Four Key Roles for U.S. Lawyers in the Climate Change Arena

Nadja Marinova
Nadia Wetzler

Unusually dry summers. 70-degree winters. More and more Americans are experiencing the change in climate patterns that many attribute to the rapid accumulation of so-called greenhouse gases (GHGs) in the atmosphere.

Natural variability is an undisputed feature of the world's climate. However, scientists and other experts increasingly agree that rising concentrations of carbon dioxide and other GHGs, resulting from the rapid economic and population growth that began with the Industrial Revolution, are augmenting the natural climatic variations and spurring an overall warming trend. Just last year, the Intergovernmental Panel on Climate Change (IPCC), an interdisciplinary consultative body of scientists from around the world, concluded that "an increasing body of observations gives a collective picture of a warming world" with "new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities." (See the IPCC Website for more information: www.ipcc.ch.) While a few vocal skeptics continue to contend that human-induced climate change is a myth, the consensus opinion today accepts the existence of substantial evidence supportive of the IPCC's conclusions. Furthermore, it is widely believed that action to combat climate change is warranted and prudent at this time.

The world community is responding by seeking ways to curb emissions of GHGs, or at least cap the growth in emission rates. Although the United States has yet to commit to specific GHG emission reduction goals, already U.S. lawyers are getting involved in the climate change arena. This article briefly discusses four key roles U.S. lawyers are playing or can be expected to play. They include litigation, contract formulation and enforcement, counseling in the area of mergers and acquisitions, and policy-making and legislative development.

Background
The global response to climate change has revolved around the commitment to stabilize atmospheric concentrations of GHGs outlined in the UN Framework Convention on Climate Change adopted in 1992, and subsequent commitments by industrialized countries to achieve reductions in their GHG emissions based on a 1990 baseline. The latter were cemented in the Kyoto Protocol of 1997, with further modifications agreed to in the fall of 2001 in Marrakech. The Kyoto Protocol is expected to enter into force later this year, provided it is ratified by a combination of industrialized countries that together account for at least 55% of GHG emissions from the industrialized world in 1990.

The United States has been slow to participate in the climate change debate. Indeed, the international negotiations process was thrown into turmoil in the spring of 2001, when President Bush declared that the United States would not ratify the Kyoto Protocol because of the alleged detrimental economic effect to the United States of the required emissions reductions and the lack of reduction commitments on the part of developing countries. The Bush administration's position caused great controversy internationally and landed the issue on the front pages of U.S. newspapers, thereby generating a great amount of much-needed public awareness.

Despite the Bush administration's position, U.S. businesses and various state and local jurisdictions are taking climate change seriously and looking for ways to stabilize emissions of GHGs. Since the administration's withdrawal from the Kyoto process, several companies, including Entergy, Nike and the Collins Companies, have undertaken voluntary emissions reduction commitments. California's legislature has launched the first-of-its-kind state emissions registry and is currently working to limit GHG emissions from corporate fleets and private vehicles. Other states are also developing registries and beginning to regulate the worst GHG emitters (e.g., Massachusetts 3.10 CMR 7.29; New Hampshire's multipollutant bill, HB0284). As scientific, and sometimes purely anecdotal, evidence accumulates in favor of combating climate change, the breadth and depth of ad-hoc responses likely will grow.

Key Roles for U.S. Lawyers
Activity in the climate change arena is thus likely to increase at a frantic pace, especially if the Kyoto Protocol is ratified. With its mandatory GHG emission reductions, the Kyoto Protocol will have important implications for U.S.-based multinational companies and foreign-based companies with operations and facilities in the United States. While much of the activity in the United States up until now has been limited to non-profit groups, concerned companies, consultants and policy makers, U.S. lawyers are expected to also assume a significant role. Here are the four key roles lawyers are likely to play in the climate change arena:

1. Litigation. While somewhat speculative at this point, class-action lawsuit strategies are already being explored by plaintiffs' lawyers and environmental organizations. Possible plaintiffs include small island nations threatened by rising sea levels, whose entire populations would likely become environmental refugees, or the residents of low-lying areas such as New Orleans whose properties may be inundated or impaired in value. Possible defendants include federal agencies deemed to have failed to regulate GHG emissions, or even groups of companies representing a large portion of U.S. emissions (among the most emission-intensive sectors are mining, oil and gas, power generation, cement manufacturing, and aluminum smeltering). If filed, these lawsuits will certainly explore new legal ground and will likely be tried in the court of public opinion as well as in federal courts. International tribunals, while facing stiff opposition in the United States, are also an option.

More immediately plausible is litigation over non-compliance with the various state and local laws that will enter into force during the next few years. Suffolk County, Long Island, New York, was the first county in the nation to limit carbon dioxide emissions from power plants, beginning in March 2002. Oregon, Massachusetts and New Hampshire have passed state laws that limit GHG emissions from power plants while allowing emissions to be offset through off-site projects. Others will surely follow, thereby opening possibilities for litigation in state and local courts.

2. Contract formulation and enforcement. The Kyoto Protocol calls for mandatory reductions of industrialized countries' GHG emissions based on 1990 levels. Contracts for the sale and purchase of GHG emission reductions, commonly known as carbon credits, have already been established in the climate change arena. These contracts are similar to the ones established under the federal Clean Air Act (e.g., for sulfur dioxide, nitrous oxides and particulates), as well as to contracts related to credits generated for wetlands mitigation banking. The sale/purchase of carbon credits is subject to various risks and uncertainties including policy risk (e.g., the adoption of stricter regulations on internally generated emission reductions than anticipated), host country risk for projects abroad and project risks such as failure to receive certification. Numerous law firms and organizations such as Oregon's Climate Trust are in the process of developing contracts that mitigate some of those risks.
The Kyoto Protocol recognizes human-induced carbon sequestration as a means of meeting legally binding GHG emission targets. Thus, easements and other land-use restrictions related to the creation of carbon sinks may also become important types of contracts in the climate change arena. For example, an easement could require the owner to set aside forested land in order to sequester carbon and sell the resulting emission reduction credits. Similarly, in agriculture, a contract could be used to guarantee farmers' commitment to certain practices, such as no-till agriculture, that result in the creation of emission reduction credits. These contracts are likely to be modeled after well-established conservation easement practices.

3. Legal advice related to mergers and acquisitions (M&A) that involve substantial GHG liabilities. This role would be a natural extension of general environmental due diligence in an M&A transaction and would focus on providing the client with a clear understanding of GHG-related obligations and liabilities. A simple example would be the acquisition of a power plant in the United Kingdom by a U.S.-based company - the U.K. asset would be subject to the U.K. carbon tax and other emissions reduction policies put in place by the U.K. government as a result of its participation in the Kyoto Protocol, and the U.S. parent might encounter difficulties in meeting its U.K. emissions reduction obligations cost-effectively while the United States is not a party to the Protocol. While at present GHG liabilities are unlikely to affect the economics of an M&A transaction, project developers should expect an increasingly carbon-constrained future where GHG-related liabilities may indeed become costly, if not material to a transaction.

4. Policy and legislative development - domestic and international. This role lands lawyers in fairly familiar territory and includes policy-making, lobbying national and state governments, and developing the rules for particular institutions, such as the California Climate Action Registry. The federal, state and local governments are just beginning to consider their policy responses to climate change, an issue that has been often been referred to as the greatest environmental challenge of the 21st century. U.S. lawyers are becoming increasingly involved in policy-making, rule-making (e.g., the development of rules for trading carbon credits) and lobbying, representing a wide array of clients that anticipate becoming subjects to climate change-related regulations.

In sum, the climate change arena offers and will continue to offer a plethora of opportunities for legal work. These opportunities will largely be shaped by domestic and international policy developments, which in turn will depend at least in part on scientific developments and technological advancements. Those interested in further information on the issue can contact the authors via e-mail at Nadja.Marinova@us.pwcglobal.com and nwetzler@mdbe.com.

Nadja Marinova, a manager at PricewaterhouseCoopers, is currently in charge of the firm's strategic consulting services related to climate change in the United States.

Nadia M.P. Wetzler is an associate of McCutchen, Doyle, Brown & Enersen, L.L.P., and a member of the Section's Climate Change and Sustainable Development Committee.