Who pays for climate change? The Peruvian suing a German utility

The setting was spectacular: the bright blue Lake Palcacocha sparkled in the sun in front of a huge wall of rock and ice hundreds of metres tall, the facade of a glacier that extends backwards over the snowy peaks. The beauty of the scene belied its instability; if an avalanche were to crash into the lake, experts warn floodwater could rush down into the city of Huaraz below.

The group was deep in the mountains to gather evidence in a high-stakes lawsuit brought by a Peruvian farmer, Saúl Luciano Lliuya, against RWE, Germany’s largest utility company.

Since the emissions produced by RWE globally over its 124-year history contributed to the warming that is shrinking the glacier, the farmer argues, the company should help pay for defences to protect Huaraz, his hometown.

RWE has never had any operations in Peru. But it is one of Europe’s 10 biggest polluters, according to an influential 2014 study, accounting for 0.47 per cent of the cumulative global industrial emissions of carbon and methane between 1751 and 2010 — the effects of which do not respect national borders.

Accordingly, in a suit filed in Germany in 2015, Luciano Lliuya said the company should pay for 0.47 per cent of the costs of protecting Huaraz — around €20,000. RWE says the claim has no basis in German law, and that it is judicially impossible to attribute specific local consequences of climate change to an individual company.

The legal team considered suing Shell, but chose RWE in part because they are pursuing the case through German courts and also because the company still operates coal facilities. “[RWE] are on the [2014 list] and German and continue to emit from coal plants,” says Luciano Lliuya’s German lawyer, Roda Verheyen. “No more reasons needed.”

Luciano Lliuya’s action, which has been funded entirely by donations, is about much more than compensation. The dispute, now nearing its final stages, is a landmark case — seen by many academics, campaigners and litigators around the world as a potential watershed moment that could usher in a wave of compensation claims for climate-related destruction.

“If this case is successful I have no doubt that there will be a number, probably a big number, of additional court cases,” says Christoph Bals, policy director of the non-profit Germanwatch, which is supporting Luciano Lliuya.

It is just one of the ballooning number of climate-related lawsuits that have been filed in the six years since the Paris Agreement was signed. The Agreement — in which more than 190 countries agreed to limit global warming to well below 2C — has provided new legal ammunition to activists and environmentalists, as domestic courts are being asked to interpret what the treaty obliges individual countries to do.

Recent wins — such as a French court’s 2021 ruling that the government must do more to cut emissions — have emboldened activists, and funding for climate cases is increasingly available. There is also broadening acceptance in many jurisdictions of the need to curb warming: in a 2021 decision, a court in the Netherlands ruled that oil major Royal Dutch Shell had a duty of care to Dutch citizens and must make steeper emissions cuts.

While the sum Luciano Lliuya is seeking amounts to little more than a rounding error for a company like RWE, which had a turnover of €24.5bn in 2021, a precedent-setting victory would expose other polluters to the risk of similar claims from around the world, potentially for much larger sums.

The judges’ decision will “influence the thinking” of judges elsewhere, who are “seeing climate cases come into their courtrooms and [are] looking for guidance,” says Michael Burger, executive director at the Sabin Center for Climate Change Law at Columbia University, New York.

No matter the outcome of Luciano Lliuya’s challenge, the architecture of the case will exist for others to learn from, at a time when demands from poor nations for climate-related financial support are growing louder. The RWE case is the first transnational lawsuit of its kind to have got as far as it has, and is thought to be the first time a resident of one country has sought compensation from a polluter based elsewhere.

“Eventually there will be a brave court that will order compensation,” says Sophie Marjanac, a lawyer at environmental law charity ClientEarth. It could be “impossible to estimate or put a limit on that liability . . . That’s why [companies are] resisting it incredibly hard.”

The fight reflects a stark reality: those who are most affected by climate change have often done little to cause it, and feel abandoned by big polluters that they say are not doing enough to help them cope with its effects.

“When we took this case in 2015 everybody said we were crazy,” says Verheyen. “Science is only working to our advantage . . . I don't think I’ve ever been this optimistic.” Even if the farmer loses, she adds, the issue of who is responsible for the damage caused by climate change is not “going to go away”. 

The case for the plaintiff

To have a chance of winning, Luciano Lliuya’s legal team must first show that the threat to his property is significant and imminent. That is what the scientific experts appointed by the regional court of Hamm, Germany were gathering evidence about during the week-long visit in May, watched over by the German judges set to rule on the case.

The scientists took soil samples and noted down measurements. A drone flew up to the ice wall — which was theoretically accessible by boat, but “much too dangerous” to get close to due to the risk of falling ice, says Martin Mergili, a geomorphology expert who has supported Luciano Lliuya’s team.

They worked to the sound of occasional cracking. “It’s not a constant noise, but from time to time . . . small ice avalanches come down,” says Mergili. Sometimes the sound is “shocking”.

According to people familiar with the case, RWE has questioned and tried to discredit the climate science presented to the German court by Luciano Lliuya’s team over the course of the case, much of which is being fought behind closed doors.

In a statement to the FT, the company says it “must be allowed to argue about studies and whether or not they are of relevance for the case . . . We do not deny climate change and that man has been and still is influential on it.”

In addition to proving the threat to his home, the farmer’s team must show that RWE is partly to blame for the risk because of its historic emissions. That is more of a challenge, and something that until recently would have been difficult to prove.

Enter “attribution science”, a rapidly evolving field of research about the extent to which climate change made a natural disaster more likely or severe, and who emitted the pollution that caused warming.

Once a niche specialism, this area of study has advanced rapidly in the 20 years it has been around and scientists are getting better at drawing causal links. Without these advances, proving liability for climate-related destruction would have been much harder, says Delta Merner, who leads the Science Hub for Climate Litigation at the US non-profit Union of Concerned Scientists. The RWE case “would not have been possible 10-15 years ago,” she adds. 

For Luciano Lliuya and his supporters, winning is about “climate justice” — or redressing the balance between big polluters and the communities that have done little to contribute to climate change, but will be worst hit by its effects.

A wave of legislation

Vulnerable countries are also seeking climate justice, which some of their leaders say should include compensation for the effects of warming — something long resisted by rich countries. Compensation cases are “the holy grail of climate change litigation”, says Marjanac. “There’s no way that the rich countries of this world will voluntarily agree to pay compensation to the global south.”

The issue proved a sticking point at last year’s COP26 UN climate summit, at which rich countries refused to back a proposal by poorer ones for a new financing facility for “loss and damage”, or money to help those most at risk cope with the devastation wrought by rising sea levels, hurricanes and wildfires. Loss and damage is expected to be a major theme at this year’s COP27 meeting in Egypt.

Lee White, Gabon’s minister of water, forests, the sea and the environment, says if he were representing a country at high risk from climate hazards, “I’d be very tempted to take [legal] action . . . even though I know that it would be extremely complex and difficult to prove.”

Some island nations are considering doing just that: last year, Antigua and Barbuda and Tuvalu established a group to discuss the prospect of suing countries for the effects of their emissions, among other things. The Commission of Small Island States on Climate Change and International Law plans to seek legal opinions from international courts and tribunals about whether they could bring such cases.

In the US, meanwhile, more than 20 cases are making their way through courts in states across the country, seeking damages for climate-related destruction. Unlike the RWE case, they are rooted in the idea of deception as the source of liability — that big polluters misled people about the effects of their carbon intensive products.

“As science comes to play an increasingly prominent role in [legal] cases, it’s very likely that fights over the science, and questions over whose science courts should believe, will increasingly become more prominent,” says Rupert Stuart-Smith, a University of Oxford researcher who has studied the glacier at the centre of the case, but is not affiliated with the suit.

Not everyone agrees that litigation is the best way to hold major corporate polluters to account. Some experts say governments and regulators should set out what they expect of companies, rather than allow specific polluters to be targeted for past emissions.

“Companies need to know what their responsibilities are, since they cannot be limitless,” wrote David Pitt-Watson, former chair of the UN Environment Finance Initiative, in 2020.

“If we don’t resolve this, we end up with potentially a very chaotic commercial world in 20 years’ time,” he tells the FT. The rules about a company’s obligations should be set by regulators, and businesses should be sure that if they follow them “in good faith, there is safe harbour and they won’t be sued”, he says.

The growing risk to the corporate world has not escaped the notice of authorities: in May, the Bank of England warned that litigation could affect “the cost and availability” of directors’ liability insurance. “If real-world cases led to payouts, the possible financial costs that could be borne by businesses or insurers are large,” the Bank said.

Thom Wetzer, director of the Oxford Sustainable Law Programme, says part of the reason for the uptick in litigation is the climate “governance gap”. The Paris Agreement lacks an enforcement mechanism to ensure that “countries do what they’ve signed up for . . . As long as these governance gaps persist, we will see more and more litigation to try and plug those gaps.”

There is also no net zero legislation governing what companies can or must do in most parts of the world, he adds.

‘It shouldn’t be necessary’

Despite what’s at stake, and the presence of two opposing sides, those who visited the glacier in May say the atmosphere was amicable and supportive.

“It was very friendly,” with “people sitting around on stones eating their sandwiches and energy bars,” says Verheyen, the lawyer for Luciano Lliuya. “Nobody got sick, at least not very seriously, even though that is a very unusual altitude to be working on.”

The German court must now come to a decision about the risk facing the farmer’s house, before moving on to the second question — whether RWE bears some responsibility and can be held legally liable. A final decision in the case is unlikely to come this year.

All the while, and for the seven long years since the case was filed, the possibility of disaster hangs over Huaraz. “The situation is hazardous, it’s not something which is purely theoretical,” says Mergili.

In 1941, when Lake Palcacocha was much smaller, it brimmed over and the city was hit by flooding that killed over 1,000 people. Serious ice and rock avalanches also occurred in the Peruvian Andes in 2010 and 2020, and large mass movements in high mountain areas have become more common.

Luciano Lliuya and the local community want additional protection measures, such as a new drainage system. The authorities have already placed hoses in the lake to lower the level of the water, which is used by the local population, and the city has a well-signposted evacuation route.

But like the Pacific Island nations threatened by rising sea levels, Luciano Lliuya also wants to raise the profile of those at risk and find an answer to the climate justice question. “I’m very happy that I’ve been able to show people what’s happening,” he said at a press conference at the end of the site visit in May.

Some countries are “far more responsible for the pollution, and others far more affected by the consequences”, says Payam Akhavan, legal counsel to the Commission of Small Island States on Climate Change and International Law.

“The idea is not to litigate all of these issues, but pressure states to start addressing loss and damage in the [UN climate] negotiations,” he says. “But if necessary, yes there could ultimately be litigation against specific states.” 

If RWE loses the case, “they’d have to pay this very small, symbolic amount of money” towards the cost of defending Huaraz, says Noah Walker-Crawford, an external consultant on climate litigation for Germanwatch.

“But of course it’s about much more than that,” he continues. “The whole point of bringing these kinds of cases is that not enough has happened on a political level. Really, it shouldn't be necessary.”