Fossil fuel firms owe climate reparations of $209bn a year, says study

31 05 2023 | 07:26Nina Lakhani

The world’s top fossil fuel companies owe at least $209bn in annual climate reparations to compensate communities most damaged by their polluting business and decades of lies, a new study calculates.

BP, Shell, ExxonMobil, Total, Saudi Arabia’s state oil company and Chevron are among the largest 21 polluters responsible for $5.4tn (£4.3tn) in drought, wildfires, sea level rise, and melting glaciers among other climate catastrophes expected between 2025 and 2050, according to groundbreaking analysis published in the journal One Earth.

It is the first time researchers have quantified the economic burden caused by individual companies that have extracted – and continue to extract – wealth from planetheating fossil fuels.

Amid growing debate about who should bear the economic cost of the climate crisis, the paper, titled Time to Pay the Piper, presents a moral case for the carbon corporations most responsible for the climate breakdown to use some of their “tainted wealth” to compensate victims.

The study considers this to be a substantial yet conservative price tag, as the methodology excludes the economic value of lost lives and livelihoods, species extinction and other biodiversity loss, as well as other wellbeing components not captured in GDP.

“This is only the tip of the iceberg of long-term climate damages, mitigation, and adaptation costs,” said co-author Richard Heede, co-founder and director of Climate Accountability Institute.

The study builds on the carbon majors database, which records the emissions of individual oil, gas and coal companies since 1988 – the year the Intergovernmental Panel on Climate Change (IPCC) was established and industry claims of scientific uncertainty about the climate crisis became untenable.The creation of an evidence-based “polluter pays” price tag has been welcomed as an important step towards achieving climate justice for communities and countries which have contributed the least, but are losing the most as the climate breaks down.

“As increasingly devastating storms, floods and sea level rise bring misery to millions of people every day, questions around reparations have come to the fore,” said Harjeet Singh, head of global political strategy at Climate Action Network International, a group of almost 2,000 civil society groups across 130 countries.

“This new report puts the numbers on the table – polluters can no longer hide from their crimes against humanity and nature.”

Mohamed Adow, director of Power Shift Africa, a climate and energy thinktank based in Kenya, said: “The case is clear for oil and gas companies to pay reparations for the harm their fossil fuels have caused. Not only has their dirty energy wrecked the climate, they have [in many cases] spent millions of dollars on lobbying and misinformation to prevent climate action.”

In the painfully slow world of international climate talks, the question of who should pay to tackle climate impacts has predominantly focused on the role and responsibility of nation states. This view is widely held, since the richest 1% of the world’s population is responsible for twice the amount of greenhouse gases as the world’s poorest 50%, who suffer the brunt of the harms.

So far, the rich countries of the global north are regarded as having promised too little – and delivered even less – for climate adaptation efforts in poorer countries.

Demands for reparations have been mounting as the planet’s warming climate inflicts death and destruction at an ever faster pace.

Last year at the UN’s Cop27 summit, after decades of pressure from the climate justice movement, states agreed to establish a “loss and damage” financing fund that should eventually partially compensate poor countries for the irreparable and unavoidable economic and non-economic costs of extreme weather events and slow-onset climate disasters such as sea level rise and melting glaciers.

The deal in Egypt came after unprecedented floods left a third of Pakistan underwater, drought left 37 million people in the Horn of Africa facing hunger and starvation, and heatwaves across Europe were likely to have caused more than 20,000 excess deaths.

The new study, which reframes the debate on international climate funding by focusing on the financial responsibility of fossil fuel companies for climate harm, could help move the dial in the loss and damage negotiations, according to Margaretha Wewerinke-Singh, associate professor of sustainability law at the University of Amsterdam.

“This evidence and the underlying methodology could provide policymakers and negotiators with a concrete framework for allocating responsibility for climate-related costs to the world’s biggest historical polluters,” said Wewerinke-Singh.

Overall, global economic damages to be expected from the climate crisis are estimated at $99tn between 2025 and 2050 – of which fossil fuel emissions are responsible for $69.6tn, according to more than 700 climate economists.

The study conservatively attributes one-third of these future climate costs to the global fossil fuel industry, and one-third each to governments and consumers.

This means the global fossil fuel industry is held to be to blame for at least $23.2tn of the climate-related economic losses expected over the next 25 years, or $893bn annually.

The price tag on climate damages owed by the worst 21 oil, gas and coal producers is based on each company’s operations and product-related emissions since 1988 – and on the economic situation of their home countries. About half of the warming experienced so far has happened since 1988 – when Nasa scientist James Hansen testified about the human role in climate breakdown in front of the US Senate.

The companies could afford the reparations:

  • Saudi Aramco, the state-owned company with the largest emissions, would owe $43bn annually – equivalent to just over a quarter of its 2022 profits.

  • ExxonMobil would owe $18bn in annual reparations, compared with record profits of $56bn in 2022.

  • British oil giants Shell and BP, which together made $68bn for shareholders last year, would be collectively liable for $30.8bn in annual climate reparations, according to the study.

The authors exempt four companies in low-income countries (India, Iran, Algeria and Venezuela) and halve the liability for six producers in middle-income countries (Russia, China, Mexico, Brazil and Iraq), using the moral argument that this would permit them to pay more taxes and make other progressive contributions.

Prof Marco Grasso, a co-author at the University of Milano-Bicocca, said: The proposed framework for quantifying and attributing reparations to major carbon fuel producers is grounded in moral theory and provides a starting point for discussion of the financial duty owed by the fossil fuel industry to climate victims.”

As climate litigation moves forward in jurisdictions across the world, it is hoped that the evidence-based methodology may also assist courts in attributing blame and calculating damages, according to Erika Lennon, a senior attorney at the Center for International Environmental Law’s energy and climate programme.

“It’s a complement to – not a substitute for – climate finance being discussed in policy spaces, but would help fill the massive gap [left] by states in covering the scale and costs of climate harms,” said Lennon. “This is the next step in holding fossil fuel companies accountable for their trillions of dollars of climate impacts.”

The fossil fuel companies named in the study were contacted for comment. Shell said: “The energy system is the result of society’s choices about everything from transport to land use over many decades. Addressing a challenge as big as climate change requires unprecedented collaboration where everyone has a role to play. For our part, we are reducing our own emissions and working closely with our customers to help them reduce theirs.” Saudi Aramco declined to comment, and the others did not respond.






cover photo:Saudi Aramco, Saudi Arabia’s state oil company, owes reparations worth $43bn annually, the report said. Photograph: Ahmed Jadallah/Reuters