On Jan. 27, the Securities and Exchange Commission (SEC) voted 3-2 to issue interpretive guidance instructing publicly traded companies to inform investors of the possible material impact of governmental reactions to possible climate change. In a statement, SEC Chairman Mary Schapiro said, “We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today’s guidance will help to ensure that our disclosure rules are consistently applied.” According to the SEC’s news release, the four areas that companies must take into account are:

• Impact of Legislation and Regulation
• Impact of International Accords
• Indirect Consequences of Regulation or Business Trends
• Physical Impacts of Climate Change

Commissioner Kathleen Casey, a Republican, strenuously objected: “I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection.” For the other commissioners’ statements, go to the SEC statement page.

There’s no doubt the SEC’s disclosure requirements will exacerbate the reputational risk that the litigation industry seeks to exploit, creating another point of attack in the public relations campaigns that now accompany high-profile environmental lawsuits. James Freeman, a Wall Street Journal editorial writer, called the guidance “a litigation breeder” that would consume SEC time and resources best spent on real priorities. (See WSJ News Hub video.) The New York Times summarized in a predictable editorial, “The commission, which took pains to say that it was not expressing an opinion on whether the world’s climate was changing, has long required companies to reveal financial or legal impacts from other environmental challenges — potential liabilities under the Superfund law or the Clean Water Act, for instance. It has also been petitioned by investor groups and environmentalists to add climate change to the list of those challenges.”

Yes, and that list of petitioners includes familiar promoters of litigation shakedowns against business: The California Public Employees’ Retirement System (CalPERS), Environmental Defense Fund, Friends of the Earth, California Treasurer Bill Lockyer, and New York Attorney General Andrew Cuomo among others. (The Ceres investment group, CalPERS and the Environmental Defense Fund issued a joint news release and Pax World Management also praised the SEC.) See their original petition (Sep. 18, 2007) to the SEC, and the Supplemental petition (Jun. 12, 2008).

Freeman suggests the Obama Administration is trying to achieve through its executive branch appointments what it cannot achieve in Congress, that is, implementation of regulatory regime to control greenhouse gas emissions. Probably so. What’s not subjec to dispute is that the SEC guidance will impose additional costs on companies, draw SEC resources away from other, more pressing enforcement needs, and serve the interests of the litigation industry.

• Washington Post, SEC to require disclosure of climate change risks
• Wall Street Journal “SEC Votes for Corporate Disclosure of Climate Change Risk”

From The New York Times, “States Can Sue Utilities Over Emission“:

A panel of the United States Court of Appeals for the Second Circuit, in New York, ruled that eight states — California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont and Wisconsin — as well as New York City and three land trusts could proceed with a suit against American Electric Power, Southern Corporation, the Tennessee Valley Authority, Xcel Energy and Cinergy Corporation, all large coal-burning utilities.

The case, brought in 2004, said the defendants were creating a “public nuisance” and sought reductions in emissions that scientists say are changing the climate.

The opinion from the Second Circuit in the case, Connecticut v. American Electric Power Co.,is available here. The National Association of Manufacturers had joined other business associations in filing an amicus brief in support of the utilities, which is available here.

This is a horrible decision, encouraging litigation to define activities essential to U.S. economic growth, jobs and government revenues as public nuisances. The ruling again places the judiciary in the constitutionally improper and anti-democratic role of policymaker.

As the brief argues:

Plaintiffs allege that emissions of CO2 contribute to global warming. CO2 is emitted principally from the combustion of fossil fuel to produce energy. Thus, if global warming nuisance suits were allowed, any human activity that involves combustion of fossil fuel would become a potential target of nuisance suits. Moreover, under plaintiffs’ theory, it would not matter where the emissions occur, because CO2 emissions from any location allegedly mix in the upper atmosphere with other CO2 emissions and allegedly contribute to warming worldwide. The result of plaintiffs’ theory would be that any person or organization alleging damage from global warming would be able bring a nuisance suit against any person, company, municipality or other entity, wherever located, that plaintiffs believe is using energy in an inefficient or excessive manner, or that plaintiffs believe to be capable of using a less carbon-intensive fuel or of reducing CO2 emissions in some other manner. The range of possible litigation targets is virtually endless, because combustion of fossil fuels, for both personal and business purposes, pervades American life.

Basically, what plaintiffs seek is nothing less than to have the judiciary decide how fossil fuel energy should be used in this country—a venture that would draw the judiciary deeply into difficult and contentious issues of national and international energy policy. The District Court correctly held that these issues of energy policy are political questions beyond the jurisdiction of the judiciary—questions that should be decided only after the kind of full debate and public participation that the political, legislative and administrative processes can provide. Congress and the President have recognized that global warming and energy policy are inextricably intertwined and should be addressed on a national and international basis. To address these issues in case-by-case litigation of nuisance suits can only lead to an unworkable patchwork of inconsistent and uncertain results, where no user of fossil fuel could be assured that its operation, even though compliant with existing law, could continue given the ever-present threat of a lawsuit—or perhaps multiple suits—seeking to control emissions.

The United States is only right now at the start of an economic recovery — perhaps. That recovery will require expanded energy production and business investment. But if you’re the head of a company that wants to invest for the future — in the process creating jobs and wealth — and you find that self-aggrandizing attorneys general and anti-growth environmentalists can simply litigate you into paralysis, well, the hell with it.

Yet that’s the situation as now exists in the states that comprise the Second Circuit.

• Reuters, “U.S. court reinstates emissions suit vs. utilities“
• Point of Law, Michael Krauss, “2nd Circuit Revives ‘Federal Common Law of Nuisance’ Suit”. Krauss, a professor of law at George Mason, had the same reaction as we did (or vice versa, as he wrote first): “If this Circuit ruling stands, why should investors have confidence in industrial projects that have received all necessary legal permits to be built? A ‘federal nuisance suit’ filed by a ‘land trust’ or a state other than the permitting state could destroy profitability. Presumably investors would need all 50 states’ approval plus that of the ‘land trusts.’ Talk about a chill to job creation.”

Best single place to keep track of Hurricane’s Ike impact is the Weather Nerd blog from Brendan Loy at Pajama’s Media.  Good compendium of resources and informed commentary, including worrisome observations like:

Even if Ike’s winds were to unexpectedly weaken to Cat. 1 force (or, heck, to tropical storm force), Ike would still be a “major hurricane” in terms of its massive storm surge. The surge, not the category, is the story! This is because of the sheer volume of water Ike is pushing across the Gulf, as I discussed at length yesterday. And that water is already in motion, inexorably bearing down on the gently sloping Texas coast. If coastal residents are taking this storm less seriously than they might because it’s “only” a Category 2, they are making a serious mistake. Eric Berger has an excellent post this morning about the predicted surge, with an updated SLOSH map.

And for the impact on energy, Bloomberg’s story is good:

Sept. 12 (Bloomberg) — Crude oil and gasoline rose as Hurricane Ike headed toward the Texas coast, home to 23 percent of U.S. refining capacity, shutting almost all Gulf of Mexico oil production as it passes.

About 19 percent of U.S. oil processing capacity has been shut before Ike makes landfall today. More than a quarter of U.S. crude production is based in the Gulf Coast region. Evacuations have halted 97 percent of Gulf oil output, the Minerals Management Service said yesterday.

“The big concern is about the products because the refineries aren’t running,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “It remains to be seen how much damage will occur, but nobody wants to take chances.”

The concentration of energy-producing infrastructure on the Gulf Coast is detrimental to U.S. economic resilience. We need more redundancy and geographically dispersed production and refining capacity — as in a new refinery in South Dakota by Hyperion and an expansion at ConocoPhillips’ Wood River Refinery in southern Illinois. Yes, more of that kind of thing, and less of this:

Oregon and 11 other states are suing the Environmental Protection Agency over greenhouse gas emissions from oil refineries.

The suit, led by New York Attorney General Andrew Cuomo, charges that the EPA violated the federal Clean Air Act by refusing to issue standards, known as new source performance standards, for controlling global warming pollution emissions from oil refineries.