High Court rejects climate change based challenge to oil and gas licensing

The High Court has rejected the highly publicised judicial reviews by Greenpeace and Uplift to the Government's 33^rd licensing round for offshore oil and gas exploration and production, emphasising that its compatibility with net zero is a matter of judgment for the Government rather than a matter for the courts: R. (on the application of Greenpeace Limited) v Secretary of State for Energy Security and Net Zero, Oil and Gas Authority [2023] EWHC 2608 (Admin).

Key Points

• Whether the grant of further licences for oil and gas exploration and production is compatible with achieving the net zero target is a matter of judgment and not law
• The court will generally defer to the judgment of the democratically accountable decision maker in relation to issues concerning climate change
• At present there is no obligation to assess scope 3 downstream or end use emissions as part of the environmental assessment process for exploration and production of hydrocarbons

Background

The challenge centred on various decisions of the Secretary of State for Energy Security and Net Zero ("SoS") and the Oil and Gas Authority ("OGA") in connection with the further licensing round, and in particular the environmental assessment involved in the process which did not include scope 3 emissions, ie downstream emissions of greenhouse gases ("GHGs") from the end use by consumers of oil and gas as fuel. The policy for further licensing was contained in the non-statutory Offshore Energy Plan (the "Plan").

The licensing process allows for initial exploration for petroleum in specified areas, but then further consent is required before developing infrastructure or extracting oil and gas commercially, which itself cannot be given unless any necessary Environmental Impact Assessment ("EIA") is completed.

The claimants pointed to the UK's commitments under the Paris Agreement and the statutory net zero target for 2050 in the Climate Change Act 2008, together with the potential scale of the 33^rd licensing round which could lead to the grant of over 100 licences.

The SoS explained to the court that the UK contributes less than 1% of global GHG emissions and that UK supply projections are substantially lower than demand, meaning the UK expects to remain a net importer of oil and gas. The SoS also considered that even with continued exploration and development, the decline in UK North Sea production is expected to be faster than the global average decline required to keep to the 1.5 degrees celsius target under the Paris Agreement.

As part of the process, the relevant government department had developed a Climate Compatibility Checkpoint (the "Checkpoint"), to ensure that the compatibility of future licensing with the UK's climate objectives is always evaluated before a licensing round is offered. The Checkpoint was a matter to be taken into account in relation to licensing but it was specifically not put on a statutory basis, therefore, it did not override the OGA's primary statutory function of maximising economic recovery of UK oil and gas.

During consultation the possibility of including consideration of scope 3 emissions as part of the Checkpoint was included, but the Government's position was that methodologies for tracking the scope 3 emissions of UK produced oil and gas are in their infancy, and there is no universally agreed approach to doing this. Further, scope 3 emissions from exported oil and gas produced in the UK were said to be covered by the destination country's emissions accounting and targets, and therefore, depending on the test design, the Government considered there was a risk of double counting. The Government was unaware of an agreed target pathway for reducing scope 3 emissions of UK produced oil and gas that could be used as a reference for any test.

These workability limitations featured heavily in the reasons for rejecting the inclusion of scope 3 emissions in the Checkpoint. The Checkpoint therefore contained three tests: (i) considering whether the UK oil and gas sector has met its reduction targets historically and is projected to do so in the future (including reductions of 90% by 2040 and 100% by 2050); (ii) comparing the intensity of GHG emissions for the UK sector against other producing nations; and (iii) evaluating the scale of current and future UK offshore oil and gas production relative to UK demand "in a net zero scenario" to show whether the UK would remain a net importer or become a net exporter of oil and gas. It was emphasised that the Checkpoint was intended to be informative only, and was not a decisive element in the decision as to whether or not to proceed with a further licensing round.

The claimants alleged that various elements of the 33^rd licensing round were irrational and/or unlawful, including the Plan itself, the exclusion of scope 3 emissions, and the decision that a new licensing round would be compatible with the Checkpoint and the UK's climate objectives. In addition, there was a challenge to the failure to publish proper reasons for that conclusion.

Judgment

Holgate J explained that the court is only concerned with determining questions of law. It is not responsible for making political and socio-economic choices. Decisions on those matters have been entrusted by Parliament to the SoS, answerable to Parliament, and the OGA.

The court relied on R (Finch) v Surrey County Council [2022] EWCA Civ 187 to show that there is no general legal principle that the environmental effects of the consumption of an end product resulting (or even inevitably resulting) from a development must be treated as an indirect effect of that development for the purposes of environmental assessment. Rather, what has to be considered is the necessary degree of connection between the development and its putative effects. It is notable that the Supreme Court is currently considering the appeal in this case, but at present the Court of Appeal's decision was the focus for Holgate J. By analogy with Finch he did not accept the claimant's criticisms in relation to the exclusion of scope 3 emissions from the environmental assessment process involved in the Plan, noting that the SoS had concluded there was an insufficient causal connection between end use emissions and the Plan based on the functional, spatial and temporal separation between end uses and UK extraction.

When comparing the proposed approach with alternatives, notwithstanding the absence of any mechanism requiring oil and gas produced in the UK to be consumed domestically, the court accepted that the SoS was entitled to assume that some of the additional hydrocarbons produced would be consumed within the UK, thereby reducing the need for imports, whereas alternatives would likely involve an increase in imports. This was a matter of judgment which could not be described as irrational.

The claimants also faced this high threshold of irrationality when arguing that consideration of scope 3 emissions should have been included in the Checkpoint, which was only intended to be an informative non-binding document. The court noted that explanations had been given during the process for this exclusion. Again, it was a matter of judgment for the SoS as to whether he considered there to be an appropriate test or benchmark for taking scope 3 emissions into account on a decision whether or not to support a new licensing round.

The court finally concluded that there was no obligation on the SoS to give reasons explaining the application of the Checkpoint, given the nature of the document as a non-statutory test which the SoS was not obliged to apply.

Comment

The court was acutely aware of the wider context of this challenge and the strength of feeling around policy choices between energy security and minimising GHG emissions. However Holgate J was clear: "Plainly these and other related issues are matters for individual governments to address. The scale of oil and gas production, domestic consumption, importation and energy security issues will vary from country to country".

Although this appears to be a clear cut signal from the High Court, it was very much based on the current understanding of scope 3 emissions and the difficulties around testing and considering this area, which is something that is likely to develop in coming years. In addition, the Court of Appeal judgment in Finch was a central plank of the court's reasoning here, no doubt leading to even more interest in the Supreme Court's decision on that appeal in due course. There are therefore many potential developments to keep an eye on which will govern whether the court's approach to this area changes in the future.