![Global rules on foreign direct investment](https://www.nortonrosefulbright.com/-/media/images/nrf/nrfweb/knowledge/publications/us_24355_legal-update--fdi-alert.jpeg?w=265&revision=a5124a65-abf9-40e4-8e96-9df39ffdb212&revision=5250068427347387904&hash=96B456347C3246E5649838DF281C5F5D)
Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | June 2024
In September 2019, Surrey County Council (SCC) granted planning permission to Horse Hill Developments Ltd to expand an existing onshore oil well site enabling the extraction of oil over a period of 20 years. Pursuant to the Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (the Regulations) (which implemented EU Directive 92/11/EU), before granting planning permission, SCC was required to carry out an environmental impact assessment (EIA) so that the environmental impact of the project was taken into account in its decision. An EIA should assess the “direct and indirect significant effects of a project” on the environment, including the climate. SCC restricted the scope of the EIA to the direct release of GHG emissions at the project site over the lifetime of the project and did not include an assessment of the impact of the scope 3 ‘downstream’ GHG emissions (being indirect emissions resulting from a project, such as the use of sold products). The claimant, Ms Finch, applied for judicial review of SCC’s decision on the grounds that its failure to take into account the downstream combustion emissions meant the decision was unlawful.
Both the High Court and the Court of Appeal dismissed Ms Finch’s challenge. The High Court held that assessment of the combustion emissions was not within the legal scope of the Regulations and alternatively that whether to assess the downstream emissions was a matter of evaluative judgment for SCC, and SCC had a reasonable and lawful basis for excluding the combustion emissions from the EIA. The Court of Appeal upheld the judge’s decision on the basis of the alternative reasoning. Ms Finch appealed to the Supreme Court.
By a split three-to-two majority, the Supreme Court allowed the appeal. It held that the downstream GHG emissions were “effects of the project” within the meaning of the Regulations and therefore they should have been assessed as part of the EIA. SCC’s failure to assess the effect on climate of the combustion of the oil produced from the proposed site meant that its decision to grant planning permission was unlawful.
The majority reasoned that the question of what are the “effects of a project” is a question of causation. The Court held that emissions that will occur on combustion of the oil produced are “indirect effects of the project” because, “on the agreed facts, the extraction of the oil is not just a necessary condition of burning it as fuel; it is also sufficient to bring about that result because it is agreed that extracting the oil from the ground guarantees that it will be refined and burnt as fuel.”
The Supreme Court found that the reasons relied on by SCC for excluding the combustion emissions from consideration and assessing only direct emissions from within the site were flawed. The majority noted that the legislation does not impose a geographical limit on the scope of the environmental effects of a project which must be assessed in an EIA, and there is no justification for limiting the scope of the assessment to effects which are expected to occur at or near the project site. The Supreme Court emphasised that climate change is a global problem precisely because there is no correlation between where GHGs are released and where climate change is felt. This is why the relevance of GHG emissions caused by a project does not depend on where the combustion takes place. The Supreme Court also rejected the second reason relied on by SCC – that the GHG emissions were “outwith the control” of the site operators. “The combustion emissions are manifestly not outwith the control of the site operators. They are entirely within their control. If no oil is extracted, no combustion emissions will occur. Conversely, any extraction of oil by the site operators will in due course result in GHG emissions upon its inevitable combustion.”
In reaching its conclusion, the majority rejected the approach of the High Court judge that, as a matter of law, such combustion emissions were incapable of falling within the scope of the EIA. The judge reached this conclusion on the basis that the source of the GHG emissions would not be the oil as extracted from the ground but an end product which would be made in a separate facility from materials to be supplied from the project site. As discussed further below, the Supreme Court considered that the refining of crude oil does not break the causal connection between the extraction of the oil and its subsequent combustion. Further, a reasonable estimate can readily be made of the emissions that will occur upon its inevitable combustion.
The Supreme Court also rejected the Court of Appeal’s approach that whether the combustion emissions were “indirect effects” of the project depended on an evaluative judgment by the competent authority as to whether, given the intermediate events that would take place before combustion, there was a “sufficient causal connection” between the extraction of the oil and its eventual combustion. The Supreme Court considered this to be, “a recipe for unpredictable, inconsistent and arbitrary decision-making” by different planning authorities.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Publication
Artificial intelligence (AI) raises many intellectual property (IP) issues.
Publication
Taking place across three webinars, our team of experienced lawyers and consultants, along with industry professionals and regulators, explore the latest ESG developments and trends within financial services regulation. This series takes a cross jurisdictional perspective, covering ESG financial services regulation and trends from across the globe.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023