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 the resulting damage?
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:
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.
Yet 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 of us 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.
Public opinion on this question has begun to change, as many more people have become aware that:
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. 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%. This fall, 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.” 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. Part 2 of this article will explore some of those options.
Thursday, December 12, 2019