Dismissal of judicial review highlights the challenges in pursuing climate change-related claims in the UK

In Cox & Ors, R (On the Application Of) v The Oil and Gas Authority & Others,¹ the English High Court considered a challenge to a revised strategy issued by the UK Oil and Gas Authority ("OGA"). The challenge was brought by way of an application for judicial review of the OGA's strategy on the basis that: (i) it contained an error of law and/or there was frustration of statutory purpose; and (ii) it was "irrational" in light of the UK Government's action on climate change. Whilst the High Court dismissed the application on all grounds, the challenge is a further example of the European-wide trend of climate activists seeking to use litigation as a means of holding governments to account for their climate-related commitments.

Background

The OGA regulates petroleum recovery and is responsible for licensing and approval decision-making. This includes administering an OGA Strategy approved by Parliament, which is required pursuant to Part 1A of the Petroleum Act 1998 (the "Act").

Part 1A ("Maximising Economic Recovery of UK Petroleum") was added to the Act in 2015. This provided, at section 9A, that the "principal objective" was "maximising the economic recovery of UK petroleum" and required the Secretary of State to produce "one or more strategies for enabling the principal objective to be met".

The first "Maximising Economic Recovery Strategy for the UK" came into force in March 2016 (the "2016 Strategy").² This provided a definition of "economically recoverable" petroleum that reflected the pre-tax approach to the assessment of economic recoverability that had existed prior to the introduction of Part 1A.

In 2020, the OGA consulted on a new Strategy to replace the 2016 Strategy, with the key proposed amendments relating to minimising emissions from recovery activities to help achieve the net zero target that had been introduced by the Climate Change Act in 2008.

The Climate Change Act originally provided for the "net UK carbon account for the year 2050" to be at least 80 per cent lower than the 1990 baseline, but this was revised in 2019 to 100 per cent lower than the 1990 baseline (the "Net Zero Target").³

The OGA's new strategy came into force of 11 February 2021 (the "OGA Strategy").⁴ This defined "economically recoverable" as:

"…those resources which could be recovered at an expected (pre-tax) market value greater than the expected (pre-tax) resource cost of their extraction, where costs include both capital and operating costs (including carbon costs) but exclude sunk costs and costs (such as interest charges) which do not reflect current use of resources. In bringing costs and revenues to a common point for comparative purposes a 10% real discount rate will be used. Where relevant, UK Government carbon appraisal values for all greenhouse gas emissions will be used combined with the associated real terms social discount rate".

It is this wording that was challenged by the Claimants by way of judicial review.

The two grounds of challenge and the High Court's decision

The Claimants, three climate activists, challenged the OGA Strategy on two grounds:

Ground 1: Error of law and / or frustration of statutory purpose

The Claimants argued that the phrase, "maximising the economic recovery of UK petroleum" in Section 9A of the Act must be re-defined because the inclusion of the wording: "resources which could be recovered at an expected (pre-tax) market value greater than the expected (pre-tax) resource cost of their extraction" in the OGA Strategy's definition of "economically recoverable" was erroneous. The Claimants further argued that, by the inclusion of this language, the OGA had directed itself in law to apply the statutory objective of "maximising the economic recovery of petroleum" on a pre-tax basis, thereby allowing itself to approve activities that are not economic for the UK as a whole and therefore lose social value.⁵

The Court did not accept that the statutory purpose of the OGA's Strategy was to maximise value for the UK as a whole, since the wording "UK as a whole" is not part of the statutory definition. It also observed that the Claimants were wrong to conflate the concepts of economic recovery with commercial or cost-effective recovery (viewed through the prism of tax revenue). More specifically, the Court noted that cost-effective recovery is the concern of the operator, not the OGA. That being so, the Court found that there was no error in the approach of the OGA and it rejected the Claimants' challenge on Ground 1.

Ground 2: Irrationality

The Claimants argued that the Net Zero Target places a direct duty on the Secretary of State to ensure that the net UK carbon account for 2050 is at least 100 per cent lower than the 1990 baseline. Moreover, Part (b) to the Central Obligation in the OGA Strategy specifically requires relevant persons to take appropriate steps to assist the Secretary of State in meeting the Net Zero Target, "including by reducing as far as reasonable in the circumstances greenhouse gas emissions from sources such as flaring and venting and power generation, and supporting carbon capture and storage projects". The Claimants contended that this is inconsistent with the OGA Strategy's approach to "maximising the economic recovery of petroleum", which they argued will increase the amount of greenhouse gases emitted through recovery activities and create stranded assets from the infrastructure required for the same.⁶

In considering this Ground, the Court observed that, in order to succeed, the Claimants would have had to establish that, despite the fact that they accepted that the OGA had discretion as regards its adoption of the revised definition of "maximising the economic recovery of petroleum", and that the pre-tax method is not an incorrect construction, it was nonetheless irrational for the OGA to have adopted that definition.

The Court also noted that, since the Claimants accepted that the OGA had taken climate change into account in various ways in the OGA Strategy, they were effectively arguing that the only rational way in which the OGA could have accommodated climate change concerns was by adopting a definition of "maximising the economic recovery of petroleum", which was not a natural construction and departed from a long-held method of economic assessment. The Court found that there was nothing that would justify this conclusion and it therefore rejected the Claimants' challenge on Ground 2.

In arriving at its decision on Ground 1, the Court gave "considerable deference to the regulator's expert view",⁷ and noted that "It is highly unlikely that Parliament intended the Court (rather than the expert regulator) to determine the best method of economic assessment, as is the Claimant’s claim. I conclude, without hesitation that it did not so intend".⁸ Similarly, with respect to Ground 2, the Court concluded that the question of how to balance the objectives of "maximising the economic recovery of petroleum" and assisting the Secretary of State in meeting the Net Zero Target is a matter for the regulator, and not the Court.⁹

Commentary

The increased sense of global urgency to tackle climate change has resulted in a dramatic rise in the number of climate change-related legal claims and, in recent years, there has been a run of landmark decisions.

In particular, in 2019, the well-known Urgenda saga concluded with a decision of the Dutch Supreme Court, confirming an order that the Dutch government must reduce greenhouse gas emissions by at least 25 per cent by the end of 2020 compared to 1990 levels. Two years later, in Milieudefensie et al v. Shell,¹⁰ the District Court of The Hague extended the principles established in the Urgenda case and ordered Shell to reduce its worldwide GHG emissions by 45 per cent by 2030 (compared to 2019 levels).¹¹ Shortly after that, in VZW Klimaatzaak v. Kingdom of Belgium & Others,¹² the Brussels Court of First Instance found that the Belgian federal and regional governments had breached their duty of care and human rights obligations by failing to implement sufficiently robust climate change policies.

However, despite an important number of climate change cases in the UK courts, no similar landmark decision has been obtained. To the contrary, UK courts have repeatedly found against climate change-related claims and the High Court's dismissal of the challenge to the OGA Strategy is a further example of this.

Nevertheless, the increase in climate change-related litigation in the UK is set to continue. For instance, in January, two NGOs, ClientEarth and Friends of the Earth, filed separate cases against the UK Government, in relation to the (newly revised) Net Zero Strategy. Both claims are based on infringements of the Climate Change Act and the NGOs' main argument is that the policies in the UK Government's Net Zero Strategy are insufficient, and too theoretical, to achieve the targets limiting the total amount of greenhouse gases that the UK can emit over five-year periods on the road to net zero.

The outcome of these new cases could be very informative, as it may provide an indication of whether UK courts are becoming more sympathetic to climate change-related claims. Indeed, since these cases are direct challenges to the UK Government's greenhouse gas emission reduction efforts, they are comparable to the cases in neighbouring countries, such as the Urgenda case, in which claimants have succeeded in holding their governments to account.

It follows that these cases could, in principle, yield the landmark decision in the UK that, to date, has eluded climate change activists. If they do, this would be extremely significant for UK-registered companies, as rulings against the UK Government would likely pave the way for future climate change-related claims against corporates.

_{1 [2022] EWHC 75 (Admin).
2 The Maximising Economic Recovery Strategy for the UK.
3 The Climate Change Act 2008 (2050 Target Amendment) Order 2019.
4 The OGA Strategy.
5 Cox & Ors, R (On the Application Of) v The Oil and Gas Authority & Others [2022] EWHC 75 (Admin), para. 5(i).
6 Ibid. para. 115.
7 Ibid, para. 69.
8 Ibid, para. 71.
9 Ibid, para 136.
10 Milieudefensie et al v. Shell: Climate change claimants prevail again in Dutch court – this time, against corporations
11 This decision is currently under appeal.
12 Next up in Climate Litigation: Belgian Court condemns Climate Change Policies of Belgian Federal and Regional Government}

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