Ince Podcasts

Smart Talk: Is climate change litigation here to stay?

December 22, 2021 Ince Season 1 Episode 41
Ince Podcasts
Smart Talk: Is climate change litigation here to stay?
Show Notes Transcript

In our latest 'Smart Talk' energy sector podcast, our experienced partners Chris Kidd and Stuart McAlpine discuss the global trends in climate change litigation, the legal and practical significance of these trends and the impact on oil and gas companies as well as those in the renewables sector.

CJK - Hello and welcome to the latest session in our Smart Talk series. I am Chris Kidd, Co-Head of Energy and Infrastructure, and today I am joined today by Stuart McAlpine, Ince’s Global Head of Marine Projects to talk about climate change litigation.

SM – Hi Chris, it’s great to join you today to talk about what is now not just a political issue dominated by activists but has become a topic of interest for the legal industry as the energy market transitions. 

What global trends are we seeing in climate change litigation at the moment?

CJK – Well according to the recent report by London School of Economics:

• Globally, the cumulative number of climate change-related cases has more than doubled since 2015. Over 1,000 cases have been brought in the last six years, compared to only 800 cases between 1986 and 2014.

• The number of ‘strategic’ cases is dramatically on the rise. These are cases that aim to bring about some broader societal shift.

• Litigation aligned with climate goals is on balance seeing success and there has been a run of important wins in the last 12 months. 

SM – Yes we can say its certainly has been a tumultuous year for Shell!

CJK – Indeed! 

• Cases are also targeting a wider variety of private sector and financial parties and there is more diversity in the arguments being used. Not all claims seek compensation for loss and damage caused by climate change. 

It is not now just activist-led against governments. It has expanded to involve companies for failing to prevent, or contributing towards, harmful carbon emissions across the world.

Claims against companies, fund managers and/or their fiduciaries have raised issues around inadequate disclosure and disinformation. Many of these cases consist of claims raising the lack of, or insufficient disclosure of, climate-related information to protect shareholders, consumers and investors.

SM – Yes and we are also seeing a rise in ‘greenwashing’ cases, where companies marketing campaigns are misleading or overstating performance or benefits.

CJK – Yes and this increase is helped by the fact that:

1.    it is now scientifically possible to attribute damage arising from climate change to certain GHG emitters. The landmark study by Richard Heede found that almost two-thirds of carbon dioxide and methane emitted between 1854 and 2010 is attributable to just 90 private and state owned entities, which he christened the “carbon majors”. This science has been used as a basis for establishing legal causation and awards of damages by the courts.  

2.    Over the past 20 years there have also been rapid advances in the new science of extreme weather event attribution, which shows whether, or to what extent, human-induced climate change has increased the frequency or magnitude of heatwaves, drought, heavy rains or flood events. So there is now evidence to prove foreseeability and causation in claims relating to loss from extreme weather events.

SM – Indeed that Heede study is extraordinary. Looking at the impact on the carbon majors, Shell’s tumultuous year in the Dutch and English courts has been widely reported and commented on. But there have been other developments which highlight the international spread of climate change litigation.

For example in Saul Luciano Lliuya vs RWE, a Peruvian farmer has brought a claim against RWE in Germany, holding them liable for climate damage from worldwide emissions and to pay towards the costs of taking safety measures to protect his property.

CJK – Yes what is striking about the case is that his property is at an altitude of 4,562 m in the foothills of the Andes, in Huascaran National Park. Over the past 80 years melt water and rainwater from a glacier accumulated, almost doubling its volume. After severe flooding due to an earthquake and a consequent avalanche barrelling down into the lake, artificial drains and dams were built to protect against the flood risk. The farmer is claiming  €17 000 towards the building of a dam to protect up to 50,000 people who are at risk. It has been claimed on the grounds that RWE have contributed to the problem even though RWE had no coal power plants on the ground in South America. The issue is whether RWE’s global activities have in some way caused the danger.

SM - The Court of First Instance rejected the claim didn’t they? Stating that it was inadmissible, not plausible and unfounded. RWE had not caused the potential flood risk at Lake Palcacocha. 

CJK – Yes they did, however, on appeal, the Court of Hamm considered, that the claim was plausible and entered the next stage of collecting evidence factual and technical as to whether: 

1.       A flood or mudslide resulting from the increase in the volume of water in Lake Palacocha poses a serious threat to the Claimant’s property. 

2.       CO2 emissions released by RWE`s power plants rise into the atmosphere and lead to a higher concentration of GHG throughout the Earth’s atmosphere, increase in global temperature which in turn  accelerates the melting of the Glacier that can no longer be contained by the natural moraine. 

3.       RWE has in part caused this (amounting to 0.47% of the total GHG emissions, the rise of global and local temperature, and the rise in the water level of Lake Palacocha). 

SM - The evidence gathering is still ongoing at the moment, having been delayed by the pandemic so a conclusion has not yet been reached. But it does seem that if the facts are proven to the Court’s satisfaction RWE (and others) may face a significant exposure.

CJK – Yes. Further climate claims have also recently been lodged by directors of Greenpeace against Volkswagen in two different German Civil Courts, including an application for an order to significantly reduce the sale of vehicles with combustion engines and to take appropriate measures to reduce the CO2 emissions drastically by 65% (as compared to 2018) by 2030. 

SM – Yes, and there have also been important developments in the English courts. In Begum v Maran (UK) Ltd the English Court of Appeal recently held that a claim can proceed to a trial of the substantive issues in the English courts. The claim is against an English shipbroker and this case is at the “forefront of the development of the law of negligence”.

CJK – Yes in this case a Bangladeshi shipbreaker fell to his death whilst working to dismantle an oil tanker in Chittagong. An English based shipbroker acted as agent for the vessel owner in selling it for demolition – it was sold to a demolition buyer who then sold the vessel to the breaker in Chittagong. 

The broker had no involvement with the vessel after the sale and it did not have any control or interest in the breakers yard. But, it was assumed that the broker knew the vessel would be dismantled in Bangladesh rather than in one of the shipyards in China or Turkey, where health and safety standards are higher.

The widow brought proceedings against the broker in the English courts in negligence and unjust enrichment for damages but did not bring proceedings against the owner of the yard or her husband’s employer.

The broker applied for the claim to be struck out on the basis that nothing it did or failed to do caused the accident; it had no control over the shipyard or its workers; and it had not assumed any responsibility for them.

But the Court found that it was arguable that by selling the vessel the broker had acted in a way that would expose the shipyard workers to risk of injury and it was therefore arguable that the broker could be liable in negligence for the death. 

SM - It remains however to be seen whether the widow succeeds with that argument! These developments are not confined to claims against oil and gas, or traditional power companies either. 

Many view renewable energy as having a low environmental risk profile. Obviously, renewable assets typically do not pollute the environment, and may have significantly fewer compliance obligations than for example, a petrochemical complex, but the construction and development of renewable projects contain many environmental risks.

Lenders often have an extremely low environmental risk tolerance which affects deals critical to the development of renewable projects, such as project financing.

CJK – Yes, very much so, climate change litigation can be a foe for the renewables industry too. 

Projects can be subject to environmental litigation brought by local interests concerning local environmental damage without regard to any greater overarching environmental benefits.

Cases have also arisen where claims have been brought by renewables companies using environmental litigation as a ‘spoiling tactic’ to protect their market position by challenging competing renewable energy projects on the grounds that the true environmental impacts of those new projects have not been properly considered. 

SM – Yes in my experience large infrastructure projects will always have environmental issues and environmental litigation could hamper energy transition. The impact of projects needs to be assessed and debated but while we do so we carry on using oil and gas to provide the energy we need. 

An example of what might be thought a step in the right direction occurred recently in France in the case of Society for the Protection of Landscapes and Aesthetics of France et al. v The Mills of Lohan[1]. 

This case, brought in Nantes, France, in 2017 arose when the Society for the Protection of Landscapes and Aesthetics of France and the Society for the Study and Protection of Nature in Brittany challenged the development of a 17 turbine wind farm on the grounds that there was no public interest in justifying an exemption from a general prohibition on harming protected species. 

In March 2019 the Court ruled that the greenhouse gas reduction achieved by the development of renewable energy constituted a public interest that justified an exemption. 

The court seems to have appreciated that while there was a balance to be struck it was indeed right to allow the development where the net effect of the development was a large enough greenhouse gas reduction to warrant the extent of the damage to the local environment. The project was however delayed while these proceedings took their place.

CJK - A more extreme example involved the proposed $2.6 billion Cape Wind, 130 turbine wind farm off of Cape Cod which was officially cancelled. It was first proposed in 2001, but the project faced so many repeated environmental lawsuits that the projects backers felt unable to proceed. Some reports suggest more than $100million was spent on the failed project, both on planning and fighting the various suits brought. 

There also seems to be a growing trend for renewable companies to use environmental litigation as a tool to further their business goals. 

In July 2021,in Allco Renewable Energy Ltd. et al. v Haaland et al.[2], a solar farm developer brought an action in Massachusetts trying to convince the court to vacate the federal government’s approvals in relation to the first commercial-scale offshore wind project in the state claiming the authorisations violate numerous federal environmental laws and will have a “substantial adverse impact on the development of QF solar electric generation in the Northeastern United States” i.e. the form of renewable energy approved by the federal government is not as ‘green’ as the claimants’ form of renewable energy and that the approval should be reversed as the more environmentally renewable energy providers could not compete. 

SM - In the UK, judicial review has a history of being used as a “spoiling tactic” to shut down rival schemes, despite this being heavily criticised. Each challenge has to be viewed in the ordinary way on its legal merits[3], it can take years for each claim to be decided such that it risks discouraging investment in renewable energy technologies. 

CJK - The renewables industry is also being targeted by climate activists. For example ClientEarth filed a complaint in the UK, against BP in respect of violations of the OECD Guidelines alleging its advertising campaign misled the public in breach of the OECD Guidelines which require clear and honest communications with the public. The complaint alleged that the advertising gave a false impression of the relative scale of BP’s renewable energy business because it failed to mention its full lifecycle emissions for natural gas. BP agreed to withdraw the advertisements in February 2020.  

SM - These are just a few examples and there are many more. What are the key strands emerging that have a legal and practical significance?

CJK – I’d say there are three key strands:

1.    Widening of duties of care. Begum v Maran argued the broker had acted in a way that would expose the shipyard workers to risk of injury. In the RWE and Shell cases duties of care are potentially extending to parent companies and in respect of worldwide activities and proving causation looks like it is relaxing.    

2.    Growing trend by courts to examine group structures and global corporate practices when addressing ESG issues. It’s not going to be confined to oil and gas companies.

3.    This will all act a catalyst in the strategic move toward clean and renewable energy. Shell has been gradually divesting itself of Nigerian onshore assets for more than a decade. It holds less than half of the number of onshore licences than it did 10 years ago. BP is targeting $25 billion of divestment proceeds between the second half of 2020 and 2025 in their strategy to achieve net-zero emissions by 2050. Other carbon majors are doing the same and have undergone significant re-branding this year to project themselves as leaders in the green energy revolution e.g. Total, who recently re-branded to TotalEnergies and Qatar Petroleum re-branding to Qatar Energy. 

SM - Climate change and sustainability disputes really are now a significant business risk and one which boards will have to manage, particularly in the energy sector. This will increasingly involve climate change dispute mitigation, resolution strategies, climate change and sustainability disputes risk audits.

CJK – Yes. Climate change cases are likely to continue to increase and spread geographically and will likely involve insured and uninsured losses. If insurance coverage decreases, as risks become "uninsurable" the claimants are likely to resort to the courts. 

Advances in climate science and collaborations between scientists and lawyers could make scientific findings more legally relevant and can be used as evidence in the courts. 

Climate change litigation is also likely to expand beyond the oil and gas industry and it looks as though corporations, directors, accountants, engineers, architects and many others may find their standard of care and professional judgement in all manner of things scrutinised by the courts.

It certainly is a period of transition across the board and we will certainly be watching developments closely! 

That brings us to end of this podcast. We have covered a lot over a short time, if anyone has any questions please do not hesitate to contact us and we would be happy to discuss further. In the meantime, thanks for joining us today.

[1]Société pour la protection des paysages et al v. SAS Les Moulins du Lohan
[2] Allco Renewable Energy Ltd et al. v Haaland et al., United States District Court District of Massachusetts, No. 1:21-cv-11171
[3] R (The Garden and Leisure Group Ltd) v North Somerset Council and another [2003] EWHC 1605 (Admin)