Including scope 3 emissions in environmental impact assessments used in public decision-making

What are scope 3 emissions? 

The classification of emissions originates in the Greenhouse Gas Protocol. Greenhouse gas emissions are divided into three categories (scope 1, scope 2 and scope 3). Scope 1 emissions are defined as direct and originate from sources directly from the company. Examples include emissions from mobile equipment on the company premises or emissions from combustion plants in a factory. Scope 2 emissions are indirect and not caused directly by the company. Scope 2 emissions include indirect greenhouse gas emissions from purchased energy, such as electricity or heat. 

It is established practice that scope 1 emissions can be included in public law decisions, whether or not for example through the ETS system.  Obligations relating to scope 2 emissions are also not new, for example through the obligation of companies to implement energy-saving measures (see also our blog on this subject).

At the end of the supply chain are the so-called scope 3 emissions. Impacts related to goods sold in the chain are called scope 3 emissions. This includes all indirect greenhouse gas emissions that occur over which the company has no ownership or direct control.

In the case of Milieudefensie v Shell, the Court rejected Milieudefensie's claims, largely on the basis of the interpretation of scope 3 emissions. Among other things, the Court ruled that imposing an obligation on Shell to reduce the carbon emissions of customers using Shell products (scope 3 emissions) would not be effective in this case. The majority of Shell's carbon footprint is made up of emissions associated with Scope 3 impacts, such as the use of petrol by motorists. The court reasoned that Shell could meet such a scope 3 emissions reduction commitment by, for example, stopping the sale of purchased fuel. However, this proved to be ineffective and could not reduce scope 3 emissions with scientific certainty. In fact, it would lead to other companies taking over this trade. The result would not be an actual reduction in total carbon emissions, but simply a shift to other parties.

Mapping Scope 3 emissions is therefore a complex challenge for (oil) companies, as these emissions are outside their direct sphere of influence.

What the case was actually about

In the case where the Supreme Court ruled that scope 3 emissions should be included, a developer (Horse Hill Developments Ltd) had applied to Surrey County Council for permission to expand oil extraction and production. The project involved the extraction of oil from six wells over a period of 20 years. Due to the scale of the project, an EIA was required and carried out under Directive 2011/92/EU (EIA Directive). The EIA did not include an assessment of Scope 3 emissions. The local council found the EIA sufficient and granted the permit in 2019 (before Brexit, so the EIA Directive is relevant).

A local resident challenged the permit, arguing that one of the reasons the decision was unlawful was that the EIA should have included an assessment of Scope 3 emissions, but did not. She lost at two instances and then appealed to the Supreme Court.

In fact, it was not disputed that all extracted oil is eventually processed and burned. The Supreme Court ruled by a majority of three judges to two that the EIA was incomplete because it should have included the impact of Scope 3 emissions.

Relevance of the case

As is well known, the UK left the EU in early 2020, so it is not bound by EU law anymore. We believe that the practical relevance can continue to be unquestioned for a number of reasons. 

Planning permission for the project was granted in 2019; one year before the Brexit. Therefore, in this case, the EIA Directive is still the basis for the EIA (which the Supreme Court found to be incomplete). For this reason only, we believe the judgment has relevance. Unfortunately, the Supreme Court was unable to make a preliminary ruling, if only because a request to do so should have been made before the end of the transitional period, 31 December 2020 (Article 86(2) EIA). We say unfortunately, because we are very curious about the Court of Justice of the European Union’s (CJEU) view on scope 3 emissions related to an EIA.

Judicial rulings from other jurisdictions may also have been important for European developments on scope 3 emissions and EIA’s. For example, it is not inconceivable that the 2006 Australian judgment Gray v. Minister for Planning played a role in European judicial decision-making. In this judgment, the Court ruled that the requirements for an EIA did not take into account Scope 3 emissions resulting from mine development. The mine's permit was annulled. 

A ruling by an international court is not binding on Dutch judges, but this does not imply that it is no longer relevant. National and European judges also examine the interpretation of European rules. The question of jurisdiction is not necessarily an obstacle to this.

The project in an EIA

As outlined in the EIA Directive, projects with a high potential for significant environmental impact are required to undergo an EIA prior to the issuance of development authorisation. The EIA process involves the identification, description and assessment of the direct and indirect significant effects of a project on a case-by-case basis. The initial concept of "a project" and its subsequent interpretation are therefore of great importance. Article 1(2) of the EIA Directive defines a project as: "the execution of construction works or the creation of other installations or works and other interventions in the natural environment or landscape, including those for the exploitation of mineral resources". Jurisprudence on what falls under "the project" is evolving. Previously, the Court held that there is no project if the physical condition of the site is not changed (e.g. CJEU 19 April 2012, C-121/11, ECLI:NL:EU:C:2012:225). In another case concerning the restarting of a nuclear power plant, the Court concluded that it was not possible to separate the restarting and extension of electricity production from the works to which they were inextricably linked and thus there was one and the same project (CJEU 29 July 2019, ECLI:EU:C:2019:622). After all, it required works, i.e. works and interventions that would change the material condition of a place. 

The Supreme Court spends few words on 'the project' and does not define what is part of the project in the case of oil extraction. In our view, however, it is important that the project in question is properly defined so that the competent authority can better assess which impacts are still part of the project for the purposes of the EIA Directive.  We question whether the works in the different stages of the chain belong to the same project whose impacts should be included.

Indirect effects

Once the project for which authorisation is being sought is clear, its environmental impacts need to be identified. The direct and indirect significant effects of a project are identified, described and assessed, including in relation to the climate factor (Article 3(1) of the EIA Directive). Also under the revised Industrial Emissions Directive (IED), public decision-making - for companies covered by the IED - will have to take greater account of the impacts of climate change (Directive (EU) 2024/1785).

More specifically, an EIA must include the additional information listed in Annex IV that may be relevant to the specific characteristics of the project and to the environmental aspects likely to be affected by it (Article 5(1) of EIA Directive). That Annex states that the description of the environmental effects should include "the direct and, where appropriate, indirect, secondary, cumulative and transboundary, short-term, medium-term and long-term, permanent and temporary, positive and negative effects of the project".

The question of what constitutes indirect and direct effects of the project is not easy to answer, as the terms are not defined. We are also not aware of any case law on what constitutes an indirect impact. In 2013, the European Commission (EC) released an explanatory document for the interpretation of the EIA Directive. In this explanatory document, the EC describes that impacts to be included in an EIA include those that occur outside the immediate location or timing of the proposed project. As an example of an indirect impact, that document cites the quarrying of gravel elsewhere in the country as a result of a proposal for a new road, or as a result of the operation of the project. In an explanatory document from 2017, the EC discusses indirect emissions to be considered in an EIA. For a commercial development, this could include emissions due to traffic movements to that site. Back in 1999, the EC issued an explanatory document on indirect impacts for the purpose of a predecessor to the current EIA Directive. According to that document, it concerns: "Effects on the environment that do not result directly from the project, but often arise outside the project or as a result of a complex pathway. For example: a development changes the groundwater table and so affects a nearby wetland, creating an impact on the ecology of that wetland, visual impacts through the use of noise barriers as a mitigation measure and development of a project, which in turn attracts ancillary development."

We deduce from this that there are effects, albeit indirect ones, due to physical development. We do not see these as effects that occur in a context distant from development and only after several intermediate steps.

In the ruling, three of the five Supreme Courts hold that Scope 3 emissions are among the indirect effects to be included in the assessment because it is known with certainty that the extraction of oil at a drilling site sets in motion a causal chain that leads to the burning of the oil and the release of greenhouse gases into the environment. The fact that several intermediate steps are thus required is not considered by the Supreme Court as a reason not to consider the emissions as indirect effects of the project.

In other cases, the Supreme Court sees this as a reason not to consider such emissions as indirect effects. For example, in steel production, (paragraph 121 of the judgment), many intermediate steps and decisions are required along the way. Therefore, the Supreme Court does not consider the final emissions to be indirect effects of the project.

Would this be different for the chain emissions of other raw materials? Many raw materials can be used for different purposes and their specific use is uncertain. At least according to the Supreme Court, this uncertainty does not apply to oil. The production of steel, for example, does not have to include the transport emissions of the lorries used to produce it. The question remains as to how far down the chain indirect impacts should be assessed in an EIA for a project, and whether this ruling could set a precedent for several other industries. In practice, this distinction is sometimes difficult to make - in some industries, different stages in the production chain often overlap.

We believe that the Supreme Court interprets the concept of indirect effects very broadly in this way, and we question whether the distinction made between oil production and steel production always exists in practice. We are also concerned that the judgement pays little attention to the concept of the project. After all, it is the indirect effects of the project that are at stake, so we believe that this link is important.

Assessment framework and differences between EIA and permitting

The purpose of the assessment is relevant in determining what should be assessed in an EIA. The purpose of an EIA is to enable the competent authority to take account of the environmental effects in its decision on the project (e.g. number 7 of the EIA Directive). This gives the environment a place in the decision making process for the project. This is a procedural requirement in a permit application: if an EIA should have been carried out and was not, the application is inadmissible. When granting the permit for which the EIA has been prepared, the competent authority in the Netherlands shall, in accordance with Article 11.19 of the Environment Decree, state how the EIA and the conclusions on the significant environmental effects of the project have been taken into account.

The judgment also considers the purpose of an EIA and the review framework for a permit. The Supreme Court holds that it is not an objection if information from the EIA does not play a role in the permitting process, and that if it does, the local competent authority is sufficiently equipped to give an opinion on scope 3 emissions. 

We question whether this interpretation of EIA on the one hand and permitting on the other is fully in line with the rationale and purpose of EIA. If the EIA is to serve as a basis for subsequent decision making, we believe that the studies carried out should be relevant and linked to the permitting process. 

We make this comment partly in the light of the case law and legislative history on permitting and the inclusion of effects of the products to be manufactured. It follows from a ruling by the Council of State of 5 February 2003 (ECLI:NL:RVS:2003:AF3936) on this subject that permit regulations may only relate to the production processes and activities within the establishment and may not relate to the products manufactured at the establishment. This case law does not specifically address the relationship with the (mandatory) preparation of an EIA, but it does show that the Dutch legislator did not want to introduce a permitting system in which, when assessing an environmental permit application, the acceptability of the products to be manufactured by the applicant also plays a role. According to the legislator, only the production process should be assessed and not also the product to be manufactured (Parliamentary Papers II 1989/90, 21087, 6, p. 43-44). 

In this context, we believe that indirect effects that are remote from the project and cannot play a role in the granting of a permit should not be required to be assessed in an EIA. The inclusion of these effects is not explicitly required by the EIA Directive, raises public expectations that are not met and creates an additional research burden for the applicant. This does not affect the ability of companies themselves to share and include information on scope 3 emissions in environmental impact reports.

In conclusion

In the light of this judgment, we would expect that (i) companies will be more likely to include Scope 3 emissions in their EIAs, (ii) competent authorities will be more likely to require this where it has not been done, and (iii) appellants in appeal proceedings will argue that an EIA without a description of the impacts of Scope 3 emissions is incomplete. However, there are also some important caveats to this, as shown in the analysis above. 

• We note that 'indirect effects' is a broad and vague concept. Given this, when applying for a permit, a company may be well advised not to prepare an EIA that is too narrow in scope. 

• The Court's ruling raises questions for us as to how broadly the concept of 'indirect effects' should be interpreted. Does this include consistency with the subsequent permitting process?

• In determining the scope of the EIA, we question whether the distinction between oil extraction and other (non-similar) industries justifies the inclusion or exclusion of further chain emissions as indirect effects.

Understanding Scope 3 impacts globally is increasingly seen as essential to achieving climate and environmental goals. In this context, one of the key issues is to get reliable data as soon as possible to determine the impact of scope 3 emissions, although in practice this can still be difficult depending on the length and emissions in the chain. We look forward to further developments.