On a rainy afternoon in The Hague, the district court delivered a judgment against Royal Dutch Shell, the parent company of the Shell group. It refuted the excuses regularly relied on to continue extracting oil and gas and vindicated longstanding calls to keep fossil fuels in the ground. The court held that Shell’s current policy of merely reducing the “carbon intensity” of its products by 20% by 2030, and aiming to reach net zero by 2050, would contribute to climate impacts that endanger the human rights of the plaintiffs.
The extraordinary events preceding the oil industry’s so-called Black Wednesday bring to mind the proverbial path to bankruptcy: it happens gradually, and then all at once. Hot on the heels of a landmark report by the global energy body the International Energy Agency warning against new fossil fuel production, Wednesday’s historic ruling has blown another hole in the defences of an industry that has overwhelmingly failed to accept responsibility for driving the climate emergency.
The court found that Shell’s policy is inadequate to meet the requisite standard of care under Dutch law, and ordered that the carbon emissions of the Shell group’s global activities be reduced by 45% by 2030 relative to 2019. Further, it held that this obligation relates to Shell’s entire energy portfolio and required that it cuts its operational emissions while making best efforts to reduce the emissions of its suppliers and emissions of its end users or customers by 45%. This is huge: Shell not only has to clean up emissions created by extracting oil and gas, but also has legal responsibilities in relation to the emissions produced by burning those products.
The decision marks several legal firsts with global implications. It is the first time that a court has found that a company has a legal duty to reduce its greenhouse gas emissions in line with the goals of the Paris climate agreement. It is also the first time that international human rights standards have been used to inform a binding emissions-reduction obligation for a company.
Just as importantly, the court set a new precedent by scrutinising and rejecting some of the most common arguments used by the fossil fuel industry to justify its business model. It was unconvinced by Shell’s claim that reducing its emissions is pointless because its competitors will simply fill the gap by extracting and selling more oil and gas. The court referred to evidence that limiting fossil fuel production does in fact reduce emissions, and even if it accepts the claim, Shell is not absolved of the need to control emissions for which the company is responsible. Further, given the global need to reduce oil and gas extraction, other companies will also be required to take similar steps, levelling the competitive playing field.
Shell’s argument that it is simply responding to continued demand for oil and gas, commonly referred to as the “drug dealer’s defence”, received similar treatment. The court was clear that the energy products that Shell supplies influences demand. Regardless, it reasoned, Shell still has an individual responsibility for the emissions over which it has control.
It is hard to overstate the consequences of a decision that is already being hailed as a turning point for big oil. Given the replicability of the arguments and the international standards and common facts that comprise the basis of the case, it will inspire a wave of similar actions around the world. The judgment has put the industry and its financial backers on notice that a company setting distant net zero targets without credible short-term action to reduce emissions exposes it to the risk of litigation, with knock-on effects expected for the cost of capital for oil and gas projects.