The judgment against Royal Dutch Shell, will the climate be better off?

André Gaastra and Marie-Claire Headley, attorneys-at-law at NewGround Law, discuss the decision of the District Court of The Hague in the climate case of environmental group Milieudefensie c.s. against Royal Dutch Shell.

This blog was published at Vastgoedjournaal | reading time: 8 minutes

The Environment and Planning Act is to replace the existing legislation and regulations in the area of the physical living environment (including spatial planning, environment and nature protection). Forty pieces of legislation and 120 Orders in Council (Algemeen maatregel van Bestuur: also ‘AMvB’) are to be combined into one single act and four Orders in Council under the motto “Simply better”. This will have to render environment and planning law more transparent, more predictable and easier to implement and should promote an integrated approach to the physical living environment, greater flexibility and scope for consideration for local governments leading to faster decision-making. Initially, the intended date of entry into force of the Environment and Planning Act was delayed until 1 Januari 2022, but now the currently envisioned date of entry into force has again been changed to 1 July 2022. According to the Minister, this will give the State, councils, provinces, water boards and implementing bodies more time to complete the implementation of the legislation in a prudent and responsible manner.

The Coal Prohibition Act

In December 2020, we dealt with the most recent amendments to the Prohibition of Coal for Electricity Production Act in connection with the restriction of CO2 emissions (the ‘Coal Prohibition Act’: ‘Wet verbod op kolen’). The coal-fired power stations will have to be shut down if the national reduction goals, which are laid down in the Climate Act, are to be achieved and that process will be accelerated as a result of the amendments to the Coal Prohibition Act which were discussed in December.

It would seem that last week, the court at The Hague has given an added stimulus to this, by ordering Royal Dutch Shell (‘Shell’) to reduce by 45% the annual CO2 emissions of the group and of the energy-carrying products sold in 2030, as compared to 2019. The central issue in the Urgenda judgments was that government was doing too little to protect its citizens from the changes in the climate. This was deemed in conflict with a number of human rights, including the right to live and the right to an undisturbed family life. In the meantime, the Supreme Court has also accepted that the government has the task of protecting its subjects against an infringement of human rights and that this task also encompasses the protection against the consequences of climate change. But now, the responsibility has also been placed on Shell to meet an unwritten norm for duty of care. From this it will follow, according to the court, that business will have to respect human rights. There is much to say on this in the legal sense but that is outside the scope of this blog.

Result obligation

Different to that suggested in other media (Het Financieele Dagblad: ‘FD’ 1 June 2021) the court order is formulated as a result obligation with regard to both the own emissions of Shell and with regard to the emissions of its suppliers and clients. After all, it is indicated in the decision that it concerns a reduction of the so-called scope 1, 2 and 3 emissions. Falling under this are the own emissions of the operating companies, the emissions of the energy suppliers of Shell and the other emissions, which are the consequence of the use of the crude oil and gas products purchased by third parties such as other organisations and consumers.

The judgment, thus, is essentially an instruction to Shell to achieve a concrete result by which it, its suppliers and its customers emit 45% less CO2 by the end of 2030. Apart from the question of whether this will be upheld in appeal, the judgment itself gives rise to a great number of questions, including what consequences will this have for Shell, other companies and for the environment.

What are the consequences?

The question on the consequences can be divided into two parts. First, what possibilities does the judgment offer plaintiff Milieudefensie c.s. to enforce compliance in the event Shell does not comply, and second, what will Shell have to do in the practical sense in order to implement the judgment.

Milieudefensie c.s. would appear to have little possibility of enforcing compliance with the judgment as it now stands. After all, no penalty has been attached to the judgment and in the case of non-fulfilment, it would not appear to be an easy task for Milieudefensie c.s. to substantiate that it (itself) has suffered damages. The fact is that it must concern damages of Milieudefensie c.s. itself and not of third parties, which includes the citizens whose human rights allegedly have been infringed, because the judgment applies only to Milieudefensie c.s. and Shell. Furthermore, in light of the dictum of the judgment, the question of whether the court order has been complied with cannot be answered until the end of 2030. The judgment would also seem mainly to carry symbolic significance.

Implementation of the judgment

If we understand properly, implementation of the judgment in the practical sense will mean that in the coming nine years, Shell itself will have to reduce its emissions by more than 30 million tons a year and these are only the scope 1-emissions (the emissions of the Shell companies in the group). In absolute terms, that is no mean reduction. We can imagine that such a reduction would only be able to be achieved by abandoning oil and gas extraction activities. In the end, each cubic metre of natural gas or oil which Shell continues to extract will cause a proportionate volume of CO2 emissions in the chain. Shell can get rid of those emissions the fastest by selling the extraction activities. Reduction in the chain after those products have been extracted is a much more difficult task and certainly if it concerns a task of such magnitude as has been laid down in the judgment.

The judgment is enforceable with immediate effect, such that the obligations arising from it must be fulfilled immediately. However, as indicated, fulfilment of the obligation cannot be established until 2030. It is up to Shell in the meantime to determine how it is to do that. Shell could take no action in anticipation of appeal, but it has not been determined that the obligation will be lifted in appeal and two or three years could elapse before the final judgment is delivered. There would be little time left after that before the end of 2030. We think that there is a likelihood that Shell will rush ahead and quickly take drastic decisions to reduce its oil and gas extraction activities.

This judgment has no direct consequences for other companies, given that it is only addressed to Shell. In the press, however, candidates for further legal proceedings in the interest of the climate have already been mentioned. This concerns mainly the other large energy producers and large energy consumers. But where is it going to stop? The climate problem after all is being caused by all the companies and consumers jointly and not only by the large energy producers.

Will this judgment make the environment better off?

The last question but nevertheless the most important is will this judgment make the environment better off. That naturally depends mainly on the manner in which Shell is to implement the court order. If Shell itself switches to sustainable energy, its emissions and those of its suppliers could effectively decrease. However, that is probably a limited part of the solution. The volume of oil and gas which Shell extracts from the soil and sells as fuel to other companies and consumers will have to be (drastically) reduced in light of the judgment. Indeed, each cubic metre of gas or oil which is not extracted from the soil causes zero emission in the chain and the obligation is formulated in absolute terms. However, if Shell should opt to sell its exploration activities, another party could continue the activities and then the customers who still buy the same fuels can continue to cause the same volume of emissions. With a sale of (a part of) the activities, Shell could possibly comply with the judgment but the emissions would in fact not be decreased. Furthermore, it can be expected that the current competitors will hasten to fill the gap that Shell leaves. The need for gas and oil in the world, and in the Netherlands, will remain present for the time being and, in our view, only the consumer and government can effectively reduce the need to a relevant degree.