Third layer of greenhouse gas emissions regulation to apply to some NSW operations

By Naomi Bergman, Dennis Smith, Cherry Tang
Climate Change Environment & Planning Environment, Social, Governance

Industry engagement on proposed climate change measures is crucial 8 min read

The NSW Environment Protection Authority (the EPA) recently released a draft Climate Change Policy (the Policy) and Action Plan 2022–25 (the Plan) for public consultation.

In this Insight, we look at three key measures proposed in the Plan that could have a significant impact on industry. The most notable is the EPA's proposal to impose limits in environment protection licences (EPLs) on the emission of greenhouse gases (GHGs). For some operators, this may constitute a third layer of GHG regulation.

Key takeaways

  • The EPA is proposing to implement limits on the emission of GHGs in EPLs issued under the Protection of the Environment Operations Act 1997 (NSW) (the POEO Act).
  • The Plan foreshadows imposing other obligations on regulated facilities regarding GHG emissions, environmental protection monitoring and reporting, and the implementation of climate change mitigation and adaptation plans (CCMAPs).
  • The proposed measures are at an early stage of design. The EPA has not yet revealed critical details of how and when these measures (particularly the EPL limits on GHG emissions) will be implemented.
  • Public consultation on the Policy and the Plan will close on 3 November 2022. The EPA expects to adopt the Policy and the Plan by the end of this year.

Additional greenhouse gas emissions limits

The Plan recognises that imposing limits on GHG emissions is a significant change to the way the EPA regulates air pollution. The EPA currently regulates, and imposes limits on, the emission of some GHGs, such as methane and black carbon, under EPLs. However, the purpose of this existing regulation is to address the impact of these particular emissions on the environment and human health at a local and regional level, as opposed to addressing climate change generally. The EPA will continue to regulate these pollutants in this manner.

Some operators will now potentially be exposed to three levels of regulation of GHG emissions. If the requirements imposed by each regulator are inconsistent, this will raise major compliance issues.

The Plan now foreshadows the introduction of GHG emissions limits in EPLs issued under the POEO Act, for the explicit purpose of addressing climate change.

Many facilities are already subject to multiple layers of regulation of GHG emissions, including under:

  • the Safeguard Mechanism operating at a federal level, which requires facilities with scope 1 emissions of more than 100,000 tonnes of carbon dioxide equivalent per year to keep their emissions below a prescribed baseline. A significant number of facilities that are subject to the Safeguard Mechanism are located in NSW and also regulated by EPLs; and
  • conditions of development consents granted under the Environmental Planning and Assessment Act 1979 (NSW). Limits on scope 1 and 2 GHG emissions are increasingly common in development consents for coal and gas projects in NSW.

Despite comments in the Plan that the EPA's regulation of GHG emissions will complement existing regulation, some operators will now potentially be exposed to three levels of regulation of GHG emissions. If the requirements imposed by each regulator are inconsistent, this will raise major compliance issues.

Even if the requirements and limits imposed by each regulator are consistent, operators may still be required to engage with multiple regulators when complying with these requirements, and when monitoring and reporting on compliance.

Design and implementation of GHG limits

The Plan makes it clear that there are a number of critical details of the design and implementation of the proposed GHG emission limits that have not yet been decided. These include:

Will limits be placed on the total amount of greenhouse gases emitted per period (a load limit) or on the amount of emissions per tonne of production (an emissions intensity limit)?

The Plan states that either form of limit could be imposed.

How will the limits be set?

Apart from stating that the limits will be feasible and evidence based, the Plan does not outline how limits will be set for each licensed premises.

As further explained below, the licence limits might be informed by the EPA's industry-based GHG emission reduction targets and mitigation guidance, and CCMAPs prepared by licensees. The EPA will prioritise consistency across each licenced sector.

Licensees may be required to benchmark their existing or proposed GHG mitigation controls against best practice for the sector.

When will the limits take effect?

The Plan states that the GHG limits and other requirements will be placed on licences progressively, on a sector-wide basis, as the EPA develops or identifies climate change mitigation guidance relevant to key industry sectors, and licensees develop their CCMAPs.

Will limits be imposed on existing EPLs?

It is not clear from the Plan whether GHG emission limits will be imposed on existing EPLs. Figure 2 (on page 11) of the Plan suggests that 'limits and requirements' will only be imposed on new licensees. However, commentary later in the Plan suggests that the EPA will progressively amend existing EPLs to impose limits on GHG emissions. This is an important detail that should be clarified.

Will EPL holders be able to obtain and use offsets to meet their GHG emission limits?

The Plan states that the EPA could consider allowing EPL holders to use offsets if they cannot meet an emissions limit.

Will the regulation of GHG emissions in EPLs be consistent with the regulation of GHG emissions under other federal and state legislation?

The EPA states that it will ensure any emission limits, or other licence requirements, complement other NSW and Federal Government actions, including under the Safeguard Mechanism. The EPA also states that its approach will recognise and allow for any further changes to federal policies or initiatives. However, as we explained earlier in this Insight, some operators will be exposed to another layer of regulation of GHG emissions.

Will anyone who does not currently have an EPL be required to get one?

The Plan does not state whether the scope of scheduled activities (that require an EPL) under the POEO Act will be expanded, so that the EPA can regulate the GHG emissions from facilities that would not otherwise require an EPL. For example, the EPA could declare any activity that emits more than a certain amount of GHG emissions to be a scheduled activity that requires an EPL.

Will the EPL limits apply to scope 2 and 3 emissions?

The Plan does not make it clear whether the EPL limits will only apply to direct emissions from a premises (scope 1 emissions), or whether the limits will also apply to indirect emissions from purchased energy (scope 2 emissions) and to indirect emissions that occur upstream or downstream in the value chain of a product (scope 3 emissions).

What monitoring requirements will be imposed on EPLs?

This is likely to be considered on a premises-by-premises basis.

The significant uncertainty surrounding the scope and operation of the foreshadowed GHG limits means that it is critical for industry to engage with the EPA now about the design and implementation of the scheme.


The EPA will progressively require EPL holders to prepare and implement CCMAPs.

If a licence holder already has in place a management plan that addresses the required subject matter of a CCMAP, the EPA will recognise the existing plan, rather than require them to prepare a separate CCMAP. An example of this would be where a GHG management plan is required under a condition of a development consent.

A CCMAP will be an important document in its own right because it will mandate self-assessment of the licence holder's exposure to climate risks, and require them to demonstrate how they can minimise their GHG emissions and exposure to climate risk.

However, CCMAPs will also be important because they could inform the conditions that the EPA imposes on an EPL. The Plan indicates that the EPA is considering imposing conditions on EPLs, to require practical mitigation and adaptation actions identified in CCMAPs to be implemented. In addition, as explained above, the EPA does not propose to impose GHG emissions limits on individual EPLs until a CCMAP for that site has been prepared (which suggests the limit will be informed by the CCMAP).

Industry-based emissions reduction targets

In connection with the Office of Energy and Climate Change (Treasury Cluster) and DPE Environment and Heritage Division, the EPA will develop a series of emission reduction targets and related pathways for key industry sectors.

It is critical for industry participants to monitor, and be involved in, the setting of these targets and the development of the climate change mitigation guidance.

The EPA will also prepare or adopt climate change mitigation guidance for key industry sectors.

These targets and guidance will not be enforceable, and will not translate directly into consent or licence conditions. However, these sector targets will guide and inform planning and licensing decisions. As explained above, the EPA does not propose to impose GHG emissions limits on individual EPLs until the industry-based climate mitigation guidance has been prepared (again suggesting that the mitigation guidance will inform the limits on GHG emissions imposed under EPLs).

It is therefore critical for industry participants to monitor, and be involved in, the setting of these targets and the development of the climate change mitigation guidance.

Potential future measures

Although they do not form part of the Plan, the EPA has flagged it is considering a number of market-based approaches to address GHG emissions. They include:

  • using the 'load-based licencing' scheme under Part 1, Division 4 of the Protection of the Environment Operations (General) Regulation 2022 (NSW) to charge a fee for GHG emissions; and
  • implementing a targeted cap, offsets and trading scheme for GHG emissions. The EPA has the power under Part 9.3A of the POEO Act to implement such a scheme by regulation.

The Plan states that these measures will be considered if the measures already outlined in the Plan do not prove sufficient.

What happens now?

  • The period for public consultation and making submissions closes on 3 November 2022. Please contact us for more information or if you would like assistance preparing a submission on the Policy and the Plan.
  • We will continue to monitor the development of the Policy and the Plan. We expect them to be finalised before Christmas this year, at which point there may be greater clarity and more detail regarding the proposed measures.