A conservation group says it will continue its fight against UK Export Finance’s (UKEF) decision to provide US$1.15bn of support to a natural gas project in Mozambique, after a split judgement from two UK High Court judges over whether the export credit agency’s decision to back the deal was legal.

Friends of the Earth brought a judicial review against UKEF’s mid-2020 decision to extend a financing package to a liquefied natural gas (LNG) export project being developed by French energy giant Total.

In a judgement handed down last month, Justice Stuart-Smith dismissed Friends of the Earth’s claim, ruling that UKEF’s assessment of the climate change impacts of the project was lawful. But the second judge hearing the case, Justice Thornton, found that UKEF had failed to take climate impacts properly into consideration and ministers who approved the financing package did not have access to enough information to make a decision.

The split decision means Friends of the Earth’s attempt to overturn UKEF’s decision has failed, but the judges granted it permission to appeal the decision in the Court of Appeal, which it says it will do.

The group argues that the disagreement between the judges means the review failed on a technicality and Justice Thornton’s judgement shows that UKEF “misled” ministers during the approval process and that her ruling requires “corrective action” by UKEF or the government even before the appeal is heard.

“Our view is that [UKEF] can and should withdraw the funding,” Will Rundle, head of legal for Friends of the Earth, tells GTR. “Normally one High Court judge is enough for a claimant to succeed and for the defendant to be ordered by the court to correct its behaviour.”

Rundle says he expects the Court of Appeal to hear the case at the end of this year or early next, “but in the meantime, we’ve got UK Export Finance operating in a situation where a High Court judge has told them it’s acting unlawfully”.

He says: “That’s really interesting territory for a public authority, because while they can point to the appeal going ahead, that judgement currently stands as law, and they need to respond to that.”

A spokesperson for UKEF tells GTR: “We welcome the judgment and remain confident that UK Export Finance follows robust and internationally recognised due diligence before providing any support for overseas projects. We do not comment further on ongoing legal proceedings.”

Friends of the Earth argued during three days of hearings in December last year that UKEF’s decision to underwrite British companies’ involvement in the project was based on an error of law or fact, because supporting the project is inconsistent with the UK’s obligations under the 2015 Paris Agreement on climate change. It also argued that the decision was made “without regard to essential relevant considerations” when judging whether the project aligned with the UK and Mozambique’s commitments under the agreement.

The project under development by Total includes two offshore gas fields and a liquefaction plant with capacity of some 13 million tonnes per year. UKEF is among eight other export credit agencies and 19 commercial banks financing the project, in what Total says is the largest project finance deal ever struck in Africa.

When it is fully operational the venture is expected to significantly lift Mozambique’s contribution to greenhouse gas emissions, however its proponents say that it may lead to an overall shrinking of emissions because some buyers will use the exported gas to switch from fuel sources such as coal and oil.


A crucial report

During the course of the judicial review, arguments focused on a climate change impact report produced by UKEF and which was provided to ministers who had input into the funding decision.

The report relied heavily on an assessment by energy consultants Wood Mackenzie, according to an account of the decision-making process laid out in the judgement.

The consultancy was initially tasked with calculating the project’s scope 3 emissions – meaning those generated by the end users of the exported gas – but that was later downgraded to evaluating just direct emissions and potential emissions reductions from the project.

Wood Mackenzie acknowledged that the report had severe limitations due to the difficulty of knowing where and how the exported gas would be used and an internal UKEF email described the report as “very light and [it] makes high level assumptions”.

UKEF officials acknowledged the report lacked information on scope 3 emissions and ultimately decided against commissioning another external firm to model them because “there [was] not enough time left” before a decision had to be made, the judgement says.

The report ultimately concluded that while a confident estimation of the scope 3 emissions from the project was impossible, they would likely exceed 25,000 tonnes of CO2 per year. But the document also said that “it appears more likely than not that, over its operational life, the project will at least result in some displacement of more polluting fuels, with a consequence of some net reduction in emissions”.

When the report reached Downing Street, officials there decided to estimate the project’s scope 3 emissions and found, albeit through what was described as a “very simplified” process, that scope 3 emissions could be 1,000 times higher than Wood Mackenzie’s indicative figure and estimated that they could top 805 million tonnes of CO2 over a project lifespan of 25 years.

Nevertheless, Prime Minister Boris Johnson joined his then-international trade secretary, Liz Truss, in giving the project the green light, and asked for an emissions-abatement scheme to be attached to the deal.

The then-foreign secretary Dominic Raab, then-business secretary Alok Sharma and then-international development secretary Anne-Marie Trevelyan all recommended that UKEF decline to back the project, citing the bad press likely to stem from backing a major fossil fuel development ahead of the November 2021 Cop26 summit in Glasgow.


Judges split

In finding in favour of UKEF, Justice Stuart Smith found that there was “no legal or policy obligation” for the organisation to calculate scope 3 emissions.

He suggested that the text of the Paris Agreement is too broad to be properly applied to the facts of the case. “[Friends of the Earth] has adopted a hard-edged approach to the obligations of both Mozambique and the United Kingdom which is inconsistent with a proper understanding of the Paris Agreement,” he wrote in the judgement.

“The agreement contains numerous aims or aspirations that may prove to be in tension or frankly irreconcilable on the facts of a given case, this case being a paradigm example.”

But Justice Thornton found that UKEF’s decision not to assess scope 3 emissions meant the decision-making process was not carried out in line with the UK’s obligations under the Paris Agreement. “UKEF failed to discharge its duty of inquiry in relation to the calculation of Scope 3 emissions. Its judgment that a high level qualitative review of the impact was sufficient was unreasonable,” she wrote.

“The failure to quantify the Scope 3 emissions, and the other flaws in the Climate Report mean that there was no rational basis by which to demonstrate that funding for the Project is consistent with… the Paris Agreement on Climate Change and a pathway to low greenhouse gas emissions.”

Justice Thornton also found that ministers reviewing the project, including crucially Truss, who had oversight of UKEF, were deprived of “the full evidence base on which to decision make” because “the Climate Assessment did not fulfil the purpose set for it by UKEF in that it failed to fully acknowledge the climate impacts of the Project”.

In his submissions to Johnson, UKEF chief executive Louis Taylor argued that government support for the project would be in line with its status quo policy on fossil fuel financing, but to reject support would in effect create a new policy on support for oil and gas.

The UK government eventually announced an end to all financing support for overseas fossil fuel projects in December 2020, meaning UKEF would have been compelled to turn down support for British companies involved in the project if the decision had been made after that date.

Total suspended construction of the Mozambique project and evacuated workers after insurgent attacks nearby in early 2021, delaying the expected start of production to 2025. The company’s chief executive Patrick Pouyanne told Reuters in February that the company plans to restart construction sometime this year.