INTRODUCTION

As the debate over global warming intensified during the Bush administration, state legislatures in the United States adopted regulations that conveyed their discontent with the failure of the national government to regulate carbon dioxide emissions adequately or to adopt the Kyoto Protocol. Even with the Obama administration's efforts at greater federal regulation, state activity continues. These subnational efforts by states range in stringency but often stop short of substantive regulation that burdens in-state business interests. Such weak or “symbolic” regulation nonetheless plays an important role in the global climate change debate by fostering political voice, creating a threat of future regulatory action, and legitimating climate change as a legally redressable harm. An individual state cannot make a significant impact on atmospheric carbon dioxide levels or arrest global warming. However, carbon dioxide regulation by states can make a strong statement about the political will to address global warming – a statement that has grown louder as individual state legislation encourages other states to act and in turn brings pressure to bear upon the federal government.

There has been increasing interest among state policymakers in regulatory models that force polluting entities to internalize the societal costs of their carbon dioxide emissions. Electricity generation, which is responsible for 38% of U.S. carbon dioxide emissions, has been one target of state regulatory efforts.

INTRODUCTION

To date, most discussion of insurance in relation to climate change has concentrated on the problem of insuring against damage wrought by natural disasters such as Hurricane Katrina, and the particularly destructive 2004 hurricane season. Significant media attention has addressed the posited impact of climate change upon the severity of what insurers term “environmental risks” – property losses occasioned by hurricane, flood, storms, or Earth movement. Most reports focus on property insurance held by persons or entities suffering loss. These losses involve so-called “first-party” insurance in which the policyholder (the first party) makes a claim for repayment of its loss by the insurer (the second party), who in return for a fee (the premium) agreed to indemnify the policyholder should it incur a covered loss. As Hurricane Katrina made all too clear, many Americans are underinsured, particularly with respect to flood insurance.

The public policy debate over effective national risk management policy for property promises to be interesting, even though the realities of political gridlock give little optimism for progress. But however interesting or important, these debates about national insurance and disaster policies tend not to include much analysis of the type of insurance most relevant to climate change litigation, liability insurance, which is potentially at issue when third parties sue policyholders who allegedly inflict injury.

This chapter uses California v. General Motors as a starting point for exploring the liability insurance issues potentially raised by climate change litigation.

INTRODUCTION

This book explores climate change litigation in its many existing and potential variations. As this volume was being written, the number of relevant cases and their impact increased dramatically. Most notably, the U.S. Supreme Court's decision in Massachusetts v. EPA – together with a cultural shift symbolized by Al Gore and the Intergovernmental Panel on Climate Change (IPCC) winning the Nobel Peace Prize – transformed the policy and litigation landscape. The election of President Obama changed things further, with his commitment to active U.S. participation in international climate treaty negotiations and to a robust federal regulatory approach to greenhouse gas emissions.

The concluding chapter grapples with how this evolution impacts the way in which we should view the role of litigation as part of transnational regulation of climate change. Although we are still early in this story that Peter Roderick's foreword began, some of the impacts of climate change litigation are already clear. David Hunter's chapter, The Implications of Climate Change Litigation: Litigation for International Environmental Law-Making, does an excellent job of analyzing these cases as vehicles for promoting greater public awareness. This chapter builds upon his analysis by focusing back on the issues of scale raised in the Introduction.

As a scientific and legal matter, climate change is multiscalar. In other words, emissions, impacts, and the legal structures that interact with them are simultaneously individual, local, state, national, international, and every level in between.

INTRODUCTION

By quoting this pessimistic philosophy, the New Zealand Environment Court, in Genesis Power Ltd. v. Franklin District Council (“Genesis”), demonstrated its lack of faith in local governments as protectors of the Earth from climate change. Little wonder, then, that it mandated that a local district government set aside its concern for local environmental impacts and indigenous peoples' cultural resources, and permit the construction of a wind farm that could reduce carbon emissions. In describing the legal basis for its decision, the Environment Court echoed prevailing assumptions that climate change can only be dealt with from the top down. That is, nation-states implement international treaties by imposing concern on local governments that would otherwise, “in pursuit of their well-being, destroy existing stock of natural and physical resources so as to improperly deprive future generations of their ability to meet their needs.”

This chapter explores such a view of localities and its alternatives. We observe the seemingly contrary behavior of cities in the United States, which appear to have taken up the charge for climate protection despite the complete absence of the national influence identified as necessary by the New Zealand court and others. We then initiate an inquiry into the possible basis of these apparently against interest actions, drawing upon loose analogies to international relations theory.

The world's political process has been slow to react to the serious, and potentially catastrophic, consequences for life on our planet that flow from the burning of fossil fuel. In one sense, this is understandable: turning around the global energy base is not a simple task. In another sense, it is inexcusable: a myopic failure to act in the face of clear scientific evidence. And among those who have failed to act, until recently, I include the legal profession. But as the pages of this book demonstrate, the long slumber of the lawyers is over.

I was one of those fast asleep. In the late 1980s, long after scientists had been researching the problem, but with global awareness of climate change emerging, I was horrified to realize that as a legal adviser to Shell I was facilitating extraction of the hydrocarbons at the heart of the problem. The obvious answer was to leave the fossil fuel in the ground and to begin the arduous, yet critical, task of “de-carbonizing” the world's economy. But I was naive to imagine that hope for such a turnaround would start with the very corporations whose legal structure drives their slavish servicing of the “demands” of the stock exchange.

It took me quite a while though to awaken fully. It was in 2001 that the Intergovernmental Panel on Climate Change published its finding that most of the observed warming at the Earth's surface over the past fifty years was likely to have been due to human activities.

INTRODUCTION

In Australia, the most prominent climate change cases have involved attempts to stop greenhouse gas emissions from the burning of coal before that coal is even mined. Suing under state or national environmental impact assessment laws, Australian environmentalists have sought to compel government agencies responsible for approving coal mining projects to consider the very significant amounts of greenhouse gases that will be emitted at the time that the mined coal is burned to generate energy. With this approach, environmentalists have had some notable success in ensuring that such “indirect” or “downstream” greenhouse gas emissions are assessed as part of the decision-making process.

The Australian coal mining cases analyzed in this chapter are harbingers of a potentially large wave of legal actions that could arise under environmental impact laws in jurisdictions throughout the world. Environmentalists dissatisfied with their government's climate change policies are particularly likely to seek remedies through the judiciary where possible. Yet as they do, they will inevitably confront complex and difficult issues regarding how and the extent to which a particular project under consideration can be said to have an impact on the global climate. Whether and how greenhouse gas emissions should be assessed in the context of environmental impact studies for particular local projects is a key question for environmental policy in our new carbon-constrained world.

Australia is a fitting place for climate change activists to lodge novel claims about the climate change implications of coal mining.

INTRODUCTION

On May 15, 2008, the U.S. Fish and Wildlife Service, an executive branch agency within the Department of Interior, issued a regulation listing the polar bear under the Endangered Species Act (ESA), a federal statute designed to prevent the extinction of imperiled plants and animals, due to global warming and the melting of the bear's sea-ice habitat. This highly publicized milestone firmly cemented the polar bear as the iconic example of the devastating impacts of global warming on the planet's biodiversity. While the polar bear is the most well-known species imperiled by global warming, and the first to be listed under the ESA solely due to this factor, it was not the first species protected under the statute in which global warming played a significant role. Two years earlier, on May 9, 2006, the National Marine Fisheries Service, declared two species of Caribbean coral Threatened under the ESA.

The ESA has been declared by the U.S. Supreme Court to be “the most comprehensive legislation for the preservation of endangered species ever enacted by any nation.” The statute is widely considered to be one of the strongest environmental laws in the United States, and hence one of the most controversial. The listing under the ESA of species threatened by global warming raises the possibility of applying this law, which “admits of no exception,” and which affords endangered species “the highest of priorities,” to the seemingly intractable issue of reducing U.S. greenhouse gas emissions.

INTRODUCTION

The atmospheric concentration of greenhouse gases, particularly of carbon dioxide, has been increasing since the Industrial Revolution, and this has been occurring at an accelerated rate in the last three decades. As described in detail in the Introduction, it is estimated that, if the emission of carbon dioxide and other greenhouse gases and the disruption of tropical rain forests were to continue at the present pace, global average air surface temperature toward the end of the twenty-first century would be 3–6°C higher than the level prevailing before the Industrial Revolution, resulting in drastic changes in climatic conditions and accompanying disruption of the biological and ecological environments. In view of the significant impacts such climatic changes would exert upon human life, a large number of policy measures and institutional arrangements have been proposed to stabilize atmospheric concentrations of greenhouse gases effectively.

Among them, the institutional arrangements of carbon taxes and markets for tradable emission permits have attracted widespread attention – particularly among economists such as Ingham, Maw, and Ulph (1974), Baumol and Oates (1988), Grubb and Sibenius (1992), Whally and Wigle (1991), Hoel (1991, 1992), Pearce (1991), and Rose and Stevens (1993).Theoretical analyses have been developed, for example, by Bergstrom, Blume, and Varian (1986), Copeland and Taylor (1986, 1995), Poterba (1991), and Uzawa (1991, 1992a, 1993, 1995) of carbon taxes and by Tietenberg (1985, 1992), Barrett (1990), Grubb (1990), Barrett et al.(1992), Bertram (1992), and Larsen and Shah (1992, 1994) of tradable emission permits.

In this chapter and Chapters 2 and 3, we address the theoretical analysis of implications for an allocative mechanism of carbon taxes and the market for tradable emission permits.

INTRODUCTION

The relations between the environment and processes of economic development have in recent years become increasingly complex. This is primarily due to the accelerated pace of economic development in many parts of the world in the last several decades, as manifested by the rapid rates at which basic statistical indicators such as gross domestic product, the volumes of industrial outputs, and the degree of urbanization have been increasing (see, e.g., World Bank 1999). This phenomenon is also closely related to the institutional arrangements, both in capitalist and former socialist countries, concerning the allocation of both privately owned and publicly managed resources.

During the last three decades, in particular, we have also seen a significant change in the nature of the social, economic, and cultural impacts on the natural environment during the processes of economic development. This is symbolically illustrated by the agendas of two international conferences convened by the United Nations – the Stockholm Conference in 1972, on the one hand, and the Rio Conference in 1992, on the other.

The Stockholm Conference was primarily concerned with the degradation of the natural environment and the ensuing health hazards caused by the processes of industrialization during the 1960s.Then the degradation of the natural environment was mainly caused by the emission of chemical substances such as sulfur oxides and nitrogen oxides that by themselves are toxic and hazardous to human health and the biological environment. In the Rio Conference, on the other hand, the main agenda focused on the degradation and destabilization of the global environment such as global warming, the loss of biodiversity, desertification, and other global environmental issues stemming from intensified industrialization and extended urbanization.

INTRODUCTION

The problems of global warming are genuinely dynamic. From past human activities we inherit an excess concentration of atmospheric carbon dioxide, and the choices we make today concerning the use of fossil fuels and related activities significantly affect all future generations through the phenomenon of global warming, which is brought about by the atmospheric concentrations of carbon dioxide due to the combustion of fossil fuels today. Thus, we have to take into account explicitly the changes in the welfare levels of all future generations caused by the increases in the atmospheric accumulations of carbon dioxide. The degree of uncertainty involved with these phenomena is too great to be subject to any objective analysis. We take instead a simplistic approach that all future paths are known for certain and derive several propositions concerning policy and institutional arrangements to bring about dynamically optimal patterns of intertemporal resource allocation. We need further analysis to see if the basic nature of our conclusions will apply to the more general circumstances governed by a high degree of uncertainty and unpredictability.

In this chapter, we examine the dynamic analysis of global warming and, as in the previous chapters, various carbon tax schemes, focusing on the implications for the processes of capital accumulation and the welfare of future generations.

The dynamic analysis of global warming in this chapter and the next few chapters will be developed primarily along the lines suggested by numerous contributions to the dynamic theory of optimal capital accumulation and the scientific analysis of global warming.

INTRODUCTION

In this chapter, we further develop the economic analysis of global warming, focusing our attention on the role played by terrestrial forests in moderating processes of global warming, on the one hand, and in affecting the level of the welfare of people in the society by providing a decent and cultured environment, on the other. As in the previous chapters, we are primarily concerned with examining those time patterns of economic development that are either dynamically optimum or sustainable with respect to both the atmospheric environment and the market economy. The analysis we have developed so far is already complicated enough that the introduction of another factor would make the problems extremely difficult to handle. Therefore, we would like to keep our discussion simple enough to derive relevant theoretical conclusions and policy proposals while still reflecting the crucial characteristics of global warming. To make the discussion as self-contained and heuristic as possible, we would like, at the risk of repetition, to describe the premises of the model in full detail and to explain each deductive step thoroughly.

The analysis of the simple, dynamic model of global warming introduced in this chapter leads us to those institutional arrangements and policy measures that are effective in stabilizing the atmospheric concentration of greenhouse gases with minimal governmental intervention into private economic activities. Our analysis will guarantee that the allocation of scarce resources, including the global atmosphere and terrestrial forests, will be sustainable in the sense precisely defined in Chapter 5 without unduly hindering economic progress in the developing countries.

INTRODUCTION

Global warming involves international and intergenerational equity and justice. Although global warming is largely caused by the emission of carbon dioxide and other greenhouse gases associated with economic activities mostly in developed countries and by the disruption of forests – particularly tropical rain forests – again mostly resulting from the industrial activities of the developed countries, it is the people in developing countries who have to bear the burden. The current generation may enjoy the fruits of the economic activities that cause global warming, but it is the people in all future generations who will have to suffer from a significant increase in atmospheric instability as a consequence.

In this chapter, we examine the problems of global warming and other global environmental issues primarily from the viewpoint of the international and intergenerational distribution of utility. We introduce the concept of sustainability, which may capture some aspects of international and intergenerational equity, and derive the conditions under which processes of capital accumulation and changes in environmental quality over time are sustainable. The conceptual framework for the dynamic analysis of environmental quality developed in previous chapters will be extended to deal with the problems of the irreversibility of processes of capital accumulation due to the Penrose effect. The concept of the Penrose effect was originally introduced by Uzawa (1968, 1969) in the context of macroeconomic analysis.

The analysis focuses on the formula for the system of imputed prices associated with the time-path of consumption that is dynamically optimum with respect to the intertemporal preference relation, where the presence of the Penrose effect implies the diminishing marginal rate of investment in private capital and social overhead capital upon the rate at which capital is accumulated.