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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next…

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Dutch Court Ruling May Redefine Energy Sector

  • Shell faces a critical ruling in a Dutch appeals court on Tuesday, which may uphold, dismiss, or alter a 2021 mandate requiring a 45% reduction in its emissions.
  • Shell argues that emission cuts should be regulated by governments rather than individual court rulings.
  • The decision is seen as potentially precedent-setting for the global energy industry.
Shell

In the next 24 hours, a Dutch court will decide whether to throw out or uphold a landmark climate ruling against former Dutch British oil and gas major Shell. The ruling is expected mid-day Tuesday, in reaction to an appeal by Shell against a 2021 ruling by a Dutch court that ordered it to reduce greenhouse gas emissions sharply. In the 2021 ruling, Shell was ordered to cut its carbon emissions by 45% by 2030, in comparison to 2019 levels. At the same time, the 2021 court ruling included Scope 3 emissions, aka emissions produced by the use of Shell products. The outcome of the appeal's court on November 12 is still being determined, as it can go three ways. Upholding the former ruling, dismissing the total ruling, or modifying the former ruling by excluding Scope 3 emissions. 

Any outcome tomorrow will make headlines, as the Shell case is definitely going to be part of the discussion at COP29 in Baku, Azerbaijan. At the same time, both parties already indicated before the current ruling that a possible verdict could be appealed again at the Netherlands' Supreme Court.

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For Shell, the overall issue is clear. Not only will a possible upholding of the former court ruling hit its existing and future business operations, but it is also not based on objective assessments of the global market. A court ruling against Shell will not impact emissions globally, as customers will be substituting Shell products and services via other players in the market.

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In statements by Shell's VP of External Relations, Saskia Kapinga said that the appeal concerns whether Shell has a legal obligation to reduce the worldwide aggregate carbon emissions it reports across Scope 1, 2, and 3. The net 45% reductions by 2030, compared to 2019 levels, are a point of discussion. Shell has made clear, as Kapinga reiterated, that it doesn't "believe the court ruling is the right solution for the energy transition – it is ineffective and counterproductive.". The Shell executive also stated, "An order from a Dutch court against an individual company will not bring down global emissions and will not help the climate." The now British major also reiterates that climate policy is a task for governments, not courts. In Kapinga's statement, she reiterated that "Shell does not control the emissions of its customers. While Shell can offer lower carbon alternatives such as electric vehicle charging and encourage their uptake, governments, and legislators, create policies and legislation to incentivize or disincentivize consumer choices for energy. "

Most parties in the Netherlands see Leading Dutch NGO Milieudefensie, the main proponent of the court case against Shell, as playing its cards very hard but also needs to be more edible. Most industrial parties in the Netherlands, supported by a majority of the Dutch politics and governments, fear that a new hostile court ruling against Shell will be debilitating, affecting the competitive position of the country's economy. Due to higher energy prices, lack of grid availability, and inflation, the Dutch (and European) industry is struggling. The court will harm the Dutch investment climate, jobs, and the overall economy by supporting the NGO claims. 

Shell also argues that imposing absolute emissions reduction targets on Shell and others has no basis in the law. Dutch politics and government have always rejected political motions to impose absolute targets on individual companies. The current Dutch right-center government is not known to be a major proponent of Milieudefensie or parties such as XR. 

There is also a major other issue. When the 2021 court ruling was published, Shell still had its HQ in the Netherlands. At present, partly due to the ongoing restructuring of the company and growing political and financial pressure, Shell has moved its headquarters to London, UK. Any ruling now should also consider this particular aspect, as the oil major could decide, if again being hit by a Dutch court ruling impacting its business, to leave the Dutch market and sell its assets entirely. In a statement to the press, Shell has lately indicated that it is now well on track to meet the court order for its production, where emissions were 30% below 2016 levels last year. The new Shell management, which is much more oil and gas-minded, already has reshaped the company's strategy and operations, with significant changes to its carbon intensity targets by 2035. 

Global markets and Shell's compatriots will be watching from Azerbaijan with anticipation. A Dutch court ruling upholding all demands could be taken as a precedent by other NGOs or political parties worldwide to increase pressure on the hydrocarbon sectors again. The outcome could be very harmful to OECD industries or consumers and remove another significant power base of IOCs and independents, reinforcing major strategic changes in the ownership structure of global hydrocarbon markets. A move from IOC to NOC is ongoing; further financial or legal pressure could open the gates of hell. Most environmentalists still need to understand that pushing only one button in a diverse and constantly moving global system will not be the solution. Emissions are just one of the underlying reasons, but some see it as the Holy Grail. At the same time, most oil and gas owned, produced, refined, or sold is no longer in the hands of the former Seven Sisters! 

The appeals court in The Hague will start reading its ruling on Tuesday at 0700 GMT.

By Cyril Widdershoven for Oilprice.com

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