Wrongful Benefit: Should Companies Profit from the Past?

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Wharton's Sarah Light discusses her research on the wrongful benefit principle.

Late last year, President Obama issued an executive order to block drilling in the Arctic and Atlantic Oceans to preserve those territories. But the melting Arctic ice has opened up areas for possible drilling that had been buried just a few years ago. The opportunity brings up a compelling issue that is explored in a new paper from Sarah E. Light, a Wharton professor of legal studies and business ethics. Co-written with Wharton legal studies and business ethics professor Nicolas Cornell, the paper titled “Wrongful Benefit & Arctic Drilling” asks whether it should be permissible for companies to profit from past decisions that have proven to be detrimental. Light discussed the paper in detail during a recent appearance on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge@Wharton: We need to start this discussion with this idea of the wrongful benefit principle, which is the basis of your paper.

Sarah Light: Yes, that’s right. This paper, which honestly has just been such a pleasure to work on with my colleague, Nicolas Cornell, brings together my interest in environmental law and policy with his expertise in normative ethics and normative business ethics. What we are fascinated by when we look at the issues related to Arctic drilling is that there’s a movement that has been very important in the past few years, the “keep it in the ground” or “leave it in the ground” movement.

It makes the argument that fossil fuels that have not yet been dug up should be left in the ground because of the terrible impact that continued fossil fuel burning will have on climate change. This argument applies to the Atlantic, the Arctic, the North Sea, wherever fossil fuels are to be found.

What Nico and I tried to do in this paper about the wrongful benefit principle is look specifically at the Arctic and ask whether there’s anything unique about Arctic drilling. If so, what is that? The conclusion that we came to is that there is something unique about Arctic drilling, and it’s not just about the consequences of Arctic drilling; it’s not just that the Arctic is a pristine environment, or that a spill would be more difficult to clean up in the Arctic because it’s harder to get boats there. Nor is it a question of the fact that there is unique marine life that could be harmed. All of those are true. We absolutely agree that those are all considerations. But what we are most interested in is that there is this sort of strange puzzle, and that is an historical one about how the opportunity to drill in the Arctic came about.

The irony is that there are areas of the Arctic that have long been inaccessible to drilling because they are covered in ice for too much of the year, so it’s not possible or economically viable for firms to pursue drilling in those areas. But because of climate change, which has been caused by the burning of fossil fuels, there is the potential for drilling to occur during the open water season, which is the time during which there is less than 10% ice concentration in the Arctic. That has lengthened from a period of 13 weeks annually to 17 weeks over the last 30 years. Basically, it means that climate change caused by the burning of fossil fuels in the past has opened up new business opportunities in the Arctic.

Ironically, the most fruitful potential business opportunity is for more drilling. What we do in our article is to ask whether the historical reason why that opportunity is available is relevant to what should be done going forward. What we argue is that the historical cause of this opportunity, the fact that it was the burning of fossil fuels in the past that opened up the Arctic to the potential for drilling in the future, is morally significant to the question of whether oil extraction should be permitted in the Arctic in the future. In the paper, we explore the boundaries of that principle, which is what we call the wrongful benefit principle.

Knowledge@Wharton: This is important because of the move that President Obama made to block drilling in the Arctic. That executive order has the potential of being lifted by Congress.

“… Climate change caused by the burning of fossil fuels in the past has opened up new business opportunities in the Arctic.”

Light: Of course, I like to think that President Obama read the draft of my paper in which we advocated a moratorium on the drilling of the Arctic before issuing his presidential memorandum. Here’s what happened: The president issued two memoranda on December 20, 2016. One applied to the Atlantic, and the other applied to the Arctic. The president used his unilateral authority under a statute passed by Congress in 1953 called The Outer Continental Shelf Lands Act, Section 12(a). This section says the president may withdraw unleased land from future drilling. Full stop. This provision has been used more than 10 times by presidents.

The interesting thing is that the text of the statute provides authority to the president to withdraw lands from leasing. It does not provide authority to the president to undo a withdraw. It is the best interpretation of that statute that the president does not have unilateral authority to undo the withdraw, so I don’t think that President Donald Trump would be able to, simply with the stroke of a pen, write a memorandum and undo the withdraw. I think what would have to happen would be either Congress amends the statute to provide the president with that authority, or Congress could simply override the presidential action in a statute itself.

Knowledge@Wharton: One of the things you also bring up are Son of Sam laws, which were brought forth in the wake of the Son of Sam murders back in the 1970s. The laws prevent criminals from profiting off their crimes through the sale of books, etc. To a degree, that is similar to what you were talking about with the impact that climate change has had in the Arctic.

Light: I love that you brought that up because it’s a really important part of the way that Nicolas and I make this argument. What we aim to do in the paper is demonstrate that this irony of Arctic drilling — that the historical fossil fuel emissions have created this opportunity for profit — is not unique to Arctic drilling. The problem of wrongful benefit has occurred in many other contexts. The way that we articulate the principle in the paper is that it is wrong to benefit knowingly from a bad act if the benefit one would receive is sufficiently connected to the bad act. The clearest example of that is when the bad act is some culpable or illegal act like a murder. The connection is that it is the perpetrator’s own action that created the opportunity for a benefit.

There is a famous case that has been discussed in many a law school classroom, as well as among many philosophers, called Riggs v. Palmer. Mr. Elmer Palmer was set to inherit under his grandfather’s will, and he was concerned that his grandfather was going to change his will. He murdered his grandfather before the grandfather could change his will. Two of Mr. Palmer’s relatives sued and brought an action in court, saying he should not be able to inherit because he murdered his grandfather. The court agreed, so there’s a whole dispute in the law about the court’s reasoning. But we take this case to be most clear example of a wrongful benefit in that what Elmer Palmer did was certainly a wrongful act. Murder is intentionally harmful. It is the worst thing that one could do.

Now, legislatures have taken up that principle and taken it beyond the inheritance context to the Son of Sam laws. For example, let’s imagine that somebody commits a murder and then wants to write a book about it. The person who committed the murder has to put any profit related to the book into a trust for the benefit of the victims.

Then the question is, how do we apply that to the case of Arctic drilling?

“The way that we articulate the [wrongful benefit] principle in the paper is that it is wrong to benefit knowingly from a bad act if the benefit one would receive is sufficiently connected to the bad act.”

Knowledge@Wharton: Because you are talking about an area where not many people are living, correct?

Light: Right. This isn’t murder, and drilling for oil is not illegal. In fact, it is done with the express leasing authority of the government. There are four versions of the wrongful benefit principle. Our argument why that version applies is that it is clearly the oil and gas industry, whether investor-owned or a state-owned firm, so it’s the same perpetrator. These are the firms that have drilled in the past. These are the firms that are seeking permits to drill in the future. The question is, how bad is the act? Is the act of drilling in the past, which is clearly harmful to the climate, the same as murder?

One could say it is a culpable act. If you were calculating global greenhouse gas emissions, the data shows that more than half of those greenhouse gas emissions have been emitted since the mid 1980s, when we have known about climate change. In fact, oil and gas firms have taken steps to obfuscate the impact of drilling, which contributes to the nature of it being intentional. In that way, we would argue that it fits into this culpable act by the same actor, and the wrongful benefit principle should apply. But we take the argument the next step and say, “Even if it’s not a culpable act like murder, it’s still causally harmful. It still caused harm in the past.” If you look at these statutes that prevent someone who has committed murder from inheriting, they actually apply to situations in which the person could not be held culpable. A minor who can’t be held culpable under the law can still be precluded from inheriting. So, our argument is that it doesn’t necessarily need to be a culpable act like murder. It could also be simply a causal bad act by the same perpetrator.

Knowledge@Wharton: You’re talking about the cause and the effect of what may or may not have happened to the environment over the last couple of decades. With a loss of level of ice in areas that were buried 30 years ago, there’s that causal impact on that specific area.

Light: Absolutely. There has been a lawsuit filed against Exxon related to what did and did not know. In 1992, a researcher at Exxon stated publicly that a longer open water season in the Arctic could reduce the firm’s costs of drilling by 30% to 50%. So, it’s very clear that this is something that was known. What becomes very interesting is what if it’s not the same actor, right? What if we’ve recently discovered that there was water once on Mars, and it was a Martian firm or someone who is entirely innocent who has never contributed to climate change. Should they be prohibited from drilling?

“Some goods, by virtue of how they’re acquired, become tainted or have some kind of moral significance.”

In the same way that we draw the analogy to the murderer who is seeking to inherit, in our view, there is something called tainted goods. Some goods, by virtue of how they’re acquired, become tainted or have some kind of moral significance. The clearest example of this would be something like conflict diamonds. You may not have mined conflict diamonds, but the diamond itself takes on this normative significance that no one should arguably be buying diamonds that are fueling conflict. The second half of our paper looks at the question of, “What if it’s not the same perpetrator? What if it’s someone else?” Is it possible that Arctic oil, by virtue of how it has been exposed through past fossil fuel burning and climate change, is tainted in a way that no one should be allowed to drill for that oil?

Knowledge@Wharton: Are you starting to hear reaction about this research and this idea?

Light: I think that the contribution this paper really makes is that when you think about the way that environmental law and policy are ordinarily discussed, they are discussed in terms of consequences. What is going to be the future impact of X? What we’re trying to do is to say that history matters and that we need to think about how we got where we are before we can move forward.

The reactions that we’ve had to the paper are all over the map, both from law and policy scholars as well as philosophy scholars. If you think about the different versions of the wrongful benefit principle, the one that is more intuitively, widely accepted is the murder inheriting. The one that’s hardest is if it’s a different perpetrator with a tainted object and a not intentionally harmful act. The challenge becomes how do you square the facts of Arctic drilling with that kind of continuum of different versions of the wrongful benefit principle? Does it matter that the shareholders of Exxon from 1992 are different from the shareholders of Exxon today? Does it matter what we knew or didn’t know?

“What we’re trying to do is to say that history matters and that we need to think about how we got where we are before we can move forward.”

Knowledge@Wharton: Maybe one of the biggest challenges is understanding this link between companies that could have had a direct impact on this and ones that may have had an indirect impact, and whether there should be differentiation between the two going forward? That’s a hard challenge to break through, isn’t it?

Light: Right. I think that would raise all sorts of informational problems as a policy matter. In our paper, we advocate treating everyone the same. Frankly, while the discussion has focused on firms, because it’s obviously firms that are capable of drilling, we’ve all been contributors to climate change. There is some sense in which none of us should be allowed to profit, arguably, from the oil that’s being uncovered there.

Knowledge@Wharton: Is it your thought that maybe we will see this idea taken up at the governmental level to address this?

Light: Sure. I definitely think that normative considerations should be playing a role in the decision-making process about how to address Arctic drilling or drilling in general, not only in the United States but also at a global level. The United States is not the only nation with access to the Arctic. Russia planted a titanium flag directly under the North Pole to claim its stake to those lands. So, I’d like to think that this principle should inform global conversations as well.

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