Will Carbon Majors have to pay for climate damage? Part 3

(This is Part 3 of a four part article on climate liability being published in the Lawyer's Daily, based on a lecture I gave for Osgoode Hall Law School and the York Faculty of Environmental Studies.)

As shown in Part 1 of this article, the climate crisis is already causing large financial losses, and much more is ahead. Governments and individuals will increasingly face overwhelming bills. Most of the fossil fuels that are driving this crisis have been produced and sold by 103 companies, the Carbon Majors. Can they be made to pay for the resulting damage?

In Part 1, I showed some of the reasons why I expect governments, courts and public opinion to increasingly welcome the idea of making the Carbon Majors pay.

In Part 2, I showed that one of the ways to make the Carbon Majors pay is to sue governments, which in turn can make the Carbon Majors pay. A powerful December decision from the Netherlands, Urgenda v. Netherlands, has given a big boost to lawsuits by Canadian youth who are seeking similar court orders, forcing their governments to dramatically reduce greenhouse gas emissions (GHGs) as science shows we must. Judicial reticence to make orders based on the climate crisis is being tested in more than 1,300 climate-related lawsuits in 28 countries, including the far-reaching Philippines Human Rights Commission National Inquiry on Climate Change.

Faced with a growing number of lawsuits, and at risk of being forced to act by the courts, Canadian governments may well be tempted to make the Carbon Majors pay instead of taxpayers. After all, that’s what they have done before, and they have the authority to do it again. Governments could adopt new laws to make industries pay taxes, fees or levies, as the US did with Superfund. They could create an additional carbon tax, dedicated to paying for climate damage and adaptation. But what can they do within existing legislation?

A leading example of governments finding themselves with huge, unanticipated financial burdens due to pollution is the many cases of contaminated sites. Taxpayers have paid heavily, but Canadian governments also took steps to make industries pay, regardless of general ideas of fairness and due process.

One of the classic examples is Imperial Oil Ltd. v. Quebec (Minister of the Environment), 2003 SCC 58 (CanLII). In this case, Imperial shut down a long-standing refinery in 1973, long before there were cleanup standards for petroleum and chemical contamination of soil and groundwater. Imperial sold the site “as is” in 1979. The buyer sold it again to a developer.

The developer knew the site was contaminated. It cleaned the site to the satisfaction of the regulator, the Quebec Ministry of the Environment (MEF), built a subdivision and sold the homes. Later, the homeowners found contaminants on their properties. They sued the developer, the City and the MEF.

Without waiting for the result of that lawsuit, politically embarrassed and not wanting to pay for the cleanup, the MEF ordered Imperial Oil to do the cleanup at its own expense. Imperial considered this most unfair, and appealed all the way to the Supreme Court of Canada. The Supreme Court upheld the MEF Order.

According to the Supreme Court, government cleanup orders do not need to be fair. Governments are entitled to protect their own purse when exercising their legislative power to issue orders to polluters. Governments can impose retroactive polluter pay liability, and hold the past conduct of polluters to today’s standards, because polluters owe a duty to future generations.

Baker v Director 2013 ONSC 4142 is another example of how far governments will go to avoid paying for pollution themselves. In this case, the Ontario Ministry of Environment had for years supervised the cleanup of an old contaminated site. The owner, a small Canadian company, spent $20 million of largely borrowed money on the cleanup. The owner had had the misfortune of buying the site, already contaminated, long before it became standard practice to check for contamination before purchase.

Once the owner and its US parent were in financial difficulties, the MOE faced having to take over the cleanup. Soon after, the MOE pushed both corporations into bankruptcy by demanding $10 million in financial assurance. This was money that the companies did not have and that their lenders would not lend. The bankruptcy court flatly rejected the MOE’s attempts to get the $10 million from the companies in priority to the claims of the secured creditor.

The MOE then issued a ~$15 million dollar cleanup order, personally, jointly and severally, to the officers and directors of both the the Canadian subsidiary and the US parent. There was no evidence that the officers and directors had caused the contamination, or that it had occurred on their watch. Nor did the MOE offer evidence that any wrongdoing by the officers or directors had led to the bankruptcies.

Nevertheless, the MOE asserted that the officers and directors had “caused or permitted” the contamination by failing to make the bankrupt companies give the government enough money to complete the cleanup, even though the bankruptcy court, not the officers and directors, determined the fate of the corporate assets. The MOE also asserted that its power to issue “preventative” orders allowed it to require the directors to clean up contaminants already in the environment. 

These and other precedents illustrate that Canadian environmental regulators could issue a wide range of administrative orders to greenhouse gas polluters whose emissions are worsening climate damage. Administrative orders could be used, for example, to make a group of Carbon Majors pay for adaptation infrastructure that the Ministry considers necessary in the public interest. Because the MOE issues its orders “jointly and severally”, it can issue a blank order to a number of individuals and/or corporations, and leave it to the defendants to sort out who pays what. 

Orders are not ideal tools for dealing with climate damage and adaptation. They probably have to be issued, site by site, to specifically named corporations and individuals. They can be appealed, so may have high legal costs, and they may not be swift. But administrative orders also have huge advantages, starting with the fact that they do not require new legislation. 

For example, Ontario’s Environmental Protection Act defines “contaminant” broadly as “including any … gas… resulting directly or indirectly from human activities that causes or may cause an adverse effect”. Caselaw has confirmed that “contaminants” are not limited to toxic chemicals, but include noise, smells, dust, sand, and even reflected sunlight. Greenhouse gases like carbon dioxide and methane are gases that result directly or indirectly from human activities and are causing or may cause many adverse effects. They are clearly “contaminants”.So as climate damage mounts, governments may choose to make the Carbon Majors pay instead of taxpayers. But is there a more direct route? Can the Carbon Majors be sued directly? More details in Part 4 of this series.