Landmark UK Supreme Court Decision: Assess your Scope 3 emissions in decision making
In a landmark ruling on 20 June 2024, the UK Supreme Court declared that Scope 3 greenhouse gas (GHG) emissions from the eventual use of hydrocarbons produced from a proposed oil development should have been assessed in Environmental Impact Assessments (EIAs). This decision, from the case of R (Finch) v Surrey County Council and others [2024] UKSC 20, sets a new precedent for oil, gas, and other carbon-intensive industries in the UK and potentially the world.
Understanding Scope 3 Emissions
Scope 3 emissions include all indirect emissions that occur in a company's value chain. The issue in question is referring to Scope 3 Downstream Emissions, in the categories of ‘‘Processing of sold products’ and ‘Use of sold products’. For the oil and gas sector, this means considering the emissions from refining and burning the extracted oil.
Learn more with What is Scope 3 emissions?
The Case at a Glance
In December 2018, Horse Hill Developments Ltd sought permission from Surrey County Council to expand an existing oil well site. The council's EIA focused on direct GHG emissions from construction to decommissioning but excluded emissions from refining and burning the extracted oil. The council granted the planning permission in September 2019, but Finch, a local resident acting on behalf of the Weald Action Group, challenged this decision. After unsuccessful appeals before lower courts, Finch appealed to the Supreme Court.
The Supreme Court's Verdict
The Supreme Court, in a close 3-2 decision led by Lord Leggatt, sided with Finch. The ruling emphasised that the downstream emissions from burning the extracted oil were inevitable and should be included in the EIA. The court found that these emissions meet the “but for” test of causation since the oil's extraction directly leads to its eventual combustion.
The court dismissed the argument that refining breaks the chain of causation, as refining does not change the oil's fundamental purpose—combustion. The judgement also rejected the view that such emissions are outside the control of site operators, stating that without extraction, there would be no emissions.
Implications for the Industry and Others
The Supreme Court's decision marks a pivotal shift in assessing the environmental impacts of oil and gas projects, with fossil fuel project developers now having to consider their Scope 3 emissions and the broader implications of their projects, including the eventual use of extracted hydrocarbons, at the planning stage. While Lord Leggatt emphasised that his judgement should "not open floodgates," the Court has shown a willingness to broaden regulations in favour of more comprehensive and transparent reporting.
Ultimately, reporting aims to provide clarity and drive better decision-making that is considerate of the impact on people and the planet, holistic, and sustainable. Measuring and reporting on Scope 3 emissions isn’t a voluntary tick box exercise anymore. Accountants, advisors, and finance teams play a crucial role in this process - you have the skills to support businesses to understand their emissions and embed environmental considerations into financial planning and strategy. By doing so, businesses will be able to align their operations with broader sustainability goals and create value that lasts.
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