Challenge to UK Emissions Trading Scheme dismissed

United Kingdom

In R (Elliott-Smith) v Secretary of State for Business, Energy and Industrial Strategy and others [2021] EWHC 1633 (Admin), the High Court considered an application for judicial review challenging the decision to create the UK Emissions Trading Scheme (the “UK ETS”), which replaced the EU Emissions Trading Scheme (“EU ETS”) following Brexit and was established (like the EU ETS) to encourage the reduction of emissions and greenhouse gases.

Although the application was unsuccessful, this case adds to the growing pressure from environmental campaigners for the UK Government to focus on reducing emissions and meeting its net zero target by 2050, with a marked increase in court based challenges by campaigners in recent years.

Background

Georgia Elliott-Smith, a waste industry expert and environmental consultant (the “Claimant”), brought a judicial review against the Secretary of State for Business, Energy and Industrial Strategy (“BEIS”) and other government ministers of the devolved administrations over its joint decision to create the UK ETS.

The Claimant argued that the cap on the volume of emissions permitted under the UK ETS is too high and that, in setting up the UK ETS, the government did not consider the short and medium-term aspects of the UK’s obligations under the Paris Agreement, which the Claimant said requires substantial and immediate emission reductions, not just net zero by 2050. Furthermore, the Claimant argued that the Climate Change Act 2008 authorises establishment of the UK ETS for the purpose of limiting greenhouse gas emissions, not to set up an emissions cap to facilitate a smoother withdrawal from the EU.

The Claimant also drew particular attention to BEIS and the devolved administrations’ decision to omit municipal waste incinerators from the new UK ETS. The decision followed a consultation which concluded that the complex environmental requirements placed on municipal incinerators and their role in diverting waste from landfill made it difficult to include them in the UK ETS. However, the Claimant argued that the emissions from municipal waste incinerators are significant and in omitting such a major polluter, the government had failed to meet its commitments under the Paris Agreement.

UK ETS

The UK ETS replaced the UK’s participation in the EU ETS on 1 January 2021. The four governments of the UK established the UK ETS with a stated purpose of increasing the climate ambition of the UK’s carbon pricing policy, whilst protecting the competitiveness of UK businesses.

Both the UK ETS and the EU ETS work on a ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme over a certain period of time. The cap is then divided into allowances, and those required to participate in the scheme are then either given free allowances or they have to purchase them to cover the emissions which their activities are generating. The aim of this principle is to limit the total amount of greenhouse gases that can be emitted and, as emissions decrease over time, to contribute to how the UK meets its net zero target by 2050 and other carbon reduction commitments.

Issues

The Claimant challenged the UK ETS on two grounds:

  1. The decision to set the UK ETS cap did not take into account the requirements in Articles 2 and 4.1 of the Paris Agreement to act urgently to limit greenhouse gas emissions in the short-term. The Claimant contended that, had the decision in setting the cap been properly made taking account of those provisions, municipal waste incinerators would have been brought within the scope of the UK ETS.

  2. The power in section 44 of the Climate Change Act 2008 to establish trading schemes had been exercised for an improper purpose because the effect of the UK ETS, as designed, was not to encourage greenhouse gas emissions reductions and that emissions reductions would not be achieved, because the cap on the emissions was set above the projected level of ‘business as usual’ emissions.

The relevant provisions

The Paris Agreement is an international treaty, which whilst not directly implemented into English law, applies because the Climate Change Act 2008 implements key international obligations that arise under it.  The focus in this case was on Articles 2 and 4.1:

Article 2 of the Paris Agreement:

“This Agreement, in enhancing the implementation of the Convention, including its objective, 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:

a) Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce risks and impacts of climate change.”

Article 4 of the Paris Agreement:

“(1) In order to achieve the long-term temperature goal set out in Article 2, Parties aim to reach global peaking to greenhouse gas emissions as soon as possible, recognising that peaking will take longer for developing country Parties, and to undertake rapid reductions thereafter in accordance with best available science, so as to achieve a balance between anthropogenic by sources and removals by sinks of greenhouse gases in the second half of this century, on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty.”

The Claimant also focused on the specific terms of the Climate Change Act 2008 section 44, which provides:

“(1) The relevant national authority may make provision by regulations for trading schemes relating to greenhouse gas emissions.

(2) A “trading scheme” is a scheme that operates by –

(a) limiting or encouraging the limitation of activities that consist of the emission of greenhouse gas or that cause or contribute, directly or indirectly, to such emissions, or

(b) encouraging activities that consist of, or that cause or contribute, directly or indirectly, to reductions in greenhouse gas emissions or the removal of greenhouse gas from the atmosphere.”

Judgment

Mr Justice Dove handed down the judgment dismissing the challenge. Although the claim was brought against the UK’s devolved governments as well as BEIS, it was disposed of without considering jurisdiction defences raised by the devolved government representatives, which parties agreed needed to be addressed only if the court considered that, in principle, the Claimant was entitled to the relief sought.

The court held that the formulation of the UK ETS was lawful because:

  1. Articles 2 and 4 of the Paris Agreement had been taken into account, and the approach taken to the Paris Agreement was one which was tenable and appropriate and did not deny the urgency of the need to address climate change; and

  2. On proper interpretation of section 44 of the Climate Change Act 2008, the UK ETS had been developed and designed within that statutory power.

Articles 2 and 4 of the Paris Agreement

Having heard argument, the court concluded that it was in fact common ground between the parties that the Paris Agreement was a material consideration in formulating the UK ETS and had been taken into account,  The real question in dispute was the urgency which the Claimant contended was required by Article 4.1.  BEIS submitted that the aim in Article 4.1 of the Paris Agreement of reaching global peaking of greenhouse gas emissions as soon as possible was part of the journey towards meeting the longer-term goals of the Paris Agreement and was not a separate and distinct element of the Paris Agreement.

Following the case of R (Corner House) v Director of the Serious Fraud Office [2009] 1 AC 756, the court recognised that, as the Paris Agreement is an unincorporated international treaty, it was not the role of the court to resolve definitively questions of the construction of the Paris Agreement. BEIS’ interpretation of the Paris Agreement was tenable and entirely appropriate - it did not deny the urgency of the need to address climate change and involved the recognition that taking measures in the short to medium term is an essential part of achieving the longer-term objective.

The court concluded that there was convincing evidence that an appropriate understanding of the requirements of the Paris Agreement had been taken into account in the decision making on the UK ETS.

Article 44 of the Climate Change Act 2008

On the meaning of section 44(2) of the Climate Change Act 2008, the court also agreed with BEIS.

It was held that section 44 provides flexibility and a trading scheme does not necessarily have to achieve a reduction in the activities consisting of greenhouse gas emissions or causing or contributing such emissions (as the Claimant contended) – it is sufficient if the design limits or encourages the limitation of such activities.

The court concluded that, on the evidence, a reduction of greenhouse gas emissions would be achieved by the UK ETS and BEIS had undertaken significant, detailed modelling work. As such, the court held it was not appropriate to go behind this modelling, particularly where no rival modelling, or detailed criticisms of the modelling work, had been advanced.

The court was satisfied that the government had designed the UK ETS to fulfil the statutory purpose of section 44(2), that the UK ETS achieved that aim and fell within the scope of the statutory power.

Comment

For the waste sector, the effect of this decision is that municipal and hazardous waste incineration will continue to be excluded from the first phase of the UK ETS which takes place from 2021-2025. The second phase will run from 2026 – 2030 and a review may be undertaken prior to its commencement, with any necessary changes being made.

This judicial review application follows a growing number of challenges being brought by environmental campaigners to put pressure on the UK (and other governments) to meet its net zero target by 2050. Many companies have already responded to that pressure and introduced “climate-friendly” measures to reduce their carbon footprint. What’s more the European Commission’s so called ‘Fit for 55’ proposals to reform the EU's climate, energy, land use, transport and taxation policies so as to reduce net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels, go some way to bolstering the urgency case in EU legislation. Achieving these emission reductions in the next decade is key for European policy makers and will no doubt influence developments in UK legislation. It remains to be seen whether governments in the UK and elsewhere, along with stakeholders from the private sector, will be seen to engage sufficiently with these deeply held concerns in introducing new legislation and schemes to head off further challenges of this nature.