A major decision handed down by the Supreme Court ruling that oil companies must factor in greenhouse gas emissions from drilling will add uncertainty and delay to major future projects, writes David Harries, partner and head of planning at Aaron & Partners
The Supreme Court’s ruling that Surrey County Council should have considered the full climate impact of burning oil for new wells is remarkable and could have a major impact on companies planning major projects.
What makes the Supreme Court’s decision noteworthy?
The decision is remarkable for several reasons.
First, it seemingly trespasses on parliament’s territory. Oil consumption is lawful and this decision will do little to affect or limit that consumption, save that it will mean that some of the oil we use will have to travel further to get here. Restrictions on the use made of oil may indeed be necessary for combatting climate change, but that is surely a matter of policy for the legislature.
Secondly, it is a massive extension of the ambit of Environmental Impact Assessments (EIA), and while climate campaigners will be celebrating, it will apply in any EIA (ie any substantial) development and no doubt provide very fertile ground for future argument before the courts as to what is and is not a “downstream” effect, how that is to be measured and so on.
This comes at an inconvenient time for our new government. No major party wants to be seen to be anti-environment or pro-oil, but all are pro-growth and indeed their plans depend upon growth. This decision is firmly anti-growth; it will add complexity, cost, uncertainty and delay to most major projects.
What are the immediate and long-term implications of this ruling for the UK oil and gas industry?
It is Labour policy not to grant any new drilling licenses in any event, so the tangible impact on oil and gas exploration in the UK may be limited. In the immediate term, it means that this particular application is unlikely to be returned for reconsideration, and there may be other proposals not yet determined which will be abandoned for the same reason.
Indeed, permissions for two schemes (a coal mine and an oil drilling) have already been quashed in the immediate aftermath and are now highly unlikely ever to go ahead.
More broadly, it adds another difficult layer to the consenting process. Although this is European environmental legislation (albeit brought into UK law) that is being interpreted, this is a narrower and more rigorous interpretation of that legislation than is applied in Europe.
It is therefore likely to give the appearance of a zeal for environmental regulation in the UK that may discourage investment in new oil- and gas-related projects more generally. For example, the expansion of a refinery may be discouraged by this.
How will the ruling be received by environmental groups, industry players and policymakers?
Environmental groups are, of course, absolutely delighted by the decision. Industry players in the renewable energy sector are likely, on balance, to be quietly pleased with it.
Those in more carbon-intensive developments, including large swathes of the construction industry, are likely to be dismayed by it, or at least apprehensive of its impact.
For policymakers, it is a headache: they are committed to growing the economy, and also to greatly reducing carbon emissions. It will be very difficult for them to do anything other than go along with the judgment for that reason, notwithstanding that is likely to impede growth.
What are the potential economic impacts on growth and development?
Although the leading judgment says oil is unique in this regard, that is said in passing and it would be against the reasoning of the judgment if it was not to be applied to other projects where the downstream effects are apparent and capable of some form of calculation.
Most obviously, and I see there has been comment in the profession on this, it would apply to airports and roadbuilding. You already have to assess the climate impact of the quarrying necessary for road building and, by the logic of this judgment, you would also have to assess the climate impact of the additional traffic the new road would generate.
It is likely that when in doubt, the developer of any major project is going to be advised to carry out a downstream climate assessment to avoid a successful review of this type after the already lengthy planning process has been worked through.
Such assessments will be contentious and add to the scope for argument. They will make major project development more complicated, less certain, more expensive and lengthy.
It is difficult to say how great its impact will be, but it will certainly have a negative impact on growth and development within the UK.
The exception might well be renewable energy development. Renewable energy, and indeed nuclear, effectively stand on the ‘right’ side of the Finch decision. Because of the added difficulty this decision gives to any carbon-intensive development, investment may well be diverted to renewable energy schemes as a result. This will, however, be very difficult to measure.
The split decision among the judges: What does it signify about the contentious nature of the ruling?
One High Court judge heard it in full and decided that the downstream effects did not need to be considered. Two High Court judges then refused permission to appeal, on each occasion saying that the applications were totally without merit.
Two Court of Appeal judges agreed with the High Court judge, for different reasons, and one dissented.
In the Supreme Court, three Lords of appeal found in favour of Ms Finch, and two dissented. Final tally, seven against and four in favour, but because of the tiers in the system the three in favour in the Supreme Court win the day.
It is notable that those judges with the greatest planning experience were among the dissenters. It is also notable that the decision itself took about four times longer than is normal in the Supreme Court to deliver; just shy of a year. Taken together, this is clear indication of the controversy of the decision. The dissenting judgment is a real counterblast to the lead judgment.
However, only a new decision of the Supreme Court, or new legislation, can overturn a Supreme Court judgment.
It is highly unlikely that Parliament will wish to overturn a judgment which goes so far to deal with carbon emissions, and circumstances would have to change greatly for the Supreme Court to reconsider this issue. Academics will argue over it for years to come, but it is likely to remain in force for the foreseeable future.
Will this ruling affect international perceptions of the UK’s environmental and regulatory landscape?
It will be very interesting to see how other states working to EU environmental law are influenced by this decision. It runs flat contrary to a recent decision of the Irish Supreme Court, for example.
I suspect that most of the argument about it is likely to be conducted in the European courts, though that will make no difference now to its application in the UK thanks to Brexit.
Commercially, combined with targeted high tax, it will strongly disincentive oil and gas investment in the UK. More broadly, it is likely to increase the UK’s reputation for bureaucracy and regulation, though not perhaps significantly different from our European neighbours.
Environmental campaigners across the world may well latch on to it, particularly where new carbon-intensive developments are considered in the European courts.
Advice for companies currently planning major projects
For renewable energy projects, get on with it! Such projects are given a boost by this decision.
For any other projects, particularly those where there is a clear causal connection between the project and future carbon emissions, such as road building, I would advise that a full assessment of those downstream effects be made at the outset and the scope of that assessment agreed with the planning authorities and statutory consultees.
For those, such as housebuilding, where the causal connection is less strong, and the difficulty of calculation greater, I would advise seizing on the wording of Lord Leggatt’s judgment, which says that assessment in such cases should not be necessary.
I would, however, warn that such an approach may be open to challenge as the law develops.
