As the prospects for a nation-wide carbon tax hang in the balance in Australia’s Parliament, we explore one possible consequence of the carbon tax failing - increased carbon regulation by the courts.

Australia has already seen a number of high profile court cases involving carbon regulation, including Gray v Macquarie Generation,1 in which the NSW Land and Environment Court partially dismissed an action by members of Rising Tide, an environmental action group, who claimed Macquarie Generation had breached the Protection of the Environment Operations Act 1997 (NSW) in respect of carbon-dioxide emissions from Macquarie Generation’s Bayswater Power Station. 

Recent cases in the US, which has seen a much higher level of carbon litigation than that seen in Australia, may provide a guide.  Like Australia, the US does not have a national carbons scheme.

Massachusetts v EPA

In Massachusetts v EPA,2 the US Supreme Court held that the Clean Air Act delegated the Environmental Protection Agency (EPA) with the authority to make regulations in respect of greenhouse gases and carbon-dioxide emissions.

Of course, a finding that the EPA has jurisdiction to regulate carbon emissions is not necessarily good news for environmental advocates, as the plaintiffs in American Electric Power Company Inc v Connecticut3  discovered.

American Electric Power Company Inc v Connecticut

On 20 June 2011, the US Supreme Court rejected an action seeking the court to set emissions caps in respect of five US power plants.

In the action, which commenced in 2004, the plaintiffs (respondents in the US Supreme Court), being the city of New York, a number of private land trusts and the States of Connecticut, Iowa, New Jersey, Rhode Island, Vermont and Wisconsin (although New Jersey and Wisconsin subsequently withdrew in 2011), claimed that the defendants, five US power plant companies (being American Electric Power Company, Inc. (and a subsidiary), Southern Company, Xcel Energy Inc., Cinergy Corporation and Tennessee Valley Authority) collectively emit 650 million tons of carbon-dioxide each year, creating a “substantial and unreasonable interference with public rights”4  and violating the federal common law of interstate nuisance, or, alternatively, state tort law.  The action was initially dismissed in the District Court as being based on non-justiciable political questions, however this was reversed in the Second Circuit.  The defendants subsequently appealed to the US Supreme Court.

While the US Supreme Court recognised that environmental protection was an area of “national legislative power”5  and within the scope of the federal common law, the Court reiterated that this “did not necessarily mean that federal courts should create the controlling law”.6   The court held that as Massachusetts v EPA had determined that the EPA had authority to regulate carbon emissions, this therefore “displaced any federal common-law right to seek abatement of carbon-dioxide emissions from fossil-fuel fired power plants”.7  The court further held that this displacement was not conditional on whether the EPA had actually exercised that authority.  Given this, there was no need for the court to consider the matter further, although it left the state tort law claim open for consideration by a lower court.

Unfortunately, the US decision provides limited judicial consideration of causation in respect to climate change.  Causation represents one of the most problematic aspects of actions relating to climate change, particularly as the basis for climate change remains controversial and the extent of any one emitter’s responsibility remains difficult, if not impossible, to quantify.

Cases such as these demonstrate an increased willingness by plaintiffs both in Australia and overseas to use the law to seek environmental outcomes where they are dissatisfied with what they perceive as inaction by government authorities.  The US cases, in particular, illustrate that a carbon tax-free world is not necessarily a carbon regulation-free world.  The question is, which regulation is better?