Judgment has recently been given by a first instance court in the Netherlands in an action brought by various NGOs in which Royal Dutch Shell has been ordered to take as a guideline that the Shell group’s CO2 emissions (Scope 1, 2 and 3) in 2030 must be net 45% lower relative to 2019 levels, with net referring to the sum of the reduction of CO2 emissions of the Shell group’s entire energy portfolio (Scope 1, 2 and 3).
The Judgment covers three sources of emissions. Scope 1 concerns direct emissions from sources that are fully or partly owned or controlled by the organisation (such as a refinery). Scope 2 is for indirect emissions from third-party sources from which the organisation has purchased or acquired electricity, steam, or heating for its operations. Scope 3 includes all other indirect emissions resulting from activities of the organisation, but occurring from greenhouse gas sources owned or controlled by third parties such as other organisations or consumers, including emissions from the use of third-party purchased crude oil and gas. Scope 3 includes the emissions from cars using the fuel purchased from companies of Shell and the court took as a basis that 85% of Shell group emissions were in this category. Emissions.
The court decided, and that class action was appropriate for the suits brought by NGOs on account of the interests of current and future generations of Dutch residents and (with respect to the Waddenvereniging) of the inhabitants of the Wadden Sea area, a part of which is located in the Netherlands. Class action was not appropriate for the suits which looked to that the interests of current and future generations of the world’s population. The interest served with the class action must align with the objects stated in the articles of association and must also actually be promoted. Milieudefensie, Greenpeace Nederland,Fossielvrij NL, Waddenvereniging, Both Ends and Jongeren Milieu Actief met this requirement, but not that of ActionAid as it did not promote the interests of Dutch residents sufficiently for its collective claim to be allowable
The Court held that Dutch law applied, under art. 7 of the Rome II Regulation. Every contribution towards a reduction of CO2 emissions may be of importance, and these distinctive aspects of responsibility for environmental damage and imminent environmental damage must be included in the answering the question as to what in this case should be understood as ‘event giving rise to the damage’ in the sense of Article 7 Rome II. Although Article 7 Rome II refers to an ‘event giving rise to the damage’, i.e. singular, it left room for situations in which multiple events giving rise to the damage in multiple countries can be identified, as is characteristic of environmental damage and imminent environmental damage. When applying Article 7 Rome II, RDS’ adoption of the corporate policy of the Shell group therefore constituted an independent cause of the damage, which may contribute to environmental damage and imminent environmental damage with respect to Dutch residents and the inhabitants of the Wadden region.
RDS’ reduction obligation derived from the unwritten standard of care laid down in Book 6 Section 162 Dutch Civil Code, which means that acting in conflict with what is generally accepted according to unwritten law is unlawful. This standard of care entailed that when determining the Shell group’s corporate policy, RDS had to observe the due care exercised in society. The interpretation of the unwritten standard of care called for an assessment of all circumstances of the case in question, and the court considered fourteen factors.
(1.) the policy setting position of RDS in the Shell group, (2.) the Shell group’s CO2 emissions, (3.) the consequences of the CO2 emissions for the Netherlands and the Wadden region, (4.) the right to life and the right to respect for private and family life of Dutch residents and the inhabitants of the Wadden region, (5.) the UN Guiding Principles, (6.) RDS’ check and influence of the CO2 emissions of the Shell group and its business relations, (7.) what is needed to prevent dangerous climate change, (8.) possible reduction pathways, (9.) the twin challenge of curbing dangerous climate change and meeting the growing global population energy demand, (10.) the ETS system and other ‘cap and trade’ emission systems that apply elsewhere in the world, permits and current obligations of the Shell group, (11.) the effectiveness of the reduction obligation, (12.) the responsibility of states and society, (13.) the onerousness for RDS and the Shell group to meet the reduction obligation, and (14.) the proportionality of RDS’ reduction obligation. The court went on to weigh the policy, policy intentions and ambitions of RDS for the Shell group against RDS’ reduction obligation
RDS’ responsibility was defined by the influence and control it can exercise over the Scope 1 through to 3 emissions of the Shell group and what is needed to prevent dangerous climate change. The most disputed aspect was in relation to Scope 3 emissions. RDS did not contest that it could exert control and influence through its energy package, and the composition thereof, produced and sold by the Shell group. This was not altered by the circumstance, emphasized by RDS, that the Shell group has contractual obligations as well as obligations ensuing from long-term concessions, which may limit its freedom of choice as regards the Shell group’s energy package. Rather surprisingly, the court noted that “it is internationally endorsed that companies bear responsibilities for Scope 3 emissions. The court has included this widely endorsed starting point in its interpretation of the unwritten standard of care.”
RDS was subject to an obligation of results as regards the Scope 1 emissions of the Shell group as well as a significant best-efforts obligation as regards the business relations of the Shell group, including the end-users, whereby RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO2 emissions generated by them, and to use its influence to limit any lasting consequences as much as possible.
The Court went on to note: “Moreover, RDS has insufficiently contested the standpoint of Milieudefensie et al. that RDS’ planned investments in new explorations are not compatible with the reduction target to be met. The Shell group’s policy, as determined by RDS, mainly shows that the Shell group monitors developments in society and lets states and other parties play a pioneering role. In doing so, RDS disregards its individual responsibility, which requires RDS to actively effectuate its reduction obligation through the Shell group’s corporate policy.”
The reduction made was provisionally enforceable but the claim 1(b), pertaining to the future actions of RDS, was rejected as it was not an established fact the RDS would act unlawfully in the future, and there were no indications that RDS would not comply with the order and not meet its obligations.
The judgment is very much an ‘Urgenda moment’ for RDS Shell, although the judgment will almost certainly end up being appealed and then proceeding to the Dutch Supreme Court. However, the prospects for any similar claim in tort against English companies in the oil and gas industry look far less promising. The decision of the New Zealand court in Smith v Fontera Co-Operative Group Ltd and Ors [2020] NZHC 419 https://iistl.blog/2020/03/11/a-new-climate-change-tort-in-new-zealand/ looks a far more likely bet on the issue of liability in negligence and in public nuisance.
