Last week was an interesting time for carbon/GHG emissions globally, including an important U.S. Supreme Court decision that impacts emissions regulations.
At the beginning of the week, Bloomberg reported on an offset project in eastern Mexico that is causing controversy related to social aspects of the program:
After two years of work, the village got its first annual payment in late 2021. The pay, split among 133 members of the community, amounted to about $40 each, a fraction of what the village’s then-leader, Álvaro Tepetla, expected. He’d hoped they could earn as much as $44,000 in total per year, or at least match the $8,100 paid by a recently canceled government conservation program. The final sum was 30% lower and worth little more than a week’s work per person…
Offsets are a source of constant controversy in climate circles, as programs often fail to deliver the climate benefits they promise while allowing polluters to keep burning fossil fuels. BP’s Mexican projects don’t appear to have the same glaring climate issues as other programs. Instead, the offsets that BP purchases expose another failing in the nascent market: A lack of oversight can leave people already in poverty ripe for exploitation—now in the name of climate progress.
The article is a good read and explores a topic not frequently covered in discussions about nature-based offset projects – the range of impacts on local/indigenous peoples who call the project areas home. Those are people who face existential questions of balancing potentially longer-term personal benefits from offset programs against immediate needs of making a living on the land. Project developers frequently sell their programs to local communities by extolling the financial benefits to them. But to be fair, that can be quite a conundrum. Absent a consistent carbon market, offset values differ wildly especially in voluntary programs. Low prices – and the small flow of money to the communities – may seem controversial, but sometimes a little context is necessary.
“We know and acknowledge it’s a low price,” says Javier Warman, WRI Mexico’s Forest Director, in an interview. When the project started, he says, “nothing was moving and there was no demand, so for the communities, this decision of going with $4 was better than nothing.”
At the same time, a project planned in Gabon “aims to create 187 million carbon credits, almost half of which may be sold on the offsets market in what would be the single largest issuance in history… At the same time, Gabon wants to harvest its forests sustainably to generate income.”
Of course, the question of credibility/viability has already been raised:
The poor quality of many available offsets has invited skepticism from scientists, activists and businesses. The leading United Nations-backed industry standard setter, the Science-based Targets initiative, says they can’t count toward credible decarbonization plans.
“Many of these initiatives vastly overestimate their impacts,” Gilles Dufrasne, policy officer at Carbon Markets Watch, said, referring to REDD+. “Their benefits can be short-lived given the risk of future deforestation,” he said, adding that such a large issuance of these credits could harm the credibility of the market.
Some years ago, German utility RWE has been sued in a Peruvian court by a Peruvian farmer, Saúl Luciano Lliuya.
Since the emissions produced by RWE globally over its 124-year history contributed to the warming that is shrinking the glacier, the farmer argues, the company should help pay for defences to protect Huaraz, his hometown.
Accordingly, in a suit filed in Germany in 2015, Luciano Lliuya said the company should pay for 0.47 per cent of the costs of protecting Huaraz — around €20,000. RWE says the claim has no basis in German law, and that it is judicially impossible to attribute specific local consequences of climate change to an individual company. The legal team considered suing Shell, but chose RWE in part because they are pursuing the case through German courts and also because the company still operates coal facilities. “[RWE] are on the [2014 list] and German and continue to emit from coal plants,” says Luciano Lliuya’s German lawyer, Roda Verheyen.
The case is still pending in the German courts and may not be decided this year according to the Financial Times report. But at least one expert indicates that simply bringing suits like this is important even if only symbolic:
Noah Walker-Crawford, an external consultant on climate litigation for Germanwatch [said] “But of course it’s about much more than that … The whole point of bringing these kinds of cases is that not enough has happened on a political level.”
If that is the case, we should be prepared for the rate of climate litigation to accelerate as the public’s frustration grows with the general response to Europe’s energy crisis.
The US Supreme Court ruled that the EPA didn’t have authority to regulate greenhouse gas emissions by the 2015 “Clean Power Plan,” (CPP) under Section 111(d) of the Clean Air Act. Cydney Posner at Cooley wrote an in-depth analysis of ruling.
As the NYT phrased it, “it’s a case about a regulation that doesn’t exist.” (Sort of like an episode of Seinfeld—the show about nothing—except that it’s not the least bit funny.) So SCOTUS could have stopped right there, but the Court forged ahead—an indicator by itself—with a decision that is nevertheless shaking up administrative law and the extent of rulemaking authority that federal agencies have—or thought they had. Its impact will likely be felt, not just at the EPA, but also at many other agencies, including the SEC.
In the majority opinion, SCOTUS declared that this case “is a major questions case,” referring to a judicially created doctrine holding that courts must be “skeptical” of agency eorts to assert broad authority to regulate matters of “vast economic and political signicance,” requiring, in those instances, that the agency “point to ‘clear congressional authorization’ to regulate.’”
She points out:
Interestingly, there is nary a mention in the majority opinion of “Chevron deference,” which refers to the well-worn two-step test for determining whether deference should be accorded to federal administrative agency actions interpreting a statute, first articulated by SCOTUS in 1984 in Chevron v. Natural Resources Defense Council. Rather, under this Court’s application of the major questions doctrine, the Court bypasses Chevron altogether. It is mentioned only briefly in the dissent. Generally, the doctrine established in Chevron mandated that, if there is ambiguity in how to interpret a statute, courts must accept an agency’s interpretation of a law unless it is arbitrary or manifestly contrary to the statute.
How this impacts the SEC’s climate disclosure proposal won’t be known for some time yet – at a minimum a lawsuit would first have to be filed in federal courts and a decision would not likely be handed down particularly quickly. For now, companies should continue moving ahead with their preparations for disclosing greenhouse gas emissions under a final release. Make plans to join us July 13th for a “Climate Disclosure Event” that will provide practical steps that you need to take now to be ready, and “lessons learned” from drafting our model disclosures. Attendees are eligible for $100 off our 1st Annual Practical ESG Conference AND $200 towards an annual subscription to PracticalESG.com! Email firstname.lastname@example.org or call 1-800-737-1271 to claim this offer.
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