July 17, 2024

UK Supreme Court rules that all fossil fuel projects must be assessed for future impact

Authors:

The UK Supreme Court’s landmark judgment in R (on the application of Finch on behalf of the Weald Action Group) v Surrey County Council and others (“Finch”) was handed down on 20 June 2024. Since then, more recent developments suggest we will see, sooner rather than later, the impact of this judgment on planning decisions relating to UK energy and infrastructure projects that have significant environmental consequences. The judgment also appears to reflect a broader trend noted across the EU and US.

In Finch, a developer applied to Surrey County Council for planning permission to expand oil production from a well site. The proposed project would involve the extraction of oil from six wells over a period of 20 years. Projects like this require an Environmental Impact Assessment ("EIA") to be carried out before planning permission can be granted.

The developer argued that the scope of the EIA should be confined only to the direct releases of greenhouse gases from within the well site boundary during the lifetime of the project and not include greenhouse gas emissions that would occur when the oil extracted from the wells was ultimately burnt elsewhere as fuel. The council accepted this approach. The claimant, a local resident, applied for judicial review of the council’s decision.

The issue for the court to determine was whether it was lawful for the council not to include the combustion emissions produced downstream in the EIA for the project.

The High Court and Court of Appeal upheld the council’s decision. However, the Supreme Court overturned the lower courts’ decisions and found (by way of a 3:2 majority) that Surrey County Council should have taken into account the emissions that will occur when the extracted oil is inevitably burned as fuel.

The Supreme Court's decision is reflective of a growing trend in the EU and in the US of interested stakeholders looking beyond the immediate impact of a target company or government entity's decisions (whether it be investment or planning based) to the consequential, downstream or end-user impact of an investment decision or project. Whilst this judgment will not prevent UK authorities from approving projects that may have a material environmental impact, it does strengthen some of the arguments that can be made by those contending that planning permission should be refused.

Read our full insight below

Background

Under the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 which implemented European Union Directive 92/11/EU (the “EIA Directive”) in the UK, an Environmental Impact Assessment ("EIA") must be carried out before planning permission can be granted for certain projects.

Article 3(1) requires the EIA to “identify, describe and assess in an appropriate manner, in the light of each individual case, the direct and indirect significant effects of a project” on various factors, which include “climate.” Article 5(1) specifies information which the developer must provide in an EIA report where an EIA is required. This information includes “a description of the likely significant effects of the project on the environment” and any additional information specified in Annex IV relevant to the particular project or type of project in question. Annex IV stipulated that the “description of the likely significant effects on the factors specified in article 3(1) should cover the direct effects and any indirect, secondary, cumulative, transboundary, short-term, medium-term and long-term, permanent and temporary, positive and negative effects of the project.”

The process of the assessment must include public consultation. The planning authority may, of course, give consent for a project, even if the project is likely to cause significant harm to the environment, as long as the authority can show it reached a reasoned conclusion on the environmental impact and took this conclusion into account in making its decision.

In Finch, the developer argued that the scope of the EIA should be confined only to the direct releases of greenhouse gases from within the well site boundary during the lifetime of the project and not include greenhouse gas emissions that would occur when the oil extracted from the wells was ultimately burnt elsewhere as fuel (i.e., “indirect” emissions were not relevant). The council accepted this approach. The claimant, a local resident, applied for judicial review of the council’s decision.

The issue for the court to determine was whether it was lawful for the council not to include the combustion emissions produced downstream in the EIA for the project.

Procedural history

At first instance, the High Court upheld the council’s decision, on the basis that (i) the combustion emissions from the site were not within the legal scope of the EIA Directive and 2017 Regulations; and (ii) it was a matter of evaluative judgment for the council as to whether to include them in the EIA, which the council had given legally valid reasons for deciding against. By a majority, the Court of Appeal upheld the judge’s decision on the second of those grounds.

The Supreme Court's decision

The Supreme Court has overturned the High Court’s and Court of Appeal’s decision and found (by way of a 3:2 majority) that Surrey County Council should have taken into account the emissions that will occur when the extracted oil is inevitably burned as fuel.

The Supreme Cort considered a number of significant matters. These included what aspects of the process are a question of law as opposed to a question of fact. It also highlighted the importance of information about greenhouse gas emissions, particularly in the context of its usefulness to the public (a fundamental tenet of the statutory consultation process).

However, the most interesting part of the judgment is the discussion around “causation” and whether or not downstream emissions are so “remote” as to not require consideration by way of the EIA. Three broad tests were considered, though none of them were specifically approved as being applicable:

“But for” causation:Would the downstream emissions occur “but for” the project.This would be a low bar to cross and if this is to be seen as the applicable going forwards then many more projects would require a much broader consideration of their downstream emissions (and other environmental impacts) than has previously been assumed to be the case.Here, the bar seems set “too low”.However, in the absence of specific guidance or case law, we assume that this test will be the one applied by pragmatic developers looking to reduce a risk of a judicial review going forwards.
“Intervening Act”:Is there an intervening act which means that the downstream impacts are too remote to be considered to have been caused by the project?In this case, by way of example, the intervening refining activities were not held to break the chain of causation. In a different context, would the filling up of a car with oil that had been refined into petrol be a “new intervening act”?

“Necessary and sufficient”: This is the high watermark of causation and would require the occurrence of event “X” to be both a necessary and sufficient condition for the occurrence of “Y”. If X is a sufficient cause of Y, then every time X happens Y will always follow. This an “unbreakable connection”.

It appears that the Supreme Court considers that either “but for” or “intervening act” tests of causation should be applied when determining whether or not downstream emissions (and presumably, other environmental impacts) require to be considered as part of an EIA.

This goes to the heart of what can now be considered to be a developer’s “downstream conundrum” when contemplating what factors need to be considered as part of an EIA. For example, do the (inevitable?) emissions from gas boilers need to be considered by an EIA supporting an application for a housing project. What about the emissions from any cars associated with the application development?

One of the (uncontested) facets of the present case was the “inevitability” that any extracted oil would be burnt. However, in other cases, this may not be so clear-cut. Unfortunately, no helpful tests were enunciated. Instead, the Supreme Court considered Holgate J’s example of a factory that manufactures components for use in the construction of aircraft. Holgate J observed that such manufacture will result in GHG emissions, not just from the industrial processes involved but ultimately from the fuel burnt when the aircraft are used for aviation. Holgate J was clearly worried that, if all the GHG emissions generated from these activities had to be assessed, the EIA process would be unduly onerous and unworkable.

However, the Supreme Court considered that this concern was misplaced. Recognising that combustion emissions are “effects of” producing crude oil does not open floodgates in the way the judge feared. There are sound reasons for distinguishing examples of the kind he gave, without resorting to the artificial notion that refining crude oil transforms it into something fundamentally different and so breaks the chain of causation between the extraction of the oil and its use. This was on the basis that “oil is a very different commodity from, say, iron or steel, which have many possible uses and can be incorporated into many different types of end product used for all sorts of different purposes.”

The “different types of end product used for all sorts of different purposes” test will in reality be challenging to apply. Further consideration was not necessary in Finch.

Of course, if a car plant is producing a combustion engine then it seems perfectly reasonable to say its contribution is “material” because you can’t have the combustion of petrol etc without a combustion engine. And presumably, it isn’t that hard to make a reasonable estimate of the resulting emissions. How would a consent for a car showroom fall into this reasoning? It’s true that that wouldn’t fall within the EIA Regulations but the court also thought (but didn’t rule) that these indirect emissions were a “material consideration” in planning applications and material considerations have to be had regard to in planning decisions.

Comment

The decision in Finch is therefore important as much for what it did not decide as what it did. It seems likely that further litigation will follow, though that doesn’t necessarily mean that the floodgates to claims have been opened (as some have suggested). More claims are likely for two reasons at least:

First, the Court held that whether or not indirect emissions needed to be considered in cases where EIA is required isn’t just a matter for decision-makers to decide. It’s a question also for the courts. That matters because where decisions are left to decision-makers they are given a great deal of discretion to make that decision and the courts won’t generally intervene. If the decision about whether emissions need to be assessed is a legal matter it’s easier to challenge decision-makers who get it wrong.

Second, the Court didn’t come to a firm conclusion on when downstream indirect environmental effects have to be considered. It made some suggestions as to what the rule might be. That’s unhelpful and will lead to much confusion and likely challenges.

More broadly, the Supreme Court's decision is reflective of a growing trend in the EU and in the US of interested stakeholders looking beyond the immediate impact of a target company or government entity's decisions (whether it be investment or planning based) to the consequential, downstream or end-user impact of an investment decision or project. Whilst this judgment will not prevent UK authorities from approving projects that may have a material environmental impact, it does strengthen some of the arguments that can be made by those contending that planning permission should be refused.

Environmental campaigners and NGOs will inevitably be emboldened by this ruling and will likely seek to use it as a basis to challenge permissions in respect of other similar fossil fuel related projects in the UK, where it can be shown that there is a causal link between the initial extraction project and the wider environmental impact caused by downstream users – irrespective of where that impact occurs.

Looking further ahead, we expect that parties will seek to argue that this judgment has wider applicability outside of a fossil fuels context in order to challenge other activities that are subject to an EIA where it can be shown that their downstream use will have a significant effect on the environment.

Recent Developments

Following the decision in Finch, the newly elected Government has conceded that the basis for challenging the Secretary of State’s decision to grant consent for a coal mine in Cumbria was flawed. This new case has similar facts to Finch. Here, the decision to grant consent was also challenged on the ground that the downstream emissions from the burning of coal in the steel manufacturing process were not assessed as part of the EIA. The Secretary of State has now confirmed to the court hearing the challenge that, in light of Finch, these emissions are “indirect” emissions which are likely to have “significant” environmental effects and are the “inevitable” result of the extraction project.

That is not the end of the matter however, as the project promoter intends to argue that the Secretary of State is wrong about that. The matter will be heard in the High Court on 16 July.

The Secretary of State has made a similar concession in respect of another project for which consent was granted and is being challenged on a similar ground. This involves an oil drilling development in Biscathorpe, Lincolnshire.

The result of these cases will be watched closely to see if the High Court adopts a wide or narrow application of the Finch decision.