Climate Change Litigation: Royal Dutch Shell must reduce its CO2 emissions by 45% net

On the 26th of May 2021, the District Court of The Hague found that Royal Dutch Shell plc (Shell) is obliged to do what it can to counteract (dangerous) climate change. Shell was ordered in a landmark case by the Dutch court to reduce the aggregate annual volume of all CO2 emissions to the atmosphere due to the business operations and sold energy-carrying products of the Shell group, through the Shell group’s corporate policy, by net 45% in 2030 compared to 2019 levels (see: the verdict and the English translation).

It follows from the judicial ruling that companies do have their own legal responsibility to prevent or mitigate (dangerous) climate change. Based on the court’s reasoning, a company does not meet its obligation to combat climate change by merely following trends in society or measures taken by governments. Nor is it sufficient for globally operating companies such as Shell, to act in accordance with the European Emission Trading System (EU ETS). The EU ETS system covers only a portion of Shell’s global CO2 emissions.

Shell – but also Friends of the Earth et al. – can file an appeal against this judicial ruling. However, the court order is provisionally enforceable, which means that even if an appeal is lodged, Shell will have to comply with the reduction obligation imposed. Of course, this applies only as long as no judicial decision to the contrary has been made on appeal. In this blog, we discuss the recent judicial ruling and explore, briefly, what this ruling might mean for climate change litigation in a broad sense.

Climate urgency

In its ruling, the court takes as its premise that limiting greenhouse gas emissions is urgent and necessary. In doing so, the court attributes significance to the reports of the IPCC and UNEP, which conclude that dangerous climate change can have serious consequences. Furthermore, the court includes in its consideration the difference in imminent risks between limiting the rise in temperature to 1.5⁰C and to 2⁰C, and the ’emission gap’ described by UNEP. The latter is the difference between the emission reduction targets (NDCs) formulated and submitted by parties to the Paris Agreement and what is needed to limit global warming to the targets set out in the Paris Agreement. Furthermore, the court extensively addresses the carbon budget that is still available to limit global warming to 1.5⁰C or 2ºC.

The court concludes that tackling dangerous climate change is urgent and that, given the current concentration of greenhouse gases in the atmosphere, it is necessary to reduce emissions (para. 4.4.28). In that context, the court emphasizes the vulnerability of the Netherlands and the Wadden sea islands to climate change, the serious and irreversible consequences of climate change, and the associated risks to human rights of Dutch residents and those living in the Dutch Wadden region (northern islands of the Netherlands).

Unwritten duty of care

Interesting about the judicial ruling is the approach taken by the District Court of The Hague to determine Shell’s unwritten duty of care. The court uses a set of criteria to do so (see: para. 4.4.2). Most interesting for this blog is that the court considers that despite the impossibility for Friend of the Earth et al. to invoke the ECHR and the ICCPR against Shell –Shell is not a party to these conventions – the human rights laid down in these conventions may be taken into account in the interpretation of the duty of care of Shell. At least as interesting is the fact that the court, with respect to the interpretation of the unwritten duty of care, also refers to a number of soft law instruments such as the United Nations Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises. The District Court of The Hague deduced from these soft law instruments that it is internationally generally accepted that companies must respect human rights, which in this case means, as the court considered, that measures must be taken to prevent and remedy violations of human rights and that Shell also has its own responsibility in this respect (para. 4.4.13 and 4.4.15). The court added that a high standard may be expected of Shell given, among other things, the scale of its emissions and its share of the fossil fuel market.

Causality

In order to assume an unlawful violation or threatened violation of a duty of care, there must be a causal connection between Shell’s actions and the occurrence or threatened occurrence of (dangerous) climate change. Although the District Court of The Hague recognizes that Shell cannot prevent (dangerous) climate change by itself, the court does not consider this a legal basis to refrain from assuming a reduction obligation.

In the opinion of the court, Shell, in accordance with the fair share approach as also applied by the Dutch Supreme Court in the Urgenda judgment (English translation), does bear an individual partial responsibility to contribute to the fight against dangerous climate change according to its ability. The court has taken this approach because of the compelling interests served by the reduction obligation, and assigns significance to the fact that each emission reduction leaves some margin in the global carbon budget. The difficulty of demonstrating a causal link, on which for example the German climate change litigation case ‘Luciano Lliuya v. RWE AG’ has been rejected to date, is therefore bypassed under the application of the fair share approach as defined by the Dutch Supreme Court. An important difference with the German climate change litigation case, however, is that the ruling of the District Court of The Hague relates to Shell’s general climate policy, while the German climate change litigation case relates to RWE’s contribution to the melting of a glacier near Huaraz (Peru) and the costs of the protective measures that the claimant, in that case, wants to take because of the danger it poses.

Responsibility of private companies

Another striking aspect of the court’s decision is the considerations about Shell’s responsibility as a private company to combat (dangerous) climate change. In this context, the District Court of The Hague considered that “due to the compelling interests which are served with the reduction obligation, [Shell] must do its part with respect to the emissions over it has control and influence. It is an individual responsibility that falls on [Shell], of which much may be expected (see para. 4.4.16). Therefore, [Shell] must do more than monitoring developments in society and comply with the regulations in the countries where the Shell group operates.” (para. 4.4.52)

The fact that a private company like Shell has to take far-reaching measures as a result, with all the financial consequences that this entails, does not make the reduction obligation (according to the court) disproportionate. For this purpose, the court considered that in view of the great dangers and risks to human rights as a result of (dangerous) climate change, far-reaching measures can and may also be demanded of private companies. In this respect, it remains up to Shell itself to determine the way in which this emission reduction will be achieved.

Scope I, II, III emissions

Based on the World Resources Institute Greenhouse Gas Protocol, Shell’s CO2 emissions can be divided into three emission categories or scopes. Scope I emissions are those from facilities Shell owns or controls in whole or in part. The second category (scope II emissions) is the emissions originating from the third-party facilities from which Shell purchases electricity, power or heat for its business activities. The remaining emissions are classified as scope III emissions. Scope III emissions are those emissions that result from Shell’s operations but are caused by greenhouse gas sources owned or controlled by third parties. These include emissions released during the use of Shell’s end products, such as fuel customers.

According to Shell, it has no control over the emissions from ‘end users’, so scope III emissions could not be attributed to the company. The District Court of The Hague did not accept this line of reasoning in its ruling of May 26, 2021. On the contrary, the court held that Shell must limit or ensure to limit the aggregate annual volume of all CO2 emissions to the atmosphere due to the business operations and sold energy-carrying products of the Shell group. This obligation is a performance obligation (obligation of result) for the Shell Group. For the emissions that fall within scope III, Shell is, in the opinion of the court, subject to a significant best-efforts obligation (sections 4.4.39 and 4.4.25).

With this, the District Court of The Hague underlines the responsibility of private companies for reducing their scope III emissions. It is interesting in this respect that within the European Union only scope I emissions are included in the EU ETS and, for example, emissions of fossil fuels extracted in one state but used elsewhere are not attributed to the exporting state (see: IPCC Guidelines for National Greenhouse Gas Inventories). With its judicial ruling, the court underlines that a legal distinction must be made between the allocation of Scope I, II and III emissions, but that does not diminish Shell’s responsibility for scope II and III emissions.

In conclusion

Given the court’s chosen wording, which emphasized that Shell can be expected to do its part with respect to emissions over which it has “control and influence,” it is likely that the judicial ruling will have resonance in other sectors. Examples are banks and pension funds that can decide whether or not to invest in fossil fuel extraction. We are not aware of any legal proceedings in the Netherlands in which this is already the case, but in Australia, for example, it has already is (see: CILJ Blog, Pension fund implements a net-zero carbon footprint target).

 

 

Edward Brans and Mathijs Peters are associated with the Dutch law firm Pels Rijcken & Droogleever Fortuijn, both as an attorney-at-law. In addition, Edward Brans is a professor in sustainability and environmental liability at Utrecht University.

 

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