A review of greenhouse gas emission liabilities as the value of renewable energy for mitigating lawsuits for climate change related damages

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Abstract

Anthropogenic global climate change has large and mounting negative economic impacts. Companies and nations responsible for greenhouse gas (GHG) emissions are thus acquiring considerable potential liabilities. If litigation becomes widespread, renewable energy technologies (RETs) potentially offer emitters reduced liability for climate change. This benefit has been ignored because of the lack of knowledge of potential liabilities. To overcome this information deficit, this paper reviews recent literature on the potential for climate change litigation and methods to quantify liability for climate change. Next, the top 10 emitters in the U.S. are identified and their potential liability is quantified using standard GHG emission costs. Potential liabilities are explored in depth with a single case study company comparing the results of the fractional liability from only natural disasters within the U.S. for a single year to a sensitivity of the future costs of carbon emissions from other sources of emission-related liability. Then classes of potential climate change litigants are identified and their capacity to bring such lawsuits is evaluated. The results show that the net income available to shareholders of large companies could see a significant reduction from the emissions liability related to only natural disasters in the U.S. from a single coal-fired power plant. Finally, a rough estimate of the economic risk associated with future scenarios and existing organized international potential litigants is quantified. The results show that potential liability for climate change for the Alliance of Small Island States is over $570 trillion. It is concluded that as emitters begin to be held liable for damages resulting from GHG emissions resulting in climate change, a high value for liability mitigation would provide additional powerful incentives for deployment of renewable energy technologies.

Introduction

Renewable energy technologies (RETs) have well established benefits including: i) improving environmental sustainability [1], [2], [3], ii) improving public health [4], [5], [6], iii) creating jobs [6], [7], [8], [9] and iv) financial benefits [10], [11], [12]. The average price of completed solar photovoltaic (PV) systems has dropped 33% since 2011 [13], and the cost of electricity generated from wind also dropped more than 43% in the past four years [14]. As the economic costs of RETs have decreased they are now competitive with traditional electricity sources in many regions [10], [11], [12]. Perhaps one of RETs greatest benefits, however, is the value they bring for mitigation of greenhouse gas (GHG) emissions and the concomitant climate change [15], [16], [17], [18], [19]. Both global GHG emissions [20], [21], [22] and global atmospheric carbon dioxide (CO2) concentrations are increasing rapidly [23], [24]. The resultant climate change is well established with a high confidence as are the negative impacts on natural and socio-economic systems [25], [26] including: i) higher temperatures and heat waves that result in thousands of deaths from hyperthermia [27], [28], [29], ii) crop failures [30], [31] that aggravate global hunger [32], [33], [34], iii) power outages [35], [36], iv) rising sea levels that cause low-lying coastal areas to submerge gradually [37], [38], v) erosion of shorelines [37], [38], vi) increased risk of flooding [39], and saltwater intrusion [37], [40], vii) strong storms that cause more damage to coastal environments, increased risk of floods, [41], [42], [43], [44], viii) droughts, [45] and ix) fire [43], [46], [47]. These negative externalities have been shown to be due to human activities with the confidence level of 95% (primarily combustion of fossil fuels, which are the dominant cause of global warming from 1951 to 2010) [48], [49].

Emission trading has been considered as a solution to climate change in order to limit greenhouse gas emissions [50], [51], [52], [53]. Unfortunately, it has some disadvantages including relying on a complicated system [54], carbon price uncertainty [55], and encouraging industries that are the most dependent on coal and oil to maintain the status quo because the permits have been historically inexpensive [56]. Thus, at the present time, emissions trading as a method of mitigating climate change has essentially failed [57], [58], [59], so another method is needed.

A method gaining traction to bring these negative externalities into the market is the use of litigation, which provides a different path to motivate reducing corporate actions resulting in climate change [60], [61], [62], [63], [64], [65], [66], [67], [68], [69]. If such GHG emission litigation becomes widespread, then the one of the core benefits of RETs for emitters would be a reduction in the liability for climate change. This economic benefit is currently often ignored because of the lack of knowledge of the potential liabilities. To provide the necessary data, this paper first reviews recent literature on the potential for climate change litigation and the seven methods to quantify liability for climate change. Then, a formulation is developed to estimate the liability for GHG emitters considering i) pollution factor (which is a fraction of emissions produced by each major polluter over the overall emissions), ii) probability of human contribution to natural disasters, and iii) estimated cost of disasters. Next, the top 10 emitters in the U.S. are identified and their potential liability is quantified using standard carbon costs and this method. Potential liabilities are explored in depth with a single company comparing the results of the fractional liability from only natural disasters within the U.S. for a single year to a sensitivity of the future costs of carbon emissions from other sources of emission-related liability. Finally, potential climate change victims (potential litigants) are identified and their capacity to bring such lawsuits is evaluated. The results are discussed and conclusions are drawn about the potential value for RETs to reduce GHG emission liability.

Section snippets

Background

GHG emissions liability is created from present emissions, but can also extend into the past. For example, Farber [62] argued that not only American׳s ancestors, but also people who are living in U.S. currently are responsible for past emissions resulting in climate change due to the profit they have had from uncontrolled GHG emissions. Similarly he argued that a moral responsibility exists for Americans to limit their emissions to prevent causing damage to other people (specifically those

Nomenclature

C: Carbon price [US$/ton of CO2]

di(t): Cost of ith disaster

Dx(t): Liability of a single defendant in year t

E: Emissions [tons of CO2]

ECR: Responsibility of consumer [tons of CO2]

Eembodied: Producer׳s emissions [tons of CO2]

EISR: Responsibility of intermediate system [tons of CO2]

EP: Producer׳s emissions [tons of CO2]

EPR: Producer responsibility [tons of CO2]

Euse: Consumer׳s emissions [tons of CO2]

EX: Emissions in year t of a single defendant [tons of CO2]

Eregion: Emissions in year t of the

Potential GHG emissions liability for top 10 US emitters

The range of liabilities for the top U.S. emitters for the seven methods have been calculated using the equations from Table 1 and the results are shown in Table 2 for 2012. In the shared responsibility approach, Fe is considered to be 50%, which means the responsibility is shared equally between producer and consumer. In addition, polluter׳s pay theory is the same as producer responsibility approach, and in geographical approach the producer liability is calculated in the same way; therefore,

Conclusions

In this study the methods to quantify liability for climate change have been reviewed. The potential litigants that are well positioned to bring emission related lawsuits include those that are most threatened that have political organization such as the Island Nations making up OASIS. However, other entities such as individual nations, states, or companies that have financial losses due to climate change could seek compensation in court from emitters. Finally individuals alone or as part of

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