Tomorrow, the U.S. Supreme Court will hear arguments about whether a lawsuit filed in state court in Colorado seeking damages from two major oil companies for the climate-change related damage inflicted on Boulder County can go forward.
Here's the short version: The Canadian-based Suncor Energy Inc. and Texas-based ExxonMobil say that policies regarding climate change and any alleged damages resulting from it are matters for the federal government and courts only and that therefore the state suit should not be allowed to go forward. Boulder County says that it merely seeks compensation for damage done to Boulder and its residents by decades of emissions from these two companies. It is not seeking to change the policies of the federal government.
The energy companies contend that a victory for Boulder County would allow many similar suits to proceed and could bankrupt the oil industry by essentially creating a judicially ordered "carbon tax" in the form of damages.
I do not have an opinion about whether the Supreme Court will allow Boulder's suit to go forward. But I do know that saying that you will go bankrupt if you lose a lawsuit is not much of defense. Just ask the asbestos industry that suffered a rash of bankruptcies after losing cases for destroying the health of people who worked with and were exposed to their products.
Now, here's the key thing to know about bankruptcies. Large companies with valuable assets very often reorganize under court supervision and continue to operate while paying their debts. Even if the oil industry were hit with hundreds of billions in damages, it would most likely reorganize so that much of its future profits go to those entities that sued successfully. That would mean that shareholders would probably have little remaining value or get wiped out. Bondholders might take a serious drubbing. And, of course, executives owning their company's stock would fare no better. No wonder the industry is apoplectic at the prospect of these suits going forward!
In the extreme, the large jury awards could be satisfied by handing over chunks of ownership of the losing companies to the municipalities, states and others who have sued. Perhaps the most prominent recent example of this is a lawsuit against podcaster Alex Jones whose InfoWars empire was ordered sold to satisfy a $1.3 billion jury verdict against him, an order that, as far as I can tell, remains under litigation.
But I am, of course, getting ahead of myself. Months from now the Supreme Court will decide whether these cases can go forward. If they do go forward, prepare for a huge cry from the industry that if the plaintiffs prevail, it will be the end of the world as we know it—when all that would really change is who owns the profits and possibly the assets of the industry. In other words, a key industry that profited from damaging the climate would finally have to pay for that damage.
Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique, Oilprice.com, OilVoice, TalkMarkets, Investing.com, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at kurtcobb2001@yahoo.com.
4 comments:
It took me awhile to get my head around this post! First of all it seems that Boulder county and all the others that will follow if they win isn’t seeking an end to fossil fuel usage, but just want money to compensate them from their own usage of it! The hypocrisy is breathtaking. I guess we are supposed to believe that the oil companies are solely responsible for a substance that they produce, but is used by 99% of the people in the country and upon which we depend for almost everything we do, including the food that we eat. Also, on a side note, do you think the oil companies would continue to operate the business if all the profit went to others?
To add to what Anonymous says: The oil companies extracted, refined and sold their products, but they didn't force anyone to use them. If nobody actually proceeded to use the fuels, then no harm done. So who is the cause of the damage?
But I do hope the case can continue and that fossil fuel companies lose. Perhaps they will shut down and modernity will collapse. Not likely, but it would be nice.
Anonymous makes a fair point. All of us except perhaps some tribes we don't know about that have had no contact with the modern world are implicated in the use of fossil fuels. Addressing the damage from that which includes climate change damage, air pollution and chemical pollution of water and soil (from the myriad petrochemicals) ought to be a project for all global societies collectively. However, governments seem disinclined to take these problems very seriously. And policies which incentivize the oil industry to address what they can regarding these problems are being rolled back. I think in frustration municipalities, states and individuals (both in the U.S. and abroad) have gone to the courts to get them to declare that this damage constitutes a public nuisance and therefore must be addressed. I'm not sure the courts will oblige in any meaningful way. Judges don't like to make new policy. They want only to adjudicate current policy. But society is faced with governments that are immobilized on such issues because of the influence of the monied classes who benefit disproportionately from the current system. And the only remedy a court can offer is compensation for damages.
The question of whether the oil companies would continue to operate if the profit went to others is resoundingly yes. It will just have different management and effective ownership. The way to make investments in the industry profitable for investors going forward is to simply mark down the value of the shares until a reasonable dividend can still be paid or new investments rewarded on the much lower capitalization. It's a lot cheaper to pay an investor a 4 percent dividend on a $2 stock than a $150 stock (assuming no increase in the number of shares). Current shareholders would get crushed. But the companies would present a value to investors at some much lower price.
All of this doesn't really solve the problem of our dependence on fossil fuels even if it started to compensate the public for the damage that has been inflicted on them. I think the plaintiffs are thinking that big judgements against the industry will push energy investment elsewhere because of the heightened risk. But that's a very indirect effect and not at all certain since a reset of the price of the oil industry's players could make new investment attractive all over again.
I should clarify that it would theoretically be possible for the current managements at fossil fuel companies to stay in place and deal with the challenge of paying these judgements while guiding the companies to new growth opportunities. And it would be theoretically possible for the current shareholders to simply hang on. I just don't think current managements will be up to such a vastly different financial landscape nor will most current shareholders simply hold on while share prices decline into the abyss. Also, part of the settlement might be to transfer some ownership to the prevailing parties. That would pose a real conundrum. The very states, municipalities and individuals seeking to curtail fossil fuel use would now stand to profit as owners of the companies they have sued!
Post a Comment