Milieudefensie and Shell will be back in court from 2 April onwards to argue the landmark case on appeal. In the first instance, Milieudefensie had won against Shell before the District Court of The Hague (District Court), resulting in the latter appealing the ruling. Milieudefensie v. Shell was the first major climate litigation case whereby claimants demanded policy changes from a polluter.
On 5 April 2019, Milieudefensie issued a summons to Shell. Milieudefensie sought legal confirmation of Shell’s obligation as a parent company within the Shell Group to reduce its emissions as well as the emissions of its end-users. The target sought by Milieudefensie was an emissions reduction of 45% by 2030, compared to 2019 levels. In the alternative, it sought a 35% or 25% reduction.
Milieudefensie’s argument was that Shell was knowingly contributing to dangerous climate change, and was therefore engaging in “unlawful endangerment”, known as “hazardous negligence”. By extension, it follows that Shell was not complying with its unwritten standard of care under Article 6:126.
The Ruling of the District Court of the Hague
Milieudefensie’s argument was that Shell has knowingly contributed to dangerous climate change, and was therefore engaging in “unlawful endangerment”, known as “hazardous negligence” and that Shell was not complying with its “unwritten standard of care”.
The District Court reasoned that there indeed exists an unwritten standard of care under Article 6:162(2) of the Dutch Civil Code. This Article reads as follows:
“As a tortious act is regarded as a violation of someone else’s right (entitlement) and an act or omission in violation of a duty imposed by law or of what according to unwritten law has to be regarded as proper social conduct, always as far as there was no justification for this behaviour”.
In other words, acting in opposition to what is generally accepted as proper social conduct is unlawful. To determine whether Shell is acting in accordance with such an unwritten standard of care towards Dutch residents, the District Court reviewed several national and international (policy) documents, Shell’s position and actions, as well as numerous climate change and energy-related factors.
In its review, the District Court found, inter alia, that climate change “has serious and irreversible consequences, with potentially very serious and irreversible risks for Dutch residents”. Moreover, such consequences pose a threat to the human rights of Dutch residents. From the Urgenda ruling, the District Court further deduces that Articles 2 and 8 ECHR can be used to offer protection against adverse climate change impacts, and that Shell must offer such protection across its entire supply chain.
Referring to the latest science on climate change and reduction targets, the District Court argues that “a net 45% reduction of CO2 emissions in 2030, relative to 2010 levels, offer the best possible chance worldwide to prevent the most serious consequences of dangerous climate change”. With regard to an argument brought by Shell that global reduction targets do not specify obligations for specific sectors or even individual actors, the District Court agrees. However, the District Court does argue that since there is such wide consensus on reduction targets, it is part of Shell’s unwritten standard of care, regardless of the specific measures chosen to achieve the target.
Considering to what extent such reduction targets may apply to Shell, the District Court highlights Shell’s position as “a major player on the fossil fuel market and responsible for significant CO2 emissions”. Therefore, it concludes that Shell has a results obligation to reduce Scope 1 emissions, and a best efforts obligation with regard to Scope 2 and 3 emissions.
One of Shell’s arguments had been that the imposition of any reduction target on them would be counterproductive since their place in the market would be taken by another fossil fuel company. The District Court countered this, saying that although this may be true, it is not an argument that can prevent the court from imposing any obligation on Shell since it does not “absolve” Shell of its partial responsibility to reduce emissions. Similarly, Shell argued that a reduction obligation would lead to unfair competition. Shell did not sufficiently provide evidence for this, nor did the District Court accept the argument, since other companies will also be required to make their respective reductions.
As such, the District Court argued that Shell has an obligation to reduce its CO2 emissions by 45% by the end of 2030, compared to 2019 levels. This obligation applies to its entire portfolio and across all three emissions scopes.
The District Court thus held that Shell acted unlawfully by not being in compliance with a societal standard of due care. Under Dutch law, such a societal standard can be given form through (international) laws, regulations, and non-binding guidelines, such as the Paris Agreement or the ECHR. As per this ruling, this means that such international instruments may even be interpreted to apply to companies, even though companies are not legally bound by such instruments.
Shell’s 2022 Appeal in Milieudefensie v. Shell
According to Shell, it is actively taking steps to comply with the ruling of the district court at The Hague (which is thoroughly disputed by Milieudefensie). It nonetheless decided to appeal the ruling, maintaining that “there is no legal basis for it under Dutch law and we do not believe it is the right solution for the energy transition”. Shell furthermore argues that by focusing on the “supply of energy rather than the demand for it” as well as focusing on a single contributor, the ruling is “ineffective” and “counterproductive”.
In its appeal, Shell argues it does not have a “binding and enforceable obligation” under Dutch law to reduce its emissions in accordance with the ruling, as it argues the District Court did not apply the law correctly. Shell bases this argument on four key points:
1. The imposed reduction obligation fails to take into account the context of the global energy transition.
The energy transition involves a variety of policy issues and other trade-offs. Shell argues that governments are best placed to address these issues and that they should in fact lead the transition. This is a continuously evolving context, and so Shell states: “[T]here is no rule with the status of a legal obligation requiring a specific percentage reduction in emissions, by a specific date, by a specific entity, i.e. Shell”. By applying the rule of unwritten law, Shell argues, the District Court created a novel policy which is dangerous to legal certainty, as the court is assuming the role of the legislator.
2. The international consensus for a specific target cannot be applied to an individual actor.
The existence of a global average reduction target of 45% by 2030 doesn’t automatically mean that this target can be applied to individual actors such as Shell, it argues. According to Shell, this means that the original ruling may cause uncertainty, as it is unclear to which actors the target applies. By applying global emissions reduction targets to individual actors, the District Court did not take into account the efforts taken by national governments across their entire economies, which therefore also affected Shell.
3. The reduction obligation is not supported by human rights principles, multilateral climate agreements, and European Union law.
Shell opposes the District Court's use of Articles 2 and 8 ECHR to establish an unwritten standard of care since the District Court’s analysis is not explained, nor do these articles apply to any non-State actor. Moreover, Shell maintains that the District Court’s use of normative, non-binding frameworks, such as the United Nations General Principles, is unwarranted since none of these contain binding legal obligations. Imposing a reduction obligation is also in violation of European Union law, specifically Article 34 of the Treaty on the Functioning of the European Union, which provides for the free movement of goods. The reduction obligation is also anti-competitive, as per Shell, as it can no longer properly compete with rivals, which is in violation of Article 4(3) of the Treaty of the European Union.
4. The imposed reduction obligation will be ineffective in reducing global emissions.
Shell reintroduces its argument that by reducing Shell’s emissions, another fossil fuel player will take its place within the market. Shell also highlights its voluntary reporting initiative on Scope 3 emissions. It states that Scope 3 emissions are not an appropriate metric under the reduction obligation, since “reductions in global CO2 emissions may correspond with certain components of the Scope 3 emissions reported by the Shell Group remaining constant or even increasing in the short to medium term”. Therefore, Shell would favour an emissions intensity target over an emission reduction obligation.
Milieudefensie’s Statement of Defence on Appeal
To respond to Shell’s appeal, Milieudefensie replied to the arguments made by Shell in its appeal in its defence on appeal.
1. The balance between legislators and the judiciary.
Shell contends that decisions regarding the energy transition lie solely within the political realm and that the District Court’s order disrupts legislative-judiciary relations. However, Milieudefensie argues that orders made under Article 3:296 of the Dutch Civil Code do not infringe any separation of powers. Orders made under Article 3:296 need only not be complied with if exempted by law, nature of obligation, or contract. Shell did not appeal to any of these exemptions. Shell furthermore failed to have regard for its own independent responsibility to prevent dangerous climate change.
The correct application of Article 6:126(2) of the Dutch Civil Code reveals a clear indication of an independent duty on Shell’s part, which means that the District Court had simply followed legal procedures outlined in statutory law. Finally, Milieudefensie argues that a Dutch court is only prohibited from issuing an order to enact legislation with particular content. A judicial order to take measures to achieve a certain goal is however permissible.
2. The use of the international consensus to construct what is proper social conduct.
According to Shell, proper social conduct is not general conduct by is bound by context. Shell had argued that proper social conduct must be “obvious, generally known, socially natural, and in accordance with law”. No legal basis was given by Shell for this claim, leaving Milieudefensie to think “Shell seems to have made this rule up”. Since proper social conduct can be based on an unwritten law, it follows that a court will have to use contextual information to construe whether there is a duty of care. As such, the reduction obligation imposed by the District Court is not, and more importantly, should not be, a general rule that applies to every company. The order was based on contextual factors specific to Shell.
As to Shell’s argument that international human rights obligations apply to states, not individual actors, Milieudefensie argues that rights under the ECHR apply horizontally too. This is well-supported by previous case law and jurisprudence. Moreover, Shell’s emissions are much larger than those of many states, which makes it all the more important that Shell abides by human rights obligations. Even though the horizontal application of the ECHR is not explicitly included, it is specified that it is up to national courts to decide to apply the rights of the ECHR to individual actors. The United Nations Guiding Principles on Business and Human Rights, the United Nations Global Company, and the OECD Guidelines for Multinational Enterprises further provide normative contextual information, although Milieudefensie argues that even without using these international frameworks, a duty of care would exist.
3. The imposed reduction obligation.
Before the District Court, Milieudefensie had explained that according to the Science Based Target Initiative, it is best practice for companies to also comply with the 45% emissions reduction target by 2030. The same practice is maintained by the United Nations’ Race to Zero. In fact, due to Shell’s position as one of the largest polluters, it should be doing much more than the global average of 45% emissions reduction, as specified by the Common but Differentiated Responsibilities principle. By reducing emissions to less than 45% by 2030, Shell is again taking more risk than is socially proper.
4. Shell’s current climate policy.
According to Milieudefensie, Shell’s current corporate policy will not contribute to any emissions reduction. It has not specified a goal to actually reduce its absolute emissions, and it is highly unlikely its emissions will even be reduced by 2030. Instead, Shell plans to continue large-scale investments in oil and gas activities until at least 2030. Shell favours an emissions intensity target over the imposed reduction obligation. However, Milieudefensie shows why this would be inefficient. The imposition of an intensity target does not guarantee an absolute reduction in emissions. Shell’s current climate plans also heavily focus on carbon intensity targets, which make it seem that the plans are more ambitious than they are in reality. In addition, Shell’s plans are dependent on the speed its clients are transitioning towards renewables, and it refuses to outpace its clients. Milieudefensie also spends considerable efforts highlighting Shell’s greenwashing and lobbying activities. Shell also heavily invests in the use of carbon credits to mask its own inadequate climate targets and to continue to sell as much fossil fuel as possible.
Therefore, Milieudefensie is now requesting the Court of Appeal to strengthen the original order. The order requires improvement and/or additional terms to ensure that Shell complies with the net component of the order, and does not muddle its target through the use of ineffective measures that ‘offset’ its emissions.
5. Shell’s objection to the inclusion of Scope 3 emissions.
Milieudefensie explains that Shell’s Scope 3 emissions are often the Scope 1 and 2 emissions of other companies, which will be unable to reduce their emissions unless Shell does. It is irrelevant that there are differences in the way companies report on their Scope 3 emissions. The only relevant framework is the differences between Shell’s reporting of its own Scope 3 emissions across different years. Additionally, double counting of Scope 3 emissions cannot be an objection to the reduction obligation. In fact, double counting only encourages multiple entities to reduce Scope 3 emissions. When one entity reduces its emissions, this can help others do the same.
6. The effectiveness of the reduction obligation.
Milieudefensie counters Shell’s argument that the order will not be effective in reducing emissions. It argues that the reduction obligation must only be effective in reducing Shell’s emissions, which is sufficient to meet efficiency criteria. No reduction can be neglected since every reduction will allow for more space in the carbon budget. Several experts have weighed in to demonstrate that the order will indeed be efficient in decreasing Shell’s emissions.
7. Violations of European laws.
According to Shell, the order interferes with the European Union's right to freedom of movement of products. Milieudefensie highlights that referring to European Union law is odd, since the order applied to Shell internationally, equally within the European Union and outside of it. Shell also neglected to take the comprehensive set of European Union laws into account, of which freedom of movement is just one of many. Fighting climate change is one of the European Union’s main policy targets. The protection of human rights within the European Union is a high priority.
The Hearings Before the Court of Appeal
Milieudefensie v. Shell will be back in court on 2, 3, 4 and 13 April 2024, before the Court of Appeal. It is expected that a ruling will be issued in the second half of 2024
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