UK Supreme Court Hands Down a Groundbreaking Decision Requiring The Assessment of “Scope 3” GHG Emissions for a Proposed Oil Development: R (Finch) v Surrey County Council And Others

In a landmark judgment handed down on 20 June 2024, R (Finch) v Surrey County Council and others [2024] UKSC 20, the Supreme Court of the United Kingdom has ruled that “Scope 3” greenhouse gas (GHG) emissions resulting from the eventual use of hydrocarbons produced from a proposed oil development should have been assessed in an environmental impact assessment (EIA) process carried out by a local authority. The judgment could have significant implications for developers of oil and gas and other carbon-intensive developments in the United Kingdom.

Facts

In December 2018, Horse Hill Developments Ltd, sought planning permission from Surrey County Council (the Council), to retain and expand an existing onshore oil well site (comprising two wells) and to drill four new wells, enabling the production of hydrocarbons from six wells over a period of 25 years.

The EIA for the project considered the environmental impacts of “the direct releases of greenhouse gases from with the well site boundary resulting from the site’s construction, production, decommissioning and subsequent restoration over the lifetime of the proposed development.” However, it did not assess the environmental impacts of the downstream greenhouse gas emissions that would result when the oil extracted from the development site was later refined and then used, for example, as fuel. The Council granted planning permission for the development on 27 September 2019. The appellant (Finch), a local resident acting on behalf of the Weald Action Group, applied for judicial review of the Council’s decision. Finch’s claim was unsuccessful before the High Court and the Court of Appeal. Finch then appealed to the Supreme Court.

The issue in question before the Supreme Court under Directive 2011/92 EU of the European Parliament and of the Council (the EIA Directive) and the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (the EIA Regulations), was it unlawful for the Council not to require the EIA for a project of crude oil extraction for commercial purposes to include an assessment of the impacts of downstream greenhouse gas emissions resulting from the eventual use of the refined products of the extracted oil?

UKSC judgment

By a three-to-two majority decision delivered by Lord Leggatt, the Supreme Court upheld the appeal, ruling that the Council’s decision to grant planning permission for the project was unlawful because the EIA failed to access the effect on climate of the combustion of the oil to be produced.

It was acknowledged by the majority that the oil produced from the project would “inevitably” be refined and eventually combusted, resulting in Scope 3 greenhouse gas emissions. The key issue was whether the downstream emissions were “direct or indirect effects of the project” as defined by the EIA Directive and 2017 Regulations. If so, they had to be included in the EIA assessment.

The Supreme Court unanimously rejected the Court of Appeal’s view that this issue required an evaluative judgment about the causal connection between oil extraction and combustion. The Supreme Court deemed it unreasonable to interpret the EIA Directive in a way that allows inconsistent answers to whether downstream emissions are “effects of the project” to be equally valid.

The majority held that the concept of “the effects of a project” within the EIA Regulations is a question of causation and that causal connection plainly meets the “but for” legal test. Furthermore, on the agreed facts, the extraction of oil is not just a necessary condition of the burning of the fuel, it is also sufficient to bring about that result because it is certain that all extracted oil will be burned, releasing greenhouse gases that can be estimated with established methods. As such, the Supreme Court also rejected arguments that the resulting emissions are “outwith the control of the site operators”, on the reasoning that there would be no such emissions should they have chosen not to extract the oil. It was also noted that the EIA Directive does not geographically limit the environmental effects that must be assessed.

The Supreme Court dismissed the lower courts’ reasoning that the refining process could break the chain of causation, stating that refining does not alter the oil’s basic nature or intended use. Concerns about the implications for other projects, like steel production used in manufacturing vehicles, were dismissed. Unlike steel, oil’s end use is not speculative; it is certain to be burned, allowing a reasonable estimate of the emissions.

Arguments that national planning policy affects the EIA’s scope were also rejected. While the United Kingdom’s policy of encouraging domestic oil and gas production is relevant to planning decisions, it was emphasised that it does not eliminate the need to assess the environmental impact comprehensively.

Dissenting opinion of Lord Sales

In his dissenting opinion, Lord Sales noted that the EIA Directive expects planning consent decisions to be made often by local or regional authorities, with downstream emissions managed at the national policy level. Lord Sales considered it to be “constitutionally inappropriate” for a local planning authority to assume practical decision-making authority based on its own views regarding Scope 3 or downstream emissions and how these should be addressed in a manner that would potentially be in conflict with central Government decision-making and its ability to set national policy.

Lord Sales maintained that downstream emissions do not qualify as indirect effects of a project, as indicated by the text and general scheme of the EIA Directive – and therefore agreed with the approach taken by the English High Court at first instance, interpreting the scope of the EIA Directive as a matter of law.

Implications

Recent years have seen a surge in activist efforts to reframe oil and gas developments holistically and to encourage accountability for downstream impacts, beyond drilling and extraction. In 2021, Greenpeace was unsuccessful in its attempt in the Scottish Court of Session to block production from the Vorlich oil field in the United Kingdom sector of the North Sea on the grounds that drilling had been approved without considering the climate impacts of burning the oil produced. In his reasoning, Lord Calloway said: “[I]t would not be practicable… to conduct a wide-ranging examination into the effects, local or global, of the use of that fuel by the final consumer.”

The judgment in Finch provokes a reconsideration of past cases and may propel the growing trend of activist attempts to challenge the development of new oil and gas developments, and other carbon-intensive developments such as airports, particularly at the planning decision-making phase.

More broadly, the growing trend of climate-related litigation in the United Kingdom, Europe and in other developed jurisdictions is a further risk to players operating in the oil and gas sector and other carbon-intensive industries, which will need to assess how (and to what extent) to take account of Scope 3 greenhouse gas emissions from proposed projects in the context of EIA decision-making processes.

While the industry takes stock of the potential impact of the judgment, some significant issues to consider will include:

• the extent to which this judgment regarding a local authority planning EIA for an onshore development might impact offshore developments – including in the context of the North Sea Transition Authority (NSTA) licensing and consents regime and the process for carrying out EIAs by the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED);
• whether it is sufficient for the relevant governmental authority merely to take account of downstream emissions in the context of an EIA or whether such governmental authority should also have regard to the nature and extent of such downstream emissions;
• the risk that the judgment could be used to block projects that have already been approved – for example, where an environmental campaign group seeks injunctive relief to stop the drilling of an oil well that has already been approved by the relevant governmental authority but not yet commenced; and
• having regard to the dissenting remarks of Lord Sales, that it seems “constitutionally inappropriate” for a local planning authority to assume practical decision-making authority based on its own views regarding downstream emissions and the potential for conflict with central Government decision-making and national policy, there is also the question of how the UK Government will react to the judgment, including whether primary legislation might be introduced to bring clarity to some of the issues mentioned above. Industry and other stakeholders will have to wait until after the UK general election on July 4 before there is meaningful communication and engagement from the UK Government and relevant regulators.

Joe Brown, a trainee solicitor in the London office, contributed to this article.

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.