Damages Valuation in Climate Change Disputes
The 2015 Paris Agreement signed by 189 countries represents the most significant milestone achieved in the fight against Climate Change. Based on the Intergovernmental Panel on Climate Change (IPCC) report, commitments were taken to reduce carbon emissions to limit global warming to 1.5°C above the pre-industrial level.
Achieving this objective means structural changes in policies affecting the global economy, especially for carbon-intensive sectors like energy and transport. Although the Covid-19 crisis may delay or postpone some of these structural reforms, some commentators expect that it will reinforce the focus on Climate Change and Energy Transition, with potentially more reforms introduced.
The changes in policy, regulation and trade induced by Climate Change and Energy Transition will lead to disruption and material changes on the markets and in business practices, which will undoubtedly trigger a significant number of disputes in the coming years.
There are already many climate-related lawsuits: according to Columbia Law School, more than 1,100 climate-related lawsuits are on-going, mostly in the US, although little case law exists due to a limited number of awards issued. International arbitration is expected to be a key resolution mechanism for such disputes.
In this paper, we first outline the two categories of claims arising in Climate Change related disputes from a valuation point of view. These are claims for non-financial and financial compensation respectively. We then discuss the challenges in determining causation and in quantifying the corresponding damages.