Session 7b Managing the Climate Change Liability Risk Facing Greenhouse Gas Emitters. Prof. Kuan Chun Johnny Chang, SJD

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1 Session 7b Managing the Climate Change Liability Risk Facing Greenhouse Gas Emitters Prof. Kuan Chun Johnny Chang, SJD

University College of Law President, Financial Ombudsman Institution

DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY

2 Managing the Climate Change Liability Risk Facing Greenhouse Gas Emitters Kuan Chun Johnny Chang, SJD Professor, National Chengchi University College of Law President, Financial Ombudsman Institution OUTLINE INTRODUCTION U.S. DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY ON MAJOR GHG EMITTERS CLIMATE CHANGE TORT CLIAM IN CHINA: A POSSIBILITY MANAGING CLIMATE CHANGE LIABILITY RISK THROUGH INSURANCE CONCLUSION 1

3 U.S. (1) Massachusetts et. al. v. E.P.A. A group of States including Massachusetts and local governments including District of Columbia, alleged in a petition for certiorari that the Environmental Protection Agency (EPA) has abdicated its responsibility under the Clean Air Act (CAA) to regulate the emissions of four greenhouse gases, including carbon dioxide. U.S. (2) Main Issue: Whether Petitioners have the standing to challenge the EPA's denial of their rulemaking petition. Standard of Review: 1) actual or imminent injury? 2) injury is fairly traceable to the defendant (causation)? 3) a favorable decision will redress that injury? 2

4 U.S. (3.1) 1. Injury: Erosion to substantial portion of the Massachusetts coastal property. 2. Causation: Scientific evidences reveal that the existence of a causal connection between man made greenhouse gas emissions and global warming. 3. Redressability: U.S. Motor vehicle emissions make a meaningful contribution to GHG concentrations. U.S. (3.2) the Supreme Court, by a vote of 5 to 4, held that carbon dioxide and other GHGs are within the definition of air pollutant under the Clean Air Act and that EPA does indeed have the authority to regulate them. Subsequent to the decision, the EPA under the Obama administration did indeed issue a two part endangerment finding, concluding that rising GHG levels endanger public health, safety, and welfare. Thereafter, the EPA began issuing substantive regulations to restrict GHG emissions. 3

5 U.S. (4) Connecticut et. al. v. Am. Electric Power Co. Inc. Eight states including Connecticut separately sued the same six electric power corporations, including the American Electric Power Company Inc. that owned and operated fossil fuel fired power plants in twenty states (appellees), seeking equitable relief. The States seek to: hold Defendants jointly and severally liable for creating, contributing to, or maintaining a public nuisance. permanently enjoin each Defendant to abate that nuisance first by capping carbon dioxide emissions and then by reducing emissions by a specified percentage each year for at least ten years. U.S. (5) Main Issue: whether the court is incompetent to make final resolution of the claim in issue as it constitutes non justiciable political questions. Standard of Review(Backer v. Carr): 1) textually demonstrable constitutional commitment of the issue to a coordinate political department 2) a lack of judicially discoverable and manageable standards 3) the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion 4

6 U.S. (6.1) 2 nd Cir. Court Opined that there s no non justiciable political question. Because, 1) Federal courts have successfully adjudicated complex common law public nuisance cases for over a century. The fact that a case may present complex issues is not a reason for federal courts to shy away from adjudication; when a court is possessed of jurisdiction. 2) This case is governed by recognized judicial standards under the federal common law of nuisance obviates any need to make initial policy decisions of the kind normally reserved for nonjudicial discretion. U.S. (6.2) But, In a unanimous eight justice decision, with Justice Sotomayor recusing herself, the Supreme Court reversed the appellate panel. The decision was written by Justice Ginsberg and turned on Massachusetts v. EPA's holding that established the EPA's authority to regulate GHGs. Congress had decided that it was the job of EPA, and therefore not the courts, to regulate GHG emissions. The federal common law of nuisance for GHG emissions had ultimately been displaced by the Clean Air Act, and these cases should have been dismissed after all. 5

7 U.S. (7.1) Comer v. Murphy Oil USA Inc. The plaintiffs, residents and owners of lands and property along the Mississippi Gulf coast, filed a putative class action against the named defendants, corporations that have principal offices in other states but are doing business in Mississippi. Claim : defendants' operation of energy, fossil fuels, and chemical industries in the United States caused the emission of greenhouse gasses that contributed to global warming, the increase in global surface air and water temperatures, that in turn caused a rise in sea levels and exacerbate the destructiveness of Hurricane Katrina, which destroyed both the plaintiffs' private property and public property useful to them. The plaintiffs' putative class action asserts claims for compensatory and punitive damages based on Mississippi common law actions of public and private nuisance, trespass, and negligence etc. U.S. (8.1) Opinion: 1) The Plaintiffs Have Standing to Assert Their Claims. 2) Plaintiffs Claims did not Present Nonjusticiable Political Question 6

8 U.S. (8.2) The Supreme Court declined the plaintiffs' request and effectively ended that version of the case. The Comer case was subsequently re filed and dismissed by the District Court on many grounds including res judicata. In May 2013, the Fifth Circuit confirmed that this refiling was barred by res judicata. The time for plaintiffs to petition the Supreme Court for certiorari has now expired, so the Comer litigation appears to have ended. U.S. (9) The course of the Federal Court s position on the climate change related litigations can be discovered through comparing three cases with one another: Massachusetts affirmed the standing that a state may claim for an enjoinment as the remedy for climatechange related injuries. Connecticut et. al: (1) Upheld all plaintiffs standing, including the standing of the municipal and private plaintiffs; (2) extended the federal common law of nuisance to carbon dioxide pollution. Comer v. Murphy Oil USA Inc (1) also granted private citizens standing to engage in the discovery process based on global warming tort claims against private corporations; (2) regarded the pecuniary compensation as a suitable form of remedy in climate change tort litigations. 7

9 U.S. (10) None of these cases progressed beyond that foundational point. There was never any discovery or judicial fact finding in any of these cases. Presuming further advancement is even possible, it will likely be met with an onslaught of additional obstacles. U.S. (11) 1. Whether the particular injury suffered is really attributable to climate change, a very difficult and technical issue. 2. How the law and courts should account for the long time scales of climate change. 8

10 U.S. (12) 3. Conceptual problem with liability concerning the supply chain. The use of electricity generated from coal requires one party to mine coal, one to transport it, another to burn it for electricity, a utility to deliver that power, and finally a consumer to use the electricity. Where along that supply chain does liability attach? The same issue arises with car emissions. Somebody drills the oil, somebody else refines it and another, or perhaps the same company, transports it to gas stations, where people individually put it in their cars. In addition to this supply chain, cars are also made by various manufacturers, and still additional people drive them. Every one of these activities is lawful, and many government policies and expenditures encourage them. U.S. (13) Whether climate change is sufficiently unique to warrant a change in the judiciary's willingness to apply tort law. No. Yes. Congress passed comprehensive environmental legislation. The liability risk facing the GHG emitters is almost certain The rules of tort law are well established and courts have historically applied these rules before Congress passed comprehensive environmental legislation. The liability risk facing the GHG emitters is almost certain 9

11 DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY ON MAJOR GHG EMITTERS (1) Justification Based on Theories of Private Law 1) Corrective Justice 2) Deterrence Effect Arguments in Support of Tortious Liability Legitimacy Under Common Law Nuisance 1) Interference: Yes! 2) Substantiality: Yes! 3) Unreasonableness: Yes! Efficiencies Confirmed by Economic Analysis: tort liability can contribute to the effective implementation of the polluter pays principle. Influences on the Formation of Public Policies: When the legislative process has failed to produce results, common law actions will likely to capture the legislative process. DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY ON MAJOR GHG EMITTERS (2) Arguments Against Tortious Liability Challenges to the Applicability of the Corrective Justice Theory 1) environmental damage events are not losses to individuals paradigmatically protected interests. 2) causal links between a particular set of GHG emissions and those protected interests?? Obstacles in Sustaining Tortious Liability Only a very loose connection exists between the injurers and the victims because the emitters are the set of people who have engaged in activities that result in carbon emissions in the past. Tortious Liability is not the Ultimate Solution for Reducing GHG Emissions 1) compensation may be inefficient if it weakens the government s and private entities incentives to avoid harm. 2) it will weaken incentives for private and public sector investments in adaptation. 10

12 DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY ON MAJOR GHG EMITTERS (3) Positions of advocating the imposition of climate change liability #1: The applicability of such theory is never required in determining whether emitters are liable. The deterrence function of tort law is wellrecognized. Theoretical justification regarding the climate change liability is still available. DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY ON MAJOR GHG EMITTERS (4) Positions of advocating the imposition of climate change liability #2: The genius of the common law it can adapt to changing circumstance s. No other private way to resolve the dispute for climate change victims except for tort claims. Courts to develop standards to resolve the causation in climate change litigations according to the unique nature of climate change harms, i.e. probabilistic approach. 11

13 DIALECTICAL ANALYSIS ON THE APPROPRIATENESS OF IMPOSING TORT LIABILITY ON MAJOR GHG EMITTERS (5) Positions of advocating the imposition of climate change liability #3: The function of the climatechange litigation filling gaps in legislative and administrative regulation. Critics raise concern that imposing liability on GHG emitters may lead to redistribution of wealth in favor of wealthy people. Similar situation may occur where tortious liability is imposed on enterprises including product liability and pollution cases. Product liability functioned pretty well. CLIMATE CHANGE TORT CLIAM IN CHINA: A POSSIBILITY (1) China has acknowledged its role as world s biggest GHG emitter Present legislation Any new proposals vowing to limit emissions? Provide no equivocal standard distinguishing permissible volume of GHG emissions from prohibited emissions Does not grant any type of remedies to climate change victims No! 12

14 CLIMATE CHANGE TORT CLIAM IN CHINA: A POSSIBILITY (2) Tort Liabili ty Act Liability for Environmental Pollution Art. 65 with respect to any damage caused by environment pollution, the polluter shall bear tort liability. commen ts Manifests the general principle that polluters are strictly liable for any environmental damage stemming from their actions. A proof of actor s negligence or a higher degree of scienter is not required. CLIMATE CHANGE TORT CLIAM IN CHINA: A POSSIBILITY (3) Article 66 provides that In the event of any dispute arising from environmental pollution, the polluter shall bear the burden of proof with regard to the legal basis for bearing no liability or mitigation of its liability and the nonexistence of causation between its act and the harmful consequences. Such arrangement significantly increases the possibility of sustaining the tort liability in climate change litigation. 13

15 MANAGING CLIMATE CHANGE LIABILITY RISK THROUGH INSURANCE (1) Ceres, Climate Change Risk Perception and Management: A Survey of Risk Managers (2010) respondents contains electric power plants and oil and gas industries : 1) more than 57% of the respondents have perceived the likelihood of legal risk including tort liability, civil liabilities or other litigation. 2) Nearly 40% admitted that climate change is likely to pose imminent legal risk within 0 2 years. MANAGING CLIMATE CHANGE LIABILITY RISK THROUGH INSURANCE (2) GHG Emitter s Risk Identified Risk managers have to consider alternative risk management approaches.. Liability insurance, undertaking to assume the obligations imposed on the party in the event of legal liability. 14

16 MANAGING CLIMATE CHANGE LIABILITY RISK THROUGH INSURANCE (3) Scope of Coverage: Occurrence Basis or Claim made Basis? An occurrence policy :provides coverage for liability arising out of damage that occurs during the policy period, regardless of when a claim alleging liability is made. A claims made policy : covers liability arising out of claims actually made during the policy period. MANAGING CLIMATE CHANGE LIABILITY RISK THROUGH INSURANCE (4) The precise incidence of the harm is impossible to indentify, and the delay between occurrence and the resulting claims is almost certain. The occurrence policy is disadvantageous. 1) The long tail problem which refers to the lapse of time between the date of the act or neglect and the time the claim is made. 2) Insurers inability to accurately match premiums against proceeds paid due to the uncertainty in indentifying when the loss occurred and the lapse of time between the event and the loss. 15

17 CONCLUSION 1) Tort claims filed against GHG emitters is no longer an isolated case. 2) The admission of climate change tort liability can be justified from theoretical, legal as well as public policy perspectives. 3) The new PRC Tort Law of 2009 has actually created a feasible approach by shifting the burden of proving the causation from the plaintiff to the tortfeasor in articles related to environmental tort liability. 4) To manage climate change liability through purchasing liability insurance policies seems to be an appropriate choice with reasonable expense. THANKS FOR YOUR ATTENTION! 16

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