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Carbon emissions and causation: R (Finch) v Surrey County Council and ors

In this post, 4 New Square Chambers’ Alex Forzani explores the Supreme Court’s decision in R (Finch) v Surrey County Council [2024] UKSC 20 and analyses its implications on the scope of environmental impact assessments. The judgment is likely to have significant implications on the development of, and investment in, new projects in the UK.

Introduction

Article 4 and 5 of Directive 2011/92/EU (the Directive) specify projects which require an environmental impact assessment (EIA) to be undertaken. Article 3(1) of the Directive requires an EIA to “identify, describe and assess” the “direct and indirect effects of a project” on, amongst other things, the “soil, water, air, climate and landscape”. Prior to Brexit, the UK implemented the Directive by way of the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (the 2017 Regulations).

In Finch, the Supreme Court considered whether, under the Directive and the 2017 Regulations (which were both in force and applicable when the relevant decision was taken), it was lawful for Surrey County Council (the Council) to grant planning permission for the expansion of an oil drilling facility in the Surrey Hills where the EIA for the project had only considered emissions from sources within the control of the developer (so-called “scope 1 emissions” under the Greenhouse Gas Protocol Reporting Standard (the Protocol)). The EIA had not considered emissions arising as a consequence of the activities at the Site – specifically from combustion of the fuel into which the extracted oil would be refined (so-called “scope 3 emissions” under the Protocol).

In its decision, the Supreme Court unanimously rejected the approach taken by the Court of Appeal – that it was for a local authority to determine whether there was a “sufficient causal connection” between the project and the scope 3 emissions. However, the Court split on what should be the correct approach:

  • The majority considered that scope 3 emissions were effects of the project (because it was an agreed fact that the oil would be refined; burnt as fuel and release greenhouse gases). The Council’s failure to take this into account meant that the planning permission granted was unlawful. The appeal was therefore allowed.
  • The minority disagreed. They would have dismissed the appeal as, preferring the reasoning of the first instance judge, the scheme and text of the Directive and the 2017 Regulations did not support the view that scope 3 emissions were effects of a project which should be included in an EIA.

Facts

In December 2018, Horse Hill Developments Ltd (HHDL) sought permission from the Council to expand its existing onshore oil drilling facility (comprising two wells) by drilling four further wells (the Site). With its expanded production facility, HHDL planned to extract 3.3 million tonnes of oil over a period of 25 years from the Site.

Before planning permission was granted, the Council produced a document known as a “scoping opinion”. This is not a binding document but it set out the information that the Council expected to be included in the EIA for the project. The Council’s opinion indicated that it should “consider, in particular, the global warming potential of the oil and gas that would be produced by the proposed well site”.

It was open to the Council to grant planning permission where the EIA in question did not conform to the recommendations of the scoping opinion. In this case, the EIA was more narrowly drawn. It only considered the impact of “the direct releases of greenhouse gases from within the well site boundary resulting from the site’s construction, production, decommission and subsequent restoration” but not scope 3 emissions (¶34).

On this basis, the Council granted HHDL planning permission to proceed with the Site.

The High Court and Court of Appeal

Ms Finch brought a claim against HHDL, the Council and the Secretary of State Levelling Up, Housing and Communities (SoS) on behalf of a local pressure group. The High Court dismissed her judicial review claim holding that the assessment of downstream emissions could not, as a matter of law, fall within the scope of the Directive or 2017 Regulations. By this, Holgate J meant that the phrase “indirect effect” in the Directive could not be interpreted so as to include emissions that arose as a consequence of the activity at the Site.

The Court of Appeal affirmed Holgate J’s decision albeit on a different basis. It held that the matter turned on whether there was a “sufficient causal connection” between the extraction of oil and the particular impact on the climate such that it could constitute a “significant indirect effect”. This was an evaluative decision for the Council.

The majority (Sir Keith Lindblom and Lewison LJ) refused Ms Finch’s appeal on the basis that the Council’s decision, to exclude downstream from the EIA, was not one that exceeded the “bounds of its reasonable evaluative judgment” (¶61). Moylan LJ agreed with the legal test proposed by the majority but disagreed with the outcome they reached – instead he held that the Council did not have cogent reasons for excluding such emissions (¶129).

The Supreme Court: submissions

Ms Finch’s primary submission was that the purpose and text of Directive required the Council to assess the emissions generated by the extraction of oil; its refinement and combustion as part of the EIA. By contrast, the Council and the SoS urged the Court to follow the reasoning of the majority of the Court of Appeal. HHDL’s argued that Holgate J had been correct at first instance.

Relevantly, as indicated above, the parties agreed that (i) it was inevitable that the oil extracted from the Site would be refined; burnt and produce greenhouse gas emissions (¶45) and (ii) that the amount of the emissions produced by such combustion could be estimated using an established methodology (¶81).

The Supreme Court: majority judgment

Lord Leggatt wrote the majority judgment. His analysis starts by emphasising the approach that the Court should take – it was required to identify “from the language and purpose of the legislation, the criteria to be applied in deciding whether the facts of any individual case fall within its scope” (¶56). He considered that the Directive should be capable of clear interpretation to produce consistent results. Against this backdrop , the Court of Appeal’s solution was “intrinsically vague” and apt to produce inconsistent results (¶¶59 – 60).

He then turned to the core issue – what were (or were not) the “effects of a project” (¶65). This was ultimately a question of causation:

  • The Directive required a forward-looking assessment of the effect that was “likely” (by virtue of Articles 3 and 5(1)(b)) (¶72). In this case, it was not only likely, but “inevitable”, that the extraction of oil would lead to combustion and the emission of greenhouse gases into the atmosphere (¶¶79 – 80).
  • Although the terms “direct” and “indirect” were not defined in the legislation itself, the European Commission’s Guidance for use by EIA practitioners stated that an “indirect effect” was one which occurred “away from the immediate location or timing of the proposed action”. Scope 3 emissions were therefore indirect effects of the operation of the Site (¶¶88 – 92).
  • The Directive did not impose a geographical limit on the scope of environmental effects of a project. The majority therefore considered that there was “no justification” for limiting the EIA in this case to emissions which only occurred at the Site (¶94). Further, it would not have been in keeping with the challenge posed by climate change to have approached the matter in this way (¶97).

Given the above, the Council’s failure to consider downstream emissions “self-evidently did not comply with the legal requirement to assess both the direct and indirect effects of the proposed development” (¶101). Lord Leggatt then rejected other arguments raised by the HDDL, the Council and the SoS:

  • Emissions outside of the boundary of the Site were not “outwith the control of the site operators”. Such emissions were within HDDL’s control – if there was no extraction of oil, then there would not be the inevitable combustion of fuel and production of greenhouse gases (¶102).
  • The existence of other statutory regimes which sought to control downstream emissions (for example, the National Planning Policy Framework) did not remove the obligation, in the EIA, to identify and assess the effects of the project (¶108).
  • Holgate J had been wrong to focus exclusively on the end product (¶115). The use of the oil extracted from the Site was fixed from the point of its extraction (e. it would be burnt as fuel). The first instance judge had also erred by accepting a “floodgates” argument that Ms Finch’s approach would have wider negative ramifications on other projects for the extraction of raw materials. The majority considered that the appeal could be differentiated as oil was “a very different commodity” from “iron or steel”. Those latter commodities had “many possible uses and can be incorporated into many different types of end product” (¶121).
  • It would be wrong for the Council “to ignore [the] adverse effects on climate” in reaching its decision (¶¶150 – 154). This was not a matter solely reserved to the UK Government. Further, there was no requirement that the Directive should be interpreted with reference to UK legislation and policy.

The Supreme Court: minority judgment

Lord Sales wrote the minority judgment. He endorsed Holgate J’s reasoning on the following basis:

  • The treatment of scope 3 emissions required a balance between economic and environmental considerations. As such, it was “constitutionally inappropriate” for a local planning authority to assume “practical decision-making authority” which could potentially be in conflict with the policy of the UK Government (¶256).
  • The EIA was supposed to inform the decision about whether to grant development consent for a project. However, it was “difficult to see what, in practical terms, a local planning authority is supposed to do with general information” about such emissions other than to say, if they were to exist, that the project should not go ahead (¶258).
  • The application of the Directive is subject to the principle of proportionality. If detailed information on downstream emissions were sought in respect of each development, it would impose disproportionate costs and burdens on both developers and planning authorities “in circumstances where such information could not inform in any helpful way the decisions to be taken” (¶259).
  • The Directive already provided protection against downstream emissions. For example, the construction of a new refinery to process the extracted oil would itself require an EIA. Emissions from the combustion of fuel refined from the extracted oil would be considered in any planning application at that stage. Further, if such a refinery was not located in an EU Member State or the UK (and an EIA was not therefore required), it would give the Directive “exorbitant jurisdictional effect” to require those emissions to be considered (¶264).

Commentary

The Supreme Court’s judgment caused a stir on publication because of its potentially wide-reaching implications for projects requiring an EIA. Such a document should now consider scope 3 emissions. Not only might this be a burdensome exercise (as alluded to by Lord Sales) but it may also provide a further basis on which to challenge a local authority’s decision on rationality grounds – for example, if it gives consent for a project notwithstanding an EIA which outlines the scope 3 emissions which will be produced.

Two notes of caution should be added here, however.

First, Lord Leggatt was able to formulate his judgment in the manner that he did because the parties had agreed that the extraction of oil would lead to refinement and combustion and that the emissions from such combustion could be quantified. These facts may not always be agreed – if, for example, oil is extracted for use in the manufacturing of essential chemicals, lubricants and/or polymers, a project’s scope 3 emissions profile might look different. There may also be disputes between the parties about the methodology by which scope 3 emissions are calculated (as recognised by the Court of Appeal at ¶71).

Second, and somewhat relatedly, the judgment may generate discussion of whether particular effects of a project are even capable of measurement – a matter seemingly recognised by Lord Leggatt when rejecting concerns about potential floodgates. The majority held that  “indeterminacy regarding future use would also make it impossible to identify any such effects as ‘likely’ or to make any meaningful assessment of them at the time of the decision”. Indeterminacy in this context seems to arise where the raw material in question can be used for “all sorts of different purposes” or where there are “innumerable” downstream decisions which break the chain between cause and effect (¶121).

The link to the full judgment is here.

© Alex Forzani, 4 New Square Chambers, July 2024

This article is not intended as a substitute for legal advice. Advice about a given set of facts should always be taken.

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Alex Forzani

Call: 2022 (Solicitor 2017)

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