UK Supreme Court Requires EIAs to Consider Likely Direct and Indirect Environmental Effects on Climate if Readily Quantifiable

On 20 June 2024, the UK Supreme Court (the Court) in Finch v. Surrey CC [2024] UKSC 20 considered whether certain downstream emissions fell within the scope of direct or indirect environmental effects for the purposes of an Environmental Impact Assessment (EIA) for the proposed development of an oil well site. On the facts of the case, a 3-2 majority of the Court held they should be, finding it had been unlawful for Surrey County Council (the Council) to grant planning permission for that project as the developer had failed to include in its EIA the combustion of downstream emissions that would result from the burning of oil extracted from that well site.

This decision underscores the importance of assessing all likely direct and indirect significant environmental effects when applying for development consent for projects, save that “only effects which evidence shows are likely to occur and which are capable of meaningful assessment must be assessed”. It also provides guidelines as to how to appropriately assess the causal connection between the proposed project and any resulting greenhouse gas (GHG) emissions.

The Court’s decision will undoubtedly lead to increased scrutiny of EIAs and whether they appropriately take into account and report on environmental effects of a proposed project. Those preparing EIAs will undoubtedly also now have further questions, including, for example, the extent to which any downstream or Scope 3 emissions can be treated as “readily quantifiable” for the purposes of an EIA and whether such effects should be subject to assessment, even outside the context of fossil fuel projects. If you have any questions or would like to discuss further, please do not hesitate to contact the authors of this blog post or your usual Latham lawyer.

What Are the Facts of the Case?

Before planning permission can be granted for a development project likely to have significant environmental effects in England, an EIA is required in accordance with regulations implemented prior to Brexit, the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (the 2017 Regulations) and the European Union Directive 92/11/EU (the EIA Directive). The EIA Directive states that an EIA must identify, describe, and assess the likely “direct and indirect significant effects” of a development project on the environment, including the impact on climate. Authorities are permitted to grant development consent for projects that will cause significant harm to the environment, but the EIA Directive aims to ensure that consent is given with full knowledge of the environmental cost.

In Finch v. Surrey, a developer applied to the Council for planning permission to expand oil production from a well site at Horse Hill in Surrey. The proposed project would have involved the extraction of oil from six wells over a period of 20 years and so required an EIA under the 2017 Regulations and EIA Directive. The developer’s environmental statement dealt with a wide range of matters but was limited to an assessment of GHG emissions from within the well site boundary. The Council granted development consent for the project, but this was challenged by a local resident on the basis that the Council had failed to comply with its EIA obligations under the EIA Directive and the 2017 Regulations by, among other things, failing to assess the downstream GHG emissions that would be caused by burning the oil extracted from the well site.

In response, the developer argued that the core nature of the proposed development should be confined to the extraction and production of hydrocarbons within the well site boundary, and that the subsequent refinement or processing and use of the extracted oil was not part of the project. This argument was based on the premise that the environmental assessment should focus solely on activities directly associated with the well site (such as well construction and the extraction of the fuel from the ground), rather than what occurred at other places.

The High Court and Court of Appeal sided with the developer, finding the Council was entitled to decide that the downstream emissions caused by the extracted oil was not an indirect effect of the project for the purposes of the EIA Directive. At first instance, Justice Holgate in the High Court rejected the resident’s claim for judicial review of the Council’s decision, stating that the combustion emissions did not fall within the scope of the EIA required by the 2017 Regulations. The Court of Appeal upheld this decision by a majority, stating “the environmental effects of [the combustion] emissions could reasonably be seen as far removed from the proposed development itself, and not causally linked to it, because of the series of intervening stages between the extraction of the crude oil and the ultimate generation of those emissions”.[2022] EWCA Civ 187, [66]. The Court of Appeal also considered that whether to assess these emissions was a matter of evaluative judgment for the Council, which had a reasonable and lawful basis for excluding the combustion emissions from the EIA.

The Court’s Decision

The key issue to be determined by the Court was whether, under the EIA Directive and the 2017 Regulations, it was lawful for the Council not to include the combustion emissions in the EIA for the proposed project.

By a 3-2 majority, the Court ruled that the Council’s decision was unlawful, finding that the downstream emissions from the project fell within the scope of the EIA required by law. In the majority’s view, the Council’s failure to assess the effect on climate of the combustion of the oil that would be produced from the proposed well site meant that its decision to grant planning permission for the project was unlawful. In reaching this decision, the Court noted that the “effects of a project” need to be tested through causation; “but for” the extraction of the oil, the oil would stay in the ground and so would not be burnt and emit GHG.

Importantly, the Court rejected the argument that refining crude oil breaks the causal connection between extraction and combustion. In the Court’s view, refining does not alter the oil’s basic nature or intended use; oil has a predictable end use (combustion) and so GHG emissions could be reasonably considered to occur at some time in the future.

When determining whether these downstream emissions should fall within the scope of an EIA, the Court also considered it relevant that those emissions could easily be quantified for the proposed project or “capable of meaningful assessment”. It was not disputed that the oil extracted from the Horse Hill site would eventually be refined and burned, releasing GHG into the atmosphere. In fact, the developer had calculated the proportion of direct GHG emissions that would result from the project, which the Court considered to be far from negligible.

The Court drew a clear distinction between the production of oil and coal from other commodities, such as iron or steel. Giving the example of a facility to manufacture steel, the Court considered that there were “innumerable decisions” made “downstream” about how the steel is used and how products made from the steel are used. In the Court’s view, this uncertainty regarding future use would also make it impossible to identify any such downstream effects on the environment as “likely”, or to make any “meaningful assessment” of such effects when an EIA was prepared or planning permission was applied for.

The Court also refused to accept that an EIA should be limited to emissions expected to occur at the project site. In the majority’s view, indirect effects, by nature, may occur away from their source, and the impact of GHG emissions on climate does not depend on where the release occurs.

What Does the Decision Mean for UK Projects and EIAs?

The Court’s decision underscores the importance of comprehensive EIAs that include all direct and indirect significant environmental effects, so long as there is evidence that they are likely to occur and they can be easily quantified.

For fossil fuel projects in which there is not “any element of conjecture or speculation about what will ultimately happen” to the product, such as a project to extract oil from a well or mine coal, taking downstream emissions from combustion into account as part of the “effects of the project” for the purposes of an EIA is now required. However, as explained above, other types of projects may not need to do so, if a meaningful assessment is not possible.

Going forward, the scope of EIAs will need to be assessed on a case-by-case basis, and each EIA will need to be tailored appropriately to take into account the specific direct and indirect effects a project will likely have on the environment, and whether those effects may be quantified.