Climate change litigation: is your business prepared?

American Electric Power Co. v. Connecticut (Connecticut)

This case involved an action by several US state and local governments, as well as land trusts, against five US energy companies.

The governments alleged that the energy companies had been contributing to the nuisance of global warming through their greenhouse gas (carbon) emissions and sought an order to cap and reduce their carbon emissions.

The energy companies represented the five largest corporate emitters of carbon dioxide in the US, owned and operated fossil fuel-fired power stations in twenty states and generated significant revenue and market share.

In an 8-0 decision, the US Supreme Court dismissed the complaint, holding that federal common law in this area was displaced by the Clean Air Act; and since Congress had entrusted the Environmental Protection Authority to decide how greenhouse gases should be regulated, it was not for federal courts to issue their own rules.

Decided in 2011, Connecticut is a seminal case that has set a high bar for parties, particularly in the US, seeking to rely on common law grounds such as nuisance to make companies with large emission profiles reduce emissions.

Nonetheless, this and other more recent cases demonstrate a growing willingness for parties to attempt to use the courts as a last resort to achieve emissions reduction outcomes.

Lliuya v. RWE AG (Lliuya)

Saúl Luciano Lliuya, a Peruvian farmer, filed claims for declaratory judgment and damages in a German court against RWE AG (RWE), Germany’s largest electricity producer. Lliuya’s suit alleged that RWE knowingly contributed to climate change by emitting substantial volumes of greenhouse gases, which caused the melting of mountain glaciers near his town, thereby giving rise to flooding risk. Lliuya characterised RWE's emissions as a nuisance that he and the local authorities had incurred compensable costs to mitigate.

Acknowledging that RWE was only a contributor to climate change, Lliuya asked the court to order RWE to reimburse him for 0.47% of the costs incurred to establish flood protections, in proportion to RWE’s estimated annual contribution to global greenhouse gas emissions.

The court at first instance dismissed Lliuya’s requests for declaratory and injunctive relief, as well as his request for damages. The court noted that it could not provide Lliuya with effective redress, in that his situation would not change even if RWE ceased emitting, and that no linear causal chain could be discerned directly linking RWE’s emissions to the harms suffered by Lliuya.

On 30 November 2017, an appeal court allowed Lliuya’s appeal against that decision. The court held that his arguments for damages from RWE were admissible and allowed the case to proceed.

The next phase of this proceeding is for the court to examine the evidence underpinning Lliuya’s claim. While the facts must be established, the court’s recognition in this case that a private company could be liable for climate change related damages resulting from its greenhouse gas emissions is a notable development.⁵

City of Oakland v. BP p.l.c. (Oakland).

On 19 November 2017, San Francisco and Oakland local governments (Oakland Plaintiffs) filed lawsuits in the California Superior Court against five large energy companies, claiming that the carbon emissions from the fossil fuels they had produced and sold had created an unlawful public nuisance. The Oakland Plaintiffs sought to require the companies to abate the alleged nuisance by funding a climate adaptation program to protect public and private property from sea level rise and other climate change impacts.

On 25 June 2018, the federal district court for the Northern District of California granted a motion to dismiss the complaints, applying Connecticut and Kivalina.

The Oakland Plaintiffs attempted to differentiate their claims from the above cases on the basis that the claims were not in relation to the companies’ greenhouse gas emissions, but rather, the sale of fossil fuels to other parties who would eventually burn them.

However, the court rejected this argument, stating that if the companies could not be sued for their own greenhouse gas emissions, they could not be sued for the greenhouse gas emissions of others. Further, the court held that while the Clean Air Act, and thus presumption of displacement by the legislature, did not apply to foreign emissions, it did not have jurisdiction to deal with such claims, which were the domain of the executive and legislature.
This case is a recent reinforcement of the position in Connecticut and similar cases.

In re Peabody Energy Corp. (Peabody)

The Office of the Attorney General of the State of New York (NYAG) investigated disclosures made by Peabody Energy Corporation (Peabody) concerning climate change and the potential effects of climate change policy on Peabody’s future business.

The NYAG found that the disclosures were incomplete and omitted less favourable projections of future coal demand. In response to the NYAG’s finding, Peabody issued an Assurance of Discontinuance, resolving the investigation by agreement.

Peabody neither admitted nor denied the NYAG’s findings in the Assurance of Discontinuance, but agreed to make more extensive disclosures in future.

This case highlights the approach that government regulatory bodies in the US and elsewhere may take to investigate companies and enforce disclosure concerning climate related financial risks.

Bank Shareholder Action

On 8 August 2017, shareholders of a major Australian bank brought an action against the bank, alleging that it had failed to properly disclose the risk climate change posed to the business and seeking an injunction compelling it to do so in future annual reports.

However, this case was discontinued after the bank’s 2017 annual report included an acknowledgement from its directors that climate change posed a significant risk to the bank’s operations, with a promise to undertake climate change scenario analysis on its business in the upcoming year to assess the risk.

This case demonstrates the growing level of awareness and concern within the shareholder and investor community regarding climate related risks. It also highlights the associated need for companies to acknowledge and analyse the potential impact of climate related risks on their operations.

Class Action against an energy company

On 23 November 2016, a former employee of an energy company filed a class action complaint on his own behalf and on behalf of other current and former employees who participated in a company retirement savings plan (Plan) and invested in the company stock between 1 November 2015 and 28 October 2016 (employees), against senior officers of the company and fiduciaries of the Plan (Company Defendants).

The complaint asserted a claim for financial compensation under the Employee Retirement Income Security Act (ERISA), alleging that the Company Defendants had breached their fiduciary duties as they knew or should have known the company’s share price had become artificially inflated in value due to alleged fraud and misrepresentation, resulting in loss when the share price subsequently fell.

Specifically, it alleged that the company’s public statements regarding the strength of its business model and its transparency and reporting integrity, particularly with regard to its oil and gas reserves and the value of those reserves, were materially false and misleading in that:

• according to the allegations, the company’s own internally generated reports concerning climate change recognised the environmental risks caused by global warming and climate change;
• given the risks associated with global warming and climate change, the company would not be able to extract the existing hydrocarbon reserves that it claimed to have and, therefore, a material portion of the company’s reserves was stranded and should have been written down; and
• the company had allegedly employed an inaccurate ‘price of carbon’ – the cost of regulations such as a carbon tax or a cap-and-trade system to push down emissions – in evaluating the value of certain of its future oil and gas prospects in order to keep the value of its reserves materially overstated.

On 30 March 2018, the Texas Federal Court granted a motion to dismiss the complaint, finding that the complaint provided no factual basis showing that the price of carbon used by the company was a misrepresentation or that risks posed by climate change were not incorporated into the company’s stock price. Further, it found that even if the company’s hydrocarbon reserves were overvalued, the complaint did not allege plausible alternative actions the company could have taken to benefit the retirement funds.

This case suggests that it may be more difficult for litigants to claim damages, as opposed to compelling disclosure, particularly due to difficulties in proving causation.

Gray v Minister for Planning (Gray)

Peter Gray, an Australian environmentalist, applied for review of a view formed by the New South Wales Director-General of the Department of Planning that the environmental assessment lodged by the developer of the Anvil Hill coal mine was adequate.
Gray claimed that the assessment failed to take into account the greenhouse gas emissions from the subsequent burning of the coal.

The Land and Environment Court of New South Wales made an order declaring that the view formed regarding the adequacy of the environmental assessment was void. The court held that the greenhouse gas emissions from the subsequent burning of the coal needed to be taken into account. Further, the court held that merely raising the issue of climate change without analysing the impacts would be unlikely to satisfy the requirement to consider ecologically sustainable development principles.

This seminal case, decided in 2006, set an important precedent for Australian courts to consider the rigour of environmental assessment standards on projects with climate change impacts.²⁶  Importantly, it also provided that indirect or downstream impacts need to be considered, and not just direct or immediate impacts.

Urgenda Foundation v. Kingdom of the Netherlands (Urgenda)

On 20 November 2013, the Urgenda Foundation, a Dutch environmental group, filed a summons on behalf of 886 Dutch citizens (Urgenda Plaintiffs), alleging that the Dutch government is exposing its own citizens to danger by failing to take sufficient action to prevent climate change. The Urgenda Plaintiffs sought injunctive relief to compel the Dutch government to reduce greenhouse gas emissions.

On 24 June 2015, the district court of the Hague concluded that the state has a duty to take climate change mitigation measures, citing:

• the Dutch constitution;
• European Union (EU) emissions reduction targets;
• the European Convention on Human Rights;
• the doctrine of hazardous negligence;
• the precautionary principle and principles of fairness and sustainability embodied in the UN Framework Convention on Climate Change; and
• the principles of a high protection level and the precautionary and prevention principles embodied in European climate policy.

In addition, the court found a sufficient causal link existed between Dutch emissions, global climate change, and the effects thereof.

The court determined the Dutch government must reduce carbon dioxide emissions by a minimum of 25% compared to 1990 levels. While it did not specify how the Dutch government should do so, it offered several suggestions, including emissions trading schemes or tax measures.

On 1 September 2015, the Dutch government announced its intention to appeal the verdict. On 9 April 2016, the Dutch government submitted its grounds for appeal. On 28 May 2018, the appeal hearing took place before the Hague Court of Appeal.
The Hague Court of Appeal has stated that it will deliver its decision on 9 October 2018.

Although the appeal is pending, this landmark case is significant in that the litigants have been successful in establishing a positive obligation for governments to adopt environmental policies aimed at reducing greenhouse gas emissions, so as to mitigate the effects of climate change.

Columbia Pacific Building Trades Council v. City of Portland (Portland)

The Columbia Pacific Building Trades Council, the Portland Business Alliance and the Western States Petroleum Association filed a notice of intent to appeal the City of Portland’s enactment directing adoption of zoning amendments that prohibited new bulk fossil fuel terminals and limiting expansion of existing terminals.

The Oregon Land Use Board of Appeals reversed the amendments, finding that they violated the commerce clause, being discriminatory in practical effect. Further, the court found that the City of Portland had failed to demonstrate that the amendments served legitimate local interests that could not adequately be served by reasonable non-discriminatory alternatives.

On 4 January 2018, the Oregon Court of Appeals reversed the Oregon Land Use Board of Appeals’ decision, upholding the zoning amendments. The court found that the policy did not violate the commerce clause and was not discriminatory between in and out-of-state producers and refiners of fossil fuels in that they were not substantially similar entities. Further, it found that the burden on interstate commerce was not clearly excessive relative to the local benefits arising from the policy.

This case provides a relevant example of industry seeking to oppose changes to local planning controls which restrict industry operations in the effort to respond to climate change.

Of particular interest is the divergence in views between the original court, which found the amendments were not valid, and the appeal court which found they were. These divergent decisions highlight the complexities courts face in balancing competing interests in planning decisions related to climate change.

Juliana v. United States (Juliana)

On 12 August 2015, 21 individual youth plaintiffs, the non-profit organisation Earth Guardian and a plaintiff identified as ‘Future Generations’ (Juliana Plaintiffs), filed a complaint against the US government. The Juliana Plaintiffs alleged that their constitutional rights were being violated and not being protected equally relative to prior and present generations, and that the government had breached its obligations under the public trust doctrine. Thus, they sought to compel the defendant to take action to reduce carbon dioxide emissions.

The case is ongoing, with the trial due to begin on 29 October 2018. Although the US government has attempted to prevent discovery and have the case dismissed summarily, it has been unsuccessful.

This case is significant because it is attempting to establish a positive obligation for the US government to act to mitigate climate change, in a similar manner to Urgenda, which could fundamentally affect environmental policymaking, and thus, have an impact on businesses. 

Australian Conservation Foundation Incorporated v Minister for the Environment and Energy (Australian Conservation Foundation)

On 11 November 2015, the Australian Conservation Foundation applied for review of the Commonwealth Environment and Energy Minister decision to approve Adani’s Carmichael coal mine, alleging that the Minister failed to properly consider the impacts of climate pollution on the Great Barrier Reef World Heritage Area.

On 29 August 2016, the Federal Court of Australia dismissed the Australian Conservation Foundation’s application, finding that the Minister gave consideration to greenhouse gas emissions resulting from combustion emissions in coming to the decision to approve the Carmichael coal mine.

This decision was subsequently appealed and, on 25 August 2017, the Full Federal Court of Australia dismissed the Australian Conservation Foundation’s appeal, upholding the Federal Court of Australia’s decision.

In a subsequent judgement the Court limited costs to be paid by the Australian Conservation Foundation from 100% to 70% of the Minister’s costs and 40% of Adani’s costs.

This case sheds some light on the court’s position regarding what a Commonwealth Minister in Australia must consider in relation to climate change in order make a valid decision. The case also demonstrates the court’s willingness to limit costs awarded against litigants who bring proceedings on public interest grounds, rather than for commercial purposes.