UK Supreme Court requires EIAs to consider likely direct and indirect environmental effects

On 20 June 2024, the Supreme Court of the United Kingdom (the Court) in Finch v. Surrey CC (2024) The UK Supreme Court 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 that they did, finding that it had been unlawful for Surrey County Council (the Council) to grant planning permission for the project because the developer had failed to include in its EIA the combustion of downstream emissions that would result from the burning of oil extracted from the well site.

This decision highlights the importance of assessing all likely significant direct and indirect environmental effects when applying for a project development permit, noting that “only effects that are likely to occur and that can be meaningfully assessed should be assessed”. It also provides guidance on how to appropriately assess the cause-and-effect relationship between the proposed project and the resulting greenhouse gas (GHG) emissions.

The Court’s decision will undoubtedly lead to greater scrutiny of EIAs and whether they adequately consider and account for the environmental effects of a proposed project. Those responsible for preparing EIAs will no doubt have additional questions going forward, including the extent to which downstream or Scope 3 emissions can be considered “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 this further, please do not hesitate to contact the authors of this blog post or your usual Latham attorney.

What are the facts of the case?

Before planning permission can be granted for a development project that is likely to have significant environmental effects in England, an EIA is required under the pre-Brexit regulations, the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (the 2017 Regulations) and European Union Directive 92/11/EU (the EIA Directive). The EIA Directive requires that an EIA must identify, describe and assess the likely “significant direct and indirect effects” of a development project on the environment, including the impact on the climate. Authorities are allowed to grant planning permission 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. SurreyA developer applied to Council for planning permission to expand oil production from a drilling site at Horse Hill in Surrey. The proposed project would have involved the extraction of oil from six wells over a 20-year period and therefore required an EIA under the 2017 Regulations and the EIA Directive. The developer’s environmental statement addressed a wide range of issues but was limited to an assessment of GHG emissions within the boundaries of the drilling site. Council granted development consent for the project, but this was challenged by a local resident on the grounds that Council had failed to meet its EIA obligations under the EIA Directive and the 2017 Regulations, including by failing to assess downstream GHG emissions that would be caused by the combustion of oil extracted from the drilling site.

In response, the proponent argued that the fundamental nature of the development project should be limited to the extraction and production of hydrocarbons within the boundaries of the drilling site, and that further refining or processing and use of the extracted oil were not part of the project. This argument was based on the principle that the environmental assessment should focus only on activities directly related to the drilling site (such as the construction of the well and the extraction of fuel from the ground), rather than on what was happening at other locations.

The High Court and the Court of Appeal agreed with the developer, holding that the Council was entitled to decide that downstream emissions caused by the extracted oil were not an indirect effect of the project for the purposes of the EIA Directive. At first instance, Mr Justice Holgate of the High Court dismissed the resident’s application for judicial review of the Council’s decision, holding that the combustion emissions were outside the scope of the EIA required by the 2017 Regulations. The Court of Appeal upheld this decision by a majority, stating that “the environmental effects of the (combustion) emissions could reasonably be regarded as being very remote from, and not causally connected to, the proposed development itself because of the series of intermediate steps between the extraction of the crude oil and the ultimate generation of those emissions.”(2022) EWCA Civ 187, (66). The Court of Appeal also held that the question of whether to assess these emissions was a matter of evaluative judgment for the Council, which had a reasonable and legal basis for excluding combustion emissions from the EIA.

The Court’s decision

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

By a majority of 3 to 2, the Court found the Council’s decision unlawful, finding that the downstream emissions from the project fell within the scope of the EIA required by law. The majority held that the Council’s failure to assess the climate impact of burning the oil that would be produced from the proposed drilling 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” must be tested through a causal link; “but for” the extraction of the oil, the oil would remain in the ground and therefore would not be burned and would not emit GHGs.

It is important to note that the Court rejected the argument that refining crude oil breaks the causal link between extraction and combustion. According to the Court, refining does not change the fundamental nature of oil or its intended use; oil has a foreseeable end use (combustion) and therefore GHG emissions can reasonably be expected to occur at some point in the future.

In determining whether these downstream emissions should be covered by an EIA, the Court also considered it relevant that these emissions could be readily quantified for the proposed project or “capable of being meaningfully assessed”. It was not disputed that the oil extracted from the Horse Hill site would ultimately be refined and burned, releasing GHGs into the atmosphere. In fact, the proponent 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 and other raw materials, such as iron or steel. Taking the example of a steel manufacturing plant, the Court found that “countless decisions” were made “downstream” about how steel is used and how products made from that steel are used. According to the Court, this uncertainty about future use would also make it impossible to identify such downstream environmental effects as “likely”, or to carry out a “meaningful assessment” of such effects when preparing an EIA or planning application.

The Court also refused to accept that an EIA should be limited to emissions expected to occur at the project site. According to the majority, indirect effects, by their nature, can occur far from their source, and the impact of GHG emissions on the climate does not depend on where they occur.

What does this decision mean for projects and EIAs in the UK?

The Court’s decision underlines the importance of a comprehensive impact assessment that includes all significant direct and indirect environmental effects, provided there is evidence that they are likely to occur and can be readily quantified.

For fossil fuel projects where there is “no element of conjecture or speculation as to what will ultimately happen” to the product, such as a project to extract oil from a well or coal mine, consideration of emissions downstream of combustion as part of the “project effects” for the purposes of an EIA is now mandatory. However, as explained above, other types of projects may not have to do so, if a meaningful assessment is not possible.

In future, the scope of EIAs will need to be assessed on a case-by-case basis, and each EIA will need to be appropriately tailored to take into account the specific direct and indirect effects that a project is likely to have on the environment, and whether these effects can be quantified.