Privatising environmental regulation – the Wonthaggi desalination plant and the EPA

Victoria’s Environment Protection Authority (EPA) has barely had a positive word said about it over recent years. Since 2009, particularly following its handling of the landfill gas leak near Cranbourne, it has been criticised by the Victorian Ombudsman, the Auditor-General, and in February 2011 by a consultant commissioned by the agency to review its compliance and enforcement regime. The EPA is nevertheless upbeat about its function, with its Chair commenting: “in the face of criticism over recent years, [the] EPA has committed to re-establishing itself as the State’s environmental regulator”.

Contractual documents relating to the environmental performance of the Wonthaggi desalination plant, however, suggest that the previous Brumby Government was not as confident in the EPA’s ability to monitor the environmental compliance of one of Victoria’s most expensive and controversial projects.

Those documents reveal that the State and the future operators of the desalination plant have negotiated a private, contractual environmental regulatory regime. The regime is similar in structure to the arrangements that the State has with its metropolitan private transport operators. Failure to meet certain standards, in this instance environmental quality standards rather than public transport punctuality targets, is penalised with financial deductions from the monthly operating fee that the State pays for desalinated water.

In some ways this development reflects the current trend towards the privatisation of planning and environmental laws in Victoria. Last week the Minister for Planning was reported to have announced that the Baillieu Government will soon introduce laws that will allow property developers to self-regulate their projects in accordance with a code. This reform suggestion was made concurrently with a proposal that developers also be permitted to perform a role in the amendment of local Council planning schemes.

Under the private, and until recently secret, agreement between the State and the future desalination plant operators, a breach of an EPA operating licence will be subject to a $200,000 fee deduction (rising to $1 million if continuing for 14 days). The deductions are similar in amount to the penalties imposed by the Magistrates Court under the Environment Protection Act 1970 (Vic), but less than the maximum penalties permissible under the Act. For example, the maximum penalty for all but the most severe pollution offences under the Environment Protection Act 1970 (Vic) is $286,680 plus $143,340 for each continuing day (ie rising to a maximum penalty of more than $2.2 million after 14 days).

There is no term in the contract that indicates that this regime replaces or displaces the Environment Protection Act 1970 (Vic). The operator of the desalination plant will still, in theory, be subject to the same environmental laws as everyone else. This is implicit in the contractual term that states that any financial deduction for environmental non-compliance will be offset by any amount of fine or penalty it incurs under the State’s laws.

Further, the language used in the contract does not use the terminology of the Environment Protection Act 1970 (Vic). For instance, the contract refers to notions of ‘environmental harm’ and ‘significant environmental harm’, but these are not standards found in Victoria’s universal environmental criminal law regime. They have been taken from the laws of other States and Territories – including Tasmania, South Australia, Queensland and the Australian Capital Territory.

It is possible, therefore, that breaches of the contract that give rise to financial deductions will not necessarily amount to breaches of Victoria’s environmental laws.

If it proves to be the case that this contract-based environmental law regime is additive to the State’s environmental laws, then it will be an interesting and perhaps innovative evolution in environmental regulation. The concern, however, is that this private regime will not be additive, rather it will in effect replace the State’s universal and transparent criminal environmental law regime for the desalination plant. There is a strong likelihood that the contractual regime will be used in preference to the State’s criminal laws, at least in the first instance, because it will be much easier to administer, will be applied monthly, and it will not threaten ongoing operation of the plant like some of the provisions of the Environment Protection Act 1970 (Vic) allow. Finally, and significantly, this private regime might effectively displace universal criminal laws because the EPA has been so ineffective in enforcing its laws. The contract will give the Victorian Government an opportunity to intervene and penalise the desalination plant operator when the community demands it but when the EPA, as it did with the Shell Refinery in north Geelong, fails to do so.

There are benefits for the operators if this contractual regime becomes the preferred environmental law framework for the desalination plant. There will be no convictions attached to any non-compliance, little or no publication of reports of environmental degradation, no director liabilities for crimes committed, and no need to advertise offences in the paper or support local environmental initiatives (which are currently regularly used sentencing options by the Magistrates Court). There will be no baggage that the operators will be hamstrung by in future. It is also a very clinical and emotionless way to regulate the environment. Simply allow an operator to buy its way out of environmental difficulties.

Of course, irrespective of any arrangement between the previous Government and the future operators of the desalination plant, the EPA will have the power to fine, prosecute and shut down a polluting desalination plant. Whether it uses these powers as a State regular should, or whether persists with its approach of offering warnings and encouragement to industrial polluters, time will tell.