Climate Change Increasingly Cited as Factor in Bankruptcy Filings

Climate Change Increasingly Cited as Factor in Bankruptcy Filings

Rudy Verner and Yasmina Shaush

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Climate change has emerged as a factor in corporate bankruptcy filings, according to a report by Law 360. Companies cite environmental regulatory obligations and unexpected weather events as the cause. Experts believe initially those most affected by this will be small regional companies.

Bankruptcy filings citing environmental regulatory obligations are most prominent in the energy sector. In January, a Delaware bankruptcy judge declined to stay a decision that a senior creditor did not have successor liability for La Paloma Generating Co. LLC’s compliance costs. La Paloma filed for bankruptcy in December 2016, alleging its predicament was “exacerbated by an inhospitable regulatory environment.” The company owed over $60 million in environmental costs under California Air Resources Board’s cap-and-trade program.

Philadelphia Energy Solutions LLC, owner of the largest East Coast oil refining facility, which filed for bankruptcy on January 22, 2018, also attributed its decision to “skyrocketing costs” of compliance under the U.S. Energy Policy Act of 2005.

Law360 predicts small regional businesses will be less likely to endure unexpected weather events, resulting in bankruptcy. Such businesses are more vulnerable to climatic shifts because they lack the resources and geographic variability to adapt.