Challenging policy on climate change grounds

Case Commentary
Alistair Calvert and John Gilbert
Bracewell LLP , London
Challenging policy on climate change grounds
Divisional Court split on challenge against UK Export Finance ’ s decision to provide finance to the Mozambique LNG Project *
In R ( on the application of Friends of the Earth Limited ) (‘ the claimant ’) v The Secretary of State for International Trade / Export Credits Guarantee Department ( UK Export Finance ) (‘ UKEF ’), Chancellor of the Exchequer (‘ the defendants ’) v Total E & P Mozambique Area 1 Limitada , Moz Lng1 Financing Company Limited (‘ the interested parties ’), 1 two judges considered a challenge by Friends of the Earth (‘ FoE ’) against UKEF ’ s decision to provide up to $ 1.15 billion in export finance to a liquefied natural gas project in Mozambique (‘ the Project ’).
In this challenge , the court had to consider the legal implications of the Paris Climate Change Agreement 2015 (‘ the Paris Agreement ’) to the decision to support a fossil fuel project . In particular , the implications of Article 2.1 ( c ) of the Paris Agreement which provides that the agreement ‘ aims to strengthen the global response to the threat of climate change , in the context of sustainable development and efforts to eradicate poverty , including by … making finance flows consistent with a pathway towards low greenhouse gas emissions ’.
FoE sought an order quashing the decision of the Secretary of State that UKEF would provide support to the Project (‘ the Decision ’).
The claim was made on the basis that :
• The Decision was based on an error of law or fact , namely that the Project and its funding was compatible with the United Kingdom ’ s commitments under the Paris Agreement , which FoE contended it was not ; and / or ,
• The Decision was unlawful insofar as it was reached without regard to essential relevant considerations in reaching the view that funding the Project was aligned with the United Kingdom and Mozambique ’ s obligations under the Paris Agreement .
Lord Justice Stuart-Smith concluded that FoE ’ s challenge should fail . Mrs Justice Thornton respectfully disagreed with Lord Justice Stuart-Smith ’ s conclusion , finding that that UKEF had erred as a matter of law in the approach to its Decision . Although the claim failed following Lord Justice Stuart-Smith ’ s judgment , the court granted FoE permission to appeal .
Case summary
What was the dispute about ?
The Project started with the discovery of a vast quantity of natural gas off the coast of northern Mozambique in 2010 . In 2019 UKEF was approached to participate in the Project , UK content for the Project having been identified .
Under statute 2 the Secretary of State for International Trade may make arrangements to provide financial facilities and assistance to persons carrying on business outside the United Kingdom considered conducive to supporting or developing supplies or potential supplies of goods and services to persons carrying on business inside the United Kingdom . These functions are exercised and performed through UKEF acting as an export credit agency .
Throughout 2019 and into 2020 , UKEF carried out its screening process for the Project . Part of that process involved a focus on environmental and human rights and climate change considerations . It was accepted that at the date of its decisions concerning the Project , UKEF was under no free-standing public law obligation that required it to ensure that any investment support for fossil fuels affecting emissions was in line with the Paris Agreement goals and plans . 3 Nevertheless , UKEF decided that climate change impacts and consideration of the Paris Agreement were considerations that ought to be taken into account along with other factors in making its decision in respect of the Project .
As part of its process , UKEF prepared a document which became known as the Climate Change Report (‘ the CCR ’). The exercise included consideration of the potential greenhouse gas (‘ GHG ’) emissions of the Project . GHG emissions are typically divided into three ‘ Scopes ’ or categories . The direct emissions associated with an activity ( in the present case the extraction of LNG ) fall within Scope 1 . Scope 2 includes the indirect emissions from the generation of purchased electricity . Scope 3 are all indirect
* A shorter version of this article appears in Energy Voice . 1 [ 2022 ] EWHC 568 ( Admin ), 2022 WL 00770182 (‘ the judgment ’).
2 Export and Investment Guarantees Act 1991 s 1 . 3 Judgment paras 47 , 303 .