Cracking the Shell: Royal Dutch Shell Mandated to Cut Emissions
by Reinout Debergh
The accusers and the accused
On April 4th, 2018, Dutch NGO Milieudefensie started a lawsuit against Shell. On February 12th, 2019, six other Dutch NGO’s joined Milieudefensie as plaintiffs (those who bring a case to court) . On the other side of the court, there was Shell. Shell is listed as 7th in the top 20 companies that contributed to global warming with historical emissions (1965 – 2017), almost four times higher than the Netherlands; of these emissions, 90% originate from their products, and 10% from the extraction and transport of the fossil fuels. [2, 3].
The accusation and the defense
Milieudefensie et al. argued that the CO2 emissions (scope 1, 2 and 3) by the Shell group constitutes an unlawful act towards them . Scope 1 refers to direct emissions from owned sources, scope 2 refers to indirect emissions from generating electricity, steam, heating and cooling and scope 3 refers to other indirect emissions in the company’s value chain . They asked the court to order Shell to reduce emissions by at least 45% or net 45% (IPCC SR1.5, IEA Net Zero by 2050 scenario), 35% or net 35% (IEA Below 2 Degrees scenario) or 25% or net 25% (IEA Sustainable Development Scenario) relative to 2019 by 2030 . The 35% and 25% claims refer to arguing in the alternative, a technique used to pre-emptively address potential concerns of the accused .
Milieudefensie et al. referred to article 7 of Rome II, an EU regulation dealing with non-contractual obligations . Article 7 determines which country’s law is applicable in case of an event leading to environmental damage and this can be either the country where the damage or the event occurred . The plaintiffs argued that Shell’s corporate policy is that event . Because Shell’s headquarters is in the Netherlands, Dutch law should be applied [7, 8]. Choosing the country where the damage occurred would also lead to the application of Dutch law . Particularly Book 6 Section 162 of the Dutch Civil Code which states that ‘a person who commits a tort towards another which can be imputed to him, must repair the damage which the other person suffers as a consequence thereof’ and Shell is a legal person [7, 9]. For the interpretation of this, they referred to various principles and criteria such as the Kelderluik criteria, the right to life, the right to respect for private and family life, UN Guiding Principles on Business and Human Rights, the UN Global Compact and the OECD Guidelines for Multinational Enterprises, some of which are endorsed by Shell .
Shell made several arguments against the plaintiff’s claims including the following:
- The adoption of a policy does not cause damage and thus not only Dutch law applies;
- There is no legal basis for the opponents claims ;
- If we don’t do it, others will extract and sell more oil and gas;
- We are only responding to continued demand for oil and gas (the ‘drug dealer’s defence’) ;
- The energy transition has to be achieved by society as a whole, not by just one private actor ;
- Achieving the Paris goals and net-zero does not require the complete elimination of fossil fuels;
- Shell is already taking steps towards a climate-neutral energy supply
- The transition should be driven by government policies and consumer choices, not by the court;
- Shell had no unique knowledge of climate change;
- The international law framework for climate action applies to states, not private companies;
- Shell activities are already regulated;
- The CO2 emissions that Milieudefensie et al. refer to cannot be attributed to Shell .
The court decided in favour of Milieudefensie et al. and found that Shell is ‘obliged to reduce the CO2 emissions of the Shell group’s activities by net 45% at end 2030, relative to 2019, through the Shell group’s corporate policy’ . Shell has an obligation of result when it comes to its own activities (scope 1 and part of scope 2 that can be attributed to Shell companies) and a significant best-effort obligation when it comes to its business partners, suppliers and end-users (part of scope 2 that cannot be attributed to Shell companies and scope 3) [13, 14]. This means that, while for its own activities it has to achieve the net 45% reduction, for the rest, it only has to demonstrate that it is doing its best . The court ruled that Shell had not yet violated its reduction obligation, but that given its policy, policy intentions and ambitions, such a violation is imminent . Shell has already vowed to appeal the decision . This can take several years however, and because the order is ‘provisionally enforceable’, Shell will already have to take action. But the target could be lowered during appeal . On June 9th, Shell’s CEO van Beurden put out a statement on the court case, expressing his disappointment with the ruling . The court did not include penalty payments in case of non-compliance. The only action the affected parties could take is a damages claim which would be unlikely to be successful at this stage .
Given that it is a net target, Shell does not actually have to reduce its emissions by 45%. It can use compensating measures such as planting trees or capturing and storing CO2 underground . However, carbon offsets are subject to several issues and have often failed in delivering their promised reductions . Though it is still a big change from its current strategy, which only includes carbon intensity targets . Measures in place to control CO2 reduction include: investments in renewable energy; nature-based solutions; offsetting. However, investments in oil and gas are still almost ten times higher, and the Court did not make non-compliance subject to any penalty payments: consequently, in the event of non-compliance, the only remedy for the claimants (or any other injured party) will be a damages claim.
This is the first time that a court ruled that a company has a legal duty to reduce its emissions in line with the Paris Agreement. The use of human rights standards to inform the reduction obligation for a company is also a first. The court rejected several common arguments from the fossil fuel industry . While this single ruling may not lead to big course changes from government and companies, it sets a precedent and could inspire more legal actions around the world [10, 17]. Currently, there are about 425 pending climate lawsuits in various countries .
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