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Norm Diffusion and Other Non-Price Effects

The decision to reject or approve fossil fuel infrastructure is important for numerous reasons. Fossil fuel production projects unquestionably cause absolute greenhouse gas emissions—in the process of extraction and when they are combusted by the end user. Such projects also typically have adverse local environmental impacts, and some of these may also have global significance, such as where fossil fuel reserves are located in biodiversity ‘hotspots’.1 But such decisions can also have knock-on effects.  

As discussed in our category page on Market Substitution, fossil fuel project proponents often argue that their project will cause fewer aggregate emissions than absolute emissions (or potentially even reduce aggregate emissions relative to the counterfactual without the project) because of price effects. Any legal decision to admit market substitution effects into the assessment of a proposed project’s emissions requires a shift from assessing emissions from the project to assessing the net aggregate emissions resulting from the project. It also requires the adoption of counterfactual reasoning: the decision-maker is called upon to assess not simply the emissions that the project would cause, but what would (counterfactually) happen if the project were not to proceed, e.g., if the project were to be rejected. If the decision-maker is legally required to take account of such non-proximate and counterfactual market effects, it should also take into account other non-proximate, counterfactual effects, including the effect of rejecting the project.  

One such effect of rejecting new fossil fuel projects is to reinforce ‘anti-fossil fuel norms’ (Green, 2018), which are increasingly being institutionalised (van Asselt and Green 2022). A norm against new fossil fuel projects can be diffused through multiple channels, one of which is judicial precedent: as more courts reject new fossil fuel projects on climate grounds, other courts will be increasingly likely to draw on that jurisprudence. Strengthened legal norms against new fossil fuel projects will also help to catalyse government policies to restrict fossil fuel production in more systematic ways, as discussed in our category pages on National and Subnational Supply-Side Policies and International Supply-Side Cooperation. Collier and Venables (2015) further suggest that phasing out coal builds moral pressure on remaining coal extractors, counteracting price-based incentives to increase production as aggregate supply contracts. Carter and McKenzie (2020) argue that the adoption of policies to keep fossil fuels in the ground amongst first movers can create a symbolic shift, triggering a cascade of similar action across other states. Blondeel et al (2019) find that anti-fossil fuel norms are more likely to be adopted where they have co-benefits valued by the adopter (e.g. health or financial benefits); these issue linkages can also be reinforced through administrative and judicial decision-making to reject new projects. 

Another relevant effect of rejecting fossil fuel projects is the contribution such action makes to capital markets. For example, Sato et al’s (2023) analysis of the impacts of climate lawsuits against companies suggests that climate lawsuits produce negative market reactions, which ultimately adversely affect the prospects of fossil fuel firms to develop future projects. Fattouh et al (2019) illustrate how the energy transition away from fossil fuels is affecting the risk profile of businesses and their assets, as investors are increasingly reluctant to support long-cycle fossil fuel projects. These wider impacts demonstrate how rejecting fossil fuel projects can contribute to shifts in investor perceptions of risks to fossil fuel assets, thereby accelerating decarbonisation. 

Like price effects, these effects of a decision to reject a fossil fuel project (effects on social norms and investor sentiment) are difficult to quantify, but we can be confident of their direction, i.e., toward reducing global GHG emissions. It is possible that these effects will be small. But it is also possible that they will be large, with court decisions potentially catalysing significant changes in the direction of lower emissions. This is because norm diffusion and market sentiment are characterised by complex, non-linear dynamics, such that a change in part of the system (such as a court ruling) could have disproportionate effects on a wide range of emissions-affecting behaviours. Our category page on Feedback Effects discusses these complex system dynamics in more detail. 


1 See N. Butt et al., “Biodiversity Risks from Fossil Fuel Extraction”, Science (2013) 342(6157), pp. 425-426.

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