Friends of the Earth v. UK Export Finance

Summary:

In September 2020, Friends of the Earth England Wales and Northern Ireland (“FoE EWNI”) brought a legal challenge against UK Export Finance’s decision (the “Decision”) to provide over $1 billion of UK taxpayers’ money to help finance a liquefied natural gas (“LNG”) project off the coast of Mozambique. Through the project, the energy company Total (an interested party) aims to extract 43 million tonnes of LNG per year for 32 years. This will result in total combustion emissions of 4.3 billion tonnes of CO2e: more than the total annual emissions for all 27 countries within the EU.

The Center for International Environmental Law (CIEL’s) applied to intervene in the appeal but its application was refused. In its application, CIEL argued that pathways consistent with limiting warming to 1.5°C exclude development of new fossil fuel supply. CIEL also argued that assessing whether a financial flow is consistent with a 1.5°C, low-emissions pathway requires calculation of Scope 3 emissions.

This case is not concerned with whether, or the extent to which, the UK government should have considered the Paris Agreement in reaching its decision. Rather, it is concerned with whether, having concluded that both the project and its financing were compatible with the UK and Mozambique’s obligations under the Agreement, and having taken the decision on that basis, the decision was lawful.

At the hearing in December 2021 FoE EWNI argued the Decision was unlawful on the following grounds:

1. Error of law: the defendants took their decision on the basis that the project and its financing were compatible with the UK and Mozambique’s obligations under the PA. That was an error of law because the financing of the project:

a. was not consistent with a pathway to low greenhouse gas emissions and climate resilient development, as required by Articles 2(1)(c) and 3(1); and
b. undermines Mozambique in achieving its nationally determined contribution, contrary to the UK’s obligation to support developing country parties to achieve: Articles 2(1)(c), 3, Articles 4(1)(3) (5), 9, 10(6), 11(3) and 13.

2. Failure to take account of essential relevant considerations: the defendants committed multiple breaches, including:

a. failure to quantify scope 3 emissions
b. failure to assess climate impacts by reference to carbon budgets and pathways aligned with the PA and failure to consider the UNEP Production Gap Report
c. unlawful reliance on climate assessments which: i. assessed by reference to a 2oC not a 1.5oC pathway, and ii. concluded, without any basis, that emissions would be reduced because they would displace higher emitting fuels
d. erroneous quantification of scope 1 emissions
e. failure to properly consider lock in, and
f. failure to properly determine the risks of stranded assets.

FoE EWNI sought: a declaration that the Decision was reached on the basis of an erroneous understanding that the Project and its financing were compatible with the UK’s obligation under the PA; and an order quashing the Decision.

On March 15, 2022, the High Court issued a judgment with a split two-judge court. One of the judges ruled: (a) the government acted unlawfully in deciding to finance the Project, as it had ‘no rational basis’ to conclude financing the project was consistent with article 2(1)(c) of the Paris Agreement; (b) government ministers approving the deal were misled; and (c) for finance flows to be aligned to the Paris Agreement, they must be demonstrably aligned with the Agreement’s temperature goal of limiting global heating to 1.5 degrees. The second judge ruled the decision was lawful. He held the court should give the government a large amount of latitude in deciding for itself what enquiry to make, for example when quantifying climate impacts, and that the court should only scrutinise the government’s decision lightly.

The High Court decided to dismiss the claim, whilst at the same time granting FoE permission to appeal. The Court of Appeal will hear the appeal from December 6th-8th 2022, with judgment expected in early 2023.

At Issue: Whether the UK government's decision - that its financing of a liquified natural gas project in Mozambique aligned with its climate commitments - breached public law duties.