UK: Supreme Court Ruling May Open Gates For More Climate Change Legislation

In a landmark decision, the US Supreme Court ruled recently that the US Environmental Protection Agency (EPA) has the authority to regulate emissions of greenhouse gases from automobiles. The current US Federal administration is often criticised for not taking a proactive stance on climate change issues. This ruling may trigger regulatory activity to address concerns over increasing emissions of greenhouse gases. This article provides an overview of the recent case and the much wider possible implications of the judgment, especially for those industries which emit and have emitted large volumes of greenhouse gases, their insurers and their professional advisers.

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In a landmark decision, the US Supreme Court ruled recently that the US Environmental Protection Agency (EPA) has the authority to regulate emissions of greenhouse gases from automobiles. The current US Federal administration is often criticised for not taking a proactive stance on climate change issues. This ruling may trigger regulatory activity to address concerns over increasing emissions of greenhouse gases. This article provides an overview of the recent case and the possible implications of the judgment.

Massachusetts et al v Environmental Protection Agency et al was a case brought by 12 states and 13 environmental groups to dispute the stance by the EPA that it did not have authority under existing legislation to regulate carbon dioxide and other greenhouse gases emitted from automobiles. The parties bringing the claim petitioned that the EPA should begin regulating the emissions of greenhouse gases from automobiles, pursuant to the Clean Air Act. The section of the Clean Air Act specifically referred to by the petitioners requires that the EPA:

"shall by regulation prescribe…standards applicable to the emission of air pollutants from any class…of new motor vehicles…which in the [EPA Administrator’s] judgment causes, or contributes to, air pollution…reasonably…anticipated to endanger public health or welfare".

The EPA argued that (1) this legislation does not authorise it to issue mandatory regulations to address climate change; (2) even if it had authority, it is not sufficiently clear that there is a causal link between greenhouse gases and endangerment of public health or welfare through climate change to justify regulation; and (3) the introduction of regulations for automobiles may conflict with the President’s overarching approach to managing the issue of climate change.

The Supreme Court held that not only did the Clean Air Act authorise the EPA to regulate greenhouse gas emissions but that the only way the EPA could avoid taking action would be to determine by scientific reasoning that greenhouse gases do not contribute to climate change.

The Court also addressed the issue of whether the claimant parties had sufficient standing to bring a claim. The EPA argued that any climate change that may have occurred due to its lack of regulation would not have had a significant adverse impact on the parties, particularly considering that emissions of greenhouse gases is a global issue. The majority of the judges agreed with the petitioners that Massachusetts had suffered from the impact of rising sea levels along its coastline and that this gave the parties sufficient grounds for bringing the claim.

Two related cases had been stayed pending the ruling of the Supreme Court in this matter. The first is a challenge by an auto industry trade group of California’s law to control carbon dioxide limits from cars and the second is a case brought by Coke Oven Environmental Task Force and 10 Northeastern States against the EPA’s lack of regulation of greenhouse gas emissions in the power generation industry. These cases will now proceed and environment lobbyists and industry alike will be eagerly awaiting the outcomes. It is likely that the recent ruling by the Supreme Court will make it harder for industries to challenge the imposition of regulations on emissions.

The United States has been criticised in recent years for not introducing Federal legislation to limit emissions of greenhouse gases (there is legal activity at the State level). Environment campaigners in the US appear to be circumventing this by challenging the interpretation of existing legislation. The decision in this case paves the way for older legislation (such as the Clean Air Act) to be broadly interpreted so as to address current concerns.

Interestingly, an issue arises about whether pollution is a necessary precursor to climate change (i.e. are the greenhouse gases pollutants which causes climate change) or is climate change something which occurs irrespective of any nexus with pollution. For the insurance industry, and those industries which emit large quantities of greenhouse gases, this must be an important issue which ought to be carefully followed. It will be very hard to argue that post 1990 climate change was not foreseeable and most public liability or comprehensive general liability policies since this date have included a pollution exclusion. Whilst the three cases set out above are unlikely to establish retrospective liability for climate change damage, they along with other existing climate change litigation might set principles upon which litigation in respect of climate change damage can achieve realistic prospects of success.

If successful, public liability and comprehensive general liability insurers might try to rely on the pollution exclusion. Insureds (such as generators of electricity from fossil fuel sources and other major emitters of greenhouse gases) would likely seek to disapply the pollution exclusion. The stark reality is that the pollution exclusion will either apply or it will not. If climate change litigation is successful (and this remains a big "if"), either the insurer will win or the insured will win. Either way there will be a loser and that loser may face considerable loss. It is also easy to imagine the losing party looking at potential redress from third parties, including its professional advisers and auditors etc. If so (and again this is a big "if") another category of insurance policies will need to be reviewed.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 19/04/2007.