Faculty of law blogs / UNIVERSITY OF OXFORD

How Can We Repower Europe? Ending Fossil Fuels and the Corporate Sustainability Due Diligence Directive

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Ewan McGaughey
Reader at the School of Law, King's College London, and Research Associate at the Centre for Business Research, University of Cambridge

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6 Minutes

With Putin’s criminal war on Ukraine, the Commission plans to ‘RePowerEU’ and end Russian fossil fuels. Biden says we must have 100% clean energy, a recognition of everyone’s universal right ‘to share in scientific advancement and its benefits’. We know why: the countries whose exports are most fossil fuel intensive are most likely to be dictatorships. Gas, oil and coal are easily monopolised by political elites, cursing their populations with oligarchy and conflict. Fossil fuels, and the climate damage they cause, are not just a huge ‘externality’ but a geopolitical curse. The most successful environmental law is the Montreal Protocol, which banned CFCs and HFCs and healed the hole in the ozone layer. Bans work because they provide moral clarity that galvanise political coalitions, whereas carbon taxes and timid steps to regulate the evil usually fail. The European Commission proposes shifting imports to USA and Qatar temporarily, turning down thermostats, and boosting investment in wind and solar. But it fails to capitalise upon a vast range of legal options.

So, to change how corporations behave and use fossil fuels in general, ironically, we cannot look at corporate law alone. We need to cast our view to the law of enterprise, and bring all public and private actors on board. This post summarises how we can repower Europe, based on extended legal analysis in my new book,  'Principles of Enterprise Law: the Economic Constitution and Human Rights'. It focuses on EU law, but all UK analogues are in the model Green Recovery Act. It finishes by comparing the proposed Corporate Sustainability Due Diligence Directive, much criticised on this blog, and why we cannot wait for 2050 or 2030 to act.

1. Five steps to a clean economy: energy, transport, food, buildings, business

Step one: Energy. We are at war, and need to act like it. In World War Two, the US government told its automakers that it needed all factories to retool for planes, and the corporate executives replied that their demands were impossible: only 10-15% of production could be switched each year. But the US government insisted, and it was done at incredible pace. So, if we are to work with similar resolve, we can start with a new Electricity Directive 2019/994 article 8a, which should require that Member States ensure that all electricity undertakings swiftly convert their supply to wind, solar or other clean energy, for instance at a rate of 33% a year. Second, the Gas Directive 2009/73/EC needs a new article 5, with a duty on Member States to phase out all gas as fast as technologically possible and redeploy infrastructure and staff to build hydro-storage facilities for when the sun does not shine or wind does not blow. This world map identifies good hydro-storage locations: you pipe and pump water up a hill or a mine, and let gravity do the rest. Third, a new Hydrocarbons Directive 1994/22/EC article 2 should require Member States to eliminate all fossil fuels as fast as possible. Corporations that fail to convert their business should be wound up.

Step two: Transportation. The total cost of electric vehicle ownership is now cheaper than that for fossil fuel vehicles, with clean energy costs declining logarithmically. All tax deductions for non-electric vehicles should be scrapped, because it damages European business to keep driving petrol and diesel. A new Bus Regulation 181/2011/EU article 6a should require bus licensing authorities, and companies, to electrify their fleet, for instance at a rate of 33% a year, and Member States to replace all traffic possible with electric bus routes. The Railways Directive 2012/34/EC article 17(4A) should require electrifying all rail in cooperation with infrastructure owners. Subsidies for rail should be given, and flight-paths of comparable speed de-licensed (eg London to Paris). The Vehicle Emissions Regulation 459/2012/EU needs a new Euro 7 standard with zero emissions, and the Emission Performance Regulation 443/2009/EC article 4 should prohibit shareholder dividends and cut executive pay until this is achieved. After ‘Dieselgate’, the automakers have a moral duty to go electric. They also risk being eclipsed by American and Asian competition. Markets work, but are slow. It took 50 years for cars to replace horses, even though horses were obsolete. Bans work faster. The main areas where we lack clean technology are planes, cargo ships, cement and steel, and all of these have solutions that will come quicker with impending bans, and more R&D investment: ‘Vorsprung durch Verbote, und Technik’.

Step three: Food. The Common Agricultural Policy of the EU (CAP) should go back to its original social purpose, not enrich agri-businesses that decimate nature. The CAP Direct Payments Regulation 1307/2013/EU article 9 should require all ‘active farmers’ to plant trees and enhance biodiversity, and articles 45 and 46 should be amended to progressively raise the ‘ecological focus area’ requirements from 5% to 25%. A new CAP Management and Financing Regulation 1306/2013/EU article 91a should require farmers to eliminate unnecessary machinery, practice no-tilling to revive soil and retain carbon, and use robot weedkillers instead of huge herbicide sprays. To solve rural poverty and boost investment, all employers in receipt of money should be required to pay living wages and recognise independent trade unions (the best defence against fascism), and the Rural Development Regulation 1305/2013/EU article 5 should require installation of electric charging points, and provision of electric public transport, just like the great New Deal programmes in the US Rural Electrification Act of 1936.

Step four: Buildings. The Energy Performance of Buildings Directive 2010/31/EU articles 2(2) and 7-9 should change from a duty for ‘nearly zero-energy buildings’ to ‘negative energy buildings’ following the motto ‘every building a power station’. Article 14 on ‘inspection of heating systems’ should include a ban on all new gas heaters, and create a duty to replace existing heaters in public and commercial buildings, then homes, with heat pumps or electric boilers.

Step five: Businesses. The Accounting Directive 2013/34/EU article 6 should require companies to account for the cost of shifting to clean energy, and the Company Law Directive 2017/1132/EU article 45 should require companies to set aside reserves for climate damage liability. In Urgenda v Netherlands (2019) and the Klimaschutz case (2021) the highest Dutch and German courts have held governments responsible for reducing emissions faster, and in Milieudefensie v Shell (2021) a Dutch court held a corporation was liable in tort for failing to reduce emissions. In Lliuya v RWE AG (2017) a German Upper State Court held that a big power company could be liable to pay 0.47% of the cost of flood defences against a melting glacier at a Peruvian village because RWE has contributed to 0.47% of all historic greenhouse gas emissions—assessment of the evidence of causation is ongoing.     

Then, the European Central Bank Statute, article 1, should clarify that ‘price stability’ entails reducing inequality and ending climate damage. The wild inflation now, like the 1970s, comes from fossil fuels controlled by dictators. Stop fossil fuels, stop dictators, stop inflation.

Finally, the GNI Regulation 2019/516/EU should replace ‘Gross Domestic Product’ (GDP) as a measure of economic performance with objective factors that do not count profit from harm to the environment, human health, and ‘loss of our natural wonder’, as positive. Replacing GDP with real wages, within the inequality-adjusted Human Development Index, would be a better measure of welfare.

2. Comparison to the Sustainability and Due Diligence Directive proposal

How does this compare to the SDDD proposal, released a day before Putin’s criminal invasion? This would require companies with turnover in excess of €150 million, or just €40 million in ‘critical sectors’, to prevent ‘potential adverse impacts’ on human and environmental rights (arts 2-3, 7 and Annex). If ‘the adverse impact’, says article 8(2), ‘cannot be brought to an end, Member States shall ensure that companies minimise the extent of such an impact.’ Article 15 says large companies should have a ‘business model and strategy... compatible with the transition to a sustainable economy’ (not defined),  ‘limiting of global warming to 1.5 degrees’, and report. Article 25 says directors have a duty to ‘take into account the consequences of their decisions for... human rights, climate change’, etc, like the Companies Act 2006 section 172 without a good faith defence.

In short, the proposed Directive is ‘blah, blah, blah’. Article 8(2) gives companies a licence to pollute, violate labour and human rights, and argue over it in court if the wrongs ostensibly ‘cannot be brought to an end’. Presumably Gazprom lawyers in London or Munich would have argued that NordStream2 just could ‘not be brought to an end’ but that they could plant some trees to ‘minimise the impact’.

With a dozen other changes, article 25 should require every director to shift their company to clean energy as fast as technology allows, divest fossil fuels, and make products of lasting quality to minimise material throughput. It should be enforceable by investors, employees and other groups with a sufficient interest in the company.

3. Act now, and ditch distant targets

If this war makes us realise anything, it’s that lies and inaction must end. In 1977, Exxon Corp’s internal research said ‘mankind is influencing the global climate through carbon dioxide release from the burning of fossil fuels’. Then its executives lied and denied global warming. In 1997, Putin wrote a masters thesis on how Russia could be great again if it exploited its resources. He turned his country into a petro-state, and became the world’s biggest climate denier. After the first Ukraine invasion, his US president appointed Exxon’s CEO as Secretary of State, and Putin funded climate sceptics across Europe. Every puff of smoke, every slick of oil, every lump of coal is doing us damage, and the geopolitical cost can no longer be ignored. Ukrainians are being tortured, mass raped and massacred by war criminals. Similarly, Saudi Arabia is run by another sadistic war criminal who chops up journalists and starves Yemeni children. And the list goes on. So, distant targets of 2050 or 2030 are no good. They function as licences for fossil fuelers and dictators to keep going. If we change, the world we could win is so much better: clean air, a plural economy, a more democratic polity, a more just society, and peace.

Ewan McGaughey is a Reader at the School of Law, King’s College London, and a Research Associate at the Centre for Business Research, University of Cambridge.

This post is published as part of the OBLB series on ‘The Corporate Sustainability Due Diligence Directive Proposal’.

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