Captured by coal: NSW government overturns decision to block mine expansion

The New South Wales government has been accused of being "captured" by the coal industry after it overturned a planning commission decision to block a mine expansion that it found could cause irreversible damage to drinking water and release significant heat-trapping gas.

The deputy premier, Paul Toole, and planning minister, Rob Stokes, declared on Saturday the Dendrobium mine expansion near Wollongong - proposed by BHP spin-off South32 - was "state significant infrastructure" due to its role providing coal for the Port Kembla steelworks.

It reversed a planning commission decision in February to reject the proposal, which would have allowed the company to extract an extra 78m tonnes of coal from two areas near the Avon and Cordeaux dams. The dams supply water to metropolitan Sydney and the Macarthur, Illawarra and Wollondilly regions.

The commission found South32 had failed to properly quantify the risk of long-term and potentially irreversible impacts, "particularly on the integrity of a vital drinking water source".

It also factored in the project's greenhouse gas emissions - estimated across the life of the project to be more than 250m tonnes, roughly half Australia's annual carbon pollution - and judged the project was not in the public interest.

The state government did not mention the water supply or emissions in its statement about the mine expansion. Toole said Dendrobium was a critical source of coking coal for the Port Kembla steelworks and declaring it significant infrastructure would "provide thousands of workers with greater certainty on the future of their jobs". He said the mine contributed $1.9bn to the state's economy each year.

The NSW government also confirmed it had ruled out future coal exploration in the Hawkins and Rumker areas in the state's central west, a step flagged by Guardian Australia last month.