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US: The Legal Climate on Climate Risk
Emily Gertz, 19 Sep 07
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When Gov. Eliot Spitzer of New York was the Attorney General, he pulled an obscure state securities law out of the shadows to investigate corruption on Wall Street: the 1921 Martin Act, which grants the attorney general broad powers to compel testimony and subpoena records.

Now his successor, Andrew M. Cuomo, is using the same law in another wholly novel way: to pursue environmental ends. Last week, the Attorney General's office initiated investigations of five large energy companies -- AES Corporation, Dominion, Dynegy, Peabody Energy and Xcel Energy -- to determine if their plans to build coal-fired power plants present undisclosed risks to investors. Fossil fuel combustion creates 82 percent of total US carbon dioxide emissions, with coal accounting for about 40 percent of that amount. [source]

Publicly-traded companies are legally liable for taking undisclosed risks that could diminish their value to shareholders. In letters sent with the state subpoenas, Mr. Cuomo's office has asked these companies if their investors have been made aware of the growing potential that companies may well be taking on big financial risks by building coal-fired plants. "Any one of the several new or likely regulatory initiatives for CO2 emissions from power plants — including state carbon controls, E.P.A.’s regulations under the Clean Air Act, or the enactment of federal global warming legislation — would add a significant cost to carbon-intensive coal generation,” said the letters said. adding that “Selective disclosure of favorable information or omission of unfavorable information concerning climate change is misleading.”

There has been growing pressure on US business and industrial leaders to account for the extent to which their operations contribute to global warming pollution, and how financially exposed they might be if or when regulations and fines for such pollution become law. Shareholder activists have filed resolutions demanding that companies account for climate risk, and used their financial clout to encourage and reward climate-neutral projects -- such as a number of institutional investors like state treasurers, city and state comptrollers, managers of pension and mutual funds, and others, who in 2005 commited US $1 billion of their joint assets to funding clean-technology efforts.

Here in New York, the Attorney General's action is part of a suite of increasingly assertive state efforts to compel polluters to cut their carbon overhead. New York State and New York City were both petitioners in Mass v. EPA, the recent Supreme Court case that declared greenhouse gas emissions to be air pollutants under the federal Clean Air Act, which in turn obliges the US Environmental Protection Agency to regulate them. New York is one of the founding members of the Regional Greenhouse Gas Initiative -- a major multi-state effort to curb carbon dioxide emissions that stretches from Maine to Maryland, and includes the Eastern Canadian Provinces and New Brunswick as observers. And New York is one of 12 states nationwide to emulate recent California regulations requiring automakers to cut the greenhouse gas pollution from passenger cars; the attorney general's office is active in defending the rule in federal court.

The World Resources Institute has just put out "Climate Policy in the State Laboratory." New York's actions are emblematic of what the report confirms, that "From standards for organic agriculture, to removing asbestos from schools, to creating enterprise zones, and reducing acid rain pollution," writes author Jonathan Lash, "the states have shown a path forward and provided both the problem-solving acumen as well as the pressure to induce the Federal government to act."

Image credit: flickr/LinBow

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