Published online by Cambridge University Press: 07 April 2015
Three sets of social institutions deal with catastrophic risk: government regulation through rule making, the market, and civil liability. Climate disasters expose the limitations of all of these social institutions and often result in extensive uncompensated losses, particularly in developing countries. The author proposes the establishment of a fossil fuel-funded Climate Disaster Response Fund to compensate victims for the ‘residual’ risk of climate disasters in developing countries that are particularly vulnerable to the impacts of climate change. This Fund, established under the UNFCCC’s Warsaw International Mechanism for Loss and Damage Associated with Climate Change Impacts, would comprise levies placed on the world’s top 200 fossil fuel companies. This proposal is modelled on various domestic and international funds which have been established to overcome the difficulties posed by tort law and which require companies to pay for the hazardous consequences of their activities and products. Precedents include funds to compensate for the damage caused by toxic chemicals, oil pollution spills, asbestos and nuclear accidents.
The author wishes to thank her researcher, Chris Cain, for her expertise and diligence in collecting all of the materials relied on to write this article. She wishes also to thank Joanne Scott, Adrian Bradbrook, Gerry Bates and Michael Faure for commenting on earlier drafts of the article.
1 See United Nations Development Programme (UNDP), United Nations Environment Programme (UNEP), The World Bank, World Resources Institute, World Resources Report 2010–2011: Decision Making in a Changing Climate: Adaptation Challenges and Choices, available at: http://pdf.wri.org/world_resources_report_2010-2011.pdf.
2 D. Farber, ‘Environmental Disasters: An Introduction’, UC Berkeley Public Law Research Paper No. 1898401, p. 1, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1898401.
3 Telesetsky, A., ‘Insurance as a Mitigation Mechanism: Managing International Greenhouse Gas Emissions through Nationwide Mandatory Climate Change Catastrophe Insurance’ (2010) 27(3) Pace Environmental Law Review, pp. 691–734Google Scholar, at 692.
4 W.K. Viscusi & R.J. Zechkhauser, ‘Addressing Catastrophic Risks: Disparate Anatomies Require Tailored Therapies’, Vanderbilt University Law School, Law and Economics Working Paper, 2011, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1960742.
5 Ibid., at p. 11.
7 Farber, n. 2 above, at p. 9.
8 IPCC, ‘Special Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation’ (SREX), at p. 33, available at: http://www.ipcc-wg2.gov/SREX.
9 IPCC Working Group I, Fifth Assessment Report, ‘Climate Change 2013: The Physical Science Basis, Summary for Policymakers’ (IPCC 2013 Summary), available at: http://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_SPM_FINAL.pdf. The IPCC Working Group II, Fifth Assessment Report, ‘Climate Change 2014: Impacts, Adaptation, and Vulnerability’ was released on 31 Mar. 2014 and elaborates further on these matters: see Section 4.2 and n. 42 below.
10 SREX, n. 8 above.
11 IPCC 2013 Summary, n. 9 above, at p. 4.
12 The IPCC expresses its confidence in accordance with the IPCC Uncertainty Guidance Note and ‘very likely’ means >90% probability: see http://www.ipcc.ch/publications_and_data/ar4/wg1/en/ch1s1-6.html.
13 IPCC 2013 Summary, n. 9 above, at p. 4.
14 Ibid., about 5 out of 10 chance.
15 Ibid., at p. 23; SREX, n 8 above, at p. 8.
16 Ibid., at p. 13. Note that there has been further strengthening of the evidence of human influence on temperature extremes since the SREX.
17 Ibid., at p. 23, >99% certainty of occurrence.
18 SREX, n. 8 above, at p. 13.
19 Ibid., at p. 9.
20 IPCC 2013 Summary, n. 9 above, at p. 23.
21 SREX, n. 8 above, at p. 13.
24 IPCC 2013 Summary, n. 9 above, at p. 13.
25 Ibid., at p. 23.
26 Ibid., about an 8 out of 10 chance.
27 Ibid., at p. 14.
28 Ibid., at p. 368.
30 SREX, n. 8 above, at pp. 9 and 266.
31 Swiss Re, ‘Weathering Climate Change: Insurance Solutions for More Resilient Communities’, 2010, p. 3, available at: http://europa.eu/epc/pdf/workshop/2-3_pub_climate_adaption_en.pdf.
32 Decision 2/CP.19, Warsaw International Mechanism for Loss and Damage Associated with Climate Change Impacts, FCCC/CP/2013/10/Add.1, available at: http://unfccc.int/resource/docs/2013/cop19/eng/10a01.pdf.
34 Ibid., Preamble.
35 Priest, G.L., ‘The Government, the Market, and the Problem of Catastrophic Loss’ (1996) 12 Journal of Risk and Uncertainty, pp. 219–237CrossRefGoogle Scholar. See also Kunreuther, H., ‘Reducing Losses from Catastrophic Risks through Long-Term Insurance and Mitigation’ (2008) 75(3) Social Research, pp. 905–930Google Scholar, at 905.
36 Monti, A., ‘Climate Change and Weather-related Disasters: What Role for Insurance, Reinsurance and Financial Sectors?’ (2009) 15 Hastings West and Northwest Journal of Environmental Law and Policy, pp. 151–172Google Scholar, at 153.
38 United Nations International Strategy for Disaster Reduction, ‘Hyogo Framework for Action 2005–2015: Building the Resilience of Nations and Communities to Disaster’, 2005, available at: http://www.unisdr.org/files/1037_hyogoframeworkforactionenglish.pdf.
40 ‘Hyogo Framework’, n. 38 above, Art. 14.
41 R.J. Fuchs, ‘Cities at Risk: Asia’s Coastal Cities in an Age of Climate Change’, East-West Center No. 96, July 2010, pp. 1–12, at 7, available at: http://www.eastwestcenter.org/fileadmin/stored/pdfs/api096.pdf; see also Fuchs, R., M. Conran & E. Louis, ‘Climate Change and Asia’s Coastal Urban Cities: Can they Meet the Challenge’ (2011) 2(1) Environment and Urbanization Asia, pp. 13–28CrossRefGoogle Scholar.
42 Summary for Policymakers, available at: http://ipccwg2.gov/AR5/images/uploads/WG2AR5_SPM_FINAL.pdf.
43 Ibid., at p. 6.
44 Ibid., at p. 13.
45 Ibid., at p. 25.
46 Ibid., at p. 26.
47 See World Bank, Natural Hazards, UnNatural Disasters: The Economics of Effective Prevention (2010), p. 106, available at: http://publications.worldbank.org/index.php?main_page=product_info&products_id=23659.
48 Fuchs, Conran & Louis, n. 41 above, at p. 24.
49 Ibid., at p. 25.
50 Fuchs, n. 41 above, at p. 8.
51 Natural Hazards, n. 47 above, at p. 170.
52 Fuchs, n. 41 above, at p. 8.
53 Natural Hazards, n. 47 above, at p. 180.
54 Queensland Floods Commission of Inquiry, ‘Final Report’, p. 272, available at: http://www.floodcommission.qld.gov.au/publications/final-report.
55 See Decision 2/CP.19, n. 32 above.
56 Ibid., Art. 1.
57 Ibid., Art. 2.
59 Ibid., Art. 5.
60 Ibid., Art. 3.
61 Ibid., Art. 6.
62 Ibid., Art. 9.
63 Ibid., Art. 12.
64 Ibid., Art. 14.
65 Priest, n. 35 above; see also Kunreuther, n. 35 above.
66 Bruggeman, V., Faure, M. & Heldt, T., ‘Insurance Against Catastrophe: Government Stimulation of Insurance Markets for Catastrophic Events’ (2012) 23(1) Duke Environmental Law & Policy Forum. pp. 185–241Google Scholar, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2213772.
67 Priest, n. 35 above, at p. 220.
68 Ibid., at p. 226.
69 Ibid., at p. 228.
70 Zeckhauser, n. 37 above, at p. 133.
71 Viscusi & Zeckhauser, n. 4 above, at p. 14. For a discussion of the various responses to this problem in the European Union see Schwarze, R. et al., ‘Natural Hazard Insurance in Europe: Tailored Responses to Climate Change are Needed’ (2011) 21(1) Environmental Policy and Governance, pp. 14–30CrossRefGoogle Scholar, at 14.
72 S. Hecht, ‘Insurance’, in M.B. Gerrard & K. Fischer Kuh (eds), The Law of Adaptation to Climate Change (American Bar Association, 2012) pp. 511–42, at 513.
73 See Australian Government, Productivity Commission, ‘Barriers to Effective Climate Change Adaptation’, 14 Mar. 2013, at p. 300, available at: http://www.pc.gov.au/projects/inquiry/climate-change-adaptation/report.
74 Hecht, n. 72 above, at p. 514.
75 Productivity Commission, n. 73 above, at p. 300.
76 Hecht, n. 72 above, at p. 515. Note that compulsory insurance has also been held up as a GHG mitigation instrument. It is suggested that insurers could become substantially involved in underwriting the climate change catastrophe risks of major emitters, in which case the emitters would need to satisfy the risk tolerances of the insurers: see Telesetsky, n. 3 above.
77 Hecht, n. 72 above, at p. 515.
78 Priest, n. 35 above, at p. 233.
79 Natural Hazards, n. 47 above, at p. 18.
80 Ibid., at p. 18.
81 See, e.g., the Australian Government Disaster Recovery Payment and the Disaster Income Recovery Subsidy, available at: http://www.disasterassist.gov.au/Currentdisasters/Pages/QLD/Queenslandfloods(November2010February2011).aspx.
82 See Australian Government, Attorney-General’s Department, ‘Natural Disaster Relief and Recovery Arrangements: Determination 2012’, available at: http://www.disasterassist.gov.au/FactSheets/Documents/NDRRADeterminations/NDRRA%20Determination%202012.doc. A means-tested levy, set at 0.5% of taxable income in excess of AUS$50,000, was imposed on Australian taxpayers for the 2011–12 financial year to assist with the costs of rebuilding infrastructure following the floods.
84 House of Representatives (HR) 152. For a summary of the Act see http://www.govtrack.us/congress/bills/113/hr152#summary/libraryofcongress.
85 L. Nahmias, ‘State Charities Collect Nearly $400 Million in Sandy Donations’, The Wall Street Journal, 3 Jan. 2013, available at: http://blogs.wsj.com/metropolis/2013/01/03/state-charities-collect-nearly-400-million-in-sandy-donations.
86 See AON Benfield, ‘2011 Thailand Floods Event Recap Report: Impact Forecasting – March 2012’, at p. 25, available at: http://thoughtleadership.aonbenfield.com/Documents/20120314_impact_forecasting_thailand_flood_event_recap.pdf.
87 Priest, n. 35 above, at p. 226.
88 Schwarze et al., n. 71 above, at p. 16.
89 Van den Bergh, R. & Faure, M., ‘Compulsory Insurance of Loss to Property Caused by Natural Disasters: Competition or Solidarity’ (2006) 29(1) World Competition, pp. 25–54Google Scholar, at 27.
90 Bruggeman et al., n 66 above, at p. 194.
91 Viscusi & Zeckhauser, n. 4 above, at p. 31.
93 Ibid., at p. 296.
96 Bruggeman et al., n. 66 above, at p. 200.
97 Faure, M.G., ‘Insurability of Damage Caused by Climate Change: A Commentary’ (2007) 155 Pennsylvania Law Review, pp. 1875–1899Google Scholar.
98 See Bruggeman et al., n. 66 above, at p. 202.
99 Insurance reduces the risk level by aggregating uncorrelated risks because, for statistically independent risks, the sum of the aggregated risk is less than the sum of the risks taken individually: see Priest, n. 35 above, at p. 222.
100 Ibid., at p. 226.
101 Like aggregation, segregation according to risk level improves an insurer’s ability to predict expected loss, making possible greater predictive accuracy: ibid., at p. 223.
102 Ibid., at p. 227.
103 Viscusi & Zeckhauser, n. 4 above, at p. 32.
104 Productivity Commission, n. 73 above, at p. 301.
105 Ibid., at p. 301.
106 GAR 2011, ‘Global Assessment Report on Disaster Risk Reduction, Revealing Risk, Redefining Development, Summary and Main Findings’, UN GAR 2011, at p. 124, available at: http://www.preventionweb.net/english/hyogo/gar/2011/en/home/executive.html.
107 Ibid., at p. 125.
108 Ibid., at p. 106.
109 Productivity Commission, n. 73 above, at p. 301.
110 Swiss Re, n. 31 above.
112 Grossman, D.A., ‘Warming Up to a Not-So-Radical Idea: Tort-based Climate Change Litigation’ (2003) 28 Columbia Journal of Environmental Law, pp. 1–61Google Scholar, at 4.
113 Ibid., at p. 3. See also Cashman, P. & Abbs, R., ‘Liability in Tort for Damage Arising from Human-induced Climate Change’, in R. Lyster (ed.), In the Wilds of Climate Law (Australian Academic Press, 2010) pp. 235–271Google Scholar.
114 Grossman, n. 112 above, at p. 7.
115 Kysar, D., ‘What Climate Change Can Do About Tort Law’ (2012) 41(1) Environmental Law, pp. 1–71Google Scholar, at 41.
116 696 F.3d 849 (9th Cir. 2012).
117 Clean Air Act of 1963, 77 Stat. 392.
118 Kivalina, n. 116 above, at 11649.
119 Ibid., at 11654. In American Electric Power v. Connecticut, 131 S.Ct. 2527 (2011), at 3, the US Supreme Court held that the Environmental Protection Agency’s regulatory actions to reduce GHG emissions displaced any federal common law right to seek abatement of carbon dioxide emissions from fossil fuel plants based on an interstate nuisance action.
120 Kivalina, n. 116 above, at 11655.
121 Viscusi & Zeckhauser, n. 4 above, at p. 10.
122 Linnerooth-Bayer, J. et al., ‘Insurance, Developing Countries and Climate Change’ (2009) 34 The Geneva Papers, pp. 381–400Google Scholar, at 384.
123 Ibid., at 384. See also Natural Hazards, n. 47 above, at p. 19.
124 Linnerooth-Bayer et al., n. 122 above, at p. 385.
125 Ibid., at p. 385
126 Ibid., at p. 385.
127 This article does not aim to establish an international mechanism to facilitate the bringing of civil law actions in domestic courts to remedy the harm. For reflections on international mechanisms, see, e.g., Sachs, N., ‘Beyond the Liability Wall: Strengthening Tort Remedies in International Environmental Law’ (2008) 55 UCLA Law Review, pp. 837–904Google Scholar, at 837.
128 42 USC §§ 9601 et seq., as amended by PL 107–377, 31 Dec. 2002, available at: http://www.epw.senate.gov/cercla.pdf.
130 Oil Pollution Act, 33 USC § 2701 et seq (1990).
132 26 USC Subchapter A, ‘Tax on Petroleum’. Note that Chapter 38 is inserted into the Internal Revenue Code by CERCLA, Title II, ‘Hazardous Substance Response Revenue Act of 1980 Subtitle A – Imposition of Taxes on Petroleum and Certain Chemicals’.
133 Internal Revenue Code, ibid., s. 4611(a)(1),(2).
134 Ibid., s. 4611 (b).
135 Ibid., s. 4611 (d).
137 London (UK), 27 Nov. 1992, in force 30 May 1996, available at: http://www.imo.org/About/Conventions/ListOfConventions/Pages/International-Convention-on-Civil-Liability-for-Oil-Pollution-Damage-%28CLC%29.aspx.
139 See International Petroleum Industry Environmental Conservation Association (IPIECA) and International Tanker Owners Pollution Federation Ltd (ITOPF), ‘Oil Spill Compensation: A Guide to the International Conventions on Liability and Compensation for Oil Pollution Damage’, Feb. 2007, available at: http://www.ipieca.org/system/files/publications/Compensation_1.pdf.
140 CLC, n. 137 above, Art. III.
141 IPIECA & ITOPF, n. 139 above, at p. 6.
142 Ibid., at p. 7.
143 Ibid., at pp. 10–12.
144 N. 130 above.
145 See Liu, J., Faure, M. & Wang, H., ‘Compensating for Natural Resource Damage Caused by Vessel-Induced Marine Oil Pollution: Comparing the International, US and Chinese Regimes’ (2014) 29(123) Journal of Environmental Law and Litigation, pp. 123–190Google Scholar, at 157.
146 See H. Anderson, ‘Veil Piercing and Corporate Groups – An Australian Perspective’ (2010) New Zealand Law Review, pp. 1–35, at 1.
147 See Redmond, P., ‘Directors’ Duties and Corporate Social Responsiveness’ (2012) 35(1) UNSW Law Journal, pp. 317–340Google Scholar.
148 See D.F. Jackson, ‘Report of the Special Commission of Inquiry into the Medical Research and Compensation Foundation’, Sept. 2004, at p. 7, available at: http://www.dpc.nsw.gov.au/__data/assets/pdf_file/0020/11387/01PartA.pdf.
149 Ibid., at p. 13.
150 Amended and Restated Final Funding Agreement in respect of the provision of long-term funding for compensation arrangements for certain victims of asbestos-related diseases in Australia, 21 Nov. 2006 as amended and restated as at 20 Dec. 2013, available at: http://www.aicf.org.au/docs/AFFA%20Amended%20and%20Restated%20as%20at%2020%20December%202013.pdf.
151 See Faure, M. & Liu, J., ‘The Tsunami of March 2011 and the Subsequent Nuclear Incident at Fukushima: Who Compensates the Victims?’ (2012) 37(129) William and Mary Environmental Law and Policy Review, pp. 129–218Google Scholar, at 131–32. See also Osaka, E., ‘Corporate Liability, Government Liability, and the Fukushima Nuclear Disaster’ (2012) 21(3) Pacific Rim Law & Policy Journal, pp. 433–459Google Scholar; E.A. Feldman, ‘Fukushima: Catastrophe, Compensation, and Justice in Japan’, Public Law and Legal Theory Research Paper Series, Research Paper No. 13-7; H. Morita, ‘Rescuing Victims and Rescuing TEPCO: A Legal and Political Analysis of the TEPCO Bailout’, 21 Mar. 2012, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2026868.
152 Note that a comprehensive English compilation of articles, legislation and administrative instruments can be found in Japan’s Compensation System for Nuclear Damage: As Related to the TEPCO Fukushima Daiichi Nuclear Accident (OECD and Nuclear Energy Agency, 2012), available at: http://www.oecd-nea.org/law/fukushima/7089-fukushima-compensation-system-pp.pdf. These regulatory instruments include the following: Act on Compensation for Nuclear Damage (Act No. 147 of 1961, as amended by Act No. 19 of 17 Apr. 2009); Act on Indemnity Agreements for Compensation of Nuclear Damage (Act No. 148 of 1961, as amended by Act No. 19 of 17 Apr. 2009); Nuclear Damage Compensation Facilitation Corporation Act (Act No. 94 of 2011), accompanied by a number of Ordinances and Cabinet Orders for implementing the Act including: Order for the Execution of the Act on Compensation for Nuclear Damage, Cabinet Order No. 44 of 6 Mar. 1962 as amended by Cabinet Order No. 201 of 7 Aug. 2009; Order for the Execution of the Act on Indemnity Agreements for Compensation of Nuclear Damage, Cabinet Order No. 45 of 1962 as amended by Cabinet Order No. 201 of 7 Aug. 2009; Order for Enforcement of the Nuclear Damage Compensation Facilitation Corporation Act, and Cabinet Order No. 257 of 2011.
153 Faure & Liu, n. 151 above, at p. 179.
154 See, e.g., Preliminary Guidelines on Determination of the Scope of Nuclear Damage resulting from the Accident at the Tokyo Electric Power Company Fukushima Daiichi and Daini Nuclear Power Plants of 28 May 2011, which were followed by supplementary Guidelines on 31 May 2011, 20 June 2011, 5 Aug. 2011, 6 Dec. 2011 and 16 Mar. 2012; available in Japan’s Compensation System for Nuclear Damage, n. 152 above.
155 Faure & Liu, n. 151 above, at pp. 194–5.
156 Ibid., at p. 196.
157 I acknowledge that the details of this Fund would need to be agreed in concert with the establishment of the loss and damage fund under the UNFCCC. This article provides rather the conceptual analysis and justification.
158 See Carbon Tracker Initiative (CTI), ‘Unburnable Carbon: Are the World’s Financial Markets Carrying a Carbon Bubble?’, 2013, at pp. 13–4, available at: http://www.carbontracker.org/carbonbubble. See also CTI, ‘Unburnable Carbon 2013: Wasted Capital and Stranded Assets’, 2013, available at: http://www.lse.ac.uk/GranthamInstitute/publications/Policy/docs/PB-unburnable-carbon-2013-wasted-capital-stranded-assets.pdf. Note that in July 2013, Carbon Tracker was named the NGO of the Year at the Business Green Leaders Awards.
159 CTI, ‘Unburnable Carbon – Are the World’s Financial Markets Carrying a Carbon Bubble?’, ibid., at p. 2.
160 This research is part of a project developed in collaboration with a former Chief Risk Officer of a large insurance company to compute the rates of liability. Sources of funding to support the actuarial studies needed to calculate the technical details of this Fund are currently being sought.
161 IOPC Fund, n. 138 above. See also the liability of non-state and state operators under Art. 7 of Annex VI (entitled ‘Liability Arising From Environmental Emergencies’) to the Protocol on Environmental Protection to the Antarctic Treaty, 4 Oct. 1991, in force 14 Jan. 1998, available at: http://www.polarlaw.org/1991protocol.htm.
162 For example, generators liable under Australia’s now repealed Carbon Price Mechanism in New South Wales are state-owned corporations. The same would be the case in jurisdictions, such as China, which are engaging in pilot emissions trading schemes.
163 N. 138 above.
164 N. 137 above.
165 IPIECA & ITOPF, n. 139 above, at p. 6.
167 See, e.g., Caney, S., ‘Cosmopolitan Justice, Responsibility and Global Climate Change’ (2005) 18(4) Leiden Journal of International Law, pp. 747–775Google Scholar; Caney, S., ‘Cosmopolitan Justice, Rights and Global Climate Change’ (2006) 19(2) Canadian Journal of Law and Jurisprudence, pp. 255–278CrossRefGoogle Scholar; D. Miller, ‘Global Justice and Climate Change: How Should Responsibilities Be Distributed?’, presented at Tsinghua University, Beijing (China), 24–25 Mar. 2008; E.A. Page, ‘Distributing the Burdens of Climate Change’ (2008) 17(4) Environmental Politics, pp. 556–75.
168 Liu, Faure & Wang, n. 145 above, at p. 183.
169 N. 138 above.
170 N. 128 above.
171 Note that the Australian CPM as provided in the Clean Energy Act 2011 (Cth) covers emissions from the mining of coal and the embodied emissions of natural gas. However, this is under threat as the new Coalition government has announced its intention to abolish it.
172 Note that Annex VI to the Protocol on Environmental Protection to the Antarctic Treaty, n. 161 above, Art. 6, imposes liability for damage to the environment. ‘Environmental emergency’ means any accidental event that has occurred, having taken place after the entry into force of the Annex, and that results in, or imminently threatens to result in, any significant and harmful impact on the Antarctic environment (Art. 2(b)); available at: http://www.ats.aq/documents/recatt/Att249_e.pdf.
173 N. 130 above.
174 Liu, Faure & Wang, n. 145 above, at p. 185.
176 Faure & Liu, n. 151 above, at p. 197.
177 See Hughes, L. & Steffen, W., The Critical Decade: Extreme Weather (Climate Commission, 2013), at p. 16Google Scholar., available at: http://www.climatecouncil.org.au/extreme-weather-report.
178 Ibid., at p. 17.
179 Telesetsky, n. 3 above, at p. 702.
180 Viscusi & Zeckhauser, n. 4 above, at p. 7.