Climate-Related Liability Could be a Big Problem for Energy Companies

In the final week of the Paris Climate Talks, check out what can be done to help energy companies mitigate instead of litigate. Climate-related liability could be a big problem for energy companies, according to a new study by Michigan Tech researcher Joshua Pearce, a materials science and electrical engineer.

Solar and other renewables, which Joshua Pearce studies, could be the solution to potential climate-related liability problems for energy companies. Credit: Michigan Tech

Climate change lawsuits are becoming more and more likely, but adopting renewable energy could help mitigate that. Pearce's new research looks at how climate-related liability for energy companies is calculated, and how it could be prevented. The results will be published in Renewable and Sustainable Energy Reviews (preprint available).

“Historically, the lack of knowledge of potential liabilities from climate change has kept energy companies from including it in decision making,” Pearce says. “A review of the recent literature shows such a short-sighted approach is no longer tenable.”

Pearce and co-author Negin Heidari, a graduated master’s student of Peace’s, reviewed the seven published methods of assigning liability for emitters. They identified the top ten emitters in the US, and explored potential liabilities, looking in-depth at a single case-study company. They then compared the results of the fractional liability from only natural disasters within the US for a single year to a sensitivity to the future costs of carbon emissions from other sources of emission-related liability.

If carbon emission lawsuits become prevalent, the potential liability is an important criterion for investors. “We were shocked to find that common shareholders of the case-study company would see a reduction in their profits of 18 percent from emissions liability compared to only natural disasters in the US from a single coal-fired power plant,” Pearce says.

That profit reduction could be greatly magnified with climate change’s global impacts, stemming from eroding shorelines, rising seas and other hazards. Pearce points out that the poor in developing countries are most at risk, but “realistically, it is going to be the rich who are able to fund protracted climate-related lawsuits.”

The potential for litigation provides incentive for putting more renewable energy technology in place. Solar, wind, wave energy and other renewables could mitigate the flood of lawsuits, helping energy companies prevent considerable losses.


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