CASE COMMENT : SHELL PLC V MILISUDEFENSIE
CASE NUMBER : 200.302.332/01
BENCH - CA Joustra, JJ van der Helm and P. Glazener
INTRODUCTION
The said case is
landmark matter entertained by the court of law , in order to ensure a
Sustainable Environment for future generation , but in the pursuit of this ,
eventually became a ticking time bomb. This case revolves around the question
whether Shell has the obligation to reduce its CO2 emissions by 45% by 2030
relative to 2019 levels. Milieudefensie et al. have sought a court order to
this effect on the basis that Shell acts unlawfully if it fails to reduce its
emissions by 45%. In this judgment it is determined on the basis of objective
factors that Shell has an obligation to counter dangerous climate change.
However, this does not mean that the civil court is able to establish that
Shell should reduce its CO2 emissions by 45%, or any other percentage.
BACKGROUND OF FACT
In April 2019, seven
environmental[1] associations and NGOs, led by
Milieudefensie (Friends of the Earth Netherlands), together with 17,319
individual co-claimants brought a case before the Court alleging that Shell’s
contributions to climate change violate its duty of care under Dutch law and
human rights law.
The central
question before the Court was whether Shell should be required to make further
changes to the Shell Group's existing corporate policy to reduce the
CO2 emissions for the entire group’s energy portfolio to achieve lower
emission levels by the end of 2030, relative to 2019 levels.The Court issued
its decision in May 2021, holding that as a matter of Dutch law, [2]Shell was subject to a duty of care
in respect of the harmful effects of climate change which required it to reduce
its carbon emissions. This decision was made on a range of legal and factual
bases, including the provisions of the Dutch Civil Code, scientific evidence
regarding climate change, human rights instruments including the European
Convention on Human Rights, and soft law instruments such as the UN Guiding
Principles on Business and Human Rights (“UNGPs”) and the OECD Guidelines for
Multinational Enterprises (“OECD Guidelines”). In particular, the Court reached
the significant conclusion that Shell, as a corporate actor, had an obligation
to protect the claimants' human rights as part of complying with the implied
standard of care contained in Section 162 of the Dutch Civil Code, and that
this involved an obligation to limit the human rights impacts associated with
climate change.
The Court
accordingly ordered Shell to reduce its net CO2 emissions for the entire
Shell Group’s global activities by 45% by 2030 (compared to 2019 levels)
through Shell Group's corporate policy.
Notably, the
Court directed that emission reductions were required to ensure that Shell
Group’s corporate policies were in line with the Paris Agreement and that these
emissions reductions were to apply across Shell’s entire energy portfolio,
including to the aggregate volume of its Scope 1, 2 and 3 emissions (i.e. the
reductions would need to take account of the downstream effects of Shell's
operations, including the emissions generated by end user customers purchasing fossil
fuels from Shell). While the Court imposed an absolute obligation on the Shell
Group to reduce Scope 1 emissions, the reduction obligation in relation to
Shell's supply chain (Scope 2 emissions) and downstream effects (Scope 3
emissions) was expressed on a 'best efforts' basis.The Court’s decision was
seen as highly significant and a substantial advance on the capacity for courts
to intervene in the businesses of corporates when addressing climate change. It
was the first time a national court had compelled a private company to align
its group corporate policies with climate strategies and to reduce emissions in
line with the Paris Agreement. The Court’s ruling that corporates, much like
States, must accelerate their existing emissions reductions programmes has in
the intervening years served as an impetus for further climate change-related
lawsuits against corporate actors across the world.
Shell appealed the
Court’s decision before the CoA, raising ten separate grounds for appeal as
well as seeking recovery of its costs for both sets of proceedings.
ISSUES
1. Whether the court has the authority to impose emissions
reductions obligations on companies.
2 Whether lawmakers have imposed obligations on companies to
reduce their CO2 emissions by a certain percentage.
3 Whether Shell can rely on carbon offsets to reduce its net
emissions.
4.Whether Shell can meet its emissions reduction obligation
by selling its assets.
RULES
- Article 2(1) of
European Climate Law :Net greenhouse gas emissions within the European Union
must be reduced to zero by 2050.
- Article 4 of
European Climate Law: Binding climate target is a reduction in net greenhouse
gas emissions of at least 55% by 2030 relative to 1990 levels.
-Section 3 of Dutch
Climate Act: The act obliges the Netherlands to reduce net greenhouse gas
emissions to zero by 2050 at the latest.
-Section 4 of Dutch
Climate Act: The act also requires the Netherlands to strive for negative
greenhouse gas emissions after 2050.
-Section 2 of Climate Fund (Temporary Provisions) Act: The act makes €35 billion available for
climate measures in the period up to 2030.
Section 1 Greenhouse gases protocol
Section 2 of Greenhouse gases protocol : The protocol aims to
reduce the Net Carbon Footprint by 20% in 2035 and by 50% in 2050.
KEY RULING
1. Corporate Climate Responsibility: The Court recognizes
Shell's legal obligation to reduce CO2 emissions, stemming from human rights
principles, specifically the right to protection from climate change.
2. Shared Responsibility: The Court confirms that both
governments and corporations bear responsibility for addressing climate
impacts.
3. Limitations on Emissions Reductions: The Court notes that
while Shell is working to reduce Scope 1 and Scope 2 emissions, mandating specific
reductions for Scope 3 emissions (generated by end-users) is not currently
feasible due to variability in climate science and external factors.
DECISION
1. Enforceable Duty of Care: The Court of Appeal rules that
Shell has a legally enforceable duty to mitigate climate-related risks and
actively reduce its Scope 1 and Scope 2 emissions.
2. Scope 3 Emissions: The Court cannot specifically mandate
Scope 3 emission reductions, as these are influenced by market dynamics and
external factors beyond Shell's control.
3.Dismissal of Specific Reduction Target: The Court dismisses
the claim to enforce a 45% emissions reduction target by 2030, annulling the
District Court's prior judgment.
ANALYSIS
The Court of
Appeal (CoA) clarified that while governments and legislators have a primary
responsibility to address climate change, companies like Shell also have a
responsibility to take measures to counter dangerous climate change. The CoA
held that companies that contribute significantly to the climate problem and
have the power to combat it have an obligation to limit CO2 emissions, even if
this obligation is not explicitly laid down in regulations.[3]The CoA affirmed that companies like
Shell have their own responsibility in achieving the targets of the Paris
Agreement. However, it acknowledged that existing EU regulations do not impose
an absolute emissions reduction obligation on individual companies. Instead,
companies have flexibility in relation to the actual reductions achieved, and
may include emissions reduction goals in their climate transition plans where
appropriate.
The CoA
concluded that Shell does not have an absolute reduction obligation of 45% (or
any other percentage) under EU law. However, the CoA ruled that companies are
free to choose their own approach to reducing their emissions in their climate
transition plans, as long as it is consistent with the Paris Agreement's
climate goals.
The CoA also noted
that while Shell's planned investments in new oil and gas fields may be at odds
with the reasonable expectation for oil and gas companies to consider the
negative consequences of expanding fossil fuel supply, this issue was not
relevant to determining whether a specific reduction obligation could be
imposed on the company.
AFTERMATH OF JUDGEMENT
The Court of
Appeal's decision has far-reaching implications, solidifying the notion that
companies, under Dutch law, bear a responsibility to contribute to climate
change mitigation efforts. This ruling aligns with recent climate litigation
trends, emphasizing that companies must adhere to the Paris Agreement's
emissions reduction goals as part of their social standard of care.
However, the
decision also establishes that existing EU climate regulations and scientific
consensus do not dictate a specific emissions reduction rate for individual
companies or industries. Instead, companies are afforded flexibility in
developing their climate transition plans, provided they align with the Paris
Agreement's climate objectives.
This ruling is expected to have significant implications for
the energy sector, particularly for companies registered in the Netherlands. It
endorses the discretion and flexibility of private players in developing and
implementing their corporate energy transition and emissions reduction
policies. The decision will likely impact existing and future climate-related
claims against corporate entities. Notably, the Court of Appeal ordered the
claimants to bear the costs of both the initial decision and the appeal
proceedings. The influence of this decision on future judicial rulings remains
to be seen.
CONCLUSION
The outcome of the Shell Appeal case is a stark example of environmental injustice. Any decision that fails to promote environmental sustainability is, in essence, an injustice. As Lord Edward Coke once said, "Justice must not only be done but manifestedly and undoubtedly seen to be done."
The recent decision is commendable in promoting corporate responsibility for climate impact and affirming the importance of human rights in shaping future legal strategies. However, the judiciary's failure to uphold the district court's decision is a significant setback for climate accountability, particularly concerning scope 3 emissions.
It is imperative
that all branches of government, including the judiciary, ensure climate
justice. The decision highlights the crucial role of policymakers in
establishing sector-wide standards. Since the court's decision is based on the
law, it can be appealed to the Supreme Court, which may happen soon.
Ultimately, this decision is a ticking time bomb, emphasizing the need for
urgent action to address environmental injustices and promote sustainability.
[1] De Rechtspraak, 'Hague Court of Appeal on Shell plc v Milisudefensie' (De rechtspraak, 12 , November, 2024) <http://awaken. rechtspraak.com> accessed 18 November 2024
[2]
Herbert's Smith, 'Hague Court of Appeal on Shell plc v
Milisudefensie' (Herbert Smith Freehills, 12 , November,
2024) <http://herbertsmithfreehills.com> accessed 18 November
2024
[3]
Herbert's Smith, 'Hague Court of Appeal on Shell plc v Milisudefensie' (Herbert
Smith Freehills, 12 , November,
2024) <http://herbertsmithfreehills.com> accessed 18 November
2024