In a groundbreaking ruling, a Dutch court recently held Shell responsible for its role in the climate crisis, ordering it to reduce its emissions by 45% in under ten years.
As widely reported, the decision increases litigation risks for other oil and gas companies, with Total already facing a similar case in France. Less attention has been paid to the possible implications of the ruling for governments and financial institutions.
A recent legal opinion by University of Cambridge professor Jorge Viñuales and barrister Kate Cook suggests that governments and public finance institutions that support new fossil fuel infrastructure face litigation risks similar to those of the fossil fuel industry. Like Shell, they continue to pour fuel on the fire by supporting fossil fuel production.
The G20 governments provide more than three times as much public finance for fossil fuels as for clean energy every year and their support for fossil fuels continued even after the adoption of the Paris Agreement. Like Shell, they can change course. By shifting public money out of fossil fuels, they can help avoid the worst climate crisis scenarios whilst freeing up finance to accelerate the transition to a just and green future.
The legal opinion focuses on one particular type of public finance institution – export credit agencies – which support domestic industries to do business overseas. But its conclusions, the authors say, apply to all forms of government support for fossil fuel infrastructure.
The opinion concludes that governments and the public finance institutions that they oversee need to stop financing new fossil fuel-related activities and reduce existing funding, or risk being in violation of their international legal obligations, including climate change and human rights duties.
Like the judgment in the Shell case, the opinion is rooted in the scientific evidence of the life-threatening consequences of the climate crisis and the urgent need to wind down fossil fuels to address it. This evidence has since been backed up by a report from the International Energy Agency, which says that there can be no investments in new fossil fuel supply in a scenario that maintains a 50% chance of staying below 1.5C.
Both the Shell case and the legal opinion emphasise the importance of “due diligence” – the need to fully consider the consequences of an intended decision.
By taking the risk out of investment in fossil fuels, public finance, whether in the form of export finance, (multilateral) development finance, recovery money or fiscal support, helps to leverage huge sums of private money towards it. In light of governments’ due diligence obligations, doing so is an increasingly risky approach.
Another area in which the legal opinion coincides with the Shell judgment is in its finding that private actors, like companies, can have duties under international law. Further development of these arguments could open the door to future challenges to the private financing of fossil fuel projects, or government failure to take action to address such financing.
The recent Shell ruling, considered alongside the legal opinion, has serious implications for companies, governments, their public finance institutions and other actors that continue to support fossil fuel expansion.
At the same time, it can be welcomed as a wake-up call, presenting an opportunity to accelerate climate action by redirecting public and private money away from fossil fuels and towards building a just and green future. One thing is clear: the factors to be weighed in deciding which path to take now include the danger of ending up in court.
Harro van Asselt is a professor at University of Eastern-Finland Law School and affiliated researcher at Stockholm Environment Institute. Gita Parihar is an environmental advocate and in-house consultant for environmental NGOs and the UN, and a board member of the Climate Justice Fund.