OPINION:
Oil and gas producers, especially the deep-pocketed majors, have provided a target-rich environment for some lawyers.
Whether the alleged damages from climate change, suppression of renewable generating technologies and electric vehicles, or even tap water that catches fire, those companies, and their perceived oodles of cash, are convenient scapegoats.
Since 2013, more than 40 lawsuits have been filed in Louisiana alleging that oil production along its Gulf Coast since the 1930s has caused severe coastal erosion. Several of those cases were brought in 2013 by Plaquemines Parish, which sued Chevron and several other energy producers, in part because of the companies’ production and refining activities during World War II.
Although some of these cases have settled, in the first to go to trial, a jury last year awarded $744 million to the parish.
Before the verdict against it, Chevron argued that the case belonged in federal court because the production and refining activities were carried out at the direction of the U.S. government. Specifically, the U.S. Petroleum Administration for War required numerous oil companies to expand drilling and production along the Louisiana coast because the government desperately needed additional aviation fuel.
The case, Chevron USA v. Plaquemines Parish, is currently before the U.S. Supreme Court, which will decide whether it will proceed in federal or state court.
The Louisiana lawsuits raise legal issues similar to the spate of climate lawsuits wending their way through various state and federal courts. Those also have raised jurisdictional issues between state and federal courts, as well as issues of damage attribution. The main difference is that, whereas climate-change-related lawsuits have hinged on alleged damages caused by oil production, there is no dispute that the Louisiana Gulf Coast has suffered from erosion.
That erosion has many natural causes. For example, the U.S. Geological Survey has documented that “the vast system of sheltered wetlands along Louisiana’s delta plains is exposed to the full force and effects of open marine processes such as wave action, salinity intrusion, storm surge, tidal currents, and sediment transport that combine to accelerate wetlands deterioration.”
Although the current legal wrangling focuses on jurisdictional issues, little has been said about the broader energy security implications. Since the lawsuits began, the Pelican Institute for Public Policy has found that Louisiana has shown a significant decrease in oil-related economic activity, which has traditionally been a major contributor to the state’s overall economic health.
Oil and gas exploration and development are capital-intensive and inherently risky. Hence, investors will finance those activities as long as the expected rewards adequately compensate for that risk. Litigation, especially litigation seeking damages from lawful activities, increases risk and reduces the expected rewards. That, in turn, is a recipe for less investment.
Despite trillions of dollars invested in renewable resources such as wind and solar power, the world still runs on fossil fuels.
Indeed, fossil fuel consumption continues to increase worldwide. In the U.S., oil and gas still account for 80% of total energy use, according to the U.S. Energy Information Administration. Thus, lawsuits against oil and gas producers, even if ultimately unsuccessful, have broad implications for energy supplies and the U.S. economy, especially when based on questionable attribution claims.
Because fossil fuels remain the foundation of modern societies, increasing the cost of supplying them raises production costs for all goods and services.
Although some environmentalists may see fossil fuel litigation and the resulting increase in investment uncertainty as a way to boost investment in nuclear and renewable energy, the opposite is true. Investors are likely to conclude that if fossil fuel producers can be sued for their lawful activities, including those mandated by the U.S. government, then investments in nuclear generation and green energy may not be immune from future litigation, even if those investments are underwritten by the government.
None of this is to suggest that energy producers of any type should be given carte blanche to violate the law, but litigation against lawful energy investment and production activities is a recipe for less energy security, higher costs and a lower standard of living.
Ending frivolous energy litigation, such as the Louisiana cases, would be a useful first step.
• Jonathan Lesser is a senior fellow with the National Center for Energy Analytics.
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