Landmark Climate Change Case Overturned: The Hague Court of Appeals Overturns Ruling Ordering Shell to Reduce CO2 Emissions
In Short
The Ruling: On November 12, 2024, The Hague Court of Appeals overturned the landmark climate change litigation case that imposed a 45% CO2 reduction obligation on Shell.
The Result: The Hague Court of Appeals established that companies have an obligation to reduce CO2 emissions and failing to take adequate reduction measures may constitute a violation of human rights and lead to liability. However, the Dutch civil courts cannot impose a specific reduction target, as long as there is no scientific consensus on the necessary reduction in a specific sector and country.
Looking Ahead: This ruling confirmed a duty of care for companies to reduce CO2 emissions. While a specific reduction target cannot be imposed by the civil courts, companies that fail to implement adequate reduction measures may be subject to scrutiny and targeted in litigation. The court of appeals' judgment may still be appealed before the Dutch Supreme Court.
On May 26, 2021, The Hague District Court issued a ruling ordering Shell Plc (formally known as Royal Dutch Shell), the parent company of the Shell Group, to reduce the Shell Group's (scope 1, 2, and 3) emissions of greenhouse gases ("GHGs") by 45% in 2030, relative to 2019. The district court ruled in favor of the plaintiffs, Friends of the Earth The Netherlands ("FoE"), that—in short—Shell's duty of care required Shell to prevent climate change through its own emissions reduction, and that a failure to do so would constitute an imminent tort. This duty of care was construed based on, inter alia, the widespread international consensus that human rights offer protection against the impacts of dangerous climate change. In particular, the district court based this on the Paris Agreement, the UN Guiding Principles on Business and Human Rights, and other guidance.
On November 12, 2024, The Hague Court of Appeals overturned the decision. In relation to Shell's scope 1 and 2 emissions, the court of appeals ruled that Shell has publicly committed to clear reduction targets (including in its filings with the SEC) and had already reduced its scope 1 and 2 emissions by 31% by the end of 2023, relative to 2016. Consequently, the court of appeals concluded that FoE cannot establish an imminent tort.
In relation to Shell's scope 3 emissions, The Hague Court of Appeals ruled that it could not establish, and therefore could not impose, a specific reduction percentage on Shell. Although the court of appeals confirmed that there is a general consensus that global CO2 emissions must be reduced by 45% by 2030, according to the court of appeals this cannot be translated into a specific reduction percentage for individual companies or sectors. In this respect, the court of appeals considered that the 45% reduction target is an average for all sectors and every place in the world, but the reduction obligation may differ from sector to sector and country to country.
The court of appeals noted, by way of example, that if Shell supplies gas to a customer that previously received its energy from coal, Shell's scope 3 emissions will increase, but on balance the emissions worldwide will decrease. According to the court of appeals, each industry therefore has its own reduction pathway. The court of appeals also concluded that no specific reduction percentage can be established for just the oil and gas industry given that the studies produced by the parties do not prove that there is scientific consensus regarding the required reduction levels of the use of oil and gas.
Additionally, The Hague Court of Appeals found that a scope 3 reduction obligation as imposed by The Hague District Court would not be effective. Two-thirds of Shell's scope-3 emissions consist of the reselling of third-party fossil fuels. Shell argued successfully that even if it would meet a reduction obligation as imposed by the district court, this would not necessarily result in a worldwide reduction of GHG emissions as its competitors would replace its positions in the market. The Hague Court of Appeals therefore concluded that FoE did not have the required procedural interest to have this claim awarded.
Despite the fact that it overturned the district court ruling, the court of appeals made some significant findings that could impact companies going forward. For example, the court of appeals ruled that companies that contribute significantly to the climate problem have an obligation to limit carbon emissions even if this obligation is not explicitly laid down in public law regulations, stating that companies have it within their power to contribute to combating climate change. The court of appeals also found that the values embodied in fundamental (human) rights can be invoked at least to some extent by citizens in their relationship with a private company.
This judgment can be appealed to the Dutch Supreme Court within three months.
Three Key Takeaways
- No specific reduction percentage: The Hague Court of Appeals denied all of FoE's claims, overturning the landmark climate change case that imposed a 45% CO2 reduction obligation on Shell. Importantly, the court of appeals found that there is currently insufficient scientific consensus to support a specific reduction percentage to which an individual company should adhere.
- Growing role of human rights: The judgment reflects a growing recognition of human rights in the climate debate. The Hague Court of Appeals noted that citizens can invoke these rights in their relationship with private companies through their horizontal effect, potentially resulting in a duty of care to reduce their emissions.
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Companies with a presence in the Netherlands may still be a target of future lawsuits challenging their climate strategy: The court of appeals' decision highlights that although specific reduction percentages cannot currently be set for individual companies, the intersection of climate change and social responsibility may be considered by courts.
