Worst corporate polluters hide in regulatory ‘darkness,’ study finds

Many of the world’s corporations may be responsible for climate damages far greater than their annual profits, a new study has found. 

For the biggest polluters worldwide — the fossil fuel-dependent power industry — that means potential legal liabilities around seven times their annual profits, four economists from leading universities wrote Thursday in Science.

“The average corporate carbon damages [are] economically large,” the economists wrote.

Those climate damages result from a “choice” on the part of regulators, co-author Michael Greenstone of the University of Chicago told The HIll.

That’s because the key to bringing those emissions down is forcing firms to disclose them — and creating penalties for failing to do so, Greenstone said.

While agencies such as the Securities and Exchange Commission have proposed making such disclosures mandatory, “to date, that has not been a requirement,” he added.

It has also been politically controversial: The GOP has made a campaign against mandatory climate disclosure a key plank of its platform, as The Hill has reported. 

 In the absence of rigorous information, the researchers made use of publicly available data based on 15,000 companies’ voluntary disclosures. Then they multiplied those numbers by an estimated “social cost of carbon” — a metric of the damage done by every ton of greenhouse gas released into the atmosphere.

While most firms were responsible for a lot of damage, they write, culpability was not equal.

The team found a wide range of climate costs “across firms, industries, firms within industries, and countries.”

Among “companies who are basically doing the same thing, some emitted more than others producing the same product,” a sign that it’s possible “to produce the product without such heavy emissions,” Greenstone said. 

In those instances, government regulators could require particularly high-emitting businesses within a given sector to shift their emissions down; investors could choose not to invest in them; or plaintiffs could sue them.

“You can reduce emissions through many different channels,” Greenstone said. But mandatory disclosure is “the foundation of many forms of carbon policy.”

Based on the limited data available, researchers concluded that the average firm worldwide could be liable for damages equal to 44 percent of their annual profits.

That number was a bit lower for U.S. companies — an average of 18.5 percent of profits. 

But in this case, averages aren’t very helpful, because even the most polluting sectors — energy, power utilities, transportation and agriculture — have stark variations in their potential carbon damage.

Worldwide, energy companies in the bottom 10 percent of emitters could have caused carbon damages equivalent to 4.5 percent of their annual profits.

But global energy companies in the top 90 percent and above could be responsible for carbon damages of nearly four times their annual profits — or comparatively 100 times as much as those bottom-ranked energy companies.

In the U.S., the 90th-percentile polluters in the most carbon-intensive sectors were also responsible for damages in excess of their annual profits.

That meant 234 percent for energy; 178 percent for food, beverages and tobacco; 201 percent for materials, including concrete to petrochemicals; and 342 percent for utilities.

But there’s one big caveat, the authors note: These numbers are likely significant underestimates because they come almost entirely from disclosures that those companies have made voluntarily — companies that face “no penalties for misreporting.”

“This … underscores the need for mandatory and verified emissions reporting,” they write.

They note that financial markets can’t “discipline” high polluters through lower stock prices if they don’t know how many tons of greenhouse gasses those companies release — a core demand of the environmental, social and governance (ESG) movement.

Finally, the need to reveal their emissions — a source of potential embarrassment and even legal liability — creates a good incentive for companies for bring them down, they wrote.

While many companies worldwide have net-zero policies, those claims are difficult to evaluate against the company’s actual actions. 

The economists argue that climate legislation without legal teeth to punish companies that don’t comply — or that mislead investors — will struggle to be anything more than “ad hoc.”

Greenstone cautioned it was “inappropriate and incorrect” to lay all this blame at the feet of the companies themselves. When it comes to parsing out the relative responsibility between companies and consumers, he said, “we don’t have the data for it.”

More to the point, he argued, such blame isn’t necessary: regulatory change is. “Companies respond to the regulatory and policy playing field,” he said. 

“If there was a carbon price of $200 a ton, the companies would figure out how to deal with it. They might be painful for them, but they would figure out how to do it.”

But right now, he noted, “our national carbon price is effectively zero.”

The findings in Science do not specifically focus on the idea of litigation to make companies pay those damages. But their publication comes amid a new wave of litigation against fossil fuel companies and the legislatures that have reflexively encouraged and subsidized their use.