Climate Suits Show Rising Risks for Big Oil

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The risks to the oil and gas industry from climate litigation are rising. Judges in different jurisdictions are becoming more open to legal theories that hold governments -- and now private companies -- responsible for preventing climate change. And they are becoming more willing to require them to act. This means international oil companies could see disruptions to their strategies or find governments that require extensive climate mitigation to approve new projects -- if they will approve them at all. A Dutch court’s ruling that Royal Dutch Shell had a “duty of care” to future generations to limit its emissions was the first time a judge had forced a company to act to prevent climate change -- previously such rulings were applied to governments (PIW May28'21). “There is broad international consensus that it is imperative for non-state actors to contribute to emissions reduction,” the ruling states, “and for companies to have an individual responsibility to achieve the reduction targets.” Total faces a similar case brought under French law. The UN frameworks cited in the Shell case “can readily provide other judges in other jurisdictions with support for reaching similar conclusions under their own laws,” said one legal scholar. These legal pressures are being driven by shifts in society’s attitudes and acceptance of fossil fuels globally. Climate litigation is not only a threat in the developed world. Claimants are filing in developing countries as well -- even some with vital oil industries -- and staking similar claims. “It’s going to embolden other public interest groups to bring similar litigation in other countries, Nigeria included,” said Kelechi Ofoegbu, technical adviser to the Nigerian petroleum minister, predicting such suits would crop up “within the next six months.” The Philippines Human Rights Commission ruled that private companies have an obligation under Phillippine law to cut greenhouse gas emissions, but the body does not have the same power as the courts to compel action. Plaintiffs recently filed suit in nascent oil producer Guyana, asking a judge to halt further developments by Exxon Mobil of its massive offshore finds under a similar “duty of care” argument as in the Shell case (PIW Aug.28'20). Still, most global climate cases are brought in the US and seek monetary damages rather than curbs on emissions. US federal courts are not receptive to the legal arguments that were successful in the Shell case in the Netherlands. Plaintiffs are now pushing in state courts using a variety of other claims, a similar playbook to the one used in the suits against large tobacco companies. While those cases ended with massive settlements, there have been no major wins for climate activists to date. One attorney who works climate cases in the US said the arguments used in the Shell case could bolster US industry arguments that these cases are about emissions -- not the other issues like consumer protection that claimants argue. This would invoke widely accepted federal case law that favors oil companies. In mid-May, the US Supreme Court handed the industry a technical victory that could push a dozen or so cases back into federal courts (PIW May21'21). But the impacts of these court cases go beyond the rulings and remedies levied by judges. They add to material regulatory, financial and reputational risks for companies. Just as the International Energy Agency's roadmap to net-zero report was cited by investors calling for more aggressive action on climate, the Shell case will be cited far outside the bounds of the jurisdiction of the ruling (PIW May21'21). “The ruling amplifies our sense that the industry will have to decarbonize substantially more quickly than companies are currently planning,” said ratings agency Moody’s, warning that a forced rapid shift away from fossil fuels “could weaken oil company credit quality significantly” (related).

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