Environmental activists and plaintiffs’ attorneys have convinced local governments in California and New York that there is a pot of gold waiting for them in a new set of lawsuits against energy companies. The theory is that the companies raised global temperatures and thus forced cities and counties to spend billions of dollars to protect residents against rising seas.
The claim is farfetched, to begin with, and federal courts have tossed out similar arguments in the past. But now, the lawsuits are backfiring – and local governments themselves are in the crosshairs.
Here’s the problem for the governments: They claim that energy companies will cause massive environmental damage, costing their cities and counties billions of dollars. But, if that claim is true, then the governments failed to reveal the risk to purchasers of their own bonds. As a result, the cities are opening themselves up to lawsuits directed at them.
For example, the City of Oakland in September sued five companies, including ExxonMobil and Chevron, claiming that fossil-fuel production was causing “ongoing and increasingly severe sea level rise harms to Oakland.” The lawsuit predicted that by 2050, “a ‘100-year flood’ in the Oakland vicinity is expected to occur…once every 2.3 years…and by 2100…once per week.” By 2100, Oakland will suffer more than five feet of sea level rise, says the suit, threatening the city sewer system and other property “with a total replacement cost of between $22 billion and $38 billion.”
That’s quite a catastrophe – one that would seem to require a warning to anyone buying the municipal bonds, totaling $2 billion in value, that the City of Oakland has been issuing. Yet here is how Oakland describes the risk in its bond prospectus of last year: “The City is unable to predict when seismic events, fires or other natural events, such as sea rise or other impacts of climate change or flooding from a major storm, could 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 or the local economy.”
Similarly, San Francisco, in its suit against energy companies, claimed it faced “imminent risk of catastrophic storm surge flooding,” but the city’s muni bond offering last year said it is “unable to predict whether a sea-level rise or other impacts of climate change will occur.”
If the claims of “imminent risk” and horrible damage in the lawsuits are accurate – and undisclosed – then the bond issuers “were almost certainly able to benefit from lower issuance costs than they would have been had they disclosed the risk to investors,” wrote Josh Rosner, a managing director at the Wall Street research firm of Graham Fisher & Co., on Jan. 9.
There is poetic justice here. In 2012, climate activists and lawyers met in the California beach town of La Jolla to deploy a tobacco-style strategy lawsuits against energy companies. Behind the meeting was the godfather of radical environmentalism, the Rockefeller Brothers Fund. Heirs of John D. Rockefeller, founder of the company that became ExxonMobil, had previously tried to pressure energy companies through stock divestments and shareholder resolutions, but the La Jolla meeting initiated a more aggressive approach.
So far, “public nuisance” suits have been filed against a total of 18 energy companies by seven California cities and counties and, just Wednesday, by the City of New York. Previous attempts to extract damages from energy companies using what could be called the “La Jolla playbook” have failed miserably.
Along with a half-dozen other attorneys general, Eric Schneiderman of New York announced in March 2016 that he would pursue ExxonMobil for hiding the truth about climate change. But that claim quickly collapsed; after all, Exxon scientists have published dozens of mainstream climate-change research papers in peer-reviewed journals.
Schneiderman then switched to claiming that Exxon was making inaccurate forecasts of the impact of climate change on its business. “There may be massive securities fraud here,” he said. That claim, too, went nowhere.
Then, last year, local governments began their public nuisance suits, picking up an old theme. In 2008, attorney Matt Pawa, later a featured speaker in La Jolla, claimed that ExxonMobil should pay Kivalina, an Alaska town, the cost of protection from flood waters allegedly caused by global warming. Pawa lost in 2012 in the Ninth Circuit.
Meanwhile, in 2011, a unanimous Supreme Court ruled in American Electric Power v. Connecticut that the Clean Air Act precludes courts from providing a remedy in a federal public nuisance case.
ExxonMobil is not taking the latest attacks lying down. In a petition filed in federal court in Texas, the energy company seeks to depose Pawa plus 15 local California officials, as a prelude to its own possible lawsuit. Exxon argues, “A collection of special interests and opportunistic politicians are abusing law enforcement authority and legal process to impose their viewpoint on climate change.”
Evidence of that abuse is the blatant contradiction between what the local government claims in their lawsuits against the energy companies and what they disclose in their bond offerings. Climate-change policy deserves debate – with open competition in the marketplace of ideas, not with cynical assertions in threadbare lawsuits.