The climate impact of burning coal, oil and gas must be taken into account when deciding whether to approve projects, the supreme court in London has ruled.

The landmark judgment, handed down on Thursday, sets an important precedent on whether the “inevitable” future greenhouse gas emissions of a fossil fuel project should be considered.

Campaigners hailed the ruling as a “huge win in the fight for a livable climate” and said it gave a boost to several other domestic lawsuits challenging fossil fuel extraction.

The case was initiated by the campaigner Sarah Finch, who challenged Surrey county council’s decision to extend planning permission for an oil drilling well at Horse Hill, on the Weald. She argued it should have accounted for greenhouse gas emissions from using the oil when assessing the environmental impacts of the project, not only the drilling site itself. These are known as “scope 3” or downstream emissions. The council argued it had discretion to decide what the full impact of a project would be.

While the lower courts were not sympathetic to Finch’s arguments, the majority of the supreme court said it was “plain” that the combustion emissions of an oil project were part of its overall environmental effects.

“The whole purpose of extracting fossil fuels is to make hydrocarbons available for combustion,” three of the five judges agreed. “It can therefore be said with virtual certainty that, once oil has been extracted from the ground, the carbon contained within it will sooner or later be released into the atmosphere as carbon dioxide and so will contribute to global warming.”

The International Energy Agency has said no new oil and gas exploration should take place if the world is to limit global heating to 1.5C (2.7F) above pre-industrial temperatures.

The court noted that the law governing environmental impact assessments in the UK did not impose a geographical limit on impacts. “In principle, all likely significant effects of the project must be assessed, irrespective of where (or when) those effects will be generated or felt. There is no justification for limiting the scope of the assessment to effects which are expected to occur at or near the site of the project.”

The court emphasised that proper impact assessment was key to ensuring democratic legitimacy of decisions that affected the environment. “You can only care about what you know about,” it said.

Finch said she was overwhelmed by the decision and praised the court’s clarity. “I did always feel confident that our arguments were right.”

The court added that fossil fuels were a special case and said the same would not necessarily apply to other carbon-intense raw materials, such as steel, which can be used for a wide range of purposes.

The decision does not prevent public bodies from approving projects with a big climate impact, but it strengthens the case for refusal.

In a statement, Surrey county council said the judgment made it clear that local planning authorities must have regard to downstream emissions, and permission for the Horse Hill project “remains to be determined in due course”.

Campaigners have brought other lawsuits, such as those against the Rosebank and Jackdaw oil and gas fields in the North Sea, which also challenge the way those projects are assessed.

“This is a huge win in the fight for a livable climate,” said Tessa Khan, a climate lawyer and executive director at Uplift, one of the groups challenging Rosebank. “Government can no longer keep repeating that the emissions from burning oil reserves don’t count.”

It also gives a boost to a lawsuit challenging the government’s decision to approve a controversial new coalmine in Whitehaven, Cumbria, which had been delayed pending the Horse Hill decision. West Cumbria Mining, the company behind Whitehaven, had been allowed to intervene at the supreme court.

Matthew McFeeley, a solicitor for South Lakes Action on Climate Change, which is leading the case, said: “This is an important recognition by the supreme court that the downstream impacts of fossil fuel projects must be adequately considered, and calls into question the secretary of state’s approach in relation to the Cumbria mine. The parties will now make submissions to the high court about the effect of the supreme court’s judgment and whether the decision was unlawful on the basis that it considered the coalmine would be ‘carbon neutral’.”

Andrew Boswell, a retired computer scientist and climate activist who has filed a number of lawsuits challenging the impact of road building on the climate, also welcomed the judgment. “It is an important signal to fossil fuel extractors, polluting industries and road developers that they can no longer get away with underplaying how much they are destabilising the climate system. If the next government is serious about climate change, it must work on strengthening the law to close all such loopholes.”

Boswell said it would affect his latest case against a “net zero” gas scheme in Teesside in particular.

The Department for Energy Security and Net Zero said it would “carefully consider the impact of the ruling”.