The Climate Case against Shell
Author: Emile Sprenger (). June, 2020
Background
At the end of last year, the Dutch NGO Milieudefensie, together with several other NGO’s and more than 17,000 individual claimants, filed a procedure with the District Court in The Hague in which they asked the Court to order Royal Dutch Shell to reduce its aggregate global CO2 emissions by 45% in 2030 (compared to the level of 2019).
The case revolved around the question whether or not Shell has the legal obligation to reduce the CO2 emissions of Shell’s entire energy portfolio across all so-called “emission scopes”:
- The (direct) emissions resulting from the business operations of Shell itself;
- The (indirect) emissions resulting from the business operations of Shell’s suppliers;
- The (indirect) emissions resulting from the use of Shell products by its customers.
Judgment of the court
On May 26, the District Court of The Hague ordered Royal Dutch Shell to reduce the CO2 emissions of Shell by net 45% in 2030, compared to 2019 levels, through Shell’s corporate policy.
In its judgement, the court stated (source: rechtspraak.nl, emphasis added):
Shell is obliged to ensure through its's corporate policy that the CO2 emissions of Shell, its suppliers and its customers are reduced.
This follows from the unwritten standard of care applicable to Shell, which the court has interpreted based on the facts, widespread consensus and internationally accepted standards.
Shell is one of the world's largest producers and suppliers of fossil fuels. The CO2 emissions of Shell, its suppliers and customers exceed those of many countries. This contributes to global warming, which causes dangerous climate change and creates serious human rights risks, such as the right to life and the right to respect for private and family life.
It is generally accepted that companies must respect human rights. This is an individual responsibility of companies, which is separate from states' actions. This responsibility also extends to suppliers and customers.
Shell has an obligation of result with respect to Shell's CO2 emissions. As regards its suppliers and customers, Shell has a significant best-efforts obligation, which means that Shell must use its influence, for instance by setting requirements on suppliers in its purchasing policy.
Shell has complete freedom in how it meets its reduction obligation and in shaping Shell's corporate policy.
The required sacrifices outweigh the interest served by fighting dangerous climate change.
Shell has defined its's [CO2 emissions] policy and is working it out in more detail. However, seeing as the policy is not concrete, has many caveats and is based on monitoring social developments rather than the company's own responsibility for achieving a CO2 reduction, the court finds that there is an imminent breach of the reduction obligation.
Therefore, the court orders Shell to reduce its own emissions and the emissions its suppliers and customers by net 45%, as compared to 2019 levels, by the end of 2030, through the corporate policy of Shell.
Dutch Civil Code: the unwritten standard of care
The Court said that Shell’s reduction obligation ensues from the unwritten standard of care laid down in Book 6, Section 162 of the Dutch Civil Code, which considers that a violation of unwritten law pertaining to proper social conduct may constitute an unlawful act.
The unwritten standard of care has been interpreted by the Dutch Supreme court as an obligation to take safety or security measures when an actor creates a situation that is dangerous to others.
Several aspects are considered when assessing if the creation of a dangerous situation constitutes an unlawful act, including the likelihood (risk) of accidents. When determining the acceptability of such a risk, it is customary to determine if more risk has been taken than is reasonably acceptable, as well as the level of (un)certainty of the risk. When dealing with (un)certainty and risk, the “precautionary principle” is generally accepted as a guiding principle.
An unique ruling
This ruling is unique because it is the first time that a court has ordered a global energy company to change its policies in order to avoid dangerous climate change.
The court order applies to all entities of Shell, both in the Netherlands and abroad (1,100 companies in 80 countries). In addition, the Court has stated that the reduction obligation relates to Shell’s entire energy portfolio and to the aggregate volume of all emissions (Scope 1 through to 3). In other words, the ruling does not only concern Shell’s own emissions (for example the emissions generated during oil extraction, oil transport, oil refining, etc.), but also the emissions of Shell’s suppliers and its customers.
The compelling common interest
The Court weighed “the compelling common interest” to the negative consequences and the commercial interests (source: rechtspraak.nl, emphasis added).
The court has included the proportionality of the reduction obligation in its interpretation of the unwritten standard of care. The court considers that the CO2 emissions for which Shell can be held responsible by their nature pose a very serious threat, with a high risk of damage .. and with serious human rights impacts. This applies to both current and future generations.
A characteristic feature of dangerous climate change is that every emission of CO2 and other greenhouse gases, anywhere in the world and caused in whatever manner, contributes to this development. Shell is able to effectuate a reduction by changing its energy package.
This all justifies a reduction obligation concerning the policy formation by Shell for the entire, globally operating Shell. The compelling common interest that is served by complying with the reduction obligation outweighs the negative consequences Shell might face due to the reduction obligation and also the commercial interests of Shell ..
Intangible, undefined and non-binding plans
The court was very critical of Shell’s “intangible, undefined and non-binding plans” to reduce CO2 emissions (source: rechtspraak.nl, emphasis added).
Shell’s policy, policy intentions and ambitions largely amount to rather intangible, undefined and non-binding plans for the long-term (2050). These plans (‘ambitions’ and ‘intentions’) are .. not unconditional but dependent on the pace at which global society moves towards the climate goals of the Paris Agreement (‘in step with society and its customers’).
Emissions reduction targets for 2030 are lacking completely .. the court deduces that Shell retains the right to undergo a less rapid energy transition if society were to move slower. .. Shell’ planned investments in new explorations are not compatible with the reduction target to be met .. Shell monitors developments in society and lets states and other parties play a pioneering role [and] disregards its [own] responsibility .. to actively effectuate its reduction obligation through .. corporate policy.
.. the policy, policy intentions and ambitions of Shell are incompatible with Shell’s reduction obligation. This implies an imminent violation of Shell’s reduction obligation. It means that the court must allow the claimed order for compliance with this legal obligation. There is no room for weighing interests.
.. the court disregards Shell’s argument about the desirability/undesirability of claims such as this one, and whether or not this invites everyone in global society to lodge claims against each other. Shell’s argument that it is not appropriate to impose a court order on one private party fails on the basis of the considerations on Shell s legal obligation ..
Shell’s defence
It is noteworthy how the Court reacted to several arguments brought forth by Shell (source: rechtspraak.nl, emphasis added).
The “drug dealer defence”
Shell argued that a reduction obligation will have no effect, or could even be counterproductive, because the place of Shell will be taken by competitors, to which the Court replied:
Even if this were true, it will not benefit Shell. Due to the compelling interests which are served with the reduction obligation, this argument cannot justify assuming beforehand there is no need for Shell to not meet this obligation. It is also important here that each reduction of greenhouse gas emissions has a positive effect on countering dangerous climate change. After all, each reduction means that there is more room in the carbon budget.
The court acknowledges that Shell cannot solve this global problem on its own. However, this does not absolve Shell of its individual partial responsibility to do its part regarding the emissions of Shell, which it can control and influence.
Disruption of the “level playing field”
Shell argued that imposing a reduction obligation would lead to unfair competition and a disruption of the ‘level playing field’ on the oil and gas market, to which the Court replied:
[Shell] seems to ignore that it is necessary to reduce the worldwide oil and gas extraction and to facilitate the curtailment of CO2 emissions that cause dangerous climate change; other companies will also have to make a contribution. This defence therefore does not hold.
Although the court made enquiries about it, Shell has failed to further specify the onerousness of the reduction obligation; it only argues that far-reaching consequences for Shell .. argue against accepting the reduction obligation ..
The court assumes that the reduction obligation will have far-reaching consequences for Shell. The reduction obligation requires a change of policy, which will require an adjustment of Shell’s energy package .. This could curb the potential growth of Shell. However, the interest served with the reduction obligation outweighs Shell’s commercial interests .. Due to the serious threats and risks .. private companies such as Shell may .. be required to take drastic measures and make financial sacrifices to limit CO2 emissions to prevent dangerous climate change.
The consequences for Shell and others
Shell has set a target of reducing its CO2 emissions by 20% by 2030 and 45% by 2035.
It now has been ordered to reduce its emissions by 45% by 2030.
The verdict will undoubtedly have a major impact because it can serve as input for lawsuits against other companies in The Netherlands with high CO2 emissions, for example Tata Steel, KLM and Schiphol, the animal farming industry as well as xxxx:
The compelling common interest that is served by [bringing the CO2 emissions of xxxx in line with the goals of the Paris agreement] outweighs the negative consequences [xxxx] might face.. and also the commercial interests ..
Provisionally enforceable court order
The court declared the order provisionally enforceable (“uitvoerbaar bij voorraad”), meaning that an eventual appeal by Shell will not suspend the order.
Shell’s reaction
Shell quickly announced that it would appeal “against the disappointing court decision”.
A week later CEO Ben van Beurden asked on LinkedIn: “Should a court single out an energy company to reduce its carbon emissions”?
Apparently the CEO of Shell is under the impression that Shell was singled out by the District Court of The Hague so that it could order Shell to reduce its emission. He seems to be unaware that the Court didn’t single out Shell, but instead, in a class action, the Court was asked:
- to rule on the claim that Shell’s CO2 emissions into the atmosphere constitutes an unlawful act towards the claimant;
- to order Shell to bring its CO2 emissions in line with the Paris Agreements.
Background information
The full text of the verdict (English):
https://uitspraak.rechtspraak.nl/inziendocument?id=ECLI:NL:RBDHA:2021:5337
Explanation about the case by Milieudefensie (the NGO behind the court case):
https://en.milieudefensie.nl/climate-case-shell
Shell’s reaction to the ruling:
Shell CEO Ben van Beurden:
“Should a court single out an energy company to reduce its carbon emissions”?
https://www.linkedin.com/pulse/spirit-shell-rise-challenge-ben-van-beurden/
Milieudefensie position paper:
The legal merits of the case:
https://www.houthoff.com/insights/News-Update/Class-Actions—27-May-2021
YouTube Video: Are Shell and Total ‘s energy transition plans Paris Aligned?
Dutch Civil Code, Section 6:162: “an unlawful act”