Finch: Supreme Court decision on environmental impact assessment regulations and the requirement to assess “scope 3” emissions

The UK Supreme Court has handed down its much-awaited decision in R (on the application of Finch on behalf of Weald Action Group) (Appellant) v Surrey County Council and others (Respondent) (“Finch”). The case concerned a challenge to a development consent for an onshore oil and gas development on the basis that the relevant environmental impact assessment (EIA) did not consider indirect (commonly referred to as ‘scope 3’ or ‘downstream’) emissions from the combustion of eventually refined hydrocarbons produced by the development. The court’s decision – that an assessment of those ‘scope 3’ or ‘downstream’ emissions does need to be included in an EIA - will likely have significant impact for the approval of offshore as well as onshore oil and gas projects, and potentially far wider implications for many major development projects.  

Finch: Factual Background

In December 2018, Horse Hill Developments Ltd (“HHDL”) sought planning permission from Surrey County Council (the “Council”) to retain and expand an existing onshore oil well site and to drill for new wells – which would enable the production of hydrocarbons from six wells over 25 years. The total amount of crude oil expected to be extracted in that 25-year period was assessed at approximately 3.3 million tonnes, together with a quantity of natural gas which was intended to provide power to the development.  The crude oil would be taken to refineries for processing, and once refined can be used by consumers, as, for example, fuel for motor vehicles.

The Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (SI 2017 No. 571) (the “EIA Regulations”) (which implemented the European Union Directive 92/11/EU, as amended by Directive 2014/52/EU (together, the “EIA Directive”)) required that an environmental impact assessment (“EIA”) be carried out before planning permission could be given. This includes a requirement to prepare an environmental statement (“ES”) regarding the likely significant effects of the development.  The ES produced by HHDL considered the environmental impacts of emissions from the construction, production, and decommissioning of the well site itself, but did not consider the ‘downstream’ emissions arising from the end use of the oil to be produced from the site.

Following the EIA process, the Council granted planning permission for the Development in September 2019.

Sarah Finch, who lives six miles from the Development site and has objected to drilling at the site since 2013, applied for judicial review of the Council’s decision (for herself and on behalf of Weald Action Group). 

Finch: Key issue

The core issue raised in the judicial review was whether a developer’s obligation under the EIA Regulations to prepare an ES describing the likely significant effects of a development (both direct and indirect), extended to including an assessment of the ’scope 3‘ or ’downstream‘ greenhouse gas emissions resulting from the use of the end product originating from the development i.e., in this case, the ultimate end use of the oil produced by the development.

The claimant argued that, on a proper interpretation of the EIA Regulations, an ES should include quantification of the greenhouse gas emissions arising from the combustion of the refined oil and not merely emissions arising from the project site itself.

The Council, meanwhile, argued that this was too wide an interpretation of the EIA Regulations, which could not have been intended to include the difficult and uncertain exercise of assessing such end emissions – which may occur outside the UK, far removed from the project site in respect of which planning permission was sought.

Lower Courts’ Decisions

The appellant’s claim was unsuccessful before both the High Court and the Court of Appeal, albeit for different reasons.

High Court

Holgate J’s starting-point was the wording of the EIA Regulations, noting that applying a broad purposive approach to interpretation does not permit the clearly expressed wording of the legislation to be disregarded. As a matter of law, the judge determined that ‘downstream’ emissions were incapable of falling within the scope of the EIA. The “environmental effects of consumers using (in locations which are unknown and unrelated to the development site) an end product which will be made in a separate facility from materials to be supplied from the development being assessed” were not “environmental effects of the project” within the meaning of the EIA Regulations.

Court of Appeal

On appeal, the Court of Appeal departed from the approach adopted by Holgate J. The Court of Appeal decided that the appeal “turned not on a hard-edged question of law” (i.e. whether the EIA Regulations required ‘downstream’ emissions to be included or not) but on the lawfulness or otherwise of the Council’s decision (i.e. whether, as a matter of fact and judgement, the Council’s decision that ‘downstream’ emissions need not be included was irrational). The Court of Appeal considered that the Council’s decision had not been irrational, such that its decision to grant planning permission based on the ES was lawful.

Issues for the Supreme Court

The main issue for the Supreme Court to determine was whether, under the EIA Directive and EIA Regulations, it was unlawful for the Council not to require the ES for the development to include an assessment of the impacts of ‘scope 3’ or ‘downstream’ greenhouse gas emissions resulting from the end use of the refined crude oil as “effects of the project” on climate which the Council needed to assess as part of the EIA.

The claimant’s position was that, on the proper interpretation of the legislation, the “effects of the project” included such emissions. Two of the defendants - the Council and the Secretary of State – supported the Court of Appeal’s approach, that the Council was entitled to decide, as a matter of judgement, that the emissions were not “effects of the project” such that they did not need to be concluded. HHCL, meanwhile, supported the original analysis of Holgate J in the High Court, that such emissions were not “effects of the project” as a matter of law.

Supreme Court Decision

The Supreme Court heard the appeal in June 2023, which called before five Supreme Court justices: Lord Kitchin, Lord Sales, Lord Leggatt, Lady Rose, and Lord Richards.

The Court decided, by a majority of 3-2 (Lord Sales and Lord Richards dissenting), to allow the appeal. This means the Council’s decision was unlawful and must be quashed.

The court was unanimous in deciding that the proper question to be answered was a matter of law. What amounted to “effects of the project” was a question of proper interpretation of the EIA Regulations, and was not a matter of judgement to be left to individual authorities. The effect of the Court of Appeal’s reasoning was that different authorities could reach different views as to whether ‘downstream’ emissions required to be included or not.

Where the court disagreed was as to the answer to that question of law. The majority considered “the effects of the project” as a matter of causation: was there a causal connection between the extraction of oil and its eventual combustion, such that this would be considered to be an “effect of the project”? The answer to that question was “yes”. The dissenting judges, meanwhile, agreed with the original reasoning of Holgate J.

Majority View

To consider the “effects of a project”, the majority considered it “obvious” that the question was one of causation: this is because “an effect is the obverse of a cause”.

In this regard, it was significant that the parties all agreed that it was not merely likely, but inevitable, that the oil produced at the site would be refined, combusted, and result in greenhouse gas emissions. The court considered that this brought about “the strongest form of causal connection”, such that downstream emissions were plainly “effects of a project” to extract oil. 

The majority also addressed an argument made before the lower courts concerning the impacts of this analysis on other raw materials, for example steel, which may be transformed into other products, for example motor vehicles but also many other uses. If all ‘downstream’ emissions were considered “effects of a project”, Holgate J had been concerned that this would render the ES process unworkably difficult because a developer would be required to calculate emissions resulting from all possible ‘end uses’. However, the majority considered oil to be a very different type of commodity, which did not fundamentally change (as steel does to a car component) in the process of refinement, and which would always be used for the same end purpose (combustion). Again, it was significant here that the parties had effectively agreed that all oil produced would result in combustion (and not be put to other uses).

Geographic considerations when assessing emissions was also questioned. The Court held that the council was incorrect to confine the assessment of emissions to those that occur at the project site. The Court’s analysis was that the EIA directive itself does not impose any geographical limits, and the impact of greenhouse gas emissions that are causally connected to a development does not depend on where the emissions take place – such emissions will still contribute to global warming, and therefore have an environmental effect which requires to be assessed.

The argument that national planning policy encourages domestic energy production and so is relevant to the scope of the EIA Directive was also rejected. This consideration would only be towards the decision of the planning authority to grant permission, and not to justify limiting the scope of the environmental assessment prior to the decision to grant permission.

Dissenting View

The dissenting opinion of Lord Sales (with which Lord Richards agreed) made the observation that the granting of planning permission for these projects are taken at a local or regional level, whereas the issues surrounding downstream greenhouse gas emissions are taken at a national level. Therefore, Lord Sales argued that it would be constitutionally inappropriate for local authorities to make decisions based on their own views on downstream emissions.

The EIA Directive itself also makes clear that the entirety of downstream emissions does not count as indirect effects of a project and that the effects still need to be those “of the project” – which does not immediately read as including downstream emissions. 

Key implications  

This is a significant case, particularly for the oil and gas industry, but also more widely given the focus on the proper interpretation of the EIA Directive.  It is notable that the Supreme Court’s concern appears to have been directed in large part towards ensuring that the appropriate process was followed, and that full information was available to the public and decision makers in assessing whether any particular project should be permitted to proceed, commenting that “You can only care about what you know about”.  However, the Court acknowledges at the start of its written decision that “The legislation does not prevent the competent authority from giving development consent for projects which will cause significant harm to the environment.  But it aims to ensure that, if such consent is given, it is given with full knowledge of the environmental cost.”

The EIA Regulations do not prevent a relevant authority from granting permission for a development that is likely to cause significant harm to the environment. The EIA Regulations do however require the authority to reach a reasoned conclusion on the environmental impact and to take this into account in making its decision.  

The judgment highlights that the consideration of downstream greenhouse gas emissions is to form part of the assessment in the EIA process and will need to be carefully considered by companies who are or will be applying for planning permission in relation to developments and projects for hydrocarbon extraction.  It is likely to have a wider impact, notwithstanding the distinction drawn by the Court between oil and gas extraction on the one hand and manufacturing processes such as steel on the other. 

Finally, it will be interesting to see the Government’s response.   The Government consulted last year on proposals to replace environmental impact assessments with a more streamlined system which, once adopted, will require environmental outcomes reports (“EOR”) to be produced. We will have to wait to see to what extent the principles in this case are adopted within the new EOR system if introduced.   

This is an initial analysis and overview of the judgement, with further details to come in the following days.

Article prepared with assistance from Soha Ahmed, Trainee Solicitor in our Energy Disputes team and Emily Lock, Trainee Solicitor in our Planning team.