This new column from Baker McKenzie critiques the expanding universe of whole of environment (WOE) law across Australia. It offers techniques for navigating the biggest practical issues facing businesses in a changing world.
One of the most provocative films of late last year, the critically acclaimed psychological thriller, Saltburn, ends with a sequence choreographed to Sophie Ellis-Bextor’s circa 2001 dance number “Murder on the Dancefloor”. Somewhat reluctantly, the audience is likely to feel coaxed into empathising with the film’s anti-hero. Seduced by someone who might have paid too high a price for what they got.
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Fortunately, this is seldom how the non-fiction world works. For example, while many pioneering companies have tried to find a way through the conjoined energy and climate crises, the ultimate goal of securing a sustainable future in renewable energy (with immediate riches or not) has until recently proven relatively elusive in Australia.
The road to decarbonisation may be in our sights, even if an almost Periclean building program is still required to get us there.
It may not be as thick as the Great Smog of London in 1952, but in many ways, the spectre of the Gillard government’s “carbon tax” (sic) and “mining tax” double still lingers over this increasingly sunburnt country. Those mechanisms haunt the political landscape almost 10 years after they were apparently rejected by a majority of Australians and repealed by the Abbott government in 2014.
The result is that too many years have been punctuated by biodiversity decline and increasing threats to the survival of vulnerable species, many of which are (or were, prior to extinction) unique antipodeans.
We are concerned with the whole of environment (WOE), from environment protection to climate change, biodiversity conservation, waste, recycling and sustainability, strategic planning and impact assessment, heritage and First Nations rights and interests. In the context of more extreme weather events, increased fire and flood dangers, and more global warming, WOE has suffered.
Over the course of approximately 10 years, average temperatures increased by 0.2°C despite the 2015 Paris Agreement requiring the pursuit of efforts to limit global warming to a total of 1.5°C above pre-industrial levels.
As businesses must recognise, the overwhelming scientific evidence (see the UN’s Myth Busters page) is that climate change including human-induced global warming is real, even though some professionals still have reservations regarding the magnitude of human impacts and the appropriate response behind closed doors.
This has given rise to a profound opportunity for various companies to lead a response to WOE issues. Given the sources of Australia’s carbon emissions from big and medium-sized businesses, it’s the case that corporate strategies, from scientific advancements to entrenching sustainability targets in organisational culture, can contribute to the answer.
The trade winds of law are progressively reshaping our corporate and legislative landscapes
Much like the impacts of climate change themselves, which appear to be rolling in more furiously with every hottest-year-on-record, the trade winds of law are progressively reshaping our corporate and legislative landscapes.
This means that the task of navigating the various corporate duties in that paradigm is becoming more complex. It’s so often what happens while foundational black letter law is still evolving and is likely to continue until it arrives at the point we would like it to be. That is, to a point that is commensurate with the matters it is seeking to regulate.
The best advice remains that climate change risks, which overlap with the risks of a company, are relevant to a director’s duty of care and diligence. Still, as at the date of this column, there is no overarching direct statutory environmental disclosure obligation in Australia.
This is on track to change later this year when mandatory climate-related financial disclosure obligations are expected to start taking effect for some businesses, depending on various objective thresholds being met. Similar nature-related financial disclosures are also expected to become mandatory in the future.
This progress has swung off the coat-tails of international efforts to supplement the perceived shortcomings of the 2015 Paris Agreement. Therefore there is little surprise in the fact that the source of the foreshadowed disclosure obligations is not the Commonwealth’s Climate Change Act 2022 (Cth) (Climate Change Act).
The Climate Change Act, which became effective in September 2022 following the last federal election, mainly codifies Australia’s greenhouse gas emissions reduction targets at 43 per cent below 2005 levels by 2030 and at net zero by 2050.
These legislated targets are consistent with Australia’s new nationally determined contributions (NDCs) under the 2015 Paris Agreement, which were increased by the Labor government in 2022 (from a more modest target of between 26 per cent and 28 per cent by 2030, as set by the previous government).
The new targets were set within months of the last federal election. They complement the safeguard mechanism which is designed to put downward pressure on greenhouse gas emissions each year in line with Australia’s climate targets. This pressure intensified at the start of this financial year.
Nature, biodiversity and climate change need to be a single stream of action
But the Climate Change Act does not substantively address any goals or measures in respect of biodiversity or nature positivity, even though these have been socialised for some time. Indeed, for reasons that make less sense now than they might have in the past, climate change and biodiversity risks are still conceived as separate streams, notwithstanding that they indivisibly comprise part of WOE.
This is true on the international stage as well, as demonstrated by the fact that there remains – for various reasons – two separate conferences of the parties: one conference is for climate change (famously COP 28 in Dubai which closed at the end of 2023) and one is for biodiversity (the next not due to start until October 2024).
The artificial bifurcation of WOE must stop and ideally this would be supported by more policy and changes to law
Apart from ironically inflating the WOE impacts of holding the conferences, it seems to us that there is a needless fiction to any economy in which biodiversity and climate change are not considered and addressed together. It makes sense to us that there is a future in which the two streams merge, so that risks and opportunities can be more conveniently read together including at the corporate level.
The artificial bifurcation of WOE must stop and ideally this would be supported by more policy and changes to law.
The Capacity Investment Scheme
One of the biggest policy overhauls of the last few years in this space is by dint of the recently expanded Capacity Investment Scheme (CIS). This follows years of shifting policy platforms at the federal level, from the Clean Energy Target to the National Energy Guarantee, and more recently the Renewable Energy Target.
The CIS is a government-sponsored underwriting scheme to facilitate more ready investment in the transition to clean energy. It effectively replaces the Renewable Energy Target even though the goals of that scheme, which were also designed to reduce emissions of greenhouse gases in the energy sector, were actually met more than a year early, according to the Clean Energy Regulator.
The CIS currently has a total target of 32GW of clean energy. It is intended to underwrite the risks inherent in planning for energy projects and the volatility of market-based revenue for clean dispatchable capacity like big batteries.
According to the Commonwealth Department of Climate Change, Energy, the Environment and Water (an inhospitable mouthful even as an initialism – DCCEEW – and therefore best, phonetically, as “DQ”), the Australian government will provide revenue support for CIS projects by means of an underwriting agreement that for Victorian and South Australian tenders involves an agreed revenue “floor” and “ceiling”.
Nuance is required in applying the scheme to each jurisdiction. In NSW, the CIS will be implemented by long-term energy services agreements (LTESAs) with Australian Energy Market Operator Services, leveraging the existing LTESA contract model and tender process already developed by the NSW government.
Each of the CIS agreements is intended to effect a long-term revenue safety net that decreases financial risks for investors and encourages more investment in Australian renewables. Be that as it may, not all minds in the industry are convinced by the new CIS contract model – particularly around the profit sharing mechanism under the Victorian and South Australian tender contracts.
In the face of what is required, policies like the CIS are steps that will need to be further progressed in coming years. Nevertheless, any progress may be compromised if the current trajectory of our governments’ policy approach starts to waver.
The colour and rhetoric around the renewable energy superpower idea
As part of giving colour to the existing policy approach, there has been a lot of rhetoric around the opportunity for Australia to be a “renewable energy superpower”. Like most rhetoric of would-be superpowers, it’s attractive.
According to some projections, about $9 trillion is needed in capital investment between now and 2060 to transition Australia to firmed renewables and carbon neutrality.
That sounds like plenty of jobs and space for new industries, potentially even filling part of the void left by a decimated car manufacturing industry, for example. And so in a political and economic sense, the stage is set for what could be described as a new golden age – a consummation devoutly to be wish’d, in Shakespearean terms.
But courageous leadership is needed
It feels trite to say that the only real elixir to the risk of ongoing WOE and energy challenges is going to be courageous leadership.
It’s a simple idea with complicated and compromised connotations. It relies as much on getting a sometimes fatigued, forgetful, and fickle public properly on board as much as it does on having institutional investors and private businesses (directors, managers, and shareholders included) commit at least to progress of a kind.
In financial terms, we expect there will be costs as well as long-term efficiencies, savings and returns. In WOE terms, the benefits stand to be significant.
This series will tackle the most significant law and policy issues
In this series, the Whole of Environment Report, our intention is to evaluate the most significant developments in WOE law and policy as they arise across Australia’s various governments. We will offer techniques for navigating the biggest practical issues facing investors and businesses.
Our primary focus is domestic, although we will always be conscious of how local policies at the executive and parliamentary levels are informed by international progress. We will draw on our experience working on matters across the driest inhabited continent on Earth, with the reach of our global networks.
As in practice, we hope to engage with our colleagues, technical experts, and academics in compatible fields to help pacify the likely volatility of coming years. Our aim is to encourage conversations and address questions from our audience as well.
As with any moral challenge, history is likely to judge us not just by our standards but by even more sophisticated ones. We can’t afford and ought avoid any further WOE decline. We can and must do better.
The script and soundtrack to this movement is ours to choose. It really doesn’t have to be a psychological thriller set to “Murder on the Dancefloor”. As the song goes, you’d better not kill the groove.
Samuel Allam, Tanja Mikulic and Anna Vella, Baker McKenzie