Shell appeals against Dutch ruling, highlighting need for balance in addressing climate change and security of supply

Oil and gas giant Shell has filed an appeal against a ruling made by a Dutch court less than a year ago, ordering the major to speed up its emission cuts. Shell believes that recent challenges with energy supply show that the energy transition is more than just reducing carbon emissions, but is a “political balancing act, requiring government-led policies.”

The case against Shell was filed in 2019 by Dutch environmental organisation Milieudefensie, other NGOs, and a group of private individuals. In a ruling described as first-of-its-kind, the District Court in The Hague in May 2021 ordered Shell to reduce its worldwide aggregate carbon emissions by 45 per cent by 2030, compared to 2019 levels.

The court said that Shell was also responsible for emissions from customers (scope 3) and suppliers and that the company must comply with the judgment immediately.

After the ruling came in, the environmentalists cheered the court’s decision but Shell said it was disappointed and that it would appeal against it. However, before going into details about the recently announced appeal against the ruling, it is important to provide a more in-depth overview of Shell’s net-zero plans and how they changed since the company first made the pledge to reach net-zero emissions by 2050.

Shell first announced its plan to become a net-zero emissions energy business by 2050 or sooner back in April 2020. The initial steps toward a net-zero future also included plans for reducing the Net Carbon Footprint of the energy products it sells to its customers by around 65 per cent by 2050, and by around 30 per cent by 2035.

Come February 2021 and Shell mapped out its strategy to accelerate its drive toward net-zero under its Powering Progress strategy. A new set of targets was revealed, including a target to reduce net carbon intensity: 6-8 per cent by 2023, 20 per cent by 2030, 45 per cent by 2035 and 100 per cent by 2050, using a baseline of 2016.

Shell then also confirmed that its total carbon emissions peaked in 2018 at 1.7 gigatonnes per annum and that its total oil production peaked in 2019. The company’s Energy Transition Plan was put up for an advisory vote to shareholders, becoming the first in the sector to do so. After the vote, Shell won the support of 89 per cent of shareholders.

The court ruling came in May 2021 and then, in June 2021, Shell CEO, Ben van Beurden, set out how he believes Shell should rise to the challenge.

Voicing his disappointment, van Beurden questioned the court’s decision to single out an energy company to reduce its carbon emissions as well as the implications of the ruling. Nevertheless, he said that he feels a determination to rise to the challenge. The CEO explained that the court’s decision did not mean a change for Shell, but rather the acceleration of its already published strategy to become a net-zero company by 2050.

“Society needs to take urgent action on climate change. But a court ordering one energy company to reduce its emissions – and the emissions of its customers – is not the answer,” van Beurden stated at the time, adding that, for companies to invest successfully, they also need bold, clear, and consistent government policies and regulations.

Several months later, Shell announced an absolute emissions reduction target of 50 per cent by 2030, compared to 2016 levels on a net basis. This new target covered all scope 1 and 2 emissions under the company’s operational control. The firm also committed to bringing forward its target to eliminate routine gas flaring from its upstream operated assets from 2030 to 2025.

Earlier this month, it also came to light that Shell’s board is facing legal action over what was described as “mismanaging climate risk.” An environmental law charity and a shareholder in Shell, ClientEarth, took the first step in legal action against the board of directors of Shell, seeking to hold it liable for failing to properly prepare for the energy transition, claiming it to be the first-ever case of its kind. ClientEarth is arguing that the board’s failure to properly manage climate risk to Shell means that it is breaching its legal duties.

Now comes the appeal. In a LinkedIn post published last week, Shell’s Marjan van Loon, President-Directeur Shell Nederland, revealed that the company had filed the appeal against the ruling made by the District Court of The Hague.

Van Loon emphasised that, in addition to targeted emission cuts, the energy major is also investing in lower-carbon energy to help customers reduce emissions, including investing in offshore wind and solar parks to help more homes and businesses run on renewable energy; building an extensive network of charging points for customers with electric vehicles; and investing in low-carbon fuels for sectors that cannot easily switch to electricity such as aviation and heavy-duty transport.

This also applies to the Netherlands, where in the last two years alone, Shell decided to invest €2 billion or about $2.2 billion a year in energy transition projects.

According to van Loon, these actions support the Paris Agreement and position Shell well towards meeting the obligations of the District Court. However, she explained that the company is moving ahead with the appeal “because we believe we have good grounds for doing so.”

Namely, Shell is questioning how the company can have a legal obligation to reduce carbon emissions it does not control from customers who are not under a similar legal obligation to reduce their emissions.

“Focusing on one company, as the District Court has done, results in others meeting the needs of that company’s customers, not in a reduction in demand. The world needs a shift in demand to low-carbon products to achieve a net-zero energy system,” she explained.

She pointed out that, while Shell develops and supplies these products, the choice is up to the customer. Therefore, Shell believes that it is for governments to determine the right trade-offs for society and put in place the policies that bring about fundamental changes in the way society consumes energy.

When it comes to Shell’s investments in lower carbon energy, over in the UK, where Shell is headquartered now, the company is investing up to £25 billion or about $32.8 billion in the country’s energy system over the next ten years. Under these plans, Shell will pour more than 75 per cent of the total investment in the UK into low and zero-carbon products and services, including offshore wind, hydrogen, and electric mobility.

Shell’s aim is to propel the UK closer to net-zero and help ensure the security of supply.

The major is already a part of three offshore wind projects in Scotland. It is also involved in projects in the U.S., including the Mayflower Wind project in Massachusetts and part of a joint venture which secured an offshore wind lease in the New York Bight. Furthermore, the company this month revealed it aims to install up to 17 GW of offshore wind capacity across six areas in Brazil.

Pointing out recent challenges in energy supply and spikes in energy prices, exacerbated by the Ukrainian crisis, van Loon said they underscore the role of governments in balancing the need to address climate change and ensuring a secure, reliable, and affordable supply of energy.

Shell underlined that the energy transition must focus on more than reducing carbon emissions. “This is a political balancing act, requiring effective, government-led policies. These challenges cannot be solved by litigation between private parties and judgments against individual companies,” Shell said.

“It is for these reasons that we are appealing the District Court’s ruling,” Shell concluded.