English Court Guidance on the UK’s Paris Agreement Obligations
The English Court of Appeal has provided guidance on how the UK’s Paris Agreement commitments impact certain investment decisions.1
The Court rejected an application by Friends of the Earth (“FoE”) for judicial review of the UK Government’s decision (via the UK Export Finance or “UKEF”) to provide up to $1.15 billion in export finance for a liquified natural gas (“LNG”) project in Mozambique (the “Decision”). The Court highlighted that the Paris Agreement does not confer any domestic law obligation on the Government and clarified that reaching a ‘tenable’ view that the decision is aligned with the Paris Agreement is sufficient. It was also confirmed that there was no requirement to obtain a quantification of the relevant project’s ‘Scope 3’ emissions.
The decision also reinforces the English courts’ prior position that emissions-intensive projects are not unlawful.2
Background to the Challenge
The LNG project related to the development of an offshore deep-water gas production facility 50km off the north coast of Mozambique, and an onshore gas receiving and liquefication facility. The Decision was described as “one of the largest single financing packages ever offered by UKEF to a foreign fossil fuel project.”
At first instance, the Divisional Court was unable to reach a consensus. FoE’s application was dismissed with permission to appeal granted.
On appeal, FoE argued that:
- the Government’s view that the Decision was aligned with the Paris Agreement needed to be more than tenable;
- there was no rational basis on which the Government could conclude the Decision was compatible with the Paris Agreement (in particular with Article 2(1)(c): “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”); and
- the Government had a duty to obtain a quantification of the project’s Scope 3 emissions, but had irrationally failed to do so.
The Paris Agreement: Tenability and Rationality Challenges
The Court explained that the Paris Agreement is an unincorporated treaty, which does not give rise to domestic legal obligations. As such, questions concerning its interpretation were for the Government to determine. The Court was therefore not prepared to provide a definitive interpretation, but clarified that Article 2 (as had been relied on by FoE) sets out the purposes of the Paris Agreement, and does not confer any obligations on the participating states.
The Court held that, whether there had been an error of law should be determined by whether the decision-makers had adopted a ‘tenable’ view, rather than requiring a ‘correctness’ test: this would enable the executive to decide on balance and in good faith (and without challenge) that a particular decision is compliant, even if policies are subsequently changed or it turns out to have been incorrect.
UKEF had considered the UK’s obligations under the Paris Agreement when making its investment decision (although there was no domestic legal requirement to do so) as one of a range of factors. The materials and reports obtained by UKEF were complex and did not provide a precise outcome as to the impact of the project: suggesting it could have led to either an increase or decrease in emissions overall.
The Court therefore concluded that the Decision could not have been irrational when, in some scenarios, it would align with the UK’s obligations under the Paris Agreement.
The Scope 3 Challenge
FoE also argued that it was irrational for UKEF not to obtain a quantification of the project’s Scope 3 emissions (i.e. indirect emissions) and that, as a result, it had failed in its duty to carry out sufficient enquiry under the Tameside principle.
The Court concluded that the Government’s decisions were “well within the substantial margin of appreciation allowed to the decision-makers.” Any estimate of the emissions would have been inherently uncertain, and therefore a failure to make such an estimate did not itself render the decision irrational.
The Court provided clarity on the limits of unincorporated international treaties and the effect of the Paris Agreement and Scope 3 emissions on the Government’s decision-making. However, it remains to be seen whether a more detailed review of a project’s likely emissions will evolve under new or updated treaties, and as climate change policies continue to develop at a rapid pace. For example, it was noted in the Judgment that had the Decision been made 6 months later, it may not have been compatible with UK climate change policy. This point was not argued by FoE in the circumstances, but may have led to a different outcome, and demonstrates the changing nature of this area of law.
We expect to see further legal challenges at both domestic and international levels as climate change policies continue to rapidly shift and adapt to changing demands. Already, the English courts face a further question concerning the Paris Agreement in a claim brought against the directors of Shell, alleging breaches of duty under the Companies Act for failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement. It will be of interest to see how this question will be interpreted by the courts.
* Stephanie Okoye is a trainee in our London office
1 R (on the application of Friends of the Earth Ltd) v Secretary of State for International Trade/UK Export Finance (UKEF)  EWCA Civ 14.
2 For example, this was also the case in relation to FoE’s application relating to the expansion of Heathrow airport, which was also found to be lawful: R (on the application of Friends of the Earth Ltd) v Heathrow Airport Ltd  UKSC 52.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.