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An appeals court has dismissed a challenge against UK Export Finance’s (UKEF’s) US$1.15bn investment in a giant natural gas development in Mozambique, finding that the agency gave sufficient regard to the Paris climate agreement when approving the project.

UKEF approved the support for an LNG extraction, processing and export facility being developed by French energy giant TotalEnergies in July 2020, just under six months before then-Prime Minister Boris Johnson announced that the UK would stop financing fossil fuel projects overseas.

Environmental campaign group Friends of the Earth launched a legal challenge against UKEF’s decision in 2021.

The High Court split on the issue last year, with one judge finding that the government acted lawfully, while the second found that the agency had not sufficiently heeded the government’s obligations under the Paris Agreement. Friends of the Earth appealed the judgement.

On January 13, three Court of Appeal judges unanimously dismissed the appeal, finding that the Paris accord — which was signed in 2015 and is designed to limit global warming to under 1.5 degrees Celsius below pre-industrial levels — is an “unincorporated treaty” that “does not give rise to domestic legal obligations”.

The court found that UKEF only needed to conclude that it was “tenable” that the project was aligned with the UK’s commitments under the Paris accord, due to the complexity of estimating where the LNG from the project would be used and what types of energy sources it would replace.

The decision-making process “is beset by uncertainties as to future events that were not and, in many cases, could not, be known”, Justice Geoffrey Vos wrote on behalf of the court, adding: “It would be unworkable and impracticable if the Government could only make such a decision if it were able to demonstrate that its view of the factual and legal position was correct.”

The case highlights the fraught policy-making questions over whether natural gas constitutes a transition fuel while coal and oil-fired power is scaled back, a debate that has pitted climate experts against policymakers in many developed countries.

A climate change report commissioned by UKEF during the assessment phase found that it “cannot be stated with certainty whether or not the Project will contribute to fossil fuel transition” without knowing whether exported LNG would displace other fossil fuels such as coal and oil, or indeed cleaner renewable energy.

But the report found that “on balance” it would displace some more polluting fuels and lead to “some net reduction in emissions”.

UKEF did not calculate the possible scope 3 emissions — those generated by the use of the exported LNG — over the life of the project until Johnson queried the absence of such an estimate when he was asked to sign off on the deal, last year’s High Court judgement showed.

A subsequent “simplified” estimation, pulled together in 24 hours, found that lifespan emissions could top 805 million tonnes of CO2 — some 1,000 times higher than initial indications given to UKEF by consultancy Wood Mackenzie.

This partly contributed to the High Court’s split decision. One judge, Justice Thornton, found that there was “no rational basis” for UKEF’s determination that the project was aligned with Article 2 of the Paris Agreement, which seeks to make finance flows consistent with a pathway towards low greenhouse gas emissions.

However, the appeals court found that Article 2 is merely “an aim and a purpose of the Paris Agreement, not an obligation of the UK Government with which compliance or consistency must be demonstrated”.

“We conclude that UKEF’s decisions as to the quantification of the Scope 3 emissions and the adequacy of the [climate change report] were well within the substantial margin of appreciation allowed to the decision-makers,” Justice Vos wrote.

The judges found that while UKEF chose to assess the project against the UK’s commitments under the Paris Agreement, the agency was not legally bound “to take into account the UK’s obligations under an unincorporated treaty that formed no part of it”, especially when “there is a lack of clear guidance as to how unincorporated treaties like the Paris Agreement should be construed as a matter of domestic law”.

The government “must also be able to say, without successful challenge, that it thinks on balance and in good faith that a particular decision is compliant, even if it later changes its policy or is shown to have been wrong in the view that it took” Justice Vos wrote.

UKEF’s support for the Mozambique development was its last major foray into an overseas fossil fuel energy project. It is backed by a further seven export credit agencies and almost 20 lenders.

The court proceedings previously revealed the UK foreign, business and international development ministers at the time all opposed the project on environmental grounds.

Friends of the Earth describes the most recent ruling as “very disappointing” and says its lawyers are studying the judgement and mulling the possibility of a further appeal.

“This extremely disappointing judgment doesn’t alter our firm belief that the UK government should not be supporting the Mozambique gas project, or any fossil fuel project at home or abroad,” says Rachel Kennerley, an international climate campaigner for the NGO.

“We urge the government to end its support for this development. Rishi Sunak wants the UK to be seen as a world leader in fighting the climate crisis, but support for the gas development in Mozambique, and new coal and oil extraction at home, is completely undermining this.”

A spokesperson for UKEF welcomed the decision, adding: “We remain confident that UK Export Finance follows robust and internationally recognised due diligence before providing any support for overseas projects.”

“The UK is committed to helping countries across the globe move away from their dependence on fossil fuels and accelerate to net zero. UKEF is fully aligned with this commitment, pledging to support more green exports and decarbonise its portfolio by 2050. UKEF has provided over £7bn of support for green and sustainable projects since 2019.”