Canadian oil companies could be on the hook for billions of dollars a year in damages from international litigation for exacerbating the scourge of global warming, according to a new study, exposing Canadian shareholders and pension funds to yet another risk when investing in fossil fuels.
The study concluded that big Canadian energy companies, which anchor many pension funds, could individually face costs of up to $5 billion in damages a year, within the next decade and a half, a costly liability that could depress stock values and hamper the retirement savings of Canadians.
The most serious risk is not from being sued in Canada but from litigation in other countries because the damage caused by global warming is, well, global, according to the study by the Canadian Centre for Policy Alternatives and West Coast Environmental Law.
Countries in future could adopt new laws clarifying the liability of climate change damages, just as Canadian provinces did to help move against foreign and domestic tobacco companies.
“Fossil fuel companies and other large-scale greenhouse gas producers have contributed, globally, to trillions of dollars of damages related to climate change,” said Andrew Gage, a co-author of the study and staff counsel at West Coast.
“As with tobacco companies in the 1980s, these producers are confident the law will not hold them responsible for these damages,” Gage said in a statement. “But rising levels of climate damage, increasing scientific evidence about the links between emissions and the damage they cause, and an emerging public debate about who is financially responsible for this damage, could change the situation very quickly.”
The report looked at the potential liability of five well-known energy companies trading on the Toronto Stock Exchange: EnCana, Suncor, Canadian Natural Resources, Talisman, and Husky.
The report did not mention it, but Canadian oil companies could be a big target because of the high profile Canadian tar sands has in world energy markets today. Opposition has been building among green groups against the fuel, often called the world’s dirtiest.
In 2013 Pembina report, Booms Busts and Bitumen, the Calgary-based think tank noted the particular vulnerability to fossil fuels investing for Canadians:
“The market capitalization of fossil fuel companies on the Toronto Stock Exchange stood at over $379 billion at the end of 2011. If the carbon bubble bursts then this will have detrimental effects on the stock market. Particularly at risk are Canadian pension funds and other forms of invested capital.”
Concern about liability is just another woe for those investing, even passively, in oil and gas companies today. Oil companies are being increasingly warned that some of their oil and gas assets need to be left in the ground if we want to limit the world temperature rise by 2 degrees. Oil companies, judging by the way they are spending on investing in riskier and riskier projects, believe the government’s won’t act on climate change.
But investors are being warned they money is at risk if government do act and a number of universities and other groups are moving to divest from fossil fuels. The heirs Rockefeller oil foundation announced in September they were purging their investments of fossil fuels.
According to the Guardian, more than 800 global investors, including foundations, religious groups, healthcare organisations, cities and universities, have pledged to withdraw a $50 billion from fossil fuel investments over the next five years. The Rockefeller Brothers Fund controls about $860m in assets, with about 7% invested in fossil fuels.
So far not much has been done to address climate change in the courts in the United States and other countries but that could soon change.
“Indeed, improvements in climate change science, the growing frequency of visible climate impacts and the lack of meaningful international action on climate change are making it increasingly likely that courts in countries suffering damage will assert jurisdiction,” the report said.
“The potential for climate damages litigation is global in scope. Cases could be brought in a large number of countries, under a wide range of legal theories, then enforced in Canada or other countries in which greenhouse gas producing companies have assets. As a result, these companies and their shareholders are exposed to significant legal and financial risks — and these risks will only grow.”
Global liability of Canadian companies to climate change
|Company||Emissions pct*||Annual cost 2010**||Annual cost 2030***|
*Percentage of global emissions 1751–2010.
**Annual contribution to net cost or damages of climate change.
***Annual contribution to net costs in 2030 in 2010 dollars.
From the report, the authors explained their methodology:
“To calculate the contribution of each Canadian company (see chart below) to the global costs of climate change, its percentage of global emissions from 1751–2010 is multiplied by the total global cost of climate change. As illustrated, the potential liability of each company is significant, ranging from $295.6 million to $709.6 million in 2010 alone, rising to between $2.090 billion and $5.015 billion annually in 2030.”