Milieudefensie v Shell: 3 Takeaways and Challenges on the Appeal’s Court Decision – Climate Law Blog

On November 12, 2024, the Dutch Court of Appeal in The Hague issued its eagerly awaited appeals judgment in Milieudefensie (Friends of the Earth Netherlands) and others v. Royal Dutch Shell. The applicants sought an injunction declaring that Shell is legally bound to reduce its carbon dioxide (CO2) emissions by 45% below 2019 levels by 2030. Alternatively, the applicants pleaded for a reduction of 35% or 25%. Milieudefensie referred to a range of emissions reduction reports to demonstrate that the emissions reductions were required as a minimum fair reduction share for Shell, given a global carbon budget. They further argued that the reduction aim would have to encompass Scope 1, 2 and 3 emissions.

The district court had granted Milieudefensie’s claims for a reduction target of 45% by 2030, leading to Shell’s appeal in 2022. The appellate court followed the district court’s decision to a large extent, but also deviated from it on crucial points. In particular, the Court found that it could not impose a concrete minimum emission reduction target on Shell. This blog post explains some of the key takeaways from the appeal, highlighting some critical ground rules laid down by the court which may serve future litigation and several key challenges.

1. Shell has a duty of care based on human rights and soft law

One of the most important outcomes of the appellate decision – and a reason why the judgment is still celebrated as a success in Dutch civil society (see here and here) – is that the appellate court reaffirmed that Shell has a legally binding societal “duty of care” to “protect human rights against dangerous climate change.” As the appellate court stated, Dutch citizens “have the right to protection against dangerous climate change, also from Shell.” The appellate court additionally stated that it “is convinced that the climate problem is the biggest problem of our time.” […] Climate change harms the rights protected by Articles 2 and 8 [European Charter of Human Rights], in the Netherlands and beyond, and will continue to harm them.

Shell’s duty of care stems from Article 6:612 of the Dutch Civil Code, which states that “whoever commits an unlawful act against another, that can be attributed to him, is obliged to compensate for the damage suffered by the other as a result” (emphasis added). The term “unlawful act” has long been interpreted as including a so-called “societal duty of care” requiring people not to act contrary to “unwritten rules of (un)acceptable societal behavior.” This duty is a so-called “open norm” which must be interpreted on a case-by-case basis, in light of the situation at hand, and with reference to available “objective reference points.” The latter include relevant legal principles, constitutional rights, jurisprudence and expert reports.

Similar to the district court, the appellate court affirmed that the “societal standard of care” can be interpreted in light of a range of relevant international and regional human rights standards, as well as broadly accepted “scientific consensus” around climate change. Amongst relevant materials taken into account are binding judgments of regional courts (such as the recent ruling of the European Court of Human Rights in the Klimaseniorinnen case) as well as key international soft law documents, such as the UN Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Corporations, or UN General Assembly Resolution 76/300 (2022) on the Human Right to a Clean, Healthy and Sustainable Environment. The Court referred to the latter, amongst others, to conclude that there is “no doubt that protection from dangerous climate change is a human right.” It additionally drew inspiration from a handful of national climate cases around the world that affirmed that human rights standards apply to climate change, both in the Global North and South (for example, the Brazilian Climate Fund case, the Pakistani Leghari case, Colombia’s Future Generations case, and the Indian Ranjitsinh case).

The appellate court further referred to the aforementioned international soft law documents on business and human rights, and new binding EU laws on corporate social responsibility and due diligence to conclude that corporations clearly bear responsibilities for human rights, environmental protection and climate change, and that there is a certain “indirect horizontal effect of human rights” between corporations and individuals in this regard.

2. Shell’s duty of care includes Scope 1, 2, and 3 emissions reductions

The appellate court reaffirmed that Shell’s duty of care extends to its Scope 1, 2 and 3 emissions. Scope 1 emissions are direct emissions from facilities owned or controlled by the company. Scope 2 refers to indirect emissions associated with the company’s purchase of energy (e.g. electricity, steam or heat) for business activities. Scope 3 includes all other indirect emissions arising in a company’s value chain, including emissions arising from the use or consumption of products that the company supplies to third parties.

In relation to its Scope 1 and 2 emissions, Shell successfully convinced the court that there would be no imminent risk that Shell violates a legal duty under Article 6:612 Civil Code. Shell is well on track to meet its own (rather ambitious) targets for reducing Scope 1 and 2 emissions by 50% below 2016 levels by 2030. The Parties accepted that this is a more ambitious target than the one demanded by Milieudefensie.

The appellate court additionally denied Milieudefensie’s request to impose a specific binding target of emissions reductions on Shell for its Scope 1 and 2 emissions, rather than rely on Shell’s own voluntary commitments. The court concluded that, based on current climate law and wider scientific consensus, it cannot to determine a concrete minimum CO₂ reduction target for any specific company or specific sector. The court rejected Milieudefensie’s argument that “Shell has adjusted its policy several times in the past, and the current target offers no guarantee of further or lasting emission reductions.”

In relation to Scope 3 emissions, the appellate court noted that approximately 95% of all emissions reported by Shell according to the global reporting standard for emissions reporting (the “GHG Protocol”) are Scope 3 emissions. The majority of these result from the combustion of oil and gas sold by Shell, of which one third are also produced by Shell itself.. This leads to an important distinction between fossil fuels specifically produced or merely traded by Shell, as discussed in more detail below.

Importantly, the appellate court clearly accepted that Scope 3 emissions must be reported and reduced (in so far feasible) as part of Shell’s duty to protect human rights against dangerous climate change. However, it is unable to impose a concrete minimum emission reduction target on Shell, because “the available figures do not provide the Court with sufficient basis to oblige Shell to reduce its CO2 emissions by a certain percentage in 2030.”

3. Carbon-lock in argument

A particularly noteworthy part of the decision is the appellate court’s discussion of projected investments in new oil and gas fields. The appellate court notes that a quarter of Shell’s production by 2030 is anticipated to derive from fields that were not yet in production in 2021. Over 50% of its investments until 2023 are expected to go to new fields. Milieudefensie’s argument that investments in new oil and gas fields are contrary to achieving climate objectives under the Paris Agreement was dismissed by the Court as not being directly part of the claim, but the court considered the argument in some detail, obiter dicta, nevertheless. In particular, the appellate court cited the Intergovernmental Panel on Climate Change in noting that:

existing planned and approved fossil fuel infrastructure will exhaust the remaining carbon budget. Therefore, there is no room for new investment in fossil fuel supply and a need to decommission existing assets. Additionally, the [International Energy Agency] states that new fossil fuel supply is incompatible with the required emissions trajectory to achieve net zero, and that includes new supplies of natural gas and [liquified natural gas] exports, which must peak and decline by the end of this decade.

Milieudefensie seems to successfully convince the court that new investments will create a harmful “carbon lock-in” effect: the exploration, extraction, production, transportation and distribution of fossil fuels require significant initial investments that need to be recovered over a long period of time. After the infrastructure is established, the fossil fuels can be produced relatively cheaply. Shell recognizes this carbon lock-in effect as well.

As a result, the Court found that Shell’s proposed investments in new fossil fuel production, including liquified natural gas facilities, could have the effect of seriously delaying the energy transition. To keep the objectives of the Paris Agreement within reach, CO2 emissions need to be drastically reduced. To achieve this goal, rapid phase-out of fossil fuels is required. According to the Court, the societal duty of care “requires fossil fuel producers to consider how their investments delay the energy transition and frustrate the aim of keeping global warming within 1,5˚C. This is a key statement because the Court essentially suggests that fossil fuel companies may be expected to keep new oil and gas stocks “in the ground.” This had been suggested by the district court as well.

1. Impossibility to define minimum reduction standard for 2030

A key question raised in the case was whether Shell had an obligation to reduce its CO2 emissions by 45% by 2030 relative to 2019 levels. The district court had found that Shell did have such an obligation, and ordered Shell (directly and through the companies and legal entities of the Shell group) to limit its aggregate annual volume of CO2 emissions (including scope 1, 2, and 3 emissions) by at least net 45% by 2030 relative to 2019 levels.

The appellate court found that based on the existing available climate agreements and science, including a range of reports cited by Milieudefensie, it was unable to establish that Shell should reduce its CO2 emissions by any specific percentage. The court concluded that, while Shell must contribute appropriately to the climate goals of the Paris Agreement, existing climate laws do not impose concrete reduction rates for individual companies or sectors. For example, under EU law, companies like Shell have incentives to reduce emissions and can choose their approach for a climate transition plan.

However, the mere fact that EU and national laws do not impose specific emissions reduction requirements on individual companies, or specific sectors, is not a sufficient argument to avoid responsibility. A relevant reduction target could be distilled through climate science. The appellate court considered in this respect the various reports cited by Milieudefensie, which suggested a minimum necessary emissions reduction objective of 45%, 35% (e.g., IEA report), or even 25%. The court concluded that this variation in targets demonstrates that there is no clear consensus about what is minimally necessary, or a minimum fair share for a company like Shell. The court further found that, while there is general scientific consensus that to stay within 1,5 degrees warming, it is necessary to achieve an average reduction of 45% by 2023 compared to 2019, that target cannot be applied in the abstract to Shell.

In the Urgenda judgment, the Dutch Supreme Court found that the Netherlands had a positive obligation, based on a widespread consensus in the international community and climate science, backed up by IPCC reports, to reduce GHG emissions by 25% in 2020. The percentage was the absolute minimum in the context of the Netherlands’ positive obligations under Articles 2 and 8 of the ECHR, representing a “minimum fair share” as an Annex I country. In essence, the Court seems to consider that the consensus for Shell is not as strong as for the Netherlands as a State. Therefore, the court decided that it was not possible to impose a minimum reduction target, similar to the Urgenda-case.

2. Scope 3 emissions and substitution effect

A crucial aspect of the energy transition relates to the “substitution effect,” in which the supply of and/or demand for fossil fuel does not automatically disappear when one fossil fuel company, like Shell, transitions out of fossil fuels by refocusing on renewables. A significant challenge occurs when fossil fuel production or sales are just replaced by different actors. This discussion was important in Shell’s defense.

The importance of the “substitution effect” is one of the aspects on which the district and appellate courts disagreed. A major reason for the appellate court to consider that imposing a specific reduction aim on Shell is not in order, is a practical one. The court accepts that Shell’s trade in fossil fuels may be quickly substituted by other companies, therefore not having any climate benefit. Simply removing Shell from the fossil fuel “value chain” as a trader may not lead to any actual emissions reductions, if other companies take over its share. The appellate court accepted, however, that the “substitution effect” may be higher for traded fuels, than for fuels actually produced by Shell itself. The appellate court thereby accepts that limiting production of gas and oil (limiting the supply) could have greater effects. The findings directly contradict with the district court’s judgment, which considered that it “cannot be readily assumed” that substitution effects will occur. Moreover, each effort to ensure emissions reductions counts towards averting dangerous climate change and protecting human rights.

Other substitution arguments were also accepted by the Court. First, it considered that applying a uniform reduction percentage across all GHGs and fossil fuels may yield inconsistent results, especially when applying them to oil and gas; for instance, Shell’s own emissions could increase if it supplies gas to a third party. However, if that part had previously used coal, overall CO₂ emissions would drop “in the short term,” leading to some climate benefits. The role of gas specifically as important “transition fuel” is also further noted below. Second, different sectors and countries require tailored emissions reduction pathways: Shell’s scope 3 emissions span sectors like transport and construction, where emissions reduction is inherently more challenging and gradual. A generic target ignores the nuances of these sector-specific pathways.

Additionally, while Shell, as a major oil company, bears a unique responsibility to curb emissions, the court emphasized that Shell’s obligations must align with its “fair share” in the energy transition. Holding Shell to the average global reduction rate overlooks the equitable distribution of transition costs and benefits, essential for a “just transition.”

3. Gas as a transition fuel: carbon lock-in effects?

Finally, the appellate court acknowledged that limiting fossil fuel supply will be necessary to comply with the Paris Agreement’s long-term temperature goals. Producers of fossil fuels, such as Shell, have a “special responsibility” to consider the negative impacts of fossil fuel production and the expansion of supply when making new investments. In this sense, the Court hinted that the development of wholly new oil and gas fields is undesirable, and possibly illegal.

However, when it comes to (temporarily) substituting certain fossil fuels with gas as a so-called “transition fuel,” the appellate court seems to accept that “at least in the short term,” replacing coal with gas may yield important benefits for the climate system. According to the Court, parties do not dispute that “the burning of gas is less onerous on the climate than the burning of oil and that the burning of oil in turn is less onerous than the burning of coal. Shell neither extracts nor supplies coal to its customers.” This line of argument, however, seems dangerous and fails to consider the Court’s own comments earlier in the judgment on Scope 1 and 2 emissions, notably: the risk of creating harmful “carbon lock-in” effects when allowing coal to be substituted for coal or gas. The appellate court does not clearly consider what may happens when (developing) countries invest in a transition from coal to gas, rather than immediately prioritizing a transition to renewables. How much will a transition to gas delay the clean energy transition, including by diverting resources away from investment in renewables? And with what dangerous effects on human rights?

Civil society, lawyers and academics in the Netherlands and beyond will likely be studying the implications of this judgment for some time to come, both for carbon majors such as Shell, as well as for pending cases against fossil fuel financers, like Milieudefensie v. ING Bank. The latter also addresses new investments in fossil fuel production. In light of the significant differences between the district and appellate rulings, and keeping in mind that that the Dutch Supreme Court in the Urgenda case was most responsive to appellants’ arguments – it seems likely there will be a further appeal.