Giles Parkinson
The carbon cops stand trial
Plans to tackle climate change are following a tortuous journey from environmental cause to national and international policy. They have negotiated the byways of scientific deliberation, economic modelling and industry lobbyists, and now face a most imposing hurdle: the courts.
Two key decisions handed down in the last week on either side of Atlantic and affecting either side of the debate on action of climate change – for both the activists and the inactivists – have deep implications for the future of industry and public policy.
The first was a direct and successful challenge to the right of an international body to impose emission limits on a sovereign nation; while the other upheld the right of a community, or a state, to take action against the environmental harm of emissions from industry.
The most immediate impact was felt in international carbon markets after the European Court of First Instance ruled in favour of Poland and Estonia in a battle with the European Commission over the size of their carbon quotas.
All 27 EU countries were asked to set out their proposed quotas to the EC for the second phase of the emissions trading scheme, which runs from 2008 and ends in 2012.
But the EU – conscious of the over-allocations that had plagued the market in the first phase of the scheme – thought that the heavily coal-dependent Poland and Estonia, among others, had been gilding the lily on their emissions forecasts and cut back their proposed allocation by 48 per cent and 27 per cent respectively.
The two countries appealed and the court decided this week that member states had 'exclusive competence' to allocate their own emissions.
Mark Lewis, the head of carbon trading research at Deutsche Bank, says the decision creates huge uncertainty for the carbon market, as it is unclear whether this affects on procedural aspects of the EC decision or calls into question its ability to limit country caps.
Lithuania and the Czech Republic are pursuing similar legal challenges, and Italy responded to the decision by wandering if it could avoid the shortfall from its carbon quota – and a potential cost of $900 million – by reaching a 'shared solution'.
“Given the importance of the ETS in the EU’s policy framework for combating climate change, the stakes go beyond the market’s confidence in the scheme as a mechanism for encouraging investments in low-carbon technologies,” Lewis says.
“What is also at stake here is the very credibility of the EU itself on the issue of climate change, an issue on which it has justifiably been applauded over the last decade for its global leadership.”
As Lewis notes, the timing of the ruling, coming so close to the Copenhagen conference in December, could "hardly be worse.”
The court ruling had an immediate impact on carbon markets, and it could potentially mean an extra emission budget of 439 million tones of greenhouse gases through to 2012.
In practice, that is likely to be far smaller, because the EC now has the resources of verifiable emissions data for 2008, but it highlights the potential difficulties in imposing and policing a global emissions reduction target.
But while that was happening, an equally important ruling was being handed down in the US, where a court of appeals rued that 'public nuisance' law could be used to sue power companies based upon injuries from global warming.
The state of Connecticut, along with other seven other states, the City of New York and three non-profit land trusts, had taken the case against major energy utility AEP.
John Bonine, professor of law at the University of Oregon, describes the 139-page judgment as an "incredibly important" case on global warming and climate change.
He said the court ruled that the land trusts could potentially sue a utility because they owned property that could be harmed by weather events as a result of global warming, and that the states have standing to sue private power companies because the states can represent the interests of their citizens.
Bonine says the decision will almost certainly go to the US Supreme Court, where there is a chance it could be reversed. Congress was also likely to eliminate all such public nuisance lawsuits when it passes a comprehensive climate change law.
But, he says, it puts the environmental lobby in a hugely influential negotiating position as the climate change legislation works its way through the law-makers, as occurred in the 1960s with cases against factories polluting water courses without permits, and against clear-cutting of national forests in the 1970s.
The industry will now be lobbying heavily, saying something like this to the Congress: "Please regulate us (weakly, of course) so that the courts will stop doing so", Bonine says. “It is a huge victory. Now the bargaining will begin.”
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