Alternatives for Resolving Climate Change?

What should the law do?

• 1. U.S. Congress – Clean Air Act (air pollution)• 2. Environmental Protection Agency – regulations on

emissions causing global warming• 3. Litigation in federal court for damages to pay for re-

location – federal common law doctrine of public nuisance

• 4. Litigation in state court for damages under state environmental laws or common law

• 5. International treaties or accords?• 6. Other???

Problems with Congressional Solution

• Political Issue• Very difficult for Congress to get anything

done • Should be bi-partisan but is not

Politics

Problems with EPA and Clean Air Act Regulations

• Better than nothing, but…

• Ineffective because of position changes when president changes

• Very slow progress – to promulgate new rules – lobbying of businesses opposed to regulation

Problems with Federal Court Litigation

• No federal common law of public nuisance because of Clean Air Act (displaces common law)

• But can ask courts to order rulemaking in this area (Massachusetts)

Possible State Court Claims in Litigation

• 1. Common law public nuisance under state law

• 2. Public Trust Doctrine• 3. State statutes on

environmental harms• 4. Intentional torts –

Conversion; Trespass• 5. Negligence

• 6. Strict Products Liability – vs. Manufacturers of automobiles; emission producing products

Problems with state claims

• Possibility of federal preemption of state claims

• Doctrine that says that the federal law (Clean Air Act) occupies the field and no suits permitted under state law

• BUT - A number of scholars believe that the courts will not find preemption

Purposes of Tort Litigation

• Compensation– Two types:

• 1. post facto (most common)• 2. ex ante – would be preferable here – pay money to

prevent harm (e.g. To build storm walls – unusual in U.S. but some examples (medical monitoring)

• Deterrence (must be costly enough; insurance coverage may reduce deterrence)

• Corrective Justice – companies have been unjustly enriched at others’ expense

Daniel Farber, Basic Compensation for Victims of Climate Change

• Compensation for intermediate harms– Harms to natural systems that react strongly to

temperature changes (coral reefs, etc.)– Sea level rise – loss of coastal lands, harm when

salt water intrudes upon estuaries– Severe changes in weather – Precautionary measures – should be compensated– Too difficult to compensate individuals (at least

now)

Alternatives – Analogous Compensatory Systems

• 9/11 Fund – special master – covered individuals who were present – physical harm, economic harm

• Threat of tort liability caused creation of fund and potential for tort liability may also do so for climate change

• Most important thing about litigation = it creates an incentive to come up with other compensatory systems

• May also permit discovery – allows for information to get out to public

Other Examples of Alternatives

• United Nations Compensation Commission– Iraq’s invasion of Kuwait– Iraq liable for environmental damage and

depletion of natural resources– Disputes over compensation to pure

nonmarketable environmental resources – UNCC held damages compensable; Value of resources was cost of mitigation

Compensation for Damages to Natural Resources

• U.S. Law – permits compensation for nonmarket damages to environmental resources (oil spill cases)

• Default is restoration cost• Some courts require a person to suffer “direct

physical harm” in order to recover economic loss – some exceptions

• Causation problems

Compensation for natural disasters

• 1. Insurance: Often private insurance unavailable for catastrophic risks

• 2. Litigation: need proof of wrongdoing; causation; limitation of resources; judicial doctrines like standing

• 3. Compensation from federal or state governments for negligence, claims under special compensation schemes (e.g. 9/11 fund), claims based on unconstitutional takings

Prevention

International Treaties or Accords

• Kyoto protocal• US failed to join because developing countries

(China and India) did not have the same responsibilities

• Concern that if everyone else in the world cuts back on emissions but China and India do not, there can be no remedy to climate change

Is a Global Political Solution Possible?

• Kyoto Protocol – Revival and Expansion?• Treaties?• E.U and other association laws and regulations?• United Nations?• But without the USA, China, and India?• Even with the USA, China, and India?– Issues of compliance, monitoring, change in

governments

If Not International Politics, Can The Market Save The World?

• A Ridiculous Question?• Hasn’t the Market Created the Problem?– e.g., Industrial revolution, short term profits, lack

of consideration for the long-term• But command-and-control economies are also

big greenhouse gas emitters (e.g., China) and totalitarian regimes often have the worst pollution control

Possible Market Solutions (with legislative push)

• More transparency in labeling? Publicity? Selling “green” operations and social conscience?– But will consumers respond?– Unlikely – to save 15 cents at Wal-Mart, consumers

have been willing to destroy Main Street• Force internalization of costs– Carbon Tax and its cousins?

• But would single national carbon tax be enough?– Use tax code for incentive? Punishment?

• Promising – but perhaps politically unfeasible

Can the Insurance Industry Save the World?

• Much potential for Insurance to be a private corrector of market imperfections in safety

• Modern business “needs” insurance to function

• To get insurance – at an affordable price – businesses may be willing to alter behavior in ways that reduce climate change problems

Insurance has an Important Role in Business and Politics

• Insurance Companies: “huge amalgamations of money”• Roughly $1.5 trillion (or more) in assets• Usually in very liquid investments• $ 4 trillion (Worldwide) in premiums collected each year

-- $500 billion in USA• These premiums or “float” technically do not belong to

insurers (because most of it will eventually be used to pay claims) but in the meantime is invested by insurers – and the investment income belongs to the insurers

Insurance as Quasi-Nation

• If Insurance was a country, it would be the 4th largest nation in the world (measured by economic wealth)– RICHARD ERICSON, AARONDOYLE & DEAN BARRY,

INSURANCE AS GOVERNANCE (2003) – Describes at length the ways that insurance influences

behavior• But to address climate change, would insurance

need to be Quasi-World in scope, influence, power?

Insurance a “silent regulator” – when it wants to be

• 1986 – a perceived “crisis” with the upsurge of certain claims: product liability; child abuse at day care centers, neck injuries from diving at swimming pools

• Insurers respond by refusing to sell policies to some manufacturers, pre-schools, pool operators (unless diving boards are removed)

• Policyholders respond with more safety (also off-shore insurers with more capacity are started)

Insurance Influence: Carrot & Stick

• The “stick” we saw in 1986 – and still see• Some businesses never start or grow because

they are uninsurable• Or there is only restricted insurance (high

deductibles, lower limits)• And, of course, higher premium prices• Arguably forcing greater safety for the less

insured/uninsured (the reverse of “moral hazard”)

The Occasional “White Hat” of Insurance – An Example

• Early 1900s: using an electrical appliance was like playing Russian Roulette because of frequency of fires caused by malfunction

• Insurers establish Underwriters Laboratories (UL), which tests electrical products for safety

• To get affordable insurance, a manufacturer had to be “UL approved”– Carrot and Stick?

• Consumers began to look for UL approval label on products• Fire losses from electrical appliances plummeted during the

20th Century

The Occasional “White Hat” of Insurance – Another Example

• USA Automobile Collisions kill and maim many (more than 100,000 deaths in 1960 when population was less than 200 million)

• Seat belts brought about a big reduction (but initial impetus for this was science and consumer activist Ralph Nader)

• 1960s – seat belts become common• 1970s – seat belts become mandatory in cars• 1980s and 1990s – use by drivers becomes mandatory

The Occasional “White Hat” of Insurance – Example II (con’t)

• But to supplement seat belts – Air Bags suggested

• Automobile dealers resists regulator efforts• Insurers side with regulators because air bags

save lives• Insurers back up claims with economic cost-

benefit analysis• Air bags become mandatory in cars (front – and

then side)

How Is (or is not) Climate Change Like Faulty Wiring or an Air Bag?

• Insurers very concerned• Considerable study; constantly collecting

information• Dr. Peter Hoeppe (Munich Re) in Chasing Ice• Property insurers particularly concerned• Extreme weather events are one of the few

ways a well-run insurer can lose money

Property Insurer “Solutions”

• Increased premiums for property in more vulnerable areas near the ocean, rivers, flood plains– Even for inland windstorm zones (“tornado alley”

in the Midwest)(e.g., Oklahoma)• Support for stronger building codes• Support for improved weather forecasting• Support for other government programs

Other First Party Insurance Concerns

• Life, Health, and Disability Insurers also have an interest in reducing losses related to extreme weather

• A safe room in a home facing a tornado can save a life (and an insurance payment), or serious injuries that bring health and disability costs

• Support for smarter zoning, preparedness, disaster response

More Than Just Windstorm

• Wildfires destroy property, cause injuries and fatalities

• Heat waves cause death, injury, lost work, lost productivity

• Power outages spawned by heat, fire, wind problems can lead to additional problems

More than Just Discrete Events

• The surprising dangers of Climate Change• Warmer winters mean reduced killing of unwanted

forms of life– Increase in deer ticks brings increase in Lyme’s Disease– Lyme’s disease caused substantial medical costs, lost

work, human injury in the Northeastern USA• JP Morgan/Chase perhaps lost $3 billion due to Lyme’s

disease (key manager was ill for 3 months and under-supervised rogue trader made horrendous money-losing investments)

Life/Health Concerns

• Even without direct loss from catastrophic events, there will be more payments by these insurers

• Greenhouse gas pollution causes premature death

• Raises health costs• Results in disability and work absences

Third Party Insurer Concerns• Liability Insurers will want to reduce the number of

lawsuits to which they must respond and the amount they must pay in settlements or judgments

• Provided that liability insurers are not too quickly let off the hook

• This is what the California v. GM and AES v. Steadfast Ins. decision (Va. 2012) are so bad– Cases let liability insurers “off the hook” re defending cases– Keeping them involved increases their interest in public policy

improvements as well as providing money for possible compensation

Third Party Insurers – what they can do if motivated

• General Liability Insurers can insist on more precautions, better response plans, etc.

• Directors & Officers insurance companies can do the same

• D & O policies cover liability claims of top corporate management if the managers are sued for not doing enough to minimize climate change liability

• But this requires that there be at least some threat of climate change liability

More on Third Party Insurers• Ironic – D & O Insurance may be required to cover claims

that General Liability (GL) insurers are not• For GL insurance, there must be an accident and the

plaintiff must have a reasonable negligence claim or nuisance claim, etc.

• For D & O insurance, there may be liability if the management failure to act prudently causes shareholder claims against the company (e.g., for getting in trouble with the government, for bad climate change publicity or liability that lowers stock price or creates other loss of company value)

Different Means of Addressing Climate Change

• Spreading Risk – or managing the impact of climate change

• Preventing or Reducing Risk– Insurers can do both• But their performance can vary – and perhaps they do

neither if it requires too much work or threatens profits

• If they act: Will it be air bags or higher premiums and deductible?

Managing Risk (Protecting Reserves)

• Traditional (and self-centered) insurance response

• Higher premiums, lower policy limits, higher deductibles, broader exclusions from coverage or more exclusions

Managing Risk: Increasing Capacity

• This is what insurers did with the move to off-shore companies in the 1980s as a way of providing more product liability insurance

• ACE and XL (Bermuda) ACE so successful it acquired other insurers and is now one of the world’s largest

• But this was facilitated by large commercial insurance brokers (principally Marsh)

• Brokers procure insurance for policyholders

Managing Risk: Increasing Capacity

• Catastrophe Bonds– A financing device to attract investors

• In a good year with fewer hurricanes, an attractive investment

• In a bad year, still a limited downside as compared to common stock, other equity investments

Reinsurance

• A super silent regulator• Much of the reinsurance capacity located in a few

companies: Munich Re, Swiss Re, Hanover, Lloyd’s• They – particularly the continental European reinsurers

– have been at the forefront of industry interest• Where are the Americans? Asleep at the wheel?• Warren Buffet’s Berkshire Hathaway reinsurance

companies are large enough that they should care – but have been far less active

Business Concerns• Insurers may perceive individuals and businesses as

unwilling to pay sufficiently for policies that price in climate change rather than excluding or limiting some coverage

• Policyholders make cognitive errors – undervalue many risks– Do Insurers as well? Investment in safety could be captured by

later insurers in other policy periods• Policyholders believe government bailouts will be there if

needed• Should the USA be more like Switzerland?

– If you fail to purchase adequate insurance, it’s your tough luck

“New” “Improved” Insurance Possibilities

• Property insurance that prices according to green buildings and policies – or perhaps is only available to such properties or policyholders.

• Automobile insurance discounts for hybrids, high-mileage vehicles

• “Pay as you drive” premium pricing• Historically not done in the USA

Other Prospects

• Lower liability insurance premiums for policyholders that pollute less or in locations less likely to lead to litigation

• Even just for better securing of chemicals and oil

• Lower premiums, lower deductibles, rebates for sturdy construction, emergency planning

A Role for Insurance Regulators?

• Insurance heavily regulated in the USA – but at the state level rather than the national level

• But state insurance commissioners could provide tax breaks or other benefits for insurers that structure their products to encourage better policyholder behavior on climate change

Insurance Regulation

• Main focus is (and always should be) solvency• But regulators often accused of failing to permit

sufficient market pricing to reflect risks• This will inhibit efforts to require policyholders to

internalize the cost of behavior that is bad for climate change

• A problem in the USA: Insurance regulators are often politicians who want to gain favor in the short term by suppressing premium charges rather than improvement ten years hence

Insurers Simply As Planners and Lodes of Information

• Insurer studies, if sufficiently shared, can be used by governments (national, state and local) and others to assess and take action

• Could be used by courts in cases• Could of course be used by legislatures and

executives in crafting climate change policy• Including debunking of climate change denial

and marshalling public opinion necessary for more effective policies in the USA

But Insurers Have Not Fully Grasped the Mantle

• Or, as said in the USA: “stepped up to the plate” (a baseball metaphor).

• This was Professor Hecht’s conclusion in 2008– Sean Hecht, Climate Change and the

Transformation of Risk: Insurance Matters, 55 UCLA L. REV. 1559 (2008)

• Relatively little change since then

Cause for Dejection?

• Insurers doing something (at least studying and worrying) but could do more

• EPA and other regulators doing something (at least when Democrats are in charge) but not a great deal

• Fossil Fuels Industry very organized, wealthy, with many lackeys in legislatures

• Democrats and liberals have the “Yeats problem” – they lack sufficient courage and interest while the climate

change deniers are full of conviction • cf. William Butler Yeats, The Second Coming (1919)

Climate Change Compared to Gun Regulation

• The Gun Story in the USA is well-known – and a national embarrassment– Even though 90 percent support at least some reasonable

regulation, intense and entrenched interest groups thwart regulation

• Climate change policy has similar problems– But with a public that is more confused about what is the “truth”– And where the problem requires spurning short-term self-interest

for longer-term social interest– And where progressives have other, more immediate, more

attainable priorities (job creation, tax reform, civil rights, maybe even gun regulation)

Have Courts Been Missing in Action?

• Or are the constraints on courts in the USA judicial system so strong as to preclude a more active role in climate change policy

• Courts of course cannot legislate or make sweeping policy

• But courts could be more hospitable to climate change litigation

• Particularly in view of the failings and limitations of the legislative and executive branch

Climate Change Litigation in the USA

• Reluctance to embrace”– Mass Tort cases meets Concern over Democratic Values– with attendant problems

• For mass torts, the reluctance was overcome – asbestos, pollution, tobacco torts

• Expensive but beneficial overall (at least according to most/many)

• Climate change cases still confined in the manner of the old civil rights and constitutional law cases

Climate Change Litigation in Historical Context

• Disturbing similarity to “separate but equal” doctrine allowing race discrimination in public accommodations.

• And enforcement of private discrimination such as “restrictive covenants” that prohibited sales of homes in nice neighborhoods to blacks, other minorities

Climate Change Litigation in Historical Context

• Perhaps best analogy: the long-time reluctance of courts to do anything about unfair political systems

• Typical scene: Rural portions of states get many more representatives in state legislatures because boundaries are drawn based on land rather than population. Urban areas suffer – and are underrepresented in the political process.

• Courts did nothing – until Baker v. Carr (1962)

Time for a Climate Change Version of Baker v. Carr?

• In Baker v. Carr, U.S. Supreme Court modifies or relaxes the doctrines of justiciability and political question to decide the case

• Recognizes that legislatures themselves will not correct the problem – because the deck is stacked

• Court holds that legislative districts with unequal numbers of voters violate the Equal Protection/Equal Treatment rationale of the Constitution.

• A rule of “one person/one vote” emerges• As a result, the rural areas of a state can no longer run

things to the detriment of the majority of people

Defending Baker v. Carr

• The decision was initially criticized by traditionalists but is now accepted

• And it should be – when the legislature is not fair, it is not realistic to expect a political solution

• Climate change presents similar concerns• Should courts be more willing to act in

nontraditional ways when legislatures and executives fail? Many would say “yes”

With Climate Change, Failure is the Order of the Day

• Political solutions have been slow in coming– Advocates of addressing the problem and rectifying its consequences

have found little legislative or administrative agency help• Turning to the Courts

– A perhaps proper role for courts to step in where other branches fail– But modern USA courts shrink from the task

• Sometimes for reasons of doctrine but note also that the judges (or their political benefactors) have often been aligned with the Republican Party, big business, the fossil fuel industry

• Industry even sponsors “summer camp” educational sessions for judges– Probably should be considered violations of judicial ethics (because the “curriculum” is

slanted toward the business in cases a judge may hear) but are not

A Grim Picture?• Climate change may be – excuse the pun – a “perfect storm”• Long term aspects prey on defects of human cognition that

favor status quo, short-term interests: “kicking the can down the road”

• Political realities make legislative or administrative change difficult– Made worse by 2010 Citizens United decision that allows corporate

campaign spending• Judicial traditions discourage or limit litigation as a means of

addressing problems of this type– Initial school desegregation, prison reform, treatment of the disabled

cases met similar fate

A Grimmer Picture Still• Regarding unequal legislatures, racism, prejudice, defendant rights, prisoner

rights, adequate schools or health care and similar issues, the arc of USA history has been for courts to eventually become more active and thereby improve the legal and social condition

• But these later decisions – although eventually considered acceptable “legal” decisions (rather than political overreaching) did not rectify the injustice or injury done to plaintiffs who sued before the courts became more receptive to change

• Even if courts become more accepting of change, it may be too late for Planet Earth by the time this occurs

• Carbon levels rise at 2 parts per million or more every year. In 50 years (or less) carbon levels may be at the point of no return.

• How much time do courts (or other policymakers) really have before it is too late?

Climate Change as Study of Institutional Failure

• The problem was subtle and slow-building – even though scientists recognized it relatively early (although some

were enlisted by industry to oppose supervision and regulation)• But gathered great momentum at a certain point

– Now reasonably swift action required to avert disaster• Elective political institutions were ill-equipped to cope because of

– vested special interests, – economics of attaining and holding political office – human cognition errors – short-term greed

• Judicial institutions were ill-equipped because the nature of the dispute did not lend itself to traditional adjudication

We may be reaching the end …