Tag: climate change

The Divestment Lawsuit Against the Harvard Corporation

Mem6By Ted Hamilton—December 9 at 1:01 p.m.

This blog post contains the views of the author alone, and does not necessarily reflect the opinions of the Harvard Environmental Law Review.

On November 19, I and six other Harvard students brought a lawsuit against the university’s governing Corporation to compel it to divest its holdings from fossil fuel companies. Our case, Harvard Climate Justice Coalition v. Harvard is part of the rapidly growing fossil fuel divestment movement, which has already won significant victories in convincing institutional investors to stop supporting the dangerous behavior of the gas, coal, and oil industries. But it’s also an effort to push courts to address climate change, a threat for which legal remedies have proven elusive.

The Harvard Corporation is a public charity bound to serve the public good and to further the interests laid out in its 1650 Charter, including the “advancement and education of youth.” According to the latest SEC filing of the Harvard Management Company, a nonprofit corporation that oversees Harvard’s investments, the university’s direct holdings in fossil fuel companies amount to $79 million, with much more in indirect holdings.

The Corporation, of course, recognizes that the business practices of these companies are incompatible with a secure and healthy future: Harvard, after all, is home to some of the world’s best climate scientists, and its own plans for developing an expanded campus across the Charles River account for impending sea level rise caused by global warming. True to the Corporation’s track record of divesting from such unpalatable industries and business environments as apartheid South Africa, tobacco, and Darfur, President Drew Faust has described climate change as a “serious threat to our future“ and acknowledged that Harvard’s investments play a role in how the university confronts global warming. But still the Corporation has refused to pull its support of fossil fuels, hoping to squeeze a few more dollars out of a dying business model rather than take a principled stand.

Our lawsuit’s claims are predicated upon the stark contrast between this reckless behavior and the Corporation’s responsibilities as a public charity. Harvard’s investments in gas, coal, and oil directly contribute to global warming and its concomitant harms. Our first count alleges that the Corporation is breaching its charitable and fiduciary duties by harming the plaintiffs in their special capacity as Harvard students. Support for climate change and for the fossil fuel industry’s support of scientific falsehoods degrades our university’s academic environment, threatens our future well-being as Harvard graduates, and poses a direct threat to the physical campus we call home. Because these harms are specific to us as students and violate the Corporation’s explicit duties in the Charter, we qualify for a narrow special interest exemption to the Massachusetts Attorney General’s authority to enforce charitable duties.

Our second count is brought on behalf of future generations, who will suffer injuries from increased drought, sea level rise, ecosystem degradation, and other effects of climate change. These injuries are caused by the abnormally dangerous activities of fossil fuel companies, which cannot be abated with the exercise of reasonable care, and by the investments of the Harvard Corporation, which is aware of these effects. By withdrawing its funding of fossil fuels, Harvard would influence other institutional investors to act similarly, mitigating global warming harms to future generations.

Although our lawsuit is focused on the activities of the Harvard Corporation, we have drawn inspiration from litigators attempting to hold municipalities, the federal government, and fossil fuels companies themselves responsible for their contributions to global warming. Climate change is a uniquely multifarious and dangerous threat, and we are confident that the law will accommodate claims that address this reality. We look forward to Harvard’s response to our claims, and we hope that our legal action will help courts finally face up to the dangers of climate change.

There’s More than Just Climate: People Need Protection Against Air Toxics, Too

By Seth Johnson — November 13 at 10:39 a.m.

file0001225592472(1)Seth Johnson is a Senior Associate Attorney with Earthjustice and a graduate of Harvard Law School, where he served as Editor-in-Chief of the Harvard Environmental Law Review.

Climate change is the environmental issue of the day and it, deservedly, is the focus of great attention. But many domestic air pollution issues remain, and millions of Americans await long-overdue protections against toxic and cancer-causing air pollutants like dioxins, mercury, cadmium, chromium, lead and benzene. These issues are often in the shadow of climate change discussions, even though the legal fights over how to regulate these pollutants have been going on for decades and will continue.

One issue that is now the subject of litigation consists of four cases, all relating to how much protection people will receive against hazardous air pollution emitted from industrial boilers—power and heat plants for industrial facilities—and facilities that burn nonhazardous commercial or industrial waste (“waste-burners”). Millions of Americans live, work, pray, and play near these air pollution sources. EPA was required to establish emission standards for the waste-burners in 1994 and for all the industrial boilers by 2000, but it still has not issued lawful versions of these rules.

Per the Clean Air Act (and the D.C. Circuit), a waste-burner is any facility that burns for any reason any nonhazardous commercial or industrial “solid waste,” and EPA defines “solid waste” under the Resource Conservation and Recovery Act (RCRA). If a facility is a waste-burner, it must meet very protective “MACT”-level standards, which must reflect what the best-performing sources actually achieve, under Clean Air Act § 129. Such facilities also must have an operating permit that gives the public information about what the facility burns and emits, and makes it easier for the public to hold the facility accountable.

If a facility is not a waste-burner, but is a conventionally fueled industrial boiler, cement plant, or power plant, it may be subject to less restrictive regulation under Clean Air Act § 112. Though some of these facilities are “major sources” under Clean Air Act § 112 and thus also subject to very protective “MACT”-level standards, most are “area sources” that EPA can regulate under the less-protective regime known as “generally available control technology” (GACT). Area sources also do not need to obtain the same operating permits as major sources and waste-burners. So, there is more protection against emissions from waste-burners than there is against emissions from area sources.

The four rules being challenged (1) define nonhazardous solid waste, (2) set standards for waste-burners, (3) set standards for major source industrial boilers, and (4) set standards for area source industrial boilers. The nonhazardous solid waste definition is the key regulatory switching provision for the other three rules.

For defining solid waste under RCRA, everything hinges on the meaning of the word “discarded.” EPA has decided that tires people dispose of at the tire shop, used motor oil people get rid of at the service station, wooden debris from when people tear down houses, and anything that is thrown out—even just household garbage—that eventually gets processed and burned for energy are not discarded and thus are not solid waste. As a result, facilities can burn these materials without being considered a waste-burner and are not subject to protective standards limiting emissions of noxious pollutants.

Environmental groups challenge EPA’s determination of what constitutes solid waste, since “discarded” unambiguously has its plain meaning—abandoned, thrown away, or disposed of—and would encompass many materials that EPA determined are not solid waste. Environmental groups also challenge the other three rules as unlawfully under-protective (some of these arguments are summarized here and here). Unsurprisingly, some industry groups challenge all the rules as forcing them to reduce emissions too much. Briefing in the solid waste definition case has ended; briefing in the three other cases will wrap up in March 2015. Oral arguments have not been scheduled yet, but the same D.C. Circuit panel will hear all the cases.

These cases are important not only because of their ramifications for the health of millions of Americans, but also as pure legal issues. The case concerning the definition of solid waste may clarify some rather confusing D.C. Circuit precedent on RCRA. The other cases come after EPA’s approach to air toxics was repeatedly weighed and found wanting, both for how EPA set standards and for EPA’s efforts to allow “malfunctions” to escape control. EPA adjusted, and the D.C. Circuit has upheld EPA’s standard-setting methodology in many—though not all—of EPA’s more recent air toxics rules.

EPA’s approach to regulating air toxics has thus been changing as EPA, environmental groups, and industry groups press their readings of the Clean Air Act in light of judicial decisions. Thanks in part to the colossus of climate change, that ongoing story is playing out, as the first volume did, in some shadow. But the story is interesting, and extremely important.

Exploring the EPA’s New Power Plant Regulations with Professor Jody Freeman and Professor Richard Lazarus

Jody Freeman, Archibald Cox Professor of Law and founding director of the Environmental Law Program at Harvard Law School.
Jody Freeman, Archibald Cox Professor of Law and founding director of the Environmental Law Program at Harvard Law School.

By Samantha Caravello -— October 14 at 12:11 p.m.

[Update: a video of Professor Freeman and Professor Lazarus’s talks at the Harvard University Center for the Environment is available here.]

In June, EPA released a proposed rule for regulating greenhouse gas emissions from existing power plants pursuant to its authority under Section 111(d) of the Clean Air Act (“CAA”). The rule sets forth state-specific goals for emissions reductions but gives states flexibility as to how they will meet those targets. Ultimately, the rule will lead to a 30 percent cut in carbon dioxide emissions (from 2005 levels) by 2030. If implemented, the rule will be a critical component of President Obama’s environmental legacy and a chance to show the world that the United States is serious about climate action. Of course, with this great game-changing power comes great controversy – in fact, twelve states have already sued the EPA over these rules, claiming that the agency lacks authority to regulate greenhouse gases under the 111(d) provision.

This challenge and others will play out over the coming months as the comment period continues and a final rule is ultimately issued, but last week Jody Freeman and Richard Lazarus, professors at Harvard Law School and preeminent legal scholars, gave the Harvard University community a preview of the major arguments that will be made. The talk, “The President’s Efforts to Combat Climate Change Without Congress: What is EPA Proposing to Do and is it Legal?” was sponsored by the Harvard University Center for the Environment, and it was given to a standing-room-only crowd.

Richard Lazarus, Howard J. and Katherine W. Aibel Professor of Law at Harvard Law School.
Richard Lazarus, Howard J. and Katherine W. Aibel Professor of Law at Harvard Law School.

Professors Freeman and Lazarus gave an overview of the proposed 111(d) rule and of the Supreme Court’s recent history with the CAA and greenhouse gases. Last term, the Court issued two rulings that were largely favorable to EPA’s ability to exercise its authority to regulate global warming pollution under the CAA: EPA v. EME Homer City Generation and Utility Air Regulatory Group v. EPA (“UARG”). However, the UARG opinion contained what some consider to be “warning shots” to the EPA, signaling the Court’s potential unwillingness to accept the premise that Congress intended to grant the agency broad authority to regulate power plant greenhouse gas emissions, and by extension the nation’s energy sector, with one provision of the CAA, Section 111. After discussing other, threshold, complications with the new rule, Professors Lazarus and Freeman identified this question of EPA’s authority as likely to be the most significant and controversial issue. Section 111 of the CAA gives EPA the authority to create regulations under which states must submit plans that set standards of performance for power plants, with standard of performance defined as based on the best system of emission reduction. Where the potential for legal challenge comes in is that EPA defined “system” broadly, to include “anything” that reduces emissions from the power plants. This makes sense on its face, as a literal reading of the statute, but its practical implications give EPA extremely expansive authority. What will win these challenges, according to Professors Freeman and Lazarus, is really good lawyering—there are arguments on both sides, but it all comes down to convincing five justices, with Justice Kennedy likely providing the key swing vote.

The additional insights into the Supreme Court’s view of EPA’s regulatory authority imparted by Professors Lazarus and Freeman can’t be accurately captured in a short blog post, but Harvard Environmental Law Review readers will soon have the chance to hear their full thoughts on these issues: Both professors will be authoring pieces in ELR’s Fall 2014 issue as part of a series of essays exploring the implications of the UARG decision, including the potential impact on the legality of EPA’s new 111(d) rule. The story of EPA’s 111(d) regulations is just beginning, and ELR and the Harvard environmental law community are fortunate to have world-class environmental scholars Professors Lazarus and Freeman to offer their insights along the way.

Teaching an Old Dog New Tricks: Adapting Public Utility Commissions to Meet Twenty-First Century Climate Challenges

Climate change and efforts to address it have put the electric utility system under increasing pressure to adapt and evolve. Key to the success of these efforts will be the support of public utility commissions, the state agencies that oversee retail electric utilities.

Read more

Unilateral Climate Action and Collective Change: What Can University Divestment Do?

Smokestack PhotoBy Daniel Carpenter-Gold — June 2 at 5:40pm

This blog post contains the views of the author alone, and does not necessarily reflect the opinions of Professor Coleman or ELR staff.

“What difference do you think you can make? One man in all this madness?”

-First Sergeant Edward Welsh, The Thin Red Line

Scholars have come to recognize climate change as “the quintessential global-scale collective action problem”—so large that even superpowers cannot tackle it unilaterally. But after two decades of painfully slow multilateral negotiations, commentators have begun reexamining the potential for action by individual states. Among them is James Coleman, Assistant Professor at the University of Calgary’s Faculty of Law, whose article, “Unilateral Climate Regulation,” we had the privilege of publishing in the latest volume of the Harvard Environmental Law Review.

Unilateral action, Professor Coleman’s argument goes, can have a disproportionately large and positive impact in two ways. First, it can provide an effective model to states that might not have the wherewithal to design their own mitigation strategies. For example, if the United States designs a simple, transparent system for regulating greenhouse-gas emissions other countries can copy it, thereby lowering the costs of implementing their own climate policies.

Second, countries may implement policies contingent on other states’ mitigation efforts—a “matching contribution” approach familiar to anyone who has ever sat through an NPR pledge drive. In this scenario, the US might agree to implement policies to lower its carbon emission by, say, 1 billion units, provided that China do the same. This effectively doubles the benefit to China of reducing its greenhouse-gas emission: at the cost of 1 billion units in reductions, China would receive the benefit of a 2 billion-unit reduction in global emissions.

Perhaps the most striking example of unilateral climate action is the just-released EPA decision to regulate emissions from coal-fired power plants. Alongside the obvious benefit of eliminating a substantial source of CO2 emissions, the new rule may provide a model for other countries to limit their own coal pollution. This effect will likely be all the stronger because of the visibility and importance of the United States to other states.

But Professor Coleman’s point also applies to smaller-scale efforts to tackle climate change. One example of action stalling on the perennial question, “what can one actor do?” is the divestment effort at Harvard. As President Drew Faust put it in an open letter to the community last October, “Universities own a very small fraction of the market capitalization of fossil fuel companies. . . . Divestment is likely to have negligible financial impact on the affected companies.”

Professor Coleman’s arguments regarding unilateral state action suggest at least a partial alternative, where Harvard would use informational effects and matching commitments to give its investment decisions greater clout.

First, divestment could improve the information available to other institutions. As an example, imagine that the university decides to divest from any energy company with less than $3 billion invested in renewables and reinvest it sustainably: Harvard would first determine what counts as renewable energy investment, then compile a list of energy companies’ investment in renewables, then identify other, “greener” investments. By making this research publicly available, Harvard could spare other institutions also interested in divestment the cost of making a similar investigation. Ultimately, this would tend to increase the number of divestors, magnifying Harvard’s impact.

The second strategy that Professor Coleman’s article could suggest to divestors is to avoid collective-action problems by implementing matching commitments. This approach, termed “strategic matching” in economics, envisions a large group of institutions all agreeing to divest if each other institution does so as well—just as many treaties do not go into effect until a certain number of state parties ratify them. The advantage to this approach is that no institution would be required to take any action until the group formed, at which point the aggregate benefit (in terms of pressure on the industry) will be many times larger than for any individual divestment action.

It is interesting to note that these strategies are used by the two responsible-investment organizations to which Harvard has recently become a signatory: the Principles for Responsible Investment (PRI) and the Carbon Disclosure Project (CDP). (It should be noted that many faculty members disagree with this approach.)The PRI Association requires that signatories to the PRI complete a self-assessment on their consideration of environmental, social, and governance (ESG) factors in their investment policy and then publishes a compilation of the results, along with an annual report analyzing trends in and case studies of ESG-conscious investment. In other words, they allow institutions to increase the impact of their ESG-focused decisions by providing information which both signals their commitment to responsible investing and is useful to other investors.

The CDP, on the other hand, focuses on information about companies in which its signatories may be invested. It allows signatories to endorse surveys of corporations’ environmental policies, and then provides the resultant data only to those organizations which agreed to endorse (and thereby lend the CDP reputational force). By withholding information until an organization endorses, the CDP essentially implements an asymmetrical matching-commitment strategy: it increases its own impact by requiring its signatories to help gather information before they get the results.

The lesson here is that there’s no such thing as acting alone. Every forward step encourages others, and by taking advantage of this any actor—whether a country, a university, or a single person—can have a much greater impact than its limited resources would suggest.

Unilateral Climate Regulation

By James W. Coleman

It is now plain that decades of negotiation toward a binding global climate treaty have failed. Yet, at the same time, many nations are adopting a range of unilateral policies to address climate change. The existing literature on climate policy neglects these unilateral climate regulations because it focuses on the necessity and possible design of a multilateral climate treaty. But these domestic regulations present a unique puzzle: Given that climate outcomes are determined by global emissions, and that unilateral regulations inevitably influence incentives to regulate elsewhere, how can domestic action achieve the greatest marginal reduction in global emissions? In other words, how can regulators encourage, rather than discourage, action in other countries?

This Article answers this question by describing three ways that unilateral regulation influences incentives to regulate in other countries. First, domestic regulations can interact with other nations’ regulations in a way that increases those countries’ incentives to regulate. Second, unilateral regulation can support incentives to regulate elsewhere by limiting the incentive for polluters to move, or “leak,” to countries with weaker regulation. Third, unilateral regulations that are modular and simple will serve as potential model rules in a wider swath of countries. These considerations have important implications for regulators looking to maximize the global impact of their unilateral actions. They suggest that, contrary to the received wisdom in climate policy, regulators should prefer regulation with publicly transparent costs. They also suggest that, contrary to the current state and federal preference for cap-and-trade systems and energy-efficiency standards, unilateral regulators should prefer carbon taxes and funding for green technology.

Cite as: James W. Coleman, Unilateral Climate Regulation, 38 Harv. Envtl. L. Rev. 87 (2014).

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Protecting pensions in the face of climate change and corporate law

URBAN_NYC Skyline_MHoldenBy Molly Cohen — Jan. 21 at 10:25am

As climate change threatens to reshape our coastlines and rewrite our expected weather patterns, it poses another less obvious but very real threat: climate change may decimate  our retirement funds.

Investment funds, like other corporate forms, are bound by the bedrock corporate law tenets of shareholder primacy and profit-maximization. According to these principles, managers and officers are bound by their fiduciary duty to protect shareholders interests above all by seeking solely to maximize corporate profits. They are barred from considering outside interests at the expense of share value maximization (see, e.g., Dodge v. Ford Motor Co., 170 N.W. 668 (Mich 1919)). While corporations can act for the “public good” (by making donations), these actions must be framed as an instrument to maximize profits and benefit stockholders, for example, corporate donations increase goodwill (see, e.g., AP Smith Mfg Co. v. Barlow, 13 N.J. 145 (1953)). For years, investment fund managers have used the cloak of profit-maximization to avoid acting on climate change. To them, climate change is an ethical, non-financial issue, and therefore beyond the bounds of what they consider.[1]

And yet, there is a growing understanding around the world that climate change is an inherently economic issue.  The head of the IMF described climate change as “the greatest economic challenge of the 21st century.” Insurance companies are hopping on board as well, adjusting rates based on the increasing frequency of catastrophic weather events. Even the Department of Defense has begun incorporating climate change risks into its long-term planning. When your insurance company and your military start factoring climate change into their long-term economic decisions, shouldn’t your retirement fund do so as well?

Because climate change is an economic issue, it can be framed as necessary to profit-maximization and therefore can be included within the ambit of shareholder primacy.

Pension funds, with their enormous financial holdings and long-term strategy, are the perfect businesses to lead the way. Pension funds are inherently long-term investors, and their ultimate end is not just to raise money but also to ensure pensioners have a prosperous and secure retirement. Moreover, pension funds in the past have used their considerable financial clout to make investment decisions based on policy preferences. For example, a year ago, the California Teachers Retirement pension chose to divest from companies that manufacture firearms that are illegal in California.

By incorporating climate change risk and opportunity into investment calculus and strategies, pension funds can both increase fund returns and advance sustainability goals. Funds can both improve the environmental performance of companies already in their fund and also consider climate risk in evaluating and pricing new stock (e.g., might a company have to comply with costly greenhouse gas emissions regulations in the future).  Really forward-looking funds should invest in solutions offered by clean energy and energy efficiency companies.

Making climate change into an economic issue may not be sufficient, though. In Funding Climate Change, Claire Woods argues that fiduciary duties are just one part of a greater problem keeping institutional investors from acting on climate change. She argues that “the realities of human behavior,” including “inertia and myopia” serve as the greatest barrier to sustainability investment. Similarly, in a talk on global warming and psychology, Harvard Psychologist Dan Gilbert explains that our psychological impulses make it difficult for us to confront global warming. As humans, we’re programmed to respond most to threats that are intentional, immoral, imminent and instantaneous; in contrast, climate change is silent, amoral and slow, allowing it to sneak under the radar.

To ensure that pension funds actively address climate change, we must make the issue salient and relevant to their bottom-line and thus to their beneficiaries. Corporate law can help: we should consider passing legislation to explicitly include environmental considerations and climate change within the bounds of pension funds’ fiduciary duties. Beyond the legal element, though, we must stress to investors the losses that may result due to the ravages of climate change (behavioral economics has taught us that humans are hugely averse to loss). We must engage pension-holders and ask them to put direct pressure on their pension fund, explaining that their money is at risk. Pension funds are should be investing for the future; instead they’re investing in climate change.


[1] Courts for the most part would likely agree with managers’ vision of climate change as a non-financial issue outside the bounds of what they can consider, though there are rare exceptions. Courts have allowed investment funds to consider social impacts of investment decisions; for example, a Maryland Court of Appeals, ruling on divestment from South Africa, wrote “[n]evertheless, we do not believe that a trustee necessarily violates the duty of loyalty by considering the social consequences of investment decisions.”

Corporate Law and Climate Change Disclosures

MOUNTAINS_clawpeak_CO_alecharrisBy Molly CohenJan. 6, 2013 at 8:57am

When it comes to corporate law, the Securities and Exchange Commission (SEC) is king. Most people connect the SEC with the stock market, the 2008 financial crisis, and Bernie Madoff. However, for four years, the SEC has required companies to tackle an unlikely target: climate change.

Generally, publicly traded companies are required to disclose material business risks to investors via regular filings (called “10-K filings”) with the SEC. In July 2010, the SEC published binding interpretative guidance requiring companies to address how climate change (and climate change regulation) could potentially impact their businesses in their annual 10-K filings. Like all SEC disclosures, this is aimed at informing market price and protecting investors.

The climate disclosure requirement has been shrouded in controversy since its inception. It was approved in a three-to-two split vote by the five SEC Commissioners. The two in opposition believed that the science was not robust enough to require regulation; this belief was bolstered by criticism by the electricity-generating industry. The House and Senate responded by introducing bills to prohibit enforcement of this disclosure guidance, with their supporters arguing that it was a job-killing veiled attempt to promote a political agenda.

Four years later, the question is: has it worked? Numerous studies have answered this with an unfortunate and resounding “no.” After poring over annual reports of 3,895 U.S. public companies listed on major stock exchanges, a citizen researcher found that almost 75% of the companies failed to mention “climate change” or “global warming,” including retail giants like Apple and Amazon. Of the 1,050 businesses that acknowledged climate change, few disclosed specific issues, with most mentioning that operating costs may be affected by pending EPA greenhouse gas regulation. A Davis Polk & Wardwell study similarly found no significant impact on disclosures.

Why might companies be ignoring the requirements? An ABA study found that companies felt climate change disclosure was a “speculative process” without recognized standards; meanwhile there was also little interest in climate change among potential investors and the financial community. However, a 2011 Ceres report did find that public companies had improved their climate change risk disclosures, but it also noted that corporate filers still need more experience communicating risk, because currently disclosures “often fail to satisfy investors’ legitimate expectations.”

Given SEC personnel and funding limitations, enforcement of the disclosure requirement is limited if not negligible. The toughest penalty for not properly reporting risks is requiring a company to rewrite the report. More often, the SEC simply requests more information in the following year’s report.

Despite these disappointing results, the SEC disclosure rule could still be viewed as a success simply because it puts the idea of climate change risks into the corporate consciousness. At the time the SEC passed the Guidance, the Commission took pains to explain it was “not opining on whether the world’s climate [was] changing.” Nevertheless, the disclosure requirement ensures that climate change is treated the same as any other financial, environmental, or regulatory risk that a company must disclose.

At the time the measure passed, Luis Aguilar, then the Democratic Chairman of the SEC, explained, “this release clarifies that effects resulting from climate change that are keeping management up at night should be disclosed to investors.” Despite this ambitious sentiment, it is not clear that climate change actually keeps officers and directors up at night (except perhaps those in the electricity-generating industry currently battling in court to prevent GHG emission regulations). Given the current lack of interest from managers, investors, attorneys, securities regulators, and the financial industry generally, disclosure does not seem like an effective tactic. Yet, with GHG emission regulations imminent, insurance costs rapidly rising, and the potential for regulation to limit coal, oil, and gas extraction and decrease share prices, a failure to take heed will likely come at an investor’s own peril.