INSIGHT

Resources sector regulation – the Productivity Commission's call for reform

By John Hedge, Bill McCredie, Emily Smith
Mining Oil & Gas Resources

In brief 6 min read

The Productivity Commission has released its draft report on resources sector regulation and, if implemented, its recommendations have important implications for the sector. In particular, the report includes a number of recommendations focused on reducing delays in project assessment and approval, and removing barriers to investment – without diluting environmental and other regulated outcomes. Our team highlights some of the key findings and recommendations.

Key takeaways

  • On 24 March 2020, the Productivity Commission released its draft report on Resources Sector Regulation (the draft report).
  • The Commission was asked to focus on regulation with a material impact on investment in the resources sector (both mining and oil and gas), identify effective regulatory approaches, and highlight examples of best-practice regulation. The review's scope was vast, particularly as the various states and territories have not adopted a uniform approach to regulation.
  • While the reception to the draft report has been relatively muted, given the more immediate concerns COVID-19 presents, its draft recommendations, if implemented, have significant implications for the resources sector.

Reducing regulatory delays and costs

The draft report suggests that the costs of project delays often dwarf the direct costs of regulation, both materially reducing the net present value of projects that proceed and deterring potential investments. The following key recommendations were targeted at resolving that problem.

Focusing on more risk- and outcomes-based regulation

Both industry participants and government entities reported that the information required for assessments is only increasing and growing more complex, with little perceived benefit for decision makers or the public.

The Commission noted the current 'rigid one-size-fits-all' approach is burdensome; not reflective of the increasingly diverse types of resources projects seeking approval; and resulted in proponents accepting ill-suited conditions to avoid further delays, and an increasing reliance on post-approval conditions and renegotiation of initial conditions.

Rather, the Commission recommended regulators assessing resources projects move towards regulation that is both:

  • risk based – so project evaluations are aligned with the size and likelihood of environmental risks the project creates; and
  • outcomes based – so regulatory conditions set out the outcomes or standards that must be complied with, rather than prescribing specific steps that must be taken to comply.

The leading practices the Commission identified involved early engagement with proponents to identify key risks, with impact assessments and approval conditions then focused on risk management of those risks, rather than prescriptive operating conditions.

The Commission also recommended greater accountability and transparency be provided by way of regulators publishing target assessment and approval timeframes, with reporting against those benchmarks.

Reducing Commonwealth and state duplication

The Commission also noted that resources projects typically require approvals from multiple agencies, giving rise to concerns about protracted approval timeframes, duplicated effort and inconsistent requirements.

The most obvious example is projects typically requiring approvals from various state and Commonwealth agencies. This can lead to protracted approval timeframes and duplicated responses, particularly for projects that trigger assessment under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (the EPBC Act).

The Commission acknowledged that it was not feasible to bring all resources approvals to a single regulator. However, while acknowledging that there has been improved coordination, the draft report recommended:

  • amending the EPBC Act to facilitate negotiation and implementation of bilateral agreements to allow project proponents to prepare a single application;
  • enhanced coordination and cooperation between state and Commonwealth regulators (such as secondments when there is a high volume of applications, or increasing training of state and territory officers in EPBC Act requirements);
  • reviewing the need for both the nuclear and water triggers under the EPBC Act (particularly given the numerous EPBC Act referrals they have triggered for mineral sands and coal seam gas projects without strong evidence of delivering material benefits); and
  • improved communication between regulators to highlight and minimise differences in approval requirements.

We anticipate that a number of these recommendations will be considered in the current review of the EPBC Act that commenced in October 2019 and is due to publish a draft report in June 2020.

The draft report highlights that leading practice to reduce duplication and costs will require action from governments. This includes adequate resourcing and funding for regulators; and setting clear expectations and policy objectives, and adopting evidenced-based processes when developing those objectives.

Objections

The Commission noted that appeals from environmental approval decisions were also a potential source of costly delays. While broadly accepting the appropriateness of existing legal standing arrangements (ie the types of stakeholders who can bring challenges) and the right to such reviews, the draft report recommends the EPBC Act review examine options for reducing opportunities for inconsequential technical breaches of procedures to lead to court action.

Removing other impediments for investment

The Commission was also tasked with investigating aspects of mining and petroleum licensing systems and related legislation that create material hurdles to investment in the resources sector and how these might be overcome.

In relation to the gas sector, in particular, the Commission made various draft findings, including that:

  • domestic gas reservation schemes can reduce investor returns, thereby discouraging investment in exploration and extraction and leading to higher gas consumer prices;
  • bans and moratoria are a response to community uncertainty about the environmental impacts of unconventional gas operations; however, the evidence available suggests that these risks can be managed effectively by consideration on a project-by-project basis; and
  • the water trigger that applies to coal seam gas projects under the EPBC Act is creating unnecessary regulatory burden.

The Commission also made more general draft findings regarding government policy and investment, including that:

  • abrupt and poorly explained government policy changes, with inadequate consultation and uncertainty regarding climate change and energy policies across jurisdictions, can undermine investor confidence;
  • a lack of clarity in policy objectives can lead to inconsistent applications of regulations across resources projects; and
  • deciding not to approve resources projects on the basis of potential greenhouse gas emissions in destination markets is not an effective way of reducing global emissions.

The Commission noted that while resources projects can generate intense public concern, which may result in a chill on consumer confidence, leading practice was the establishment of independent bodies to encourage and facilitate early public consultation on project and policy matters.

Other issues of note

The Commission also discussed:

  • the need for continued improvement in the arrangements for project environmental rehabilitation, including ensuring the government holds appropriate surety and progressive rehabilitation is occurring;
  • potential reforms to engagement with land owners, such as template access agreements and lower-cost dispute resolution to rectify information asymmetry and ensure full and fair compensation, while not providing vetos over projects;
  • potential reforms to native title and Indigenous engagement issues, including proceeding with the amendments in the Native Title Legislation Amendment Bill 2019 (Cth) to resolve issues arising from the McGlade decision, potential standard terms for Indigenous land use agreements, and publication by the National Native Title Tribunal of the circumstances in which expedited procedures under the Native Title Act 1993 (Cth) should apply; and
  • potential reforms to community engagement arrangements, with government's role focused on regulating externalities, rather than imposing local procurement requirements or community royalty arrangements when project proponents are actively investing in regions voluntarily as part of maintaining their social licence to operate.

Next steps

The Productivity Commission has invited submissions on the draft report by 5 June 2020, with the intention of releasing a final report by 7 August 2020.

With governments likely to be keen to look at initiatives that could kick-start an economic recovery following COVID-19, its recommendations might find a receptive audience.

Please let us know if you would like any assistance in making submissions to the Productivity Commission about the draft report, or require further information about how the findings and recommendations may impact your business.