The Cost of Climate Change – Who Pays this Financial Risk? Who Decides?

Trillions and Trillions. That's not the ghost of Carl Sagan adjusting for inflation, it's what the world will likely  pay to deal with climate change, even if we find the global political will to limit greenhouse gas emissions soon.

How do we address this financial risk, who will pay? Everyone, directly or indirectly, in amounts small and large. You will pay the cost of climate change with your taxes and probably with your gasoline and power purchases, and that's just the start. Sometimes, when the cost is high enough, the unlucky sucker left holding the climate change tab will even sue. Three cases now in the U.S. Courts are raising some interesting legal issues that will have huge (wait, this is not the NY Times, I can say ginormous) financial and policy ramifications. Can anyone even bring a climate change suit? Can they win? If so, will the resulting impact be a worthwhile deterrent to greenhouse gas emissions, a nightmarish free-for-all that should have been handled by EPA regulation and/or new legislation, or all of the above? (Note to new readers, “all of the above” is usually a safe pick if you are wagering with friends on the answer to any of my rhetorical questions.)

In one case, eight states, New York City and several environmental NGOs are suing utilities, seeking an injunction to reduce greenhouse gas emissions. In a second case, Gulf Coast property owners are suing coal and power companies for money damages, claiming greenhouse gasses increased the intensity of Hurricane Katrina and the resulting property damage. In the the third, an Alaskan village has lost the ice barriers that normally protect it from erosion. The village sued two dozen fuel and utility companies for damages. All three cases were originally dismissed, as the District Courts ruled the claims would require resolution of a non-justiciable political question and determined plaintiffs were unable to establish standing as they could not allege harm fairly traceable to the defendants. Courts of Appeals have already reversed as to the nuisance claims in two of the cases, which are now proceeding. The Alaskan village is still seeking to reverse the original dismissal of its claims.

Even if plaintiffs can bring these cases, it doesn't mean they can win. At trial defendants will, at the very least, have serious arguments as to whether they caused climate change, whether climate change caused plaintiffs damages and whether any state law remedy, including the common law of nuisance, should be preempted by the Federal regulatory jurisdiction over greenhouse gasses. Even if defendants lose, they may revisit the standing and political question issues with the Supreme Court. Despite the hurdles, you might see more climate change litigation. Big damages and deep pocket defendants tend to draw a crowd of lawyers. The first tobacco cases were long shots, but the plaintiffs bar didn't go away – despite facing significant causation and preemption issues and years of loss after loss. The entry of the states attorneys general into the tobacco fray was a significant factor in breaching big tobacco's ramparts, and the states are already involved in climate change litigation.

Despite the parallels, it's too early to label climate change as the next tobacco, asbestos or phen-phen (no, the heart jeopardizing diet drug phen-phen did not really spawn a tsunami of litigation, but don't you just love the way it sounds – phen-phen). Right now any climate change case looks like a tough, expensive war against some very big companies who will fight to the death. The states and the NGOs are already on the field of battle, but the regular plaintiffs bar might need to see some more signs that victory is possible before they bet thousands of hours of their own time on a case they need to win to get paid. The Supreme Court confirmed the EPA's authority to regulate greenhouse gasses under the Clean Air Act in 2007. The EPA is actually drafting regulations, and active, comprehensive regulation would strengthen the preemption arguments of the defendants. The real big dog is Congress, which could definitively preempt any and all climate change claims with clearly worded legislation.

Will Congress act? (Hint to new readers, normally you want to bet on “no”, but this might be an exception). One thing litigation can do is compensate victims, and some climate change victims will be needy and sympathetic. Litigation is also an expensive and risky way to set policy and allocate financial risk on a stable, sustainable basis. The litigation process itself absorbs massive resources that might better be spent on preventing emissions, remediating the impact of climate change and compensating victims. Wouldn't judgments in law suits make green house gas emissions more expensive and eventually lead to reduced emissions? Maybe, but what if every company that has any connection with fossil fuels goes the way of the asbestos companies? Congress could actually set up a process to identify major climate change expenses, a fund to pay them and a set of taxes and fees levied on greenhouse gas emitters to pay for the fund. I know, right now this is crazy talk. Congress could barely swallow a watered down cap and trade bill and that was before the Tea Party captured a Senate seat in Massachusetts. It may take several high profile catastrophes -an Alaskan village slides into the sea as the residents are helicoptered to safety, high water pours over a levee producing a new mini-Katrina in New Orleans – but climate change will someday be the kind of event that prompts Congressional action. If Congress doesn't want piecemeal litigation to rule the day (which means Congress will have to overcome the magnetic pull of the powerful trial lawyers lobby, better make it two Alaskan villages sliding into the sea) then Congress will need to come up with a plan that includes funds for remediation and victim compensation.