State-based climate litigation jeopardizes energy security policy

The clash between President Biden’s climate change agenda and the realities of our global energy demands came to a head recently at the feet of the U.S. Supreme Court.

A recent decision by the Biden administration’s solicitor general recommending that SCOTUS keep a Boulder climate lawsuit in state court rather than being heard in federal court was scrutinized by the energy companies who filed the petition, saying the decision catered to political allies behind the lawsuits.

It’s not a bad point. Especially considering how this decision is yet another example of how the oil and gas industry remains a target by this administration, despite key members of its cabinet touting the importance of increased U.S. oil and gas development to keep prices stable at home and to support key U.S. allies amid the Russia-Ukraine war.

Unfortunately, attacks on America’s energy producers — through punitive taxes and climate lawsuits — are counterproductive to America’s climate action goals and our need to meet energy demand.

For example, just last month the president’s 2024 proposed budget outlined how they plan to use punitive tax measures on the industry to collect “a total of $52.2 billion in discretionary budget authority to tackle the climate crisis.” Tactics like targeting tax provisions associated with industry operations designed to compensate these companies for the risks associated with the industries’ much needed capital investments is an economic stab to the heart. Proposals to increase the corporate tax rate would also have a negative impact on this industry disproportionately by increasing the effective cost of capital. The list goes on.

But unlike the budget, these climate lawsuits are not new. Since 2017, U.S. cities and states have been suing key players within the energy industry over a variety of claims from environmental damages and adverse impacts on climate to misleading the public on the risks of burning fossil fuels.

The U.S. solicitor general’s choice was an important move, and relevant to our nation’s future climate policy. The recommendation to reject the energy companies’ petition for Supreme Court review could send the case back to state court, a venue that is thought to be more favorable to plaintiffs. But these cases are happening across the nation. If each case is allowed to proceed in state courts, it will create a convoluted and disjointed patchwork response for addressing the globally complex phenomenon of climate change.

One judge’s response from another climate lawsuit in Minnesota on a similar issue of jurisdiction actually called out the concern with state courts adjudicating this issue. Eight Circuit Court of Appeals Judge David Stras, wrote, “Minnesota’s end game is equally clear: change the companies’ behavior on a global scale…The problem is, of course, that the state’s attempt to set national energy policy through its own consumer protection laws would ‘effectively override…the policy choices made by’ the federal government and other states. Regulating production and sale of fossil fuels worldwide, in other words, is ‘simply beyond the limits of state law.’”

Should state courts be creating this hostile and complex environment? That answer should be obvious particularly when you consider that climate change is a global challenge that must be balanced with how much energy we still need to produce to meet growing energy needs.

According to recent U.S. Energy Information Administration data, oil and gas represented close to 70 percent of the U.S. energy consumption in 2022. In addition, the EIA has also forecasted that oil and gas will be the most used fuels in the U.S. through 2050. 

So, how do we balance climate action goals with ensuring our energy security?

First, we all must accept that oil and gas will be critical in our journey to find climate change solutions that get us to net-zero greenhouse gas emissions by 2050. As eloquently stated by International Energy Agency Executive Director Fatih Birol, “The scale of the climate challenge requires a broad coalition encompassing governments, investors, companies and everyone else who is genuinely committed to reducing emissions. That effort requires the oil and gas industry to be firmly and fully on board.”

Second, we must also accept that industry will require a great deal of long-term investment to sustain the operations needed to provide today’s energy, while making the transition to the low carbon solutions needed to achieve climate goals. New punitive taxes and lawsuits will only guarantee a decrease in the pool of resources available to reinvest, especially in pledges these companies have made to support this important transition. 

The products in question are obviously demanded — not only by consumers, but also by state and local governments looking to strengthen their economies. Endless lawsuits are only adding another hurdle for the industry and tying up resources that could be used for more productive activities, like improving efficiency or investing in research and development that could bring that next big clean energy advancement.

Whether it be through taxes, regulations or climate lawsuits, the administration needs to reconcile what efforts will help our transition to a cleaner future versus what is mostly political posturing. Rejecting these meritless climate lawsuits will be a valuable course correction.

Pınar Çebi Wilber is executive vice president and chief economist for the American Council for Capital Formation.