Are the Investigations of Oil Giant Exxon and Coal Producer Peabody Political or Proper?
Call this the tale of two different sets of state attorneys general: one group represents coal producing and consuming states and the other speaks for states that are adversely affected by those who burn coal. While it‚Äôs all playing out in the nation‚Äôs legal arenas, the efforts are surely political. After all, the office of attorney general is known as the ‚Äúaspiring governors.‚ÄĚ¬†
A few matters are at issue here — ones that essentially boil down to the place of coal in the national electricity supply and the role it is having on carbon emissions. To that end, there are two general cases on the country‚Äôs plate: the first deals with how coal is to be treated under the Obama administration‚Äôs Clean Power Plan that is pushing for a 32 percent cut in carbon emissions by 2032. Here, 27 attorneys general asked for a delay until the case can be heard in court.
And the second is dealing with whether fossil fuel companies generally and a coal company in particular have misrepresented what they have long-known to be true about their product — that it is responsible for climate change and the subsequent problems that man-made carbon could create. This is an effort led by New York‚Äôs attorney general, although a similar move is now underway with respect to whether ExxonMobil Corp. mislead its investors. Here, Massachusetts, California and New York are spearheading an effort, along with 14 other jurisdictions.
Most people know by now that the US Supreme Court has remanded Obama‚Äôs Clean Power Plan back to the US District Court of Appeals in Washington, DC, which had earlier given the plan its Okay. Now that body will rehear the case in June, after the US Environmental Protection Agency tries to address the concerns of the majority of justices: to ensure that the costs of compliance would outweigh the benefits.
The objections to the Clean Power Plan are tied to the economic impact that a shift in generation portfolios would have on states. While they have a variety of compliance options open to them, many feel is it is disruptive to change out older power plants for modern, cleaner ones. It‚Äôs about jobs. And it‚Äôs about politics — about winning the ‚Äúwar on coal,‚ÄĚ as they have labeled it.
‚ÄúThe absence of EPA legal authority in this case makes the Clean Power Plan, quite literally, a ‚Äėpower grab,‚Äô‚ÄĚ says Harvard law professor Laurence Tribe, in testimony before Congress last year.
The move to go after companies for failing to properly give notice to their shareholders is a much tougher case for the attorneys general. Their argument is that corporate management is dutifully obligated to notify their shareholders — their owners — of anything material they know.
And that‚Äôs the position that New York‚Äôs attorney general has taken with respect to the nation‚Äôs largest coal producer, Peabody Energy Corp. Under its state law and using the producer‚Äôs own filings with federal regulators, Eric Schneiderman has civilly charged the company with making false and materially incomplete statements regarding climate change.
The false statements are linked to the annual reports that Peabody filed with the U.S. Securities and Exchange Commission as far back as 2011. In those statements, the attorney general said that Peabody time-and-again denied that it had the ability to reasonably predict a range of impacts on its business if the laws pertaining to greenhouse gas emissions were to change. The burning of coal for electric generation is responsible for a third of all man-made carbon emissions.
Is this fair? It depends on whom is asked. In a conversation with securities and litigation lawyer Tom Gorman, the answer is that it is necessary to protect shareholders: Peabody made one-sided presentations to its investors showing them only data that indicated a favorable outcome to the coal producer, he says.¬†
In this case, the New York attorney general worked out a settlement that requires Peabody to correct its past statements and to present all-known evidence that it has documented going forward. Peabody did not admit or deny the allegations.
‚ÄúThe attorney general didn‚Äôt sue the company for not believing in climate change,‚ÄĚ says Gorman, with Dorsey & Whitney LLP. ‚ÄúThis case is straight forward: It says that Peabody told its shareholders one thing in its Securities and Exchange Commission filings when, in fact, it had information to the contrary. Shareholders are entitled to know what management knows.‚ÄĚ
In a separate conversation with Marlo Lewis, however, he indicated that the attorney general‚Äôs goal here is to limit the production and burning of coal, as well as to potentially curtail the usage of natural gas and oil. Lewis, who is the senior fellow for energy and the environment at the Competitive Enterprise Institute, adds that AG Schneiderman did not call Peabody‚Äôs actions fraud; rather, he called them an omission of ‚Äúmaterial‚ÄĚ information.
Even that is a stretch, notes Lewis: Peabody‚Äôs omission of ‚Äúfacts‚ÄĚ related to laws and data not yet known, is ridiculous. In other words, the company can‚Äôt predict what laws governments will or will not enact. In fact, given the current make up of the US Congress, it is unlikely that that a carbon tax would be enacted — one of the things that the company had previously looked into and the impact it would have on its profits and losses.
And all this is taking place as the Massachusetts‚Äô Attorney General Maura Healy said that she would join 15 other jurisdictions into investigating whether ExxonMobil had duped its shareholders about what it knew and when it knew it, about climate change. News reports said the company knew of the potential dangers as far back as 1977 and did nothing to warn its shareholders.
“Fossil fuel companies that deceived investors and consumers about the dangers of climate change must be held accountable,” said Healey, at a press conference this week.¬†
Exxon responded on Tuesday, calling the moves ‚Äúpolitically motivated.‚ÄĚ
Both the suits to prevent the Clean Power Plan from being enacted and the legal actions taken against Peabody and Exxon for their past statements are political — led by attorneys general who are popularly elected. But each of those officials represents a constituency that holds similar beliefs — whether they be tied to their economic survival or their environmental quality.
Those policies will be drawn up and decided at the legislative and regulatory levels. But they will assuredly get litigated. No matter how they turn out, environmental managers and corporate officers must understand and embrace the risks ahead.
Ken Silverstein is editor-in-chief of Business Sector Media, publisher of Environmental Leader and Energy Manager Today.
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