The recent ruling from a French court marks a significant moment in the ongoing battle against climate change. The decision mandates that a major European oil and gas corporation not only disclose its own emissions but also those arising from its customers’ use of its products. This ruling raises important questions about corporate responsibility and the extent of legal accountability for environmental impact.
Yves here. It’s challenging to unpack the implications of this climate litigation ruling and the laws behind it. While it may appear commendable to implement stringent pollution disclosure requirements on corporations, it is essential to recognize that this approach is fundamentally flawed. The French government has transferred a critical issue into the hands of the courts, leading to sporadic successful lawsuits and fines for offenders, rather than addressing the root of the problem. What is needed is comprehensive legislation that outright bans harmful practices or sets up a system of taxes. The judiciary’s role should be concentrated on ensuring enforcement of these laws or intervening in cases of extreme overreach.
Determining whether to use taxation or prohibition as a method of controlling emissions has long been debated in public economics. In his insightful paper, Andy Haldane, former Executive Director for Financial Stability at the Bank of England, addresses this fundamental question:
The taxation versus prohibition question arises frequently in public choice economics. For centuries, this has been a key discussion in international trade, particularly regarding quotas and subsidies. In the 21st century, it’s become central to the dialogue about effective policies for reducing carbon emissions.
Economists often refer to Martin Weitzman’s public goods framework from the early 1970s when making these choices. According to this framework, the ideal level of pollution control is achieved by balancing the marginal social benefits of pollution regulation against the marginal private costs of those regulations. In a perfect world devoid of uncertainties, policymakers could choose indifferently between taxation and regulations based on this cost/benefit analysis.
However, real-world scenarios come with significant uncertainties regarding costs and benefits. Weitzman’s insights guide us in selecting pollution-control tools amidst these uncertainties. When the potential social benefits lost from a poor choice are substantial relative to private costs incurred, quantitative restrictions are preferable. The rationale is that securing quantity for pollution control, while allowing price fluctuations, incurs minimal private costs. If the marginal social benefit curve is more pronounced than the marginal private cost curve, restrictions are the way to go.
Conversely, if the private costs of an erroneous choice are considerably high compared to the social benefits forfeited, implementing taxes is likely to yield better overall welfare. The framework suggests that the choice between taxation and regulation in pollution control is ultimately an empirical one.
The data being reported by French businesses could serve as a basis for crafting informed laws or regulations. Yet, as I interpret it, the ruling appears to focus simply on facilitating private lawsuits. From the coverage:
This ruling opens up new avenues for corporate accountability against oil firms in France. It could also set a precedent for forthcoming European Union regulations that will require similar disclosures from companies in other member states, to take effect in 2028.
Ultimately, this amounts to little more than a slap on the wrist. While private individuals and even some governmental bodies might initiate lawsuits based on these disclosures, legal proceedings can drag on for years. Most polluters will escape lawsuits, and any penalties will arrive long after wrongdoing has occurred. Such a weak deterrent is unlikely to alter harmful corporate behavior.
By Aminta Ossom, Lecturer on Law, Senior Clinical Instructor, Harvard University; Harvard Kennedy School. Originally published at The Conversation
In a recent decision, a French court directed a prominent European oil and gas company to report on not only its climate-warming emissions and those from its contractors but also those associated with its customers who use its petroleum products. This ruling, related to the case against TotalEnergies and underpinned by a 2017 French law, represents a notable step in the global endeavor against climate change. The movement aims to hold corporations accountable for their emissions and the resultant warming of the Earth’s atmosphere.
The court has given TotalEnergies six months to report on the emissions generated by airline passengers, motorists, and other customers using their energy products. These emissions account for a substantial portion of the company’s total emissions. Additionally, the ruling requires the company to assess the environmental, human rights, and health risks posed by those emissions and outline its plans to mitigate those risks.
TotalEnergies has expressed its intention to comply with the ruling, although it may still pursue an appeal. This ruling not only broadens the scope of corporate accountability in France but could also influence the upcoming European Union regulations mandating similar disclosures from companies in other countries, to take effect by 2028.
Corporate Responsibility
The legislation that necessitates this type of reporting stems from the public outcry following the 2013 collapse of a garment factory in Bangladesh, which tragically resulted in over 1,100 deaths. Among the debris were clothing items linked to several French brands. This disaster sparked the enactment of the law, aiming to hold French companies responsible not just for their own practices but also for those of their contractors and subsidiaries.
In the TotalEnergies case, the corporation acknowledged that its operations contribute to emissions that pose risks to the environment; however, it contested that emissions from its customers fell outside the purview of the law. The court found otherwise, ruling that TotalEnergies is required to report on its customers’ emissions globally and to construct strategies aimed at reducing the negative global impact of those emissions.
The court’s reasoning established a direct connection between TotalEnergies’ energy production and the damage arising from its customers’ utilization of those products. However, in a minor concession to the company, the court refrained from mandating a comprehensive reduction in TotalEnergies’ total emissions – including those of its customers – which would have essentially instructed the company to limit its petroleum sales.
For its own operations, TotalEnergies has reported approximately 34 million metric tons of carbon dioxide emissions annually, which is more than the annual emissions of Ireland, Finland, or Denmark. The company estimates that the emissions generated by its customers are roughly ten times that figure, placing it on par with Australia’s yearly national emissions.
Affecting US Companies
This ruling is likely to have ramifications in the United States, given that TotalEnergies has extensive operations there, including oil and gas extraction, refining, and sales. It is the leading exporter of liquefied natural gas from the U.S., although its U.S. operations account for only about 4% of the company’s overall total.
Additionally, the court ruled that the environmental and human rights risks from emissions must be disclosed in corporate reports. Over time, this may necessitate that U.S.-based companies which operate in Europe compile and disseminate similar data about their own emissions and those of their customers.
This potential requirement is one of the driving factors behind U.S. energy companies seeking to influence a newly proposed European directive on corporate risk evaluation, which mandates that all EU nations establish national laws governing risk reporting by 2028.
The French ruling represents a rare instance of a court decision against a corporation in a climate damage lawsuit. Typically, climate litigation targets governments, which are bound by treaties and international commitments to mitigate greenhouse gas emissions. Corporations are generally not parties to these agreements, and courts often hesitate to intervene in corporate governance.
The conclusion drawn by the French court that corporations have a legal obligation to contribute to mitigating climate risks could bolster similar claims in ongoing lawsuits against companies in Belgium, Italy, and Switzerland.
