The US is often criticized for being an overly litigious society. However, that zeal can result in some creative uses for litigation. A prime example is a growing trend, led by the New York's Attorney General Andrew Cuomo, to use lawsuits to spur legal reform with respect to the issue of climate change. The outcome of these lawsuits may have a significant impact on the legal obligations of businesses at the smokestack and in the boardroom - both in the US and here in Canada.
Reuters reported on August 25 that New York and 11 other states commenced a lawsuit against the federal Environmental Protection Agency ("EPA"). The lawsuit alleges that the EPA violated the federal Clean Air Act when it refused to impose new source performance standards on oil refineries, which produce 15% of US carbon dioxide emissions according to the claim. The coalition of states will ask the court to order the EPA to impose such standards to control the emissions of greenhouse gases from the refineries.
The lawsuit follows a decision by the US Supreme Court that the EPA has the power to regulated greenhouse gases. It is one of several state-launched suits against the EPA. Others are intended to force the EPA to regulate greenhouse gas emissions from power plants and automobiles.
If successful, the suits could force the EPA to impose significant restrictions on the greenhouse gas emissions of refineries, power plants, automobiles and potentially other sources. Even if the suits are not successul in the courts, they may prove to be an effective public relations tool for spurring change. Certainly they send a strong signal that many states want to see the EPA and other federal agencies take a more active role in addressing the climate change problem.
The changes prompted by this type of litigation will have an immediate impact on businesses operating in the US. They may also have a knock-on effect in Canada if regulators in the provinces and in Ottawa seek to harmonize Canadian requirements with those of our neighbours to the south.
New York Attorney General Cuomo is also using litigation to force companies to disclose the financial risk that climate change poses to their businesses. Back in September 2007, the Attorney General sent letters and subpeonas to Xcel Energy, AES Corporation, Dominion Resources, Dynegy Inc., and Peabody Energy (all energy companies) demanding information about the companies' analysis of the risk posed by climate change and the disclosure of that risk to investors. The Attorney General was acting pursuant to powers granted under the Martin Act, a somewhat obscure piece of legislation that has been used in recent years to chase Wall Street fraudsters. As reported by the New York Times, New York announced on August 27, 2008 that it had reached an agreement with Xcel Energy. Under the agreement, Xcel will disclose the financial risks of lawsuits and of federal or state court decisions that would affect its business. The company must also analyze and disclose the “material financial risks” associated with global warming. New York continues to negotiate with the other 4 companies.
By using the Martin Act, Attorney General Cuomo was able to take action that the Securities and Exchange Commission ("SEC") has yet to take. The SEC is under pressure both from other levels of government and from the private sector to release guidelines regarding the required disclosure of material environmental risks. (Recall from a previous posting that the Ontario Securities Commission has already started clarifying its expectations with respect to contingent environmental liabilities.)
Companies, both in the US and in Canada, can expect that they wil be under increasing regulatory pressure to consider and disclose the risks posed by climate change. If the litigation trend continues, it may be shareholders who turn to the courts to demand this type of disclosure.
