Gas from Mozambique in difficult times for energy: breach of the Paris Agreement?

28 March 2022 by

R. (on the application of Friends of the Earth Ltd) v Secretary of State for International Trade/Export Credits Guarantee Department (UK Export Finance) [2022] EWHC 568 (Admin)

The claimant (FoE) applied for judicial review of the decision by the Secretary of State to provide export finance and support in relation to a liquified natural gas project in Mozambique.

The mission of the International Trade/Export Credits Guarantee Department (UKEF) is to ensure that no viable UK export fails for lack of finance or insurance from the private sector, while operating at no net cost to the taxpayer. It is afforded a significant margin of appreciation when considering factors when deciding whether to provide this finance and support. Indeed it has been the first UK Government Department to assess climate change impacts in the context of a long-term foreign project with many public interest considerations.

Background facts

The project comprised the development of offshore deepwater gas production facilities connected to an onshore gas receiving and liquefaction facility. It was to be operated by the first interested party (Total Mozambique) and funded via the second interested party (a financing company). UKEF acknowledged that climate change impacts and the Paris Climate Change Agreement were factors that ought to be taken into account alongside other factors in making its decision in relation to the project. A report was prepared summarising the climate change matters considered by UKEF, including that the potential Scope 3 greenhouse gas emissions from the use of the project’s exported liquid natural gas would be very high, and that it was unlikely that Mozambique would attract significant international investment into the renewables sector without first being in receipt of financial resources from investment into sectors such as natural gas.

The decision here was not whether the Project should go ahead. It was going to go ahead in any event. The decision to be taken by UKEF was whether it should, in accordance with its stated mission, provide export finance support so as to maximise UK Content in a Project that was going to proceed anyway.

The arguments before the court

FoE claimed that the decision to provide export finance and support for the project was based on an error of law. This error was UKEF’s finding that the project and its funding was compatible with the UK’s commitments under the Paris Agreement. The defendant, it was submitted, had reached this decision without regard to essential relevant considerations. The claimant focussed in particular on UKEF’s climate change report, which had been inadequate because it had not adequately addressed and quantified the greenhouse gas emissions that would be generated. The relevant part of the Paris Agreement – Article 2 – provided that its objective was to strengthen the global response to the threat of climate change in the context of sustainable development and efforts to eradicate poverty inter alia by pursuing efforts to limit temperature increase to 1.5C above pre-industrial levels and making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

The defendant contended that

(a) UKEF was a pioneer in taking account of climate change as part of its decision-making process,

(b) there was no established methodology setting out how a decision-maker such as UKEF should evaluate projects with regard to their climate change impact or consistency with the Paris Agreement,

(c) while UKEF took steps to be informed on matters relating to climate change and the Paris Agreement, consistency with the Paris Agreement was not a requirement or pre-requisite for a decision by UKEF to support the Project,

(d) UKEF was not bound either by policy or for any other reason only to act in a manner that was consistent with the Paris Agreement.

UKEF maintained that it should be afforded an enhanced margin of appreciation in its decision making, since it involved balancing a number of public interest factors at a high, strategic level, and that UKEF’s assessment of climate change impact, which was but one of those public interest factors, was inherently predictive, requiring an exercise of judgment as to what might happen having regard to scientific and technical material including the advice of independent consultants. The Defendant accepted that the question of compatibility with the Paris Agreement was justiciable, but argued that the test to be applied was whether the view it had taken was “tenable”.

UKEF submitted that its decision was taken within the context of a statutory framework which accorded it significant discretion; it involved balancing a number of public interest factors at a high, strategic level; and its assessment of climate change impact, which was but one of those public interest factors, was inherently predictive, requiring an exercise of judgment as to what might happen having regard to scientific and technical material including the advice of independent consultants.

The Court refused the application for judicial review, but Thornton J disagreed with Stuart-Smith LJ on the application of their conclusions to the facts of the case.

Reasoning behind the Court’s decision

There were several reasons why this challenge could not go ahead.

1) Scope of judicial review enquiry – There was a spectrum of levels of review that the court would consider it appropriate to employ, with cases involving issues that depended essentially on political judgment being at the end that called for a lower intensity of review (R (on the application of Spurrier) v Secretary of State for Transport [2019] EWHC 1070 (Admin)). A decision might involve balancing a number of different public interests, all of which contributed to the overall public interest. Policy-making or policy application in such areas involved striking a balance in which all factors were assessed and weighed.

There is no single prescribed or recognised way in which climate change and consistency with the Paris Agreement should be assessed by governmental decision-makers in such circumstances.  As a result, UKEF was engaged in a novel exercise of governmental assessment for decision-making.  Furthermore, it is plain that UKEF was operating in an area where there is room for reasonable experts to disagree: it is not the role of a court in judicial review proceedings to resolve conflicts in expert evidence. [para 103]

Where a decision involved scientific, technical and predictive assessments an enhanced margin of appreciation should be afforded to the decision maker. Where there was no explicit legal or policy requirement to give consideration to a matter, decisions on the inclusion or non-inclusion of information on a particular subject, or the nature or level of detail of that information, or the nature or extent of the analysis carried out, were matters of judgment for the decision-making authority which could only be challenged on grounds of irrationality.

2) Interpretation of the Paris Agreement – There was no general rule that a national court could never determine a question of interpretation of an unincorporated international treaty, but it should be cautious about doing so. The approach to interpretation was that mandated by the Vienna Convention, namely that a treaty should be interpreted in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose. The court should adjust its approach by reference to where in the spectrum from the broad and largely political or aspirational through to the rigidly prescriptive the provision lay. Where it was towards the broad, political or aspirational end, such as that applicable in the Paris agreement, “tenability” was likely to be the appropriate approach (Heathrow Airport Ltd v HM Treasury [2021] EWCA Civ 783; R (on the application of Corner House Research) v Director of the Serious Fraud Office [2008] UKHL 60.

a national court should be cautious about trespassing into the separate plane and legal system of international law where it has no authority to decide questions of interpretation and where its intervention may be positively unhelpful for the mechanisms that are in place for resolving disputes, whether by seeking to achieve consensus in the international sphere or by reference of disputes to another court or forum …

Where the provisions lie towards the broad, political or aspirational (described in the Heathrow v HM Treasury case as “the softer end of the spectrum”), “tenability” is likely to be the appropriate approach for the court to take. [para 119].

3. Application to the facts (Thornton J dissenting)

FoE placed great weight upon the provisions of the Paris Agreement. But, as Stuart-Smith LJ pointed out,

…Taking its arguments to their logical conclusion, FoE submits that, in order to act compatibly with the Paris Agreement, UKEF should have provided funding to UK businesses and investors in order to assist Mozambique with its development of renewables and “its broader obligations under the Paris Agreement.” This apparently simple submission seems to me to demonstrate the complexity of the problem that arises when one attempts to create hard-edged and free-standing obligations from individual terms of the Paris Agreement. It also, as it seems to me, demonstrates a lack of realism: providing finance in order to assist Mozambique with its development of renewables was not, on the evidence before the Court, an available option. [para 229]

The scope of the defendants’ duty to inform themselves was defined and circumscribed by the nature of the decision they had to take. That decision would have no material impact on the emissions generated by the project, which was going to be developed in any event [para 236]. It was a decision that was to be taken in accordance with UKEF’s purpose and mission to ensure that no viable UK export failed for lack of finance or insurance from the private sector. It was multi-faceted, based on promoting significant UK economic benefits in line with UKEF’s statutory purpose and mission; and it required a range of judgments to be made across a wide spectrum of policy areas involving questions of political policy, economic and scientific judgment. The decision-makers’ judgment about what information they required in order to make their decision was entitled to a wide margin of appreciation and a relatively low intensity of enquiry and review. There was no legal or policy obligation to quantify Scope 3 emissions, nor was quantification necessary for the purposes of the defendants’ decision. UKEF was entitled to decide that, although it chose to include consideration of climate change impacts and the Paris Agreement alongside other factors in making its decision, it was not obliged to give them greater prominence or weight or to obtain further and more technical information than it had done. The climate change report did not go to the lengths or into the detail that might be expected in other circumstances; but it was not obliged to. Development of the project was not to be taken conclusively as contrary to the aims of the Paris Agreement simply because it lead to the generation of emissions that would not be generated if the project was not developed. It did not fall within the categories of case identified in Benhkarbouche where the court was bound to supply an ascertainable answer to the interpretation of the Paris Agreement. Once the Paris Agreement was approached on the basis that it did not give rise to hard-edged free-standing obligations but should be seen as a composite package of aims and aspirations that might be in tension or frankly irreconcilable, UKEF’s approach, which involved recognition of those conflicting aims and aspirations and an evaluative balancing exercise in order to reach a conclusion, could not be criticised. UKEF’s view that the support for the project was in accordance with its obligations under the Paris Agreement as properly understood was at least tenable.

Thornton J agreed with Stuart-Smith LJ’s findings that the Defendants needed only to satisfy the Court that their interpretation of the Paris Agreement was tenable (rather than correct), but she disagreed with his conclusions in 3. above, application to the facts. She found that

i) UKEF failed to discharge its duty of inquiry in relation to the calculation of Scope 3 emissions. Its judgment that a high-level qualitative review of the emissions impact was sufficient, was unreasonable.

ii) The failure to quantify Scope 3 emissions, as well as other flaws in the climate assessment, meant that there was no rational basis on which to demonstrate that the funding for the Project was consistent with Article 2(1)(c) of the Paris Agreement on Climate Change. [para 244]

Thornton J observed that the Court may closely scrutinise the reasoning for a decision yet still consider it is proper to accord the decision maker a broad margin of discretion (R(Packham) v Secretary of State for Transport [2021] Env LR 10). She had afforded considerable respect to UKEF’s decision making. However, in the application of that test, she reached the view that in the circumstances of this case, UKEF had failed to discharge its duty of inquiry in relation to the calculation of Scope 3 emissions.

Its judgment that a high level qualitative review of the impact was sufficient was unreasonable.[para 331]

The failure by UKEF to quantify the Scope 3 emissions, and the other flaws in the Climate Report meant that there was no rational basis by which to demonstrate that funding for the Project was consistent with Article 2(1)(c) of the Paris Agreement on Climate Change and a pathway to low greenhouse gas emissions.

However, no question of relief followed from this conclusion as the claim failed, given the judgment of Stuart-Smith LJ.

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