Re-working EIA: New Guidelines for Assessing Downstream GHG Emissions in Offshore Projects
Introduction
The Department of Energy Security and Net Zero (“DESNZ”) has published its supplementary guidance setting out how developers are to assess downstream greenhouse gas (“GHG”) emissions in Environmental Impact Assessments (“EIA”) for offshore oil and gas projects. Following the UK Supreme Court’s decision in R (on the application of Finch on behalf of the Weald Action Group) v Surrey County Council and others[1], (“Finch”) in August 2024, the UK Government announced a pause on approving new projects until guidance in line with Finch was published and so the issue of the “Environmental Impact Assessment (EIA) – Assessing effects of downstream scope 3 emissions on climate”, (“Supplementary Guidance”), which is intended to take account of the requirements set out in Finch nearly a year after that decision was handed down by the Supreme Court will be welcome to offshore oil & gas license holders in the UKCS.
Legal Context and Applicability
In Finch the Supreme Court determined that the environmental effects of downstream GHG emissions, specifically, those arising from the eventual combustion of produced hydrocarbons, are indirect but significant effects of oil and gas projects and must be assessed as part of an EIA. (For more information on the decision in Finch, please see our previous LawNow available here: Finch: Supreme Court decision on environmental impact assessment regul). While the judgment was based on onshore regulations, the interpretation of the EIA Directive set out by the Supreme Court is equally applicable to offshore projects governed by The Offshore Oil and Gas Exploration, Production, Unloading and Storage (Environmental Impact Assessment) Regulations 2020 (“2020 Regulations”).
The Supplementary Guidance is intended to supplement the existing guidance published by the Department for Business, Energy & Industrial Strategy in July 2021, (“The Offshore Oil and Gas Exploration, Production, Unloading and Storage (Environmental Impact Assessment) Regulations 2020 – A Guide”). It primarily focused on projects which require a mandatory Environmental Statement (ES) under the 2020 Regulations, and which require development and production consent from the NSTA, but also addresses other project types where downstream GHG emissions may be relevant, such as projects that fall under Schedule 2 of the 2020 Regulations, and projects which have an existing development and production consent, but may be required to apply to the NSTA to amend their daily production rate. Therefore, assessments of downstream GHG emissions may be required at other stages in a project’s lifecycle, even after development consent has been granted.
Scope of Emissions and Assessment Expectations
The Supplementary Guidance adopts the definitions from the Greenhouse Gas Protocol, (“GHG Protocol”), published by the World Business Council for Sustainable Development and the World Resources Institute. The GHG Protocol is intended to develop internationally accepted GHG accounting and reporting standards for businesses:
Scope 1: Direct GHG emissions from owned or controlled operations.
Scope 2: Indirect GHG emissions from purchased energy.
Scope 3: All other indirect GHG emissions in the value chain, with downstream emissions (notably scope 3, category 11 emissions: use of sold products), being the primary focus in relation to the assessments to be carried out for these projects.
Developers are required to assess, at a minimum, the downstream emissions resulting from the use (combustion) of hydrocarbons produced over a project’s lifetime (i.e. the scope 3, category 11 emissions). This must be done regardless of any substitution argument (i.e. the assessment should exclude any argument that the hydrocarbons extracted as a result of the project will replace rather than be additional to, other hydrocarbons that would be extracted elsewhere), and the starting point for assessing these emissions should be a presumption that all produced hydrocarbons over the life of a project will be combusted.
A developer can present a scenario that demonstrates the non-combustion use of hydrocarbons, where there is evidence to support this. However, even if a developer chooses to present this scenario, OPRED is of the view that the ES should still be presented with an estimate that all scope 3, category 11 emissions will be combusted.
A developer may choose to further break down the scope 3 emissions into different downstream categories of the GHG Protocol (in addition to category 11), relevant to the anticipated end use of the produced hydrocarbons and provide an assessment for each relevant category. Evidence must be provided to justify the selected categories. Evidence must also be provided to support how emissions have been quantified for each category.
Estimating Scope 3 Emissions
The ES must transparently set out the scope, methodology, and results of the assessment and must include a comparison with a ‘no project’ scenario. The Supplementary Guidance does not provide a methodology for developers to use as part of the assessment. Instead, developers should choose the methodology they believe is best for assessing the effects of their project on the environment and set that out in their ES. The ES should explain the chosen methodology, conversion factors, assumptions, and uncertainties. Consistency in units and adherence to best practice such as the GHG Protocol guidance, or the guidance on “Assessing Greenhouse Gas Emissions and Evaluating their Significance” issued by the Institute of Environmental Management and Assessment in 2022, is expected.
Estimates should be based on the highest anticipated production volumes (P10 data) and appropriate conversion factors, such as those published by the UK Government.
Evaluation of Significance
The ES must include an assessment of the likely significant effects from GHG emissions, considering both the magnitude of emissions and their context relative to both global and national climate objectives. Discussion of the likely significant effects should be accompanied by criteria used to determine how an impact is “likely” and “significant”.
Global GHG emissions are considered to be a relevant consideration to assess scope 3 emissions, and therefore OPRED expects that global GHG will feature in any assessment of the effects of GHG emissions on the climate. This will likely involve the assessment of the project’s emissions against global climate objectives at the project level. The Supplementary Guidance discourages contextualising project emissions solely as a numeric proportion of global emissions; instead, alignment with global emissions-reduction pathways (such as those published by the Intergovernmental Panel on Climate Change, in “Mitigation Pathways Compatible with 1.5C in the Context of Sustainable Development (2023)), is recommended to support a reasoned conclusion on significance.
In addition to consideration of a project’s emissions against global climate objectives, the ES must consider the cumulative effects of the proposed project, with other existing and planned future projects, which again must be in a global context.
Mitigation Measures
Where significant adverse effects are identified, the ES must describe measures to avoid, prevent, reduce, or offset these effects. The Supplementary Guidance recognises that mitigation options for scope 3 emissions are limited, as developers have less direct control compared to scope 1 and 2 emissions.
The Supplementary Guidance does not recommend or discourage any specific mitigation measures. ESs which contain proposals for mitigation, must also contain a delivery plan for how those measures will be delivered. The Supplementary Guidance states OPRED’s current view is that emissions removal measures, such as high-integrity carbon credits, are the most appropriate measures for addressing the impact of scope 3 emissions and may be considered in an ES, but must be transparent, verifiable, and linked to the project. The use of voluntary carbon credits is not currently regarded as an effective mitigation measure for regulatory purposes.
Decision-Making
In deciding whether to grant consent, the Supplementary Guidance makes clear that Secretary of State will weigh the environmental effects, including the significance of scope 3 emissions, against national interests and policy objectives for the North Sea. The decision will consider the severity, extent, and duration of effects, as well as alignment with the UK’s climate commitments. Although this has always been the case, it seems likely to be helpful that this has been expressly confirmed.
Conclusion
Following the Finch decision, developers in the UK Oil and Gas industry have been waiting for clarity from OPRED as to the scope of the assessment of downstream GHG emissions they will now need to carry out. Those with projects underway have had to wait for the Supplementary Guidance before being able to seek the necessary developments consent. They will likely now be carefully considering how best to meet the expectations that the Supplementary Guidance describes for the assessment of downstream GHG emissions in order to progress those projects, and OPRED has confirmed that it will now recommence consideration of applications.
Only time will tell if the Supplementary Guidance will be the final word on the developments for the energy sector that have followed the Finch decision, or if there is more to come from this landmark decision.
Co-authored by Alex Rae, Associate in our Energy Disputes team
[1] [2024] UKSC 20
