The unintended consequences of climate litigation

Several municipalities are suing the major oil companies for causing climate change and for the large asserted costs of preventing and mitigating its purported damage in terms of flooding and other adverse impacts. Sadly, in politics as in life there are no free lunches, and while politicians may perceive litigation against the fossil energy producers as a freebie, the taxpayers in their jurisdictions may come to regret the officials’ grandstanding.

The central reason for this stems from the large gap between the damage assertions in the lawsuits and the related disclosures made in the respective municipalities’ bond offerings. As just one example, consider that disparity for the City of San Francisco:

{mosads}The lawsuit states, “global warming-induced sea level rise is already causing flooding of low-lying areas of San Francisco, increased shoreline erosion, and saltwater impacts to San Francisco’s water treatment system. The rapidly rising sea level along the Pacific coast and in San Francisco Bay, moreover, poses an imminent threat of catastrophic storm surge flooding because any storm would be superimposed on a higher sea level.”

The threat of sea-level rise “is becoming more dire every day as global warming reaches ever more dangerous levels and sea level rise accelerates.”

The lawsuit notes that sea level could rise by as much as .8 feet by 2030 and that “San Francisco is planning to fortify its Seawall to protect itself from sea level rise.” Additionally, the lawsuit states that short-term upgrades are expected to cost more than $500 million, while long-term upgrades are expected to cost $5 billion.

The bond disclosure, however, states, “The City is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur, when they may occur, and if any such events occur, whether they will have a material adverse effect on the business operations or financial condition of the City and the local economy.” 

At a general level, it is reasonable to hypothesize that participation in the climate litigation will lead to an increase in the scrutiny with which prospective bond purchasers view future bond offerings. After all, flooding and other forms of damage purportedly caused by the oil companies would be likely to have adverse effects on the respective tax bases and budget demands, and thus the municipalities’ abilities to service their debts. The resulting impacts in terms of the ability to borrow at low interest rates cannot be salutary.

But the real problem is more concrete: If the cities win their lawsuits against Big Oil, the question that will arise is straightforward: Why were the climate risks not disclosed more fully?

Even if they do not win in the litigation, the question of the discrepancy between the causes of action and the disclosures remains. Is it really so obvious that bondholders will not play the very same litigation game? And suppose that the courts in the end decide that the disclosures were inadequate: That might open a floodgate of potential litigation damages that the local taxpayers would not find appealing. 

Put aside the exceptionally weak factual foundation of the lawsuit assertions, based upon climate models that cannot predict the past or the present.

The litigation seems to be an obvious no-brainer for municipal officials: The fossil-fuel producers are unpopular, to put it mildly, so the adverse political effects of litigating against them are somewhere between zero and nil. Nor is there a budget cost to be incurred: The activist political groups and law firms are eager to provide the requisite legal services — discovery, motions, innumerable costs, litigation itself, ad infinitum — on a contingency or even a pro bono basis.

The local politicians can bask in the favorable publicity provided by friendly journalists, and they can feign embarrassment at the thunderous applause forthcoming from the editorial boards, the pundits, the conferences at expensive resorts, the intellectuals on the campuses, the donors at the garden parties, and the political consultants attuned to ambitions for higher office. And — who knows — there might be a big pot of gold at the end of the litigation rainbow. Remember the tobacco litigation and settlement, simultaneously a shakedown and a government-enforced cartel?

That is the landscape visible from the offices of the mayors and councilmen and chief attorneys of the municipalities that have filed such lawsuits or are considering doing so. But taxpayers are likely to suffer from various kinds of reputational risks, which are real even if difficult to measure, and more-concrete risks in terms of future litigation against the cities and higher borrowing costs as well, adverse effects likely to emerge after the current officials’ tenures in office have ended.

There is the further matter that federalism — local decision authority on local problems — is a valuable component of the separation of powers and constitutional constraints on the tyranny of the majority. But it is obvious that the climate litigation, driven by the leftist environmental movement, is the result of the long-term failure of Congress to enact climate legislation, and the ongoing drive by the Trump administration to reverse the Obama regulatory approach.

The litigation, therefore, is a blatant assault on the separation of powers, an attempt to use the judiciary to impose policies that democratic institutions have rejected. Have the municipal officials eager to clamor aboard the climate litigation train considered that Congress and the state legislatures might react by imposing limits on localities’ freedom of action in any of a myriad of possible dimensions? There are very good reasons to doubt it.

Benjamin Zycher is a resident scholar at the American Enterprise Institute.