20 minute read
IMPROVING THE
IMPROVING THE REGULATORY SPACE FOR THE EXTRACTIVE INDUSTRY
In recent years, the Victorian Government has made a concerted effort to improve earth resources and approvals processes. Anna Cronin, the Victorian Commissioner for Better Regulation, explains what these reforms are and how industry members can assist the regulator to fast-track approvals.
Anna Cronin is Victoria’s Commissioner for Better Regulation. She oversaw a review of the Earth Resources Regulator in 2017 and her report – Getting the Groundwork Right – was released in 2018. The Victorian Government endorsed all of its recommendations, including development of a new legislative framework for the regulation of Victoria’s earth resources.
Cronin has more than 25 years’ experience in regulatory issues across numerous policy areas. She started her career as an economist in the Bureau of Agricultural Economics and the Productivity Commission. She has subsequently served as CEO of the National Farmers’ Federation, as the senior bureaucrat for major project approvals in the Western Australian Government’s State Development department and as chief of staff to two Victorian Premiers.
At the IQA conference, Cronin will outline the “reform journey” in the earth resources regulatory framework, with emphasis on impacts on the extractive industry.
What is your key message to the industry? That it’s a really exciting time for the quarrying industry – there are great opportunities to support government and private construction projects. In 2019, communities and governments have high expectations of how quarrying businesses will manage the impacts of their business, eg dust, sound, safety, etc. So we have an opportunity for the industry to work with governments and local communities and think about how regulatory frameworks can provide certainty to industry. That will help business planning and investment, and create clarity about what’s expected in operations. It’s a two-way street – the community wants to maintain the highest standards and industry needs certainty. It’s time for productive conversations between communities and industry about the best designed regulatory frameworks.
Commissioner for Better Regulation Anna Cronin.
You oversaw a review of the Earth Resources Regulator in 2017. What were some of your recommendations? The major finding was that the Earth Resources Regulator (ERR) at that point wasn’t equipped to deal with the significant growth and demand for approvals underway in Victoria. It was suffering from poor morale and poor staff culture, had been through numerous reviews without much change and industry found the regulator very frustrating. Our report identified what we called “quick wins” to speed up and streamline the approvals process without undermining its regulatory integrity. The Minister Tim Pallas was willing to add resources to the ERR to address the greater demands of applications and approvals, and we quickly secured extra resources. We helped the approvals staff by giving them a clearer framework and guidelines for dealing with different applications. These “quick win” initiatives were put into place very quickly.
We also identified, from the regulator’s perspective, other initiatives for the short to medium term involving more planning certainty and collaboration with local councils. For the longer term, I suggested government should review the Mineral Resources (Sustainable Development) Act and draw on lessons from the new approach being taken with environmental protection, in terms of a more outcomes-based approach to regulatory frameworks and consideration of legislative reform in the longer term.
I’m pleased to say the Government in early 2018 accepted all the key initiatives and recommendations, and in the 2018 Budget, put considerable monies into funding them.
The Victorian extractive industry insists raw materials could become more expensive and infrastructure project budgets could escalate if not enough new quarries are approved in coming years. Why has the approvals process traditionally been slow? The approvals process is complicated. There are lots of community groups and issues that need to be considered. The ERR is only one of the regulators with a finger in the pie. We have had some very constructive discussions with senior people from the Environmental Protection Agency (EPA), the Victorian Planning Authority, the Department of Environment, Land, Water and Planning, and local councils about how we can speed up some of the approvals processes, including using concurrent processes rather than doing everything sequentially. Quite often in approvals processes, things build up sequentially, eg you have to do this bit before you go on to do that bit, etc. We tried to speed up some of the approvals processes by examining if they could be conducted simultaneously.
Do you think the ERR’s new risk-based approach to approval of work plans or variations has addressed industry’s concerns about raw material and project costs? I think the new approach is paying dividends. The ERR is putting out information about it and bedding down the approach. Industry
needs to get used to it, but my impression is it is addressing industry’s concerns about raw materials project costs while enabling the regulatory authorities to focus on where the bigger risks are. It’s a proportionate response.
Another complaint of quarries is there can be delays in the transition to licences, due to discordant interpretations by bureaucrats and local government officials of regulations. Does the new approach to approvals address this issue? This is why it’s important that industry works closely with local communities on a development. There’s evidence of a lot of “ping pong” between regulatory authorities in this area. Things get referred to local councils and then to multiple agencies, and it goes round and round. You get the impression nobody wants to make a decision, and the business suffers because of the delays. The ERR and industry can be better communicators respectively about the regulatory framework and extractive operations. However, we need to provide certainty so industry can operate and create jobs. It’s about getting the balance right.
underway and there are signs of improvement.
Do all parties need to consult more closely from the outset to avoid conflicting interpretations in the transition period? Improved communication is underway. ERR a few years ago – based on its website at the time – wasn’t great at consultation with the industry and the community about the regulatory framework. If you look at ERR’s website now, it’s improved considerably. Communities can access the site and find out how they can have a say, and industry has a clearer understanding of ERR’s requirements. ERR has been working with the Municipal Association of Victoria and local councils to better inform and support their staff in their role in approvals. There are 79 councils in Victoria. Not all of them have quarrying activities but there is still a large number that need engagement. ERR has that work You’re reviewing state and local government processes into building and planning approvals. Do the issues raised in this review mirror some of the extractive industry’s concerns? I’m finding again that things “ping pong”. Something goes to a local council, then to a referrals authority, like the EPA, or Melbourne Water Authority, or VicRoads, etc. Like the earth resources work, it’s certainly not just local councils, there are other significant players in planning. In fact, there are 63 referral bodies in Victoria. I’m finding a lot of analogies between the earth resources work and this review. With the building Anna Cronin’s report on the earth resources regulatory framework was endorsed by the Victorian Government in early 2018.
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and planning approvals work I’m trying to identify where we can reduce the “ping pong” between local councils and referral authorities, particularly by improving the information provision.
I noticed in the earth resources review that there were issues about the completeness of applications. That makes it hard for the regulator to assess, and it has to contact the applicant for more information. It’s the same in planning. A council will have an incomplete application and have to contact the applicant, or sometimes pass it to a referral authority, and again, the referral authority won’t have all the information it needs. We really need to clean up those systems, and be clearer about the information required. I’ve certainly learned lessons from the earth resources work that I can bring to the planning and building review. I’ve briefed the CCAA and the CMPA, the two quarrying bodies in Victoria, about the review. They are encouraged that I’m applying the lessons from earth resources regulation reform to the planning and building area. When applying for licences, what can operations do to make the ERR’s task easier? Again, it’s about information. The ERR has to be crystal clear about what its information requirements are for different types of applications, permits and variations. By the same token, industry has to provide that information. The more that you do at the beginning, in terms of early engagement and understanding what is clearly required of you, the better. It saves a lot of grief later in the process. The best advice I could give a quarrying company dealing with ERR or any regulatory body is to make sure you provide all the information it needs. That will help with the processing of the application.
As Commissioner for Better Regulation, you must occasionally encounter stakeholders whose attitude is life would be simpler without regulations. How do you respond to those comments? I do encounter stakeholders who say life would be simpler if there were fewer regulations. I have two titles – one is Commissioner for Better Regulation, and one is Red Tape Commissioner. As the latter, I’m always looking for opportunities to reduce regulatory burden, eg paperwork, forms, unnecessary information requirements, etc. However, I’m conscious of doing that role without undermining the regulatory integrity of the system. My job is to make sure that our regulations are necessary, effective and efficient. So, I certainly don’t view regulation as all bad. I don’t think any of us would get into a plane if there were no air safety regulations, would we?
We all expect strong regulatory regimes to protect the community from various harms. The key is to ensure the regulations are effective in achieving what the government and community want out of them, without putting a disproportionate burden on industry. •
Anna Cronin will deliver her presentation at the IQA’s annual conference at GMHBA Stadium, Geelong, on Thursday, 3 October.
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ADDRESSING CLIMATE CHANGE RISK IN A RESOURCE CONTEXT
Until now, climate change impacts have been largely described in physical terms. However, as Elisa de Wit argues, there are financial dimensions to climate risk, and if not sufficiently addressed by industry over time, it could cause as much damage to an extractive business as the climate.
Elisa de Wit is a partner in the Melbourne office of international legal firm Norton Rose Fulbright, and leads the firm’s climate change and sustainability practice. She has 28 years’ legal practice, spanning jurisdictions in Australia and the UK.
De Wit will discuss climate-related risk. She warns that the extractive industry in coming years could experience pressure from consumers to show it is curbing greenhouse gas emissions in line with Paris Agreement targets. As a result, industry members will need to manage not only the environmental risks of climate change but the financial risks it represents.
What is your key message for the industry? Climate risk is a broad topic that needs to be on everyone’s radar. The quarrying industry is no exception. The main theme I’ve been focusing on for some time now is the reframing of climate risk as a material financial risk, both short- and long-term.
What is climate risk? The traditional way of viewing climate change is through a physical risk lens, ie the environmental impacts, be that increased temperatures or increased risks of flooding or bushfires. However, recent developments – eg the Task Force on Climate-related Financial Disclosures report that came out in 2017 – have highlighted other elements: transitional, legal and reputational issues. The transitional risk is that if the world collectively decides – as it has done under the Paris Agreement – to reduce emissions, what will that mean in a policy or regulatory setting? What new laws will come into effect? What new technologies will be required for emissions reduction? What other societal or community changes will be required?
The legal risk arises from sectors not taking action to address climate change risks, and organisations failing to disclose how they will be positioned in a low carbon future.
Norton Rose Fulbright partner Elisa de Wit.
The reputational issues are being felt in the energy sector, and increasingly in the resources sector. Historically, both sectors have generated large amounts of greenhouse gases and the position of the investment community and others now is that’s no longer sustainable in a low carbon future.
Why is there a renewed push now within the private sector to address climate risk? I think it is the reformulation of the nature of the risk and the acknowledgement it’s not just a physical risk. Certainly within an Australian context, legal opinions have had reverberations. Our financial regulators are saying climate risk needs to be addressed, and they will monitor the finance sector’s progress. There are also pressure points on corporates and business, eg the Climate Action 100+ initiative is calling on global corporations with the highest emissions to establish targets for emissions reduction.
Why have the opinions of Noel Hutley SC and other regulators been so influential? The Hutley opinion (2016) was the first time a senior lawyer advised that directors are potentially exposed if they don’t consider climate risk. He argued climate risk should be on a board agenda, just like any other risk – eg health and safety, or purely environmental risks – and failure to deal with the issue could lead to litigation against directors.
Following Hutley, statements by APRA, ASIC and the Reserve Bank of Australia have consistently elevated climate risk as a priority. Those bodies have conducted surveys and prepared reports to ascertain how this risk is being considered across different sectors. ASIC has issued guidance about how climate risk needs to be dealt with in financial accounting and annual reports.
It’s worth noting corporate Australia has responded. A survey last year by the Australian Institute of Company Directors found directors rated climate risk as the number one issue on their board’s agenda.
Is the change in mindset among corporates due to legal and stakeholder pressures – or is there a realisation old practices and technologies will result in financial losses? It’s probably both. Pressure is coming from the investment community, with shareholder resolutions advocating the setting of targets or better disclosure, but I think there has been some step-up. Some leaders have joined insurers and banks to say they won’t fund emissions-intensive projects in future. That kind of activity creates momentum as well. I should emphasise it’s not solely about risk, it’s also about opportunity. Companies – particularly in the resources sector – looking ahead to a future with zero emissions by 2050 are already questioning how they can be positioned for that future world and how they can adapt or modify what they do now to reach that position. We’ve seen that in the energy sector, from the likes of BP and Shell.
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environmentally friendlier ways? Over time there will be pressure on the extractive sector about the sustainability of its products and the desire to have them manufactured with the lowest carbon footprint possible. BHP’s announcement of its intention to reduce its Scope 1, 2 and 3 emissions really emphasised the importance of the supply chain and how a purchaser/ procurer of goods can use its influence to effect change. In terms of construction materials, the pressure will come from procurers within the private sector and within government. We’ll see more emphasis placed on the procurement of products with a lower carbon footprint.
People need to consider what quarries will look like in a net zero emissions world. We will always need quarry products so it really is about how the industry transforms itself to continue to provide these essential products in a more sustainable way.
How do you persuade businesses to adopt climate risk amidst mixed signals from government and some industry associations that Australia is meeting the Paris targets and shouldn’t need to modify its business model? Peer pressure is effective in that context. If your peers are setting a high bar, there’s more incentive to match them. A lot of conversations with our clients on climate risk inevitably lead to the question: “Well, what are our peers doing? Where are they at?”
I think the legal risk is potentially a strong “stick”. If organisations feel exposure to litigation, then it will prompt change. There’s enough pressures from different points in the market to effect change.
Ideally, you would have strong legislation at a political level, and certainly in the energy sector we have seen what happens when you can’t get a consensus on the right policy and regulatory settings. That definitely has been an inhibitor but I think in that context there will be global pressure placed on countries that aren’t doing their bit, particularly if they’ve signed up to the Paris Agreement.
Are there test cases yet of organisations being sued for not addressing climate risk? The litigation has primarily been in the US and overseas. There have been actions against governments for not doing enough, fossil fuel companies for generating emissions contributing to climate events, and companies for not disclosing how they were considering the risk internally. In Australia – and it’s the first action of its type globally –
36 Quarry October 2019 Tegra Australia’s Jugiong Quarry during the 2011 New South Wales floods. Until now, climate risk has been largely viewed as a physical phenomenon – but it could well pose financial problems as well.
there is action against a superannuation fund for not properly assessing and disclosing how its investment portfolio will be positioned in relation to climate risk.
Earlier this year, the NSW Land and Environment Court upheld a refusal by the NSW Government to grant an application for an open cut coal mine in Rocky Hill. Justice Brian Preston’s decision strongly cited the mine’s likely contribution to climate change. Emboldened by this, could jurisdictions stymie future development applications on climate risk grounds? It’s a real risk. In any litigation case, you have to look at what the law in a jurisdiction says, and there are differences at state and territory level around what decision-makers must have regard to when deciding on approvals. However, what this decision enshrines is that it is appropriate to consider the impact a development will have in a context where we are meant to be moving as quickly as possible to lower emissions.
The judge gave detailed consideration to that issue, so it sets a precedent for other jurisdictions to have regard when considering whether to allow a development if it has significant emissions. The other important aspect of this decision is the proponent’s assumption that the mine’s emissions would be offset somewhere else. From now on, I would be advising clients who are proposing developments with significant emissions impact to consider submitting an offset proposal with the development proposal.
BHP has announced it will work with its customers to reduce their emissions, as well as its own. Should extractive producers be following BHP’s approach? BHP has been one of the market leaders on the topic of climate risk. Its plan is very challenging, in terms of its customers’ Scope 3 emissions, but it’s a welcome development. Again, where there is peer pressure and someone sets a high bar, increasingly there will be more pressure on other resources companies to adopt a similar approach.
If a small quarrying business until now has not considered its climate liabilities, what advice should it seek? The first thing is to gain an understanding of the issues, and ideally that is done at a board level. It might be as simple as a board briefing of what climate risk comprises. It’s then about taking that information and doing an assessment of the possible future exposure and how best to position for it. It’s a form of prudent risk management, that you assess and address it as you do any other risk. If you do that, you should be well positioned to defend yourself going forward.
How can small quarry operators – eg family companies with limited amounts of resources – protect themselves from climate risk? Perhaps there are roles for the majors and the relevant industry associations [eg IQA and the CCAA] to do the heavy lifting, in terms of assisting members to better understand how best to tackle this risk, eg case studies, educational events. I acknowledge there are different levels of corporations and it is harder for SME-type and family-run companies to devote resources to one aspect of a number of factors that need consideration.
However, the reality is climate change isn’t going away, it’s with us now, and the trajectory has to be in the right direction to achieve those Paris Agreement targets. So there will need to be changes, and there will be technology development – and potentially costs associated with that – which will need to flow through.
My view is it’s not a matter of sticking your head in the sand. There may be resources constraints in being able to effect change, but certainly the starting point is elevating climate as a risk that needs consideration. Hence, why it’s great the IQA conference has put this topic on the agenda. •
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