Could Carbon Majors be made to pay for climate damage?

The climate crisis is already causing large financial losses, and much more is ahead. Most of the fossil fuels that are driving this crisis have been produced and sold by 103 companies, the Carbon Majors. Can they be made to pay for it?

Burning fossil fuels is creating a collision with physics.

Humans have never lived in a world much warmer than today. On the current trajectory, we could be beyond the realm of all human experience within the next 30 years.

The Bank of Canada recognizes climate change as a key vulnerability in the Canadian economy and financial system. The Bank estimates the negative effects this century at “potentially 1.5 to 23 percent of global annual gross domestic product (GDP) per capita”. Others are more pessimistic:

“Large-scale uneven impacts of climate change may destabilize existing institutional arrangements, increase incentives to violently redistribute wealth, or generate other forms of social conflict.” Hsiang, Oliva, Walker 2017

According to the Federation of Canadian Municipalities and the Insurance Bureau of Canada, Canadian governments already need $5.3 billion / year just to adapt to the hotter, weirder weather that past emissions have already locked in.

Who should pay for all this?

There is one obvious answer. We know that burning fossil fuels is the major cause of climate damage. And we know who produced those fossil fuels:

•      70% of global human-caused climate pollution comes from fossil fuels produced by 103 companies.

•      35% of that pollution (1 million tonnes CO2e every forty minutes) comes from fossil fuels produced by only 20 of those companies. ExxonMobil itself produced fossil fuels that created 3.09% of global emissions 1965 to 2017.

The Carbon Majors have profited handsomely from producing these fuels; ExxonMobil alone had gross profit of $56 billion USD ($Can 74 billion) last year. Much of that profit has been earned since they knew the climate consequences of their products. In the 30 years after James Hansen’s dramatic 1988 testimony to the US Congress,  oil production soared and climate pollution doubled.

Yes, fossil fuels are legal products, widely used and heavily regulated. The Carbon Majors may produce fossil fuels, but we all use them. As a result, most Canadians benefit from a historically extraordinary level of wealth, comfort, and quality of life. Fossil-fuelled societies have lengthened human lives, and immensely expanded human population, while reducing slavery. Carbon Majors have been hugely important for the Canadian economy, and provide the economic foundation for many communities and families.

In these circumstances, will governments and courts make the Carbon Majors pay for soaring climate damages? I predict that a critical factor will be public opinion about whether the Carbon Majors’ enormous profits were morally earned.

Were the Carbon Majors’ enormous profits morally earned?

Public opinion on this question has begun to change, as many more people have become aware that:

1.    The Carbon Majors’ huge private profits sit on a foundation of heavy public costs, including public investment, infrastructure and subsidies, plus pollution and legacy cleanup costs.

2.    The Carbon Majors’ pollution is threatening us, here, now, not just polar bears and future generations.

3.    We are desperately unprepared for what’s coming.

4.    The longer we delay strong action, the more it will cost us.

5.    Exxon and fossil fuel industry associations have, for decades, conducted an active campaign of disinformation, doubt and delay, to defeat, defer and weaken public regulation of the environmental and climate damage that they cause, in direct contradiction to their own scientific knowledge. Even today, Environmental Defence Canada has shown, fossil fuel industry lobbying is the single biggest barrier to effective climate action in Canada.

 People will be more willing to make moral judgments of the Carbon Majors when they lose money, and there are increasing reasons to doubt whether Carbon Majors are good places to invest either equity or debt. The business plans of the Carbon Majors are incompatible with a stable climate and with the Paris Agreement. Fossil fuel divestment has been growing rapidly, more rapidly than any previous divestment campaign. More than 1100 institutional investors, including giant pension plans and entire countries such as Ireland, have pledged to divest from fossil fuels.

Lenders, such as the world’s largest international public lending institution, the European Investment Bank, are halting fossil fuel loans. The world’s largest asset manager, Blackrock, is divesting its thermal coal debt and equity. Dozens of countries have pledged to reduce fossil fuel subsidies.

In the stock market, the energy sector halved from 25% of the S&P 500 in 1980 to 12% in 2009; in 2019, it fell below 5%, and Exxon lost its prized place in the top 10 of the S&P 500, for the first time since the index was created. Soon after, Moody’s downgraded Exxon’s outlook to negative, citing large negative cash flow, debt-fueled expansion, low commodity prices, and “rising litigation risk …related to climate change.” Then, in 2020, the oil price really crashed.

Legendary investor Jeremy Grantham reports that owning fossil fuel stocks already worsens investment returns. The S&P index returned an average of 9.71 %/ year 1989 to 2017; he calculated that investors could have made 9.74 %/ year over the same period by owning the same index but excluding energy stocks. Looking ahead,

Mercer predicts that investing in sustainability will provide much higher returns in coming decades than today’s standard “Growth” portfolio.

For these and other reasons, I expect public opinion to increasingly welcome the idea of making the Carbon Majors pay. And as that appetite grows, lawyers are developing options to offer. 

Those options include:

1.    Suing governments, so that they make the Carbon Majors pay, and

2.    Suing the Carbon Majors directly.

Suing governments

A generation ago, courts usually refused jurisdiction over public policy issues that involved the public purse. They called them “non-justiciable”. But as the climate crisis worsens, even judges in their protected enclaves are starting to understand our deep jeopardy, and to think again before throwing cases out of court.

The leading world case on justiciability of government climate action is Urgenda v. Netherlands, Supreme Court of the Netherlands, December 20, 2019. Other cases are spreading around the world.

In Urgenda, an NGO asked the courts to force the Dutch government to keep its international commitment to limit the emission of greenhouse gases (GHGs) by at least 25% by the end of 2020, compared to 1990. The Dutch government did not deny the seriousness of the climate crisis, but absolutely denied that it was the proper role of the courts to make the government act.

The trial court issued the order requested by Urgenda in 2015. The Dutch government appealed, but the order has now been upheld by the Dutch Supreme Court. The Court ruled that the Dutch government’s failure to slash GHG emissions breached its obligations under the European Convention for the Protection of Human Rights and Fundamental Freedoms. The Convention gives Dutch residents the right to life, and the right to respect for private, family and family life. As a party to the Convention, the Netherlands is obliged to take appropriate measures when it knows of a real and immediate risk to human life or well-being. The Court ruled that the climate crisis creates such a real and immediate risk, because there is a serious risk that dangerous climate change will occur that threatens the lives and well-being of many in the Netherlands.

The Netherlands, like Canada, is also a party to the United Nations Convention on Climate Change. The aim of that treaty is to keep the concentration of GHGs in the atmosphere low enough to prevent major disturbances of the climate system. To achieve this, all countries must take measures to prevent climate change, in accordance with their responsibilities and capacities.

Every country is therefore responsible for its share of emissions. The Court rejected the argument, often heard in Canada, that the Netherlands’ own emissions are relatively small on a global scale and that reducing their own emissions will not alone solve the global problem. This, the Court ruled, cannot relieve the Netherlands of the obligation to do its part, and to appropriately reduce GHG emissions from its territory. 

Scientific evidence, summarized in the reports of the Intergovernmental Panel on Climate Change, show a great deal of consensus about the urgent need for rich countries to reduce their GHGs at least 25-40% by 2020. It is therefore the obligation of the Netherlands to do so. The government had failed to justify its policies to defer emission reductions to later years, given the strong evidence that leaving reduction measures until later means they will have to be more drastic and costly, while also causing a greater risk of abrupt climate change. 

On the question of justiciability, the Court acknowledged that decision-making on how to reduce GHG belongs to the government and parliament. They have a great deal of freedom to make the necessary political decisions. But it is the task of the courts to ensure that the government and parliament act within legal limits, such as their constitutional obligation to protect the right to life. It is an essential part of a democratic constitutional state for courts to offer citizens legal protection even against the government. The government does not protect citizens’ constitutional right to life when it defers GHG emission reductions in the face of clear evidence of the likely consequences. The government must therefore achieve the emission reductions ordered, though it is free to choose how to do so.

The Urgenda decision is a powerful precedent for Canada. Both the federal and Ontario governments are already facing similar lawsuits, La Rose v. Her Majesty the Queen (Canada) in Federal Court, and Mathur et. al. v. Her Majesty in Right of Ontario in Ontario Superior Court. Both sets of young plaintiffs correctly allege that our governments’ failure to reduce climate pollution (GHGs) increases the risk of climate catastrophe and therefore violates their rights under sections 7 and 15 of the Canadian Charter of Rights and Freedoms. As in Urgenda, they ask the courts to order their governments to set a science-based GHG reduction target, and to take effective action to meet it. Judicial reticence to make orders based on the climate crisis is being tested in more than 1,300 climate-related lawsuits in 28 countries, including the far-reaching Philippines Human Rights Commission National Inquiry on Climate Change.

Faced with these powerful lawsuits, and at risk of being forced to act, governments may well be tempted to make the Carbon Majors pay instead of taxpayers. After all, that’s what they have done before, and they have the authority to do it again.

How governments can make Carbon Majors pay

Governments could adopt new laws to make industries pay taxes, fees or levies, as the US did with Superfund. They could create an additional carbon tax, dedicated to paying for climate damage and adaptation. But adopting new laws takes time and can meet strong political opposition. Governments can move much faster when they can use existing legislation. And for this, they have strong, relevant precedents.

Contaminated Sites

On many occasions, Canadian governments have found themselves with huge, unanticipated financial burdens due to pollution by industry. For example, Canadian taxpayers have paid heavily to manage or clean the tens of thousands of contaminated sites. When faced with these bills, governments also took steps to make industries pay, regardless of general ideas of fairness and due process.

One of the classic examples is Imperial Oil Ltd. v. Quebec (Minister of the Environment), 2003 SCC 58 (CanLII). In this case, Imperial shut down a long-standing refinery in 1973, long before there were cleanup standards for petroleum and chemical contamination of soil and groundwater. Imperial sold the site “as is” in 1979. The buyer sold it again to a developer.

The developer knew the site was contaminated. It cleaned the site to the satisfaction of the regulator, the Quebec Ministry of the Environment (MEF), built a subdivision and sold the homes. Later, the homeowners found contaminants on their properties. They sued the developer, the City and the MEF.

Without waiting for the result of that lawsuit, politically embarrassed and not wanting to pay for the cleanup, the MEF ordered Imperial Oil to do the cleanup at its own expense. Imperial considered this most unfair and appealed all the way to the Supreme Court of Canada. The Supreme Court upheld the MEF Order.

According to the Supreme Court, government cleanup orders do not need to be fair. Governments are entitled to protect their own purse when exercising their legislative power to issue orders to polluters. Governments can impose polluter pay liability retroactively. They can hold the past conduct of polluters to today’s standards because polluters owe a duty to future generations.

Baker v Director 2013 ONSC 4142 is another example of how far governments will go to avoid paying for industrial pollution themselves. In this case, the Ontario Ministry of Environment (MOE) had for years supervised the cleanup of an old contaminated site. The owner, a small Canadian company, spent $20 million of largely borrowed money on the cleanup. The owner had had the misfortune of buying the site, already contaminated by a long-bankrupt industry, long before it became standard practice to check for contamination before purchase.

Eventually, the owner and its US parent fell into financial difficulties. Faced with the risk of having no one to pay for the cleanup, the MOE ordered both corporations to put up $10 million in financial assurance. The order immediately pushed both corporations into bankruptcy; this was money that the companies did not have and that their lenders would not lend. The federal bankruptcy court flatly rejected the MOE’s attempts to get the $10 million from the companies in priority to the claims of their secured creditor, who had already funded much of the cleanup.

The MOE then issued a ~$15 million dollar cleanup order, personally, jointly and severally, to the officers and directors of both the Canadian subsidiary and its US parent. The MOE offered no evidence that the officers and directors of either company had caused the contamination, or that it had occurred on their watch. Nor did the MOE offer evidence that any wrongdoing by the officers or directors had led to the bankruptcies.

Nevertheless, the MOE asserted that the officers and directors had “caused or permitted” the contamination by failing to make the bankrupt companies give the government the $10 million financial assurance the MOE had demanded to complete the cleanup. The MOE knew, but did not care, that the corporations were essentially out of cash at the time of the order, and that the bankruptcy court, not the officers and directors, determined the fate of all corporate assets. The MOE also asserted that its power to issue “preventative” orders allowed it to require the directors to clean up historic groundwater contamination, whether or not it had occurred during their tenure.

Administrative Orders to the Climate Polluters

These and other precedents illustrate that Canadian environmental regulators have surprisingly wide powers under existing laws to issue administrative orders relating to contaminants from past and present pollution. Critically, these laws do apply to greenhouse gases.

For example, Ontario’s Environmental Protection Act defines “contaminant” broadly as “including any … gas… resulting directly or indirectly from human activities that causes or may cause an adverse effect”. Caselaw has confirmed that “contaminants” are not limited to toxic chemicals, but include noise, smells, dust, sand, and even reflected sunlight. Greenhouse gases like carbon dioxide and methane are gases that result directly or indirectly from human activities and are causing or may cause many adverse effects. They are therefore “contaminants” to which administrative orders under this Act can apply.

The orders can require a very broad range of actions, such as:

1. To have available… equipment, material and personnel… at the locations specified…

2. To …install … devices, equipment and facilities…

3. To implement procedures...

6. To study and to report to the Director on,

i. the presence or discharge of a contaminant …,

ii. the effects of the … contaminant…,

iii. measures to control the presence or discharge of a contaminant…

7. To develop and implement plans to…

iii. prevent, decrease or eliminate any adverse effects that … may result from … any … discharge of a contaminant into the natural environment…(s. 17 EPA)

That means that environmental orders under existing legislation can be issued to greenhouse gas polluters whose past or present emissions are worsening climate damage. Administrative orders could be used, for example, to make a group of Carbon Majors pay for adaptation infrastructure, such as flood protection for a vulnerable community. Because the MOE issues its orders “jointly and severally”, it can issue an order to any number of individuals and/or corporations, and leave it to the defendants to sort out who pays what.

Orders are not ideal tools for dealing with climate damage and adaptation. They probably have to be issued, site by site, to specifically named corporations and individuals. They can be appealed, so may have high legal costs, and they may not be swift. But administrative orders also have huge advantages, starting with the fact that they do not require new legislation.

So as climate damage mounts, governments may choose to make the Carbon Majors pay instead of taxpayers. But is there a more direct route? Can the Carbon Majors be sued directly?

Suing Carbon Majors directly

Noted climate leaders such as James Hansen have called for a wave of lawsuits against the highest carbon-emitting, investor-owned companies. Such cases are multiplying around the world, and are increasingly surviving preliminary challenges.

In October, the U.S. Supreme Court allowed Baltimore, Rhode Island and Boulder County, Colorado to press ahead in state courts with civil lawsuits against more than a dozen Carbon Majors for damage from climate change. (The Carbon Majors had tried to force the cases into federal courts, which are typically more favourable to them.) Similar orders are under appeal in the County of San Mateo v. Chevron Corp. public nuisance cases. In France, several municipalities and NGOs announced a claim against Total for breaching its duty under the French Code of Commerce to use reasonable vigilance to prevent violations of human rights and environmental risks. In Germany, the Hamm Higher Regional Court is proceeding with Saul Lliuya’s claim against RWE AG for 0.5% of ice melt damage in Peru.

Avoiding summary dismissal and procedural dead-ends is significant progress. But will the plaintiffs ultimately win?

Courts rejected the first wave of climate change lawsuits against fossil fuel producers, typically on the grounds of standing, proof of harm and causation. But the current wave could well succeed. As documented in If at First You Don't Succeed: Suing Corporations for Climate Change, 

the rapidly evolving scientific, discursive and constitutional context… generates new opportunities for judges to rethink the interpretation of existing legal and evidentiary requirements and apply them in a way that will enhance the accountability of major private carbon producers

One critical part of this context is increasingly strong evidence that climate pollution from the Carbon Majors and their products is already measurably worsening some extreme weather disasters, with major consequences for people alive today. For example, the ground-breaking Urgenda decision would not have been possible without the Dutch courts’ finding of fact that climate pollution creates a real and immediate risk to the lives and well-being of many people currently alive in the Netherlands.

This triggers new legal considerations, such as international obligations to respect human rights. The link between producing fossil fuels and violating human rights will become much better established when the three-year Philippines Human Rights Commission National Inquiry on Climate Change releases its report. In December 2019, Commissioner Roberto Cadiz told COP25 that the Commissioners have made their decision: the 47 biggest Carbon Majors have violated the human rights of Philippine citizens through their contributions to climate change, and can be held legally liable for those violations under existing Philippines civil law. Cadiz said it may also be possible to hold the companies criminally accountable “where they have been clearly proved to have engaged in acts of obstruction and willful obfuscation.”

That is another critical part of the new context: growing evidence of intentional obstruction and misinformation by the Carbon Majors. An important amicus brief in the San Mateo cases lays out evidence that the fossil fuel companies had actual knowledge of the risks of their products and had taken “proactive steps to conceal their knowledge and discredit climate science” while at the same time taking steps to protect their own assets from the impacts of climate change.

The Tobacco Precedents

This evidence dramatically enhances the relevance of tobacco litigation precedents, especially a ground-breaking decision of the Quebec Court of Appeal in March 2019. In Imperial Tobacco Canada ltée c. Conseil québécois sur le tabac et la santé, 2019 QCCA 358, the Court ordered Canada’s tobacco companies to pay $15 billion in compensation and punitive damages for failure to warn and misinformation.

The award was so large because tobacco companies had conspired to sell their products without informing consumers of the deadly consequences, while actively casting doubt on more accurate information. The tobacco companies attacked the credibility of science and scientists much as the Carbon Majors have done, creating doubt in the public mind through:

“[D]enial, minimization, use of partial science to assert the existence of a scientific controversy …, insistence on the weaknesses of the statistical links …, transformation of facts into opinions...” (para 545)

Thus, they successfully put off regulation, fattening their own profits, at the cost of increasing public health damage.

The Court utterly rejected the tobacco companies’ excuses that they were selling a legal product in compliance with regulations, and that everyone knew cigarettes were dangerous anyway. It condemned their:

[B]ad faith behavior, resulting from a deliberate concealment of the effects of smoking on the health of users, and then from systematic denial, minimization and trivialization of these, based in particular on the idea, cleverly but artificially maintained, of a scientific controversy and on the alleged weakness of the relations between cigarette and diseases or dependence, all coated with a misleading advertising strategy. (para 564)

To a climate expert, it all sounds depressingly familiar.

Are Carbon Majors immune?

According to the Supreme Court of Canada, foreseeability is the fundamental moral glue of tort. In the roughly 30 years that the Carbon Majors have known that their products cause climate change, those products have doubled the climate pollution of the atmosphere. In other words, they knowingly created about half of today’s climate crisis, and continue to make it worse.

That makes it plausible for Canadian courts to find the moral glue to hold the Carbon Majors liable for some of the damage they have caused. The causes of action could be varied: perhaps failure to warn when selling dangerous products, misrepresentation and deceit, as in the tobacco cases, or public nuisance or violating human rights. As ClientEarth has shown so impressively in the UK, there is lots of room for legal innovation and creativity. With our planet in peril, it is time for law to be an effective tool in the battle to save civilization.