Transcript Alternatives for Resolving Climate Change

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 offshore 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 costbenefit 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 undersupervised 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 offshore 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 selfinterest 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 …