1. Causes of Action
G. Contractual Obligations
5. CURRENT APPLICATIONS
Corporate climate litigation based on contractual obligations in the past highlights the evolving legal landscape under three key topics: (a) the validity and performance of carbon trading and emissions reduction contracts, (b) the treatment of carbon credits and quotas as property rights, and (3) the invocation of "Change in Law" clauses in response to environmental policy changes.
(a) Validity and Performance of Carbon Trading and Emissions Reduction Contracts
The shift towards a low-carbon economy has necessitated the creation and enforcement of contracts for carbon crediting and emissions reductions. These contracts are pivotal in facilitating the transition, but they also introduce complex legal challenges related to their validity and performance. For instance, the Australian case of Shift2Neutral Pty Ltd v Fairfax Media Publications Pty Ltd underscores the disputes that can arise when parties contest the authenticity of carbon neutrality claims. Similarly, Microcarbon (Guangzhou) Low Carbon Technology LLC v. Guangzhou Carbon Emissions Trading Center LLC highlights the [risks] associated with carbon trading, particularly regarding the trade of emission quotas and the performance of related contracts. These cases demonstrate the critical role of contract law in ensuring the reliability and effectiveness of carbon trading mechanisms.
(b) Treatment of Carbon Credits and Quotas as Property Rights
A groundbreaking development in corporate climate litigation is the recognition of carbon credits and quotas as property rights. This concept is exemplified by the first carbon emission quota enforcement case in China, Shunchang Branch of the Agricultural Bank of China v. Fujian Rongchang Chemical LLC. The court determined, based on the National Measures for the Administration of Carbon Emission Trading (for Trial Implementation), that carbon emission allowances constitute a new type of property right. This right, akin to intangible assets like intellectual property rights, falls within the scope of property enforceable by the court. This legal framework not only legitimises the carbon trading market but also strengthens the mechanisms for promoting environmental goals through market-based solutions, treating carbon emission allowances as intangible assets similar to intellectual property rights.
(c) Invoking "Change in Law" Clauses in Case of Environmental Policy Changes
Environmental policy changes can have a profound impact on existing contracts, particularly through the enforcement of "Change in Law" clauses. These clauses allow for contractual adjustments in response to legislative or regulatory shifts, including those related to environmental and climate policies. The case of Maharashtra State Electricity Distribution Co. Limited v. Adani Power Maharashtra Limited is illustrative, where changes in coal supply policy led to increased [energy generation] costs for Adani Power, adversely impacting Adani Power's ability to fulfil its obligations under the Power Purchase Agreement. Consequently, the Supreme Court of India recognised that these increased costs were due to a change in law and granted Adani Power's compensation claims. This case demonstrates the potential for "Change in Law" clauses to serve as a legal mechanism for addressing the economic and operational implications of environmental policy changes on corporate activities.
