Scotland's Court of Session agreed with campaign groups Uplift and Greenpeace and ruled that the previous UK government's approvals for the multi-billion-pound Rosebank and Jackdaw fields were unlawful as they did not consider the carbon emissions the projects would indirectly generate.
Judge Andrew Stewart, who presided over the judicial review, said he had considered all the circumstances and concluded in favour of granting "reduction", a legal term for revoking approval.
"The public interest in authorities acting lawfully and the private interest of members of the public in climate change outweigh the private interest of the developers," Stewart said.
British energy major Shell, which owns the Jackdaw gas condensate field 250 kilometres (155 miles) east of the Scottish city of Aberdeen, and Norway's Equinor, the majority owner of Rosebank oil field 145 kilometres off the Shetland Islands, will now have to resubmit their environmental impact assessments.
The decision follows a ruling by the UK Supreme Court in June that greenhouse gas emissions indirectly generated by a business -- known as Scope 3 or downstream emissions -- must be taken into account.
As a result the government, which has a binding commitment to achieve net-zero carbon emissions in the UK by 2050, will be obliged when it reassesses the project to consider the emissions generated by burning extracted oil and gas, not just those that come from the extraction process.
The government said Thursday that "we will respond to this consultation as soon as possible and developers will be able to apply for consents under this revised regime.
"Our priority is to deliver a fair, orderly and prosperous transition in the North Sea in line with our climate and legal obligations," it added in a statement.
The oil fields were approved by the previous Conservative government, but the Labour government that came into power in July said it would not contest the Scottish court case in light of the Supreme Court ruling.
The oil companies also acknowledged during the four-day hearing in November that the Supreme Court ruling meant the fields were unlawful.
- 'New path' -
Stewart ordered that no oil or gas be extracted from the fields until the government makes its decision, but both companies can still work on the projects to "deal with the practical issues of construction and engineering prior to re-consideration".
"This is a historic win -- the age of governments approving new drilling sites by ignoring their climate impacts is over," said Philip Evans, senior campaigner at Greenpeace UK.
"The courts have agreed with what climate campaigners have said all along: Rosebank and Jackdaw are unlawful, and their full climate impacts must now be properly considered."
Shell argued during the hearing that stopping work was "a highly complex process, with significant technical and operational issues now that infrastructure is in place".
Production had been due to start this year, with Shell saying it would provide enough fuel to heat 1.4 million UK homes.
Equinor said the development would create jobs and be vital for UK energy security.
Rosebank is the UK's largest untapped oil field, estimated to contain up to 300 million barrels. Drilling had been due to begin between 2026 and 2030.
Equinor said it was investing GBP 2.2 billion ($2.7 billion) in Rosebank, while Shell's lawyer said it was investing GBP 1.1 billion in the Jackdaw gas field.
"Today's ruling rightly allows work to progress on this nationally important energy project while new consents are sought," said a Shell spokesman.
Evans said the government "should use this moment to set out a new path" by "creating a renewable energy system".
At the same time, governments in oil-generating countries like Scotland are wary of the shorter term risks of job losses in the sector.
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