Hidden Gem for Big Oil in Carbon Tax Plan: Ending Climate Liability Suits

Oil and gas companies could be off the hook for climate change-related damages if a new carbon tax proposal makes its way through Congress.

The proposal is being spearheaded by Americans for Carbon Dividends, an industry-backed organization whose mission is to build support for the Baker-Shultz Carbon Dividends Plan, which proposes taxing carbon emitters and returning the proceeds to the American public. It also includes a waiver of the right to sue fossil fuel companies for climate change impacts and suggests rolling back most Environmental Protection Agency regulations on greenhouse gases.

Launched earlier this month, Americans For Climate Dividends is co-chaired by former Senators Trent Lott (R-Miss.) and John Breaux (D-La.), whose lobbying firm was hired to promote the campaign. Its public relations effort is being led by Hill+Knowlton, a firm that once spearheaded the communications campaign for Big Tobacco.

The group has succeeded in gaining support from politicians and policymakers from both parties and even garnered qualified support from some environmental organizations. The public relations effort has succeeded in placing several Op-Ed articles and some newspaper editorial boards have endorsed it.

The Baker-Schultz plan—named for its lead authors, former secretaries of state James A. Baker III and George P. Shultz—proposes the implementation of a gradually rising carbon tax, with 100 percent of the proceeds paid to Americans in a monthly dividend payment. For companies that import or export goods to countries without a carbon pricing system, a border adjustment would be specified. The plan starts the tax at $40 per metric ton, but does not specify how or by how much it will rise.

The plan also includes what it calls “regulatory simplification:” a rollback of carbon dioxide emissions regulations because the authors claim the program would reduce emissions more than all current and prior climate regulations.

And although U.S. taxpayers would benefit from monthly dividend payments, it would also mean none of the proceeds would help cities and states pay the already ballooning costs of climate mitigation and adaptation.

While the plan’s promoters are suggesting it’s a win for everyone, the relatively low level of taxation and support of the fossil fuel industry raises myriad questions.

“Most would say a carbon tax is a great idea if you can get it right and make it stick—it’s what we want, a price on carbon,” said Kert Davies, director of the Climate Investigations Center.  

“But who’s the client —who’s paying Hill+Knowlton—is it Exxon or is it one of the fossils?” he said, adding that the issue of litigation seems out of sync with the rest of the Baker-Schultz plan.

The liability waiver means municipalities would be unable to file climate liability suits against fossil fuel companies. Many of those suits are already in progress, led by some California communities, New York City and most recently, the state of Rhode Island, as cities and towns wrestle with how to pay for climate impacts that are already happening.

“Robust carbon taxes would also make possible an end to federal and state tort liability for emitters,” wrote Baker and Schultz, in the plan, which was unveiled last year by the Climate Leadership Council, a 501(c)(3) policy institute founded by author and policy entrepreneur Ted Halstead.

However, the initial $40 carbon tax is far from robust, according to studies on the true social cost of carbon. A recent study by University of Massachusetts researchers showed a carbon tax would have to reach $200 a ton to change consumer behavior and to keep low-income consumers from absorbing a disproportionately high amount of the costs.

One study presented to the Canadian government said a tax would have to reach $300 a ton in the coming decades for that country to meet its emissions reduction targets it made to the Paris Climate Agreement.

According to the Climate Leadership Council website, co-founders include an unlikely mix. Listed among others are oil giants Exxon, BP, Shell, and Total, corporate giants P & G, Johnson & Johnson, Pepsico, and Excelon, individuals Ben Bernanke, Michael Bloomberg and Christine Todd Whitman and the environmental organization The Nature Conservancy.

Halstead said the council has worked with both fossil fuel companies and environmental groups since its launch.

“We have decided consciously not to accept corporate money because we want to be the honest broker between all the sides in the debate,” said Halstead on a panel last year, referring to the Climate Leadership Council, which reported less than $50,000 in gross receipts in 2016, the last year in which IRS  information is available for the organization. But Halstead also leads the Americans for Carbon Dividends, a new advocacy organization that has accepted more than $1 million in corporate money.

In a recent press release, Americans for Carbon Dividends boasted it has “raised a seven-figure annual budget from a range of energy industry leaders, including Exelon, First Solar and American Wind Energy Association, among others.” Exelon and First Solar are also corporate co-founders of the Climate Leadership Council.

Americans for Climate Dividends was formed in March  as a registered 501(c)(4) organization, and isn’t required to reveal its donors. It’s unknown if the Climate Leadership Council’s other co-founders—oil giants, corporations and individuals—are funding the new group.

“We’re respecting the wishes of each individual donor—if they want to be associated with this publicly, of course we welcome that, but if they choose not to for whatever reason, we respect that as well,” said Richard Keil, managing director of Hill+Knowlton Strategies, which is leading communications for Americans for Climate Dividends.

Hill+Knowlton’s involvement with those advocating for the Baker-Schultz proposal has some wondering if the firm’s work on behalf of oil and gas companies in trying to eliminate climate liability suits is similar to its work for tobacco companies. Their attempts to block access to the courts by individuals seeking compensation from tobacco companies ultimately failed.

“To me that’s the crux of the issue—whether or not this is part of their strategy of getting these lawsuits to go away,” Davies said.

Keil, who is listed as communications director on the AFCD website, worked for Exxon prior to joining Hill+Knowlton. Exxon is a founding member of the Climate Leadership Council.  

David Bookbinder, chief counsel for the Niskanen Center, a libertarian think tank, and former senior policy advisor for the Climate Leadership Council, said eliminating climate liability suits is a big reason the industry supports the Baker-Schultz Plan.

Many communities are now facing a staggering cost to protect themselves from rising sea levels and other climate change-related impacts and are forced either to use litigation to force the fossil fuel industry to pay for damages, or raise taxes on their residents.

“The fossil fuel industry is not going to support a carbon tax unless they’re immunized from damages,” said Bookbinder, who warned that what’s good for fossil fuel companies may not be good for communities.

Bookbinder, who previously served as chief climate counsel for the Sierra Club, and is co-counsel representing three municipalities in Colorado suing Exxon and Suncor for climate change adaptation costs, said municipalities on the frontlines of climate change are especially vulnerable.

Communities, no longer able to sue, could end up paying twice: once as carbon emitters and again to pay to mitigate damages caused by sea level rise and other climate impacts.  

“They’re all going to have to pay the carbon tax, which is appropriate, but at the same point, they’re going to have to tax themselves to pay for the climate damages,” he said.

The plan doesn’t address who will pay for climate damages, and not everyone is convinced the Baker-Schultz plan will reduce carbon emissions or help the American public.

Peter Frumhoff, director of science and policy and chief climate scientist at the Union of Concerned Scientists, said the proposal is a place to start the discussion of climate policy and he supports a carbon tax on principle. But he also said municipalities should continue to seek damages for climate impacts and should not trade away the ability to file liability suits.

Frumhoff also said those lawsuits appear to be having a political impact.

“It’s striking that there’s language in here about liability relief and to my mind, among other things, that suggests that the lawsuits are important not only for seeking legitimate goals for municipalities to be compensated for the costs they’re incurring, but because they are clearly driving, at least in part, the motivation of at least some companies to come to the table and to seek a deal.”

Davies said he wonders if the plan’s main goal is to implement a carbon tax-dividend program or to eliminate liability suits.

“If the tobacco companies had been able to get a $10 a pack cigarette tax in exchange for no lawsuits, they probably would have taken that deal—and this is far short of that.”

Jennifer Dorroh contributed reporting to this story.