Climate change: Coming to a court near you
Carbon, methane, and industrial meat profiles lay the foundation for managing climate-related liability risk
by Arianna Libera and Adam Grossman
Climate change poses a grave threat to human health and economic wellbeing. In 2008, the Inupiat Eskimo people of Kivalina – a small village situated on the northwest coast of Alaska threatened by melting Arctic ice and permafrost – sued ExxonMobil and 21 other companies seeking to recover the cost of relocating their village. The suit alleges the world’s largest emitters of greenhouse gasses are responsible for the human-induced climate change damaging their village and should, therefore, be held liable for damages. Kivalina was dismissed on various grounds in 2009 (and on appeal in 2012), but this dismissal has not deterred other cities, counties, states, and non-governmental organizations damaged by climate change from pursuing legal action in U.S. and other courts.
Lawsuits against companies responsible for extracting and processing the fossil fuels that have powered the global economy since the industrial revolution will most likely fail to yield compensation for plaintiffs. [By the way, you can now track this litigation in CoMeta.] Climate change, though, could still significantly increase the risk of other litigation events covered by liability insurance, and so Praedicat is laying the foundation now for quantifying how these climate-related events affect a company’s overall risk of litigation and how they aggregate within casualty portfolios.
This release introduces three climate related Litagion agent profiles to CoMeta: carbon dioxide emissions, methane emissions, and industrial meat. Carbon dioxide and methane are the two most significant greenhouse gases contributing to climate change, while meat production is, by some estimates, responsible for 20% of all greenhouse gas emissions. At this time, CoMeta’s carbon and methane emissions profiles are limited to the business activities and companies that could be named in climate change related lawsuits by virtue of directly emitting carbon dioxide and methane. The industrial meat profile also tracks the science investigating the human health effects of meat consumption that could one day fuel bodily injury litigation against meat producers and distributors.
The carbon dioxide emissions profile includes business activities involved in extracting and burning fossil fuels. Transportation is responsible for about 35% of total carbon dioxide emissions, followed by electricity generation (31%), and other industrial production (16%). We exclude business activities in which the primary contribution to carbon dioxide emissions is from the use of electricity; we view it as unlikely that plaintiffs would seek to hold companies responsible for climate change simply for using electricity. The profile also includes business activities that generate carbon dioxide emissions directly, such as cement production.
The methane emissions profile is similarly limited to business activities directly responsible for methane emissions. Enteric fermentation (gut microbes producing methane) and manure management in the agricultural sector account for about 36% of all methane emissions. Escaped gas during the production, transmission, and distribution of natural gas and oil is responsible for an additional 30% of methane emissions.
Early climate cases sought to use federal public nuisance law to recover damages from GHG emitters responsible for climate change, but Connecticut v. AEP, decided by the Supreme Court in 2011, foreclosed this legal theory because the Clean Air Act in this case displaces federal common law. However, recent legal scholarship makes the case that the reasoning behind Connecticut v. AEP leaves open the possibility of federal public nuisance as a cause of action in lawsuits seeking to hold industrial meat production liable for climate change.
With this legal scholarship in mind, the industrial meat profile includes all related business activities that emit carbon dioxide, methane, and nitrous oxide – from upstream feed production to downstream meat processing and retailing. Carbon dioxide emissions among related business activities are mostly indirect, arising from the energy used during feed production, on-farm operations, and post-farm operations such as processing raw commodities into livestock products and packaging. Industrial meat activities emit methane primarily via enteric fermentation and manure management, whereas their nitrous oxide emissions mainly come from agricultural soil management practices such as the application of fertilizers on crops used for feed, the application of manure on crops and its deposition on pastures, and the decomposition of crop residues.
We will soon be releasing in CoMeta an industrial meat liability disaster scenario that allows exposure managers to quantify their aggregations of this climate-related risk. In building this scenario we account only for the business activities directly responsible for emissions, which, among some other smaller activities, largely leaves out carbon dioxide emissions from electricity use. Given this scope of the scenario, our current estimates of U.S. economy-wide damages attributable to industrial meat’s current and historical contribution over the last 30 years to climate change approach $650 billion. We’re working now to allocate those damages to specific business activities, companies, insurance lines, and policy years.
Look out for additional climate-related profiles and liability disaster scenarios in CoMeta later in the year. Climate change is leading to more frequent and severe urban heatwaves, which, like California wildfires, could generate unexpected liability for businesses that contribute to or fail to prepare for these disasters. Vector-borne epidemics (e.g., dengue fever) may also increase in frequency and severity and so we’re exploring the arguments plaintiffs could make to hold businesses accountable in court.
Climate change is having profound effects on the world around us and managing the existential threat it poses is the challenge of our time. By highlighting the commercial activities driving climate change, the damages they cause, and the liability that could follow, we hope to do our small part in accelerating the transition to an economy that circumvents climate catastrophe.