LIABILITY FOR HARM CAUSED BY GHG EMISSIONS

“Throughout the ages, mankind has, for economic and other reasons, constantly interfered with nature. In the past, this was often done without consideration of the effects upon the environment. Owing to new scientific insights and to a growing awareness of the risks for mankind—for present and future generations—of pursuit of such interventions at an unconsidered and unabated pace, new norms and standards have been developed, set forth in a great number of instruments during the last two decades. Such new norms have to be taken into consideration, and such new standards given proper weight, not only when States contemplate new activities but also when continuing with activities begun in the past. This need to reconcile economic development with protection of the environment is aptly expressed in the concept of sustainable development”.

Judgment of the International Court of Justice in Gabčíkovo-Nagymaros Project (Hungary/Slovakia) 37 I.L.M. 162 (1998) 200 at para 140 (as quoted in Fuel Retailers Association of Southern Africa versus Director-General Environmental Management, Department of Agriculture, Conservation and Environment, Mpumalanga Province and others, at para 54)

“Our Constitution does not sanction a state of normative anarchy which may arise where potentially conflicting principles are juxtaposed. It requires those who enforce and implement the Constitution to find a balance between potentially conflicting principles. It is founded on the notion of proportionality which enables this balance to be achieved. Yet in other situations, it offers a principle that will facilitate the achievement of the balance. The principle that enables the environmental authorities to balance developmental needs and environmental concerns is the principle of sustainable development”.

Judgment of the Constitutional Court of South Africa in Fuel Retailers Association of Southern Africa versus Director-General Environmental Management, Department of Agriculture, Conservation and Environment, Mpumalanga Province and others, Case CCT 67/06 [2007] ZACC 13, at para 93.

The Gabčíkovo-Nagymaros Project judgment of the International Court of Justice, quoted with approval by the South African Constitutional Court in the 2007 Fuel Retailers Association of Southern Africa judgment, highlights that progressive development in scientific insights and awareness of risks arising from the effects of environmental impacts, results in the development of new legal norms and standards. These judgments also address the principle of sustainable development, in the South African context emphasising the importance of proportionality and of finding the balance between development and the environment.

At present new legal norms are developing regarding responsibility for damages caused by undertaking a GHG emitting business, and creating the possibility of liability for the direct or indirect consequences and damages to other persons arising from climate change impacts. 

Current status

The past few decades have seen individual governments respond to climate change with varying speeds through implementing country-specific legal instruments. These include mechanisms that are designed to:

• require measurement and reporting on GHG emission contributions;
• set and cap emission limits on GHG emitting businesses; and
• disincentivise such emissions, through taxation or other financial mechanisms.

In South Africa, after an initial slow start, we have seen an increase in the pace of new climate change related legal instruments as illustrated on the time line below:

Despite the slow progress in legislation, and the lack of legally enforceable restrictions, there has been a recent rise in popular consciousness and a groundswell of citizen-led opposition to GHG emitting industries, which has been unprecedented in its speed and breadth of support. This has created the risk of reputational harm for these industries and their funders.  In the past couple of years, we have experienced a fundamental shift in global popular awareness of the risks of GHG driven climate change, and the reputational risk of being associated with GHG emitting industries. Simply stated, climate change has become front and centre of current environmental consciousness and concern.  This is not going to change and is only likely to increase in future, placing more pressure on governments to speed up the pace of introducing legislative mechanisms to limit and reduce GHG emissions.

Drivers of future GHG reduction

Up to now in South Africa, there have been few real hard drivers for GHG emission reduction in the legislation. The Carbon Tax Act and the proposed Climate Change Act, with intended setting of emission limits through carbon budgets and sector emission targets, is going to change the status quo, quite likely to be supported by other developments, such as the Guidance Notice: Sustainability of Investments and Assets in the Context of a Retirement Fund's Investment Policy Statement, as recently published by the Financial Sector Conduct Authority.

However, as stated in the Fuel Retailers Association of Southern Africa judgment, the development of these new laws cannot be allowed to happen in a “state of normative anarchy”, and it is going to be incumbent on governments, South Africa included, to find that difficult balance between development and the environment. 

Future legislative compliance risks are to some extent manageable for a business, they are usually predictable due to the consultative process that is followed, but a real looming future threat is climate change based litigation and damages claims. As is already manifest from what is happening internationally, there are numerous cases testing the waters around climate change damages.

Many of the international climate change cases can be categorised into two broad categories:

• applications against public authorities and private companies seeking remedies to force the adoption of climate change specific laws or to block specific licensing decisions – this type of litigation has already occurred in South Africa and is likely to become more common; and
• damages claims for personal injury, property damages or pure economic damages allegedly caused by climate change – this is a future grey area, i.e. when has an individual GHG emitting industry not acted reasonably, or when is such an individual industry that may be either directly or indirectly involved in conduct that in principle may contribute to harm to other person/s (such as climate change induced property damage), regarded in legal terms as having caused that harm to that other person i.e. when is legal causation present? Could developments in science ultimately come to the aid of climate change litigants by providing a legally defensible mechanism for determining an individual GHG emitters’ proportionate contribution to the damages suffered?

As we see it, the real testing ground on how far the norms regarding climate change impacts have progressed in South Africa is still to come, with the expected increase in climate change based legal action in the context of GHG emitting developments.  This is aside from the risks of increased insurance claims for climate related loss; exposure to damage claims consequent to investing in assets that cannot keep pace with the transition to a low-carbon economy resulting in stranded assets; or failure to adequately report climate change related risks.

This is not likely to be news to anyone, with legal liability for climate change or climate induced harm being an identified potential emerging risk (for example, financial institutions are already identifying climate change as one of the leading environmental risks in lending, including due to potential delayed financial close in the case of GHG emitting projects).  In South Africa we have already seen the opening salvo of climate change litigation, and that litigation was successful – see Earthlife Africa Johannesburg v Minister of Environmental Affairs and Others (65662/16) [2017] ZAGPPHC 58; [2017] 2 All SA 519 (GP) (8 March 2017). The judgment (at para 83) also assists us in understanding how developments in international climate change law impact on South African law, and the National Environmental Management Act 107 of 1989 (NEMA) specifically:

“NEMA must also be interpreted consistently with international law. Section 233 of the Constitution provides that when interpreting any legislation, every court must prefer any reasonable interpretation of the legislation that is consistent with international law over any alternative interpretation that is inconsistent with international law. Therefore, the various international agreements on climate change are relevant to the proper interpretation of section 240(1)(b) of NEMA. Article 3(3) of the UN Framework Convention enacts a precautionary principle requiring all states parties to take precautionary measures to anticipate, prevent or minimise causes of climate change. Article 4(1)(f) of the UN Framework Convention imposes an obligation on all states parties to take climate change considerations into account in their relevant environmental policies and actions, and to employ appropriate methods to minimise adverse effects on public health and on the environment”.

The Earthlife Africa Johannesburg litigation is likely to be just the start and we foresee that in South Africa there will very likely be an increase in challenges to licensing decisions for failure to address climate change impacts as part of the environmental impact assessment process, testing the boundaries of what is necessary in the absence of clear, black letter law. As was stated in the Earthlife Africa Johannesburg judgment (at para 88):

“The absence of express provision in the statute requiring a climate change impact assessment does not entail that there is no legal duty to consider climate change as a relevant consideration and does not answer the interpretative question of whether such a duty exists in administrative law”.

Response

What then is the response in the face of increasing public and investor consciousness and shareholder activism around GHG emissions?

Sectors that are directly or indirectly involved in GHG emitting industrial or other activities clearly need to make well informed decisions, taking into account the legal risks in a shifting and uncertain legal environment. Tough calls may have to be made on the strategic direction that is taken, factoring in not only these legal risks but also the escalating reputational exposure, which is likely to continue to increase over time. The appetite for withstanding reputational attacks will depend on the sector and the extent of direct or indirect involvement and reliance on GHG emitting activities. Adopting policies to reduce carbon exposure in loan and investment portfolios is a step that may assist in managing the risks.

Nonetheless, there is every prospect that there will be more climate change test cases in South Africa, undertaken by well-informed litigants using good lawyers, seeking to define more precisely the current legal norms on climate change impacts and associated damages claims.

Aside from entirely phasing out reliance on GHG emitting processes and indirect exposure to such industries over time, which clearly cannot happen overnight, the mechanisms for mitigating the risks include:

• track country-specific climate change and adaptation policy and legislation to allow for properly informed decisions;
• track international and South African climate change related litigation;
• actively participate to ensure that government finds that difficult balance between development and the environment e.g. the pending Department of Environment, Forestry and Fisheries process for implementing the post-2020 climate change mitigation system (which will include setting emission limits through carbon budgets and sector emissions targets);
• use climate risk assessments to support decision-making; and
• conduct thorough legal and technical due diligence on projects.