A Moving Climate Storm on the Gulf Coast. Plaintiffs Move Forward, While Senate Deliberates
When the fury of Hurricane Katrina ravaged the Gulf Coast, many saw this as a tipping point in US public perception towards the reality of climate change. Levees broke, people died, clean water was not available, valuable property flooded, buildings were left hazardous and roads were destroyed. As Chairman Edward Markey (D-MA), Select Committee on Energy Independence and Global Warming has stated, “Perhaps no weather disaster highlights our weakness to climate challenges than our inadequate response to Katrina, which still haunts us several years later.” Not coincidentally, President Obama took the opportunity in his recent trip to New Orleans to plead for bipartisan approaches to passing comprehensive energy and climate change legislation.
While the Senate continues to deliberate and debate, a growing class of people claiming harm from the impacts of climate change continue to take more decisive action. Last week the 5th Circuit of the US Court of Appeals ruled that residents of the Mississippi Gulf Coast, including property and land owners, have standing to pursue their complaint against US energy and chemical companies including Peabody Coal and Massey Energy for their contribution to greenhouse gas emissions and climate change which in turn contributed to the catastrophic wreck left in the wake of Hurricane Katrina. Comer v. Murphy Oil USA, et. al. The plaintiffs seek compensatory and punitive damages under Mississippi common law and constitutional provisions.
Importantly, the 5th Circuit overruled lower district court determinations that the plaintiffs’ claim was “non-justiciable” due to the defendants failure to demonstrate “any exclusive commitment of the issues in this case to a particular federal branch. Nor have they shown the absence of judicially discoverable or manageable standards with which to decide the case.” The 5th Circuit went further stating that,"(e)ven if Congress does eventually enact a federal comprehensive law concerning greenhouse gas emissions, it might very well preserve state common law remedies, as the Clean Water Act did."
The 5th Circuit decision, coupled with ongoing efforts by the EPA to regulate greenhouse gas emissions as pollutants under existing Clean Air Act authority, contributes to increased pressure for Senate action to provide a clear and certain roadmap for managing climate risks. Federal intent on the appropriateness of common law actions related to climate change will be closely monitored as rulemaking and legislative streams of work continue to develop.
Meanwhile back in Congress, Senators Landrieu (D-LA), Vitter (R-LA) Cochran (R-MS), and Vickers (R-MS) represent the residents of Mississippi and Louisiana harmed by Hurricane Katrina. They also represent many of the interests that are defendants in this case or other climate based lawsuits emerging. To date, all four Senators are firmly in the “no” camp when it comes to renewable energy portfolio standards and cap-and-trade legislation. Senator Cochran did support a 2007 sense of the Senate resolution for an international climate agreement. The same week the 5th Circuit decision came down, Senator Landrieu expressed guarded optimism for the new Graham-Kerry bipartisan partnership that seeks a climate package, and the Senator subsequently convened a natural gas caucus with a view to feeding policies into that effort.
A balanced, bipartisan approach from these four Senators would serve their constituencies and the lessons of Hurricane Katrina well.
Now is the Time to Assess the Impacts of Climate Change on Your Business
Companies can no longer postpone consideration on the impact of climate change regulation and the resulting carbon-constrained economy on their business until the day after climate change legislation is enacted. Jeffrey Immelt, CEO of General Electric, recently described his company's consideration of climate change regulation on its business plans as follows: "I run my company assuming there is going to be a market for carbon some day, and a cap and trade system some day. No publicly traded company should have a different philosophy. The day you decide is already ten years too late for me." (Remarks before the National Governors Association Annual Meeting, Washington, DC, February 23, 2008.)
In the absence of federal climate change legislation, how should a company evaluate the impact of forthcoming climate change regulation on their business plans? Companies can start by recognizing that in many parts of the country climate change regulation already has been enacted at the state level, and that federal policy is likely to resemble this effort, only on a national scale. In this regard, most northeastern states have joined the Regional Greenhouse Gas Initiative ("RGGI"), which will take effect January 1, 2009. Under RGGI, greenhouse gas emissions from fossil fuel burning power plants will be capped at 2009 levels until 2015, and thereafter must reduce emissions 2.5 percent annually until 2018. Similar schemes have been adopted in several other states. These measures will have a significant impact on the cost of electricity; businesses that buy power from these utilities will face higher energy costs which could price their products out of the market. Planning for such contingencies must begin now.
Another sign of the changing perception of the pressures on the carbon economy is the recent adoption of the so-called "Carbon Principles" by three of the world's largest financial institutions – JP Morgan Chase, Citi, and Morgan Stanley. Under the Carbon Principles, these financial institutions state that they will consider the cost of carbon emissions or mitigation of the emissions on their investment decisions and investment advice. Thus, for example, before financing a coal-fired power plant these banks would estimate the cost per ton of carbon of carbon dioxide emissions which the plant might have to pay to emit under future legislation – and consider that cost as part of the investment decision. This new approach will have profound effects on carbon-intensive industries: for firms with plans to expand operations or open build new plants, the cost of borrowing just went up.
While costs will undoubtedly increase, climate change legislation will also create opportunities for investment and new ways to do business. These are but a few of the concrete climate change-related developments that firms can assess now.
With that in mind, every business should consider starting the evaluation process to determine where they are today and how they may be able to prosper in the new climate change world.
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Published McKenna Long & Aldridge LLP Climate Change Advisory (March 2008)
