October 22nd will see the beginning of the trial between the New York Attorney General and ExxonMobil over its application of a proxy cost of carbon. The trial follows the NYAG’s nearly three-year investigation that began with explosive allegations that ExxonMobil had misled the public on climate change. Nearly four years after the investigation was first announced, though, the NYAG’s case is now focused on a relatively obscure allegation of how the company accounts for the costs of potential future regulations on climate change.

Between the launch of the investigation in 2015 and today, the NYAG has seen their coalition fall apart and their legal arguments shift multiple times. With the trial just around the corner, it’s worth laying out the facts behind this case and explaining how we got from 2015’s #ExxonKnew allegations to a question of how ExxonMobil applies a proxy cost of carbon today.

The Rise and Fall of the Green 20

On November 4, 2015, then-NYAG Eric Schneiderman subpoenaed ExxonMobil for all documents related to climate change dated between 1977 and the present, alleging that the company knew much more about the science of climate change than it was disclosing to the public. Schneiderman had already been investigating the company for a year by this time, but a person familiar with the probe said #ExxonKnew reporting by InsideClimate News and the Columbia School of Journalism in the fall of 2015 “made the issue ‘more ripe.’” That reporting was paid for by anti-oil and natural gas groups and relied on cherry-picking documents to fit a predetermined narrative. Despite concerns over the legitimacy of the NYAG’s inquiry (rightly so), ExxonMobil cooperated and turned over the requested documents to Schneiderman’s office.

In March 2016, Schneiderman sought to build support for his investigation and launched the “AGs United for Clean Power,” also known as the “Green 20.” Though emails obtained through public records requests show that Schneiderman and allied activists hoped to convince 16 other attorneys general to join his investigation, ultimately only the Massachusetts and U.S. Virgin Islands AGs opened investigations into the company.

Shortly after their March 29 press conference announcing the coalition, the group quickly fell apart. The U.S. Virgin Islands AG withdrew his subpoena three months later after coming under fire for attacking the freedom of speech of dozens of free market groups as part of his ExxonMobil probe. Emails  procured via public records requests showed the other AGs in the coalition were “nervous” about working with Schneiderman on his probe, with the Iowa AG’s office calling Schneiderman a “wild card.”

The “AGs United for Clean Power” were also rebuked by 13 other AGs, who said they were “concerned that our colleagues’ investigation undermines the trust the people have invested in Attorneys General to investigate fraud.” In particular, the 13 AGs took issue with the “AGs United for Clean Power” taking “the unusual step of aligning themselves with the competitors of their investigative targets,” adding that “[u]sing law enforcement authority to resolve a public policy debate undermines the trust invested in our offices and threatens free speech.”

Shifting Legal Theories

With his coalition in tatters and his own investigation on the ropes, Schneiderman changed tactics and issued a second subpoena on June 24, 2016, now alleging that ExxonMobil had failed to disclose the risk that some of its assets may become “stranded,” or uneconomical to produce, under possible future climate policies.

But that argument also led to a dead end, prompting Schneiderman to issue a third subpoena to ExxonMobil on May 8, 2017, now seeking to examine whether the company misled investors about how it applied a “proxy cost of carbon” to its business operations. This latest change was such a departure from where Schneiderman began that even the Washington Post said,

“New York Attorney General Eric Schneiderman has gotten very far away from where he started in his office’s investigation into ExxonMobil.”

ExxonMobil rejected the accusation:

“For many years, Exxon Mobil has applied a proxy cost of carbon to its investment opportunities, where appropriate, in order to anticipate the aggregate financial impact of future government policies. Exxon Mobil’s external statements have accurately described its use of a proxy cost of carbon, and the documents produced to the attorney general make this fact unmistakably clear.”

As the wide-ranging investigation approached the third anniversary of Schneiderman’s original subpoena and showed no sign of coming to a conclusion, New York Supreme Court Justice Barry Ostrager instructed the NYAG’s office to stop dragging their feet, saying in an August 29, 2018 hearing:

“‘This cannot go on interminably,’ he said. The company has provided millions of pages of documents and answered questions over some three years of investigation, Ostrager said. ‘It’s not my place to tell you when an investigation ends, but it is my place to put an end date on the requests for information and the filing of a compliant.’”

On October 24, 2018, then-NYAG Barbara Underwood – who took over for Schneiderman after he resigned in May of that year – concluded the office’s investigation by filing a lawsuit against ExxonMobil, ultimately alleging that the company misled its investors in how it applied proxy costs of carbon to its investment decisions.

Several hearings, discovery disputes and preliminary witness lists later, the case is scheduled to go to trial on October 22nd, under current NYAG Letitia James and before New York Supreme Court Justice Ostrager.

This is NOT About What #ExxonKnew

This case is about ExxonMobil’s accounting practices, not what the company knew about climate change and when it knew it. After investigating over four million pages over the course of nearly three years and finding nothing to support the allegations that Exxon “knew” about climate change and tried to hide the science from the public, Schneiderman was forced to change the justification of his investigation – twice.

To the dismay of the many activist groups who been trying to get a court of law to agree with their manufactured #ExxonKnew narrative since the beginning, neither ExxonMobil’s climate research nor its alleged role in hiding climate science from the public will be on trial.

To that end, it is important to note that what happens in this trial will have no bearing on the outcome of the public nuisance lawsuits that have been filed against ExxonMobil and other energy producers by a handful of cities and counties and Rhode Island. The public nuisance cases seek to hold energy companies financially liable for the effects of climate change and are not related to the arguments made by the NYAG.

This IS About Politics

The NYAG’s lawsuit was born out of a strategy devised at a 2012 conference in La Jolla, California, where anti-oil and natural gas activists developed a playbook to replicate the success of the litigation against the tobacco industry. The La Jolla playbook laid out the activists’ strategies to obtain internal industry documents that they believed would be harmful to energy companies in court and in the court of public opinion.

The assembled activists discussed multiple strategies, all of which have been acted upon in recent years. One passage even predicts Schneiderman’s involvement in their campaign:

“First, lawsuits are not the only way to win the release of documents. As one participant noted, congressional hearings can yield documents. In the case of tobacco, for instance, the infamous “Doubt is our product” document came out after being subpoenaed by Congress. State attorneys general can also subpoena documents, raising the possibility that a single sympathetic state attorney general might have substantial success in bringing key internal documents to light.” (emphasis added)

Statements made by Schneiderman himself, as well as legal experts, reveal the political nature of the NYAG’s ExxonMobil inquiry. For example, at the March 29, 2016 press conference hosted by Schneiderman and former Vice President Al Gore to announce the “AGs United for Clean Power” coalition, the then-NYAG spoke about his investigation into ExxonMobil, saying:

“With gridlock and dysfunction gripping Washington, it is up to the states to lead on the generation-defining issue of climate change. We stand ready to defend the next president’s climate change agenda, and vow to fight any efforts to roll-back the meaningful progress we’ve made over the past eight years.”

Many editorial boards and legal experts agree that the investigation is rooted in politics:

“[T]he Democratic coalition is pursuing a dangerous means of achieving its goal of reducing greenhouse gas emissions. Its unprecedented definition of fraud threatens to impose an undue and possibly unachievable regulatory burden on energy firms and their investors.” (Tristan Brown, Attorney and State University of New York Assistant Professor, 6/21/16)

“New York Attorney General Eric Schneiderman and other state AGs are probing ExxonMobil — but maybe they’re the ones who should be investigated…the anti-Exxon campaign is starting to look like a conspiracy in its own right – pursuing a purely political vendetta in a blatant abuse of office.” (New York Post Editorial, 4/19/16)

 Similar Claims Have Already Been Heard and Dismissed

 A federal regulatory agency and a federal judge in Texas have already looked at essentially the same claims that are at the center of the NYAG’s lawsuit—and dismissed them.

In 2016, the U.S. Securities and Exchange Commission, the federal regulatory agency that protects investors, looked at these claims over the course of a two-year review that overlapped with the NYAG’s investigation. In August 2018, the SEC announced that it was closing the inquiry and declined to proceed against ExxonMobil, “finding no reason for enforcement action.”

Similarly, in April 2018, after a thorough review of company documents, Clinton-appointed U.S. District Judge Keith Ellison threw out a case brought by current and former ExxonMobil employees against the company. The employees filed their class action lawsuit in February 2017, alleging that ExxonMobil was inflating its stock and misleading its investors about the risks posed by climate change. Ellison found their argument unconvincing, writing in his opinion dismissing the case that “plaintiffs do not allege any facts to show why [particular prices of carbon used by ExxonMobil] was a misrepresentation or did not account for the current or an anticipated regulatory landscape.”