Climate change liabilities

MINING companies face a growing green threat as courts around the world increasingly recognise the potential impact of climate change. Herbert Geer partner Simon Harrison warns of future class actions in Australia and advises the industry to prepare new risk management strategies.
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Herbert Geer partner Simon Harrison

Blair Price

Law firm Herbert Geer boasts some of the major diversified miners as clients and Harrison is concerned the industry is not up to speed with the risks posed by climate change litigation. The firm is part of the recently launched Equator Alliance, also made up of AARC, BDO and UniQuest, which is helping organisations manage and comply with their climate change-related obligations.

“Climate change regulation is now a business reality. There are new risks and liabilities arising from existing and rapidly developing climate change laws, as well as business opportunities such as Clean Development Mechanisms,” Harrison said.

Climate change cases

Along with legislative changes, a host of judicial decisions have created or recognised climate change liabilities. Recent legal decisions in Queensland, New South Wales and other states reveal a growing judicial acceptance of climate change arguments.

Back in 2006, the New South Wales Land and Environment Court ruled that Centennial Coal had failed to adequately assess the impact of “downstream” greenhouse gas emissions from the burning of coal by end users in its environmental application for the Anvil Hill coal project.

But the court also ruled the state government would have to consider intergenerational liability in its environmental assessments.

Intergenerational liability is a Pandora’s Box for mining and energy companies, who could be forced to pay damages for unknown environmental damage in the future.

“Basically the concept is that the present generation has to take into account the needs of future generations,” Harrison said.

“This means that business activities need to be risk managed in a much more proactive manner, staying one step ahead of legal developments. Longer term climate changes have to be the cornerstone of long, medium and short-term strategic planning.

“This is tied in of course with issues of sustainability, which is also open to vast interpretation.”

The need for the NSW government to assess the potential impact of climate change was further enforced by the Walker vs Minister for Planning [2007] case in the NSWLEC.

The court ruled that the minister’s approval of a coastal retirement village plan north of Wollongong was void because potential climate change-caused flooding risks were not considered.

Similar concerns weighed into a Victorian State Planning Tribunal decision last November to block plans for coastal subdivisions.

The tribunal looked to predictions that sea levels could rise 80cm by the turn of the century.

But over in Queensland, Xstrata successfully fought off a 2007 legal challenge by the Queensland Conservation Council over the Newlands coal mine expansion.

The Queensland Resources Tribunal allowed the mine expansion to go ahead without imposing conditions to offset greenhouse gas emissions as it found insufficient evidence the mine’s emissions would have an adverse impact on climate change.

There has been a wave of climate change-related civil compensation claims in the US.

Last October, the US Court of Appeals overruled an earlier district court decision which dismissed claims the greenhouse gas emissions of American oil and chemical companies contributed to Hurricane Katrina in the Comer vs Murphy Oil case.

In addition, the state of California brought a case against the six largest US car manufacturers seeking damages for past, present and future emissions.

Green liabilities

Harrison believes Australia will follow the approach of the British and American civil courts.

“I think Australia will see climate change impact cases move from the administrative planning and environment courts into mainstream civil courts,” he said, adding that civil courts would take action based on public nuisance or negligence grounds.

“It’s not surprising that climate change risks are not registering on many corporate radars as the debate over the proposed emissions trading scheme has taken centre stage. However, we are already in a climate change-regulated environment, albeit one that is in its early stages.”

Harrison said a fairly well-financed group of individuals could bring a claim against a mining company in Australia based on negligence, citing cases in overseas jurisdictions.

He suspects some mining and energy companies might be unprepared for such claims.

Aside from potential emitter’s liability, Harrison is concerned the directors of these companies, ranging down to project managers, division heads and even environmental officers, could be held liable in future cases.

He expects environmental groups to test the waters by pursuing senior officers in resource companies.

Harrison also expects problems in the realm of bad faith insurance, where insurance companies will seek to argue “no coverage” either due to non-disclosure or possible failures in environmental assessments.

“Bad faith insurance is established as a concern in Europe, and has been a major source of litigation in the United States as cases infringing on climate change issues come to the fore,” he said.

“We are saying to our corporates, get your insurance policies out and engage insurers on specific projects. We have seen overseas insurance claims fail on the basis of a paucity of climate change modelling for developments, for example.”

Harrison expects major Australian cases to be a couple of years away and said the government might have to enact legislation to minimise or cap climate change-related civil claims.

He said some overseas cases had been brought on the basis of human rights, so similar lawsuits here could also face appeals to international courts.

Risk management

Harrison cites the success of Clean Development Mechanisms as one of the financial advantages of the new climate change regime.

Born under the Kyoto Protocol, CDMs are managed by the United Nations and represent arrangements where a company invests in a project to reduce emissions in a foreign country to offset locally produced emissions.

Harrison estimates about 60-70% of emission reductions in the European Union “are not actually emissions reductions per se, they are CDMs”

“What you are finding in Europe is that it’s actually proven cheaper to enter into a CDM than it is to take action to reduce your emissions.”

CDMs offer proof a company is taking green action.

He said CDMs were proving to be a source of untapped income for many mining companies as well as significantly reducing potential emissions liabilities.

The National Greenhouse and Energy Reporting system kicked in this year, and the lack of industry preparation was evident by the fact the federal government was advertising the reporting deadlines in the financial media.

Harrison said multinationals right down to family-owned small and medium-sized enterprises were starting to “get it” as they experienced costs under the new regime.

Even SMEs were seeing the potential to capitalise on CDMs to reduce emissions liabilities.

Herbert Geer is advising its mining clients to look seriously at climate change in their risk management strategies and environmental impact assessments.

Apart from assessing insurance liabilities, Harrison said officers needed to be informed of the fast-developing set of legal circumstances and their potential liabilities.

“It’s a rapid education process that we have to undertake with clients,” he said.

Along with AARC, UniQuest and BDO, Herbert Geer has held seminars on climate change liabilities and plans to host more.

The Equator Alliance is also investigating CDM opportunities in the Pacific Rim, with few on offer out of the more than $A1 billion of CDM projects awaiting UN approval.

Harrison practices climate change law and is a member of the Queensland and UK law societies along with the Canadian Bar Association.