More Climate Litigation Silliness From Academia – Watts Up With That?

By Jonathan Lesser

A recent article published in Nature claims that climate liability lawsuits, such as the ones various U.S. states and municipalities continue to pursue, are on rock-solid legal grounds, thanks to the authors’ new research “proving” that the world would be $28 trillion richer today but for carbon emissions from fossil fuels over a 30-year period, 1991 -2020. Ignoring the emissions from developing countries, notably China, which today accounts for one-third of all energy-related greenhouse gas (GHG) emissions, the authors focus instead on oil companies, which they call the “carbon majors” – especially Saudi Aramco, Chevron, ExxonMobil, BP, and Gasprom.

For example, according to the authors Chevron has caused an estimated $2 trillion in damages, and perhaps as much as $3.6 trillion. Exxon Mobil is right behind at $1.9 trillion. Similarly, Saudi Aramco and Gazprom are each responsible for $2 trillion in damages. BP is the laggard, at just under $1.5 trillion in damages. Levying fines of those amounts, which greatly exceed these companies’ market values, would lead to their immediate bankruptcy. While the authors may consider such an outcome a “win,” bankrupting these companies would not change the physical and economic realities that the world depends on fossil fuels and will continue to do so for the foreseeable future. (Moreover, it is not clear who would levy the fines and who would receive the monies received – other than trial lawyers.)

To derive their damage estimates, the authors combine bad science with bad economics. First, they use simplified climate models to predict what average world temperatures would have been had there been no GHG emissions from fossil fuels. Next, they use other models to determine how many fewer extreme heat events, which they define as the hottest five days of each year, there would have been absent GHG emissions from fossil fuels. Finally, they calculate the damages in terms of lost GDP based on a simplistic regression model that assumes lost GDP increases in proportion to the square of temperature increases, and which ignores the myriad other economic factors that affect economic growth. They justify this absurd specification, which has no economic basis, on “peer-reviewed research” – a previous article they published.

The approach used by these authors is a form of “attribution science,” which attempts to link specific weather-related events to GHG emissions. That approach, which was first developed about two decades ago to attribute a 2003 European heat wave to climate change, is statistical legerdemain that depends on counterfactual models, just as the authors use here.

Ironically, the authors acknowledge the benefits of fossil fuels, stating that “fossil fuels have also produced immense prosperity.” Yet, they purposefully ignore those benefits because, as they state, “these companies have already been handsomely paid.” This latter statement reveals further economic ignorance. Without fossil fuels, modern life would be impossible. The benefits of fossil fuels to modern society are probably incalculable, but they far exceed the profits these companies have made, and far exceed the damage estimates the authors calculate.

The authors claim that fossil fuel damages are what economists call an “externality” and that “Courts may need to consider how the benefits of energy use are balanced against its externalities and the potential duty of care these companies have to the public.” (They also raise the discredited claim that oil companies “knew” about climate change and hid the evidence from the public.)

Externalities are a real phenomenon of energy development and use. But in this case the externalities are unobservable and instead estimated based on theoretical models having little accuracy. Moreover, levying penalties to “internalize” an externality that would cause far greater economic losses is unjustified.

Ultimately, this article is simply an advocacy piece for specious lawsuits against oil companies with deep financial pockets. Nature should be ashamed of itself for publishing it.

Jonathan Lesser is a Senior Fellow with the National Center for Energy Analytics. His report, “The Social Cost of Carbon: A Flawed Measure for Energy Policy,” was released on April 23.

This article was originally published by RealClearEnergy and made available via RealClearWire.