Should fossil fuel companies be forced to pay for Los Angeles wildfire losses?

In the wake of wildfires that ravaged Los Angeles County last month, the New York Times featured an opinion piece by former insurance commissioner Dave Jones, proposing that oil companies, rather than insurance firms, should bear the costs associated with the catastrophic loss of life and property.

“For decades, major oil and gas companies have understood that the combustion of their products could trigger catastrophic incidents, such as the extreme temperatures and unusually dry conditions fueling the ongoing fires in Los Angeles,” noted Jones, who now leads the Climate Risk Initiative at UC Berkeley. “We must hold these highly profitable corporations accountable for compensating affected communities, homeowners, businesses, and even insurers for their damages.”

Jones referenced the aftermath of the Camp Fire, which devastated the town of Paradise in 2018, as a precedent for pursuing action against the oil sector. Following the settlement of claims for Paradise property owners, insurers recouped $11 billion from PG&E, held liable for the blaze after a single metal hook on a transmission tower was determined to have caused the fire.

Holding oil companies responsible for damages in Los Angeles would discourage insurers from withdrawing from the California market or limiting coverage, as they had been doing before the LA wildfires, according to Jones.

Five days post-publication of the essay, state Sen. Scott Wiener, a Democrat from San Francisco, introduced Senate Bill 222, which would implement exactly what Jones proposed, pending it becomes law.

“Californians are paying a dire cost for the climate crisis, with increasing disasters obliterating entire communities and skyrocketing insurance rates,” Wiener said in a statement. “Managing these expenses is essential for our recovery and the future of our state. By compelling fossil fuel companies that are propelling the climate crisis to contribute their fair share, we can stabilize our insurance market and aid the victims of climate-induced disasters.”

SB 222 introduces a new dimension to four interconnected issues facing California: climate change, the future of its historically dominant petroleum sector, the persistent threat of wildfires, and the reluctance of numerous insurers to offer fire coverage in the state.

In response, California business leaders quickly opposed the legislation, arguing it could significantly harm the state’s economy and drive up the cost of living for locals.

The California Center for Jobs and the Economy, part of the powerful California Business Roundtable, released an analysis, asserting that “SB 222 might result in damage claims reaching as high as $1.1 trillion by 2030 and an additional $10.8 trillion in retroactive liability for past emissions. If enforced, these claims could act like an unregulated carbon tax, leading to significant cost increases for households, businesses, and state entities.”

The analysis forecasted that “gasoline prices could escalate by 63% to $7.38 per gallon, diesel by 69% to $8.23, and electricity costs could rise by as much as 55% for industrial users. Additionally, natural gas prices might soar 76% for residential customers, affecting heating and cooking expenses.

“Housing expenses are also predicted to rise sharply, with homeowners shelling out an additional $1,161 annually and renters facing an extra $1,692 per year due to increased utility rates. Prices for food, transportation, and consumer products will likely rise as businesses grapple with heightened fuel and operational expenses. Air travel could see substantial fare increases, possibly rendering flights to and from California prohibitively expensive.”

Despite the Legislature’s leftward lean, passing SB 222 would present significant challenges. At the very least, it highlights some acute and potentially existential challenges for the state and its lawmakers.