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Debrief: Will the Shell judgment make a difference?

15 December 2022
The research cluster Climate Change and Energy Transition of the Amsterdam Sustainability Institute (ASI) and the Amsterdam Centre for Climate Change (A4CL) invited economists and law scientists to debate the unprecedented verdict that Milieudefensie achieved in a case against Shell on behalf of the Dutch public. Shell was ordered to reduce its emissions by 45%. The congress took place on 27 October 2022 at the Eye Filmmuseum in Amsterdam.

Although the case gives hope to climate activists to be a turning point in history as more firms will be held accountable for their contribution to climate change, Lodewijk Smeehuijzen, professor for private law at VU Amsterdam and initiator of the congress, that initiated the congress, argues that this court case illustrates the lack of governmental regulation. The government is trapped by the voters’ approval needed at the end of each term, or by “The Tragedy of the Horizon”. This tragedy is grounded in people’s (lack of) psychological ability to worry about a ‘distant, abstract, and disputed threat’.  

During the vibrant interdisciplinary discussion, Guido van der Werf (Earth Sciences, VU) critically examined the effect of the court’s ruling on climate change in terms of use of fossil resources and the total amount of CO2 emissions. If Shell commits to the verdict, there would be a noticeable effect (however small) but this holds only if others do not produce the emission instead of Shell. Gerard van der Meijden (Spatial Economics, VU) further discussed the intricacies of implementing a carbon tax. Firms that pay this tax are likely to charge these costs only to some extent to the end-users. Without a clear financial incentive, people are likely to ignore these taxes when deciding whether to take the car or bike. Alternatively, a worldwide carbon price can be calculated by economic models which would incentivise the public to take different decisions. However, politicians are no advocate of this global carbon price. Machiel Mulder (Economics, RUG) presented a case for how a plausible change in Shell’s contribution to global emissions would (not) affect the energy market. The arguments for and against the Shell case provided fuel for the final discussion by Rick van der Ploeg (Economics, Oxford) and Sweder van Wijnbergen (Economics, UvA). 

Rick argued that carbon tax would shift the profits of the fossil industry to green energy but, he concluded, this means that you would “have them by the balls and of course they do not like this”. Another suggestion was to transfer the profits that future generations will generate (as a result of the transition) to the current generations, relieving the current costs of the energy transition. Sweder focused on the unequal distribution between countries in the benefits and damages of the energy transition. Who will pay eventually? We are struggling with "mauvais fois": You can easily hide your good intentions behind the expectation that others will not comply, arguing that if others do not comply, nothing will change anyway so why would you bother.  

Companies have invested heavily in dirty energy and will not accept sunk costs when transitioning to green energy. A sudden transition would make these companies worthless in a day. However, a carbon tax could motivate companies to become green by the profit to be gained in green energy. A court case by Shell might give these companies the impression that a green energy transition is imminent. However, the court case might have unintended consequences as these companies will start to charge higher prices to cover their (future) sunk costs. Amidst all these powers at play, Rick and Sweder argue that governments keep supporting the fossil industry with large subsidies. 

Under this void of decisiveness, and the governments’ preference to focus on the easy fixes, the emissions will not decrease but rather increase. In the words of Rick and Sweder: Rob Jetten is the minister of anti-climate and Rutte prefers not to stick around at important meetings. The ambitions of the Partij van de Arbeid (PvdA) party do not align with their voters, and the green parties have given people what they want, and postponed the hard choices. Despite the gruesome reality that unfolded during the discussions, Rick and Sweder use humour when describing people, situations, and the political parties. This makes the unbearable bearable. As correctly formulated by a student: soms stuit je op een pareltje (sometimes you stumble upon a gem).