathering and the like. No problems here — apart from a few dollars to support the OECD machine, this work creates no obligations.

In terms of putting ‘walk’ over ‘talk’ (ie, actions over words), Paris rates just a little ahead of Glasgow. I’d give the Paris declaration 2 out of 10 and Glasgow 1.

Postcard from Mathias: feeling expansive in Paris

A couple of other things jumped out at me in reading the record of the OECD meeting in Paris.

How strange it is to my Australian ears to hear Mathias Cormann abandon his ‘tell-em-nothing, concede nothing’ Australian political style, in favour of spruiking the international environmental cause, even though he did so in very-OECD economistic terms. I’ve emphasised the interesting words:

Secretary-General, Mr. Mathias Cormann, stressed the importance of a whole-of-government, whole-of-society approach to meeting the climate challenge. He set out key thoughts in this regard including the need to mainstream climate change across all areas, step up efforts on implementation, to secure real net reductions in emissions, mobilise investment and realign global flows towards the transition, the need for reliable data and monitoring, and the importance of enhancing efforts towards adaptation and managing losses and damages.

Esperanto anyone?

Of greater interest, the environment ministers had lunch with a group of business leaders. Emmanuel Faber, Chair of the International Sustainability Standards Board, and former CEO of Danone, a multinational food corporation based in Paris, stressed the need for:

a common language to understand the climate impact of portfolios, underlining this pivotal moment in developing such a common language that can guide decisions to align finance with environmental goals and avoid greenwashing (emphasis added)

We have such a common language in the form of the System of Environmental Economic Accounting (SEEA), adopted in 2012 and enhanced with a standard for Ecosystem Accounting in 2021.

In my view, what we really need is for governments to learn to speak it! (Reminded me of Esperanto — great idea, but a little lacking on the uptake)

While my main point has been to decry the dominance of talking over walking, in the case of environmental accounting, talking is walking!

Banner image: Vaunting ambitions declared in Paris amount to little back home.
(Image by GAIMARD at Pixabay)