Climate Change Regulation 2022

The Rise of International Climate Legislation

Climate change laws are growing in number rapidly. The most recent mitigation report of the IPCC Working Group III estimates that, in 2020, up to 56 countries had enacted direct climate laws that regulated 53% of the world’s emissions. There are nearly 1,000 pieces of national-level law directly relevant to climate outcomes and more than 1,500 policy documents in nearly every country around the world. These instruments have a wide range, from dedicated framework climate change acts, carbon pricing laws, and references to climate change within constitutional and environmental statutes, to provisions within forestry, transport, health, energy, and development laws that support national climate objectives.

The exponential growth in in laws and regulation is likely to continue. At the 144th Assembly of the Inter-Parliamentary Union in March 2022, the Assembly issued the Nusa Dua Declaration on the climate emergency. It highlights the need for effective laws and appropriate budgets to bolster climate action, including supporting the transition to clean energy and strengthening adaptation. This includes the development of robust and ambitious national laws on climate change that are directly aligned with the Paris Agreement, that enshrine a net-zero emission target in law, and that have time-bound targets for oversight and accountability.

This swathe of policies and laws has wide-reaching implications. Climate law is no longer the purview of environmental law but transcends it, to take in almost all areas of law. As the scale and scope of required responses have become clearer, it is evident that climate change must be “mainstreamed” across all society’s sectors and related laws. This has repercussions for specialist fields such as competition, insurance, environmental, immigration, water, energy, and property law, as well as criminal, corporate, human rights, constitutional and administrative law.

Climate Change Legislation

The courts are also increasingly becoming a locus of climate change legal development. “Youth for climate” suits, and actions against governments for failing to take adequate or reasonable measures to respond to climate change, suits against the carbon majors for climate change losses and damages, litigation against local government for failing to adapt, insurance claims, “greenwashing” and fraud suits, as well as environmental impact assessment challenges have the courts pronouncing on the climate change-related rights and duties of an increasingly varied array of actors. 

These developments are deeply consequential for the private sector. Not only are companies facing regulatory limits on their greenhouse gas (GHG) emissions, but they are required, amongst other things, to:

• engage with the impacts of changes in global trade;
• account for mitigation and adaptation as new developments are planned;
• reconfigure their supply chains and contractual relations within a net-zero world;
• navigate fiscal measures to respond to climate change; and
• harness market opportunities to reduce or offset their emissions.

Similarly, they must remain abreast of new technical and scientific information and operate in the context of a highly volatile energy market. They must do this all whilst engaging with the transitional risk of new laws and policies designed to respond to climate change at a national, regional and global level.

Chambers Climate Change Regulation Global Practice Guide

This publication is a timely contribution to these legal developments, designed to be responsive to this highly dynamic environment. With contributions from Austria, Brazil, Italy, Malta, Mexico, Portugal, South Africa, South Korea, Switzerland, the United Kingdom and the United States of America, it takes stock of and reflects on some of the most relevant climate change legal developments for business.

Legislation

The guide maps how countries are approaching climate legislation, moving from their global positions within the negotiations to domestic legal policy and law. It draws to the fore how different national contexts are evolving from global negotiation positions on key issues such as the race to net-zero, climate finance for developing countries, carbon markets and adaptation. The chapters traverse how nationally determined contributions (NDCs) under the Paris Agreement are informing domestic law and policy, if at all, and what this may mean for the future of domestic legislation. It also traces important case law that informs the ambition and content of the NDCs, and in turn, associated domestic laws for their implementation. 

Chapters also directly address the evolving legal regime for mitigation and adaptation, with many countries focusing on draft or final climate change framework laws that seek to regulate climate change across all sectors of society. Some countries are still within an early framework stage, whilst others evidence a highly sophisticated legal regime of GHG monitoring, reporting, emissions caps, trading, adaptation planning and approval processes, as well as fiscal and market incentives. What is clear is that, while there are commonalties across most countries, each has devolved a unique regulatory response to accommodate country specific circumstances and needs.

Litigation

Similarly, chapters demonstrate that the courts are also meaningfully shaping the contours of climate law. As active participants, courts are mandating the development of national legislation, and also assessing its adequacy. Litigation is also being used in increasingly novel ways, taking the form of criminal, administrative and civil actions in relation to planning and development decisions, fiduciary duties, fraud against shareholders, contractual obligations, and insurance claims.

Carbon markets

This publication also focuses on the burgeoning global carbon market, into which the Paris Agreement has breathed new life. It illustrates that many legal systems are developing or have developed different forms of carbon pricing, duly supported by an underlying legal framework. Some participate within emissions trading schemes; others impose a carbon tax or a hybrid approach. Some have developed highly detailed and administratively complex systems, whilst others impose relatively simple levies. Related to this, the chapters engage with how the European Union’s Carbon Border Adjustment Mechanism (CBAM) is influencing global trade, as well as domestic responses, if at all.

Disclosure

Rising public concern on the climate crisis, shareholder activism, and the incorporation of climate considerations within corporate governance, is also driving regulatory and policy developments on corporate climate reporting and disclosure. The chapters in this publication explore how the recommendations of the Task Force on Climate-Related Financial Disclosures, national as well as regional legal developments are influencing or requiring climate-related disclosures.

Directors’ liability

The legal liability of directors for climate change-related decision-making, is also an increasingly important impetus for international discourse on corporate governance. In this context, the chapters in this guide have focused on how different legal systems have responded to the question of directors’ liability for climate change. Similarly, chapters have also explored how the law treats the liability of parent companies/majority shareholders, in the context of the climate-related transgressions of their subsidiaries.

Due diligence

As the risks associated with non-compliance with climate related legal obligations rise, so have acquiring entities sought to include climate change considerations within due diligence processes for corporate transactions. In some cases, this includes not only legal non-compliance, but due diligence on issues that may pose a reputational or other financial risk. This primarily voluntary approach is driving greater levels of awareness within the private sector of climate change regulatory requirements, and the inclusion of climate change-related conditionalities and contractual terms within transactional documents. The chapters in this report assess national trends in this regard, and briefly comment on the types of considerations that are canvassed within due diligence reports.

Climate-friendly investing

Lastly, there are a swathe of climate-friendly investment support mechanisms across all of the jurisdictions that have contributed to this publication. Many of these are housed in legislation, whilst others are policy directives. They include renewable energy fiscal incentives and/or dedicated renewable energy legislation, “eco-bonuses”, renewable energy certificates as well as energy efficiency certificate schemes, preferential tariffs, legislation that supports climate investments and income tax deductions for climate friendly investments.

Conclusion: Not Only State Action but Also Private-Sector Involvement

This voluminous publication demonstrates that the breadth and complexity of climate legislation and jurisprudence is increasing. As climate disasters become more frequent and severe, we are likely to witness this regime mature into more detailed regulation, and increasingly novel forms of litigation. Dedicated climate provisions in hitherto untouched fields of law, such as immigration and health, may also become common. Undoubtedly governments will continue to face legal challenges to the adequacy of their climate change plans and laws. Moreover, as the extent of climate-induced loss and damage experienced by the public and private sector increases, parties will also seek to transfer this risk and seek compensation, including through contracts and insurance, as well as litigation against carbon majors and other GHG-emitting industries. Not only will more frequent and complex forms of litigation be seen on these fronts but the development of bespoke regulatory developments in response is likely, including regulated climate change trust funds, more sophisticated disaster relief instruments and regulations, as well as more rigorous impact assessment and planning requirements to reduce the vulnerability of new developments and communities.

Moreover, as governments and the private sector move towards a net-zero future, NDC targets will continue to propel national regulatory schemes for GHG emissions and advance their sophistication. Following historic trends, carbon pricing and associated regulatory schemes for their implementation are also likely to grow, and more inter-linkages between national regulated systems are likely. Further, new forms of regulation of domestic carbon markets are likely to appear as the demand for carbon offsets increases and as implementing authorities transpose legal requirements for Article 6 of the Paris Agreement.

The private sector has a meaningful role to play in this legal evolution, both by contributing to its design, but also by entrenching its application through contract and risk assessment. Heightened levels of awareness of physical and transition risk, due diligence, compliance and careful planning, will be expected not only of corporate actors, but also their directors and the law is likely to evolve to respond to this. Previously voluntary commitments are likely to be regulated ones, as companies move towards increasingly regulated GHG environments, and climate change framework laws draw in private sector actors. Corporate actors must exercise this role diligently by remaining informed of legal developments, not only domestically but abroad.

In this highly diverse context, this publication seeks to further the knowledge of and increase awareness of these developments, and to incentivise cross-jurisdictional learnings on climate change legal responses. As climate change legislation and litigation accelerates in the coming years, it is anticipated that this publication will expand both in its geographical coverage and the topics it addresses. We remain deeply grateful for the wide range of contributions to this chapter, their detailed content and their thoughtful compilation.