It’s only the second climate change trial in the US but its consequences could be big. Oil and gas giant ExxonMobil is at court, accused of defrauding shareholders and the public because of misrepresenting how carbon regulation would affect the company’s financial outlook in the future.
The trial, which could last three weeks, will debate whether material damage occurred as a result of Exxon’s deceptions. Regardless of the verdict, Exxon is likely to come out an overall loser. The state has accessed a wealth of documents showing how the corporation conducts business, and allegedly mislead and defrauded investors.
“If the investors had known what the real cost of climate change regulations would be, they might not have invested in Exxon,” Patrick Parenteau, a professor of law and senior counsel in the Environmental and Natural Resources Law Clinic at Vermont Law School, said in a statement to PBS
The case goes back to 2015 when stories by InsideClimate News and the Los Angeles Times found that while Exxon’s scientists were inwardly researching climate change to plan its operations, the company was outwardly casting doubt on global warming.
Those reports spurred investigations in New York and Massachusetts, which just filed its own suit. “There’s nothing wrong with advocating for your own company. What you’re not allowed to do is commit fraud,” then-New York Attorney General Eric Schneiderman told PBS NewsHour.
The case is before the New York State Supreme Court in Manhattan and is being prosecuted by Letitia James, who was elected state attorney general last year. New York argues that Exxon used two different ways to calculate carbon costs and wasn’t clear when it was using one or the other.
The fraud cost investors as much US$1.6 billion, the attorney general’s office alleges. Former US Secretary of State Rex Tillerson was the CEO of ExxonMobil from 2006 to 2016, during the years in question, and will testify in the trial, according to a company attorney.
A number of oil firms assume future climate policies like a carbon tax or market will come into play, and they build that “price” into their analysis of whether fossil fuel projects can make money or not. Exxon said it priced carbon at US$80 per ton for all of its projects, which is much more aggressive than the current carbon pricing mechanism. Internally, the company priced carbon much lower.
In New York’s 91-page complaint, the state cites a number of ways Exxon misguided investors, particularly by grossly underestimating how much it would cost to extract oil from 14 oil sand projects in Alberta, Canada — one the largest oil reserves on Earth. Exxon lowballed these costs by a whopping US$25 billion, argued the state.
“Exxon provided false and misleading assurances that it is effectively managing the economic risks posed to its business by the increasingly stringent policies and regulations that it expects governments to adopt to address climate change,” the state wrote in a complaint last year.
That would be a violation of a New York statute known as the Martin Act, which grants the state’s attorney general the authority to pursue investigations and actions against those it suspects of securities fraud. It’s the same law that has been used by previous attorneys general in the state to bring charges against big financial firms.
Exxon says the lawsuit is politically motivated and driven by anti-fossil fuel activists. The company says it was honest with shareholders about how it calculated carbon costs, dismissing any wrongdoing.
“The New York Attorney General’s allegations are false,” Steven Soper of Exxon’s Corporate Media Relations said to PBS. “We tell investors through regular disclosures how the company accounts for risks associated with climate change. We are confident in the facts and look forward to seeing our company exonerated in court.”
What’s at stake?
If Exxon loses the case, they’ll have to pay damages to the state of New York. But the company has to worry about more than a payout and a hit to its reputation. Exxon could also face additional legal challenges from other states, and possibly even at the federal level, according to Mark Latham of Vermont Law School.
The fallout could impact many other companies, too. “It’s a big deal,” said Latham to BuzzFeed, adding that any company “that generally downplayed the risk of climate in public documents they disclosed to the US Securities and Exchange Commission and others” would be at risk of future litigation if Exxon loses.
Exxon faces busy times
Following the case in New York, ExxonMobil was also affected by the second lawsuit in Massachusetts, where the Attorney General is accusing the company of defrauding investors and threatening the world economy.
The oil and gas firm is accused of a broad sweep of misconduct that includes using deceptive advertising to mislead consumers in the state about the central role its fossil fuel products play in causing climate change, and intentionally misleading Massachusetts investors about material climate-driven risks to its business.
Attorney General Maura Healey also upbraids Exxon in the lawsuit for an on-going “greenwashing” marketing campaign that she says falsely touts the company as a leader in clean energy research and climate action. The company “hypocritically” highlighted its environmental role while being among the largest corporate contributors to global warming, the complaint reads.
“Collectively, as with its historic and ongoing deception campaigns about the science, the objective of ExxonMobil’s efforts is to preserve the company’s short-term profits in a carbon-dominated world economy no matter the dire long-term consequences for the company’s investors or for the consumers who buy its products,” the 211-page complaint states.
While the New York case rests exclusively on investor fraud allegations, the Massachusetts one more broadly includes consumer fraud allegations based on Exxon’s failure to fully disclose information that would have allowed consumers to make informed decisions to purchase Exxon oil and gasoline products.
The case focuses on whether past statements Exxon made questioning climate change science and downplaying its risks to the company constituted a form of fraud against the public and its shareholders. It also alleges that Exxon hid from investors its decades-long knowledge that fossil fuels would have a negative impact on the climate.
“In the coming decades, these catastrophic ‘systemic’ impacts threaten to impose ruinous societal costs, cascade throughout the world’s economies, and decimate the overall value of the world’s financial markets, and with them, ExxonMobil’s global business and the holdings of the company’s Massachusetts investors,” the complaint said.
Exxon’s climate past
By the late 1980s, every major oil company understood the risk of global warming was coming, and that its advent promised regulations imperiling investments in fossil fuels, science historian Spencer Weart, author of The Discovery of Global Warming, told BuzzFeed News.
Internal Exxon memos have shown the company’s marketing strategy involved publicly casting doubt on the science, such as placing a full-page advertisement in the New York Times titled “Unsettled Science,” according to the new report “America Misled” by climate communication and historian researchers from George Mason University, Harvard University, and the University of Bristol.
Meanwhile, the company privately funded climate denial campaigns, bankrolling advocacy groups that sought to cast uncertainty over climate science, even after pledging to stop funding climate deniers.
“We know that this was deliberate,” Naomi Oreskes, a professor of the history of science at Harvard University and co-author on the recent report, told BuzzFeed News. “Given multiple opportunities to correct the record, they declined those opportunities, and continued business as usual.”
Other companies make the news
The city of Baltimore sued BP and 26 other oil majors that also include Exxon, Shell, Marathon, Chevron, and more. The city is seeking money to deal with, among other things, the rising sea levels, more intense heat waves, and more heavy downpours. The suit alleges the companies “have known for half a century” how their products have befouled the climate.
The suit was filed last year, and the oil companies have since tried to get it dismissed, including petitioning the United States Supreme Court for a stay and moving the case from state to federal court. The Supreme Court denied the stay on Tuesday meaning the case can proceed to discovery while attorneys haggle over whether it stays in the state court system or gets moved to the federal one.
Last year, a group of Colorado counties filed the first non-coastal climate lawsuit against a fossil fuel company. Like the Baltimore case, it’s focused on getting Big Oil to pay for climate damages, though Colorado’s concerns are a bit different. While coastal areas are worried about rising seas, the Mountain West will have to contend with disappearing snowpack and its impact on water supplies.
Exxon is again a defendant in this case along with the Canadian tar sand company Suncor. And like the Baltimore case, the defendants tried to get the case bumped to federal court to no avail; and just last week, they tried to get the U.S. Supreme Court to intervene.