ExxonMobil went on trial Tuesday in a packed courtroom in New York, where the oil giant stands accused of defrauding investors by misleading them about the risks it faces from future climate regulations.

The civil case is the first major climate change lawsuit to reach trial in the United States, and it is the culmination of four years of investigation by the New York state attorney general’s office.

The central allegation is that Exxon fraudulently used two sets of books to estimate the risks it faces as governments take steps to cut greenhouse gas emissions: one that was shared with investors and another that was used only internally. The public estimate was higher, suggesting a future with stricter limits on emissions, while the internal figures were lower, reflecting more lenient regulations.

Lawyers for Attorney General Letitia James, who took office this year, a few months after the lawsuit was filed, have argued that this practice exposed investors to greater risks than Exxon had disclosed and inflated the company’s value.

The central question that Justice Barry Ostrager will have to decide is whether Exxon’s disclosures reflected its practices, Kevin Wallace, acting chief of the attorney general’s investor protection bureau, told the state court in his opening statement.

“We are not telling Exxon how to run its business,” Wallace said. “But it has to be honest with investors.”

Exxon’s lead attorney, Theodore Wells, called the allegations “bizarre and twisted” and said the company did nothing wrong.

Exxon does not dispute that it used two estimates for the future impacts of climate regulations, but it argues that it was transparent with investors about its practices and that each had legitimate business purposes.

The opening statements suggested that the case may turn on semantic arguments about what a reasonable investor would have believed from reading Exxon’s reports and disclosures, and on a technical forensic analysis of what impact the company’s practices had on its share price and value.

Amid this discussion, Exxon’s former chief executive and former Secretary of State Rex Tillerson is expected to testify.

Whatever decision the judge reaches is sure to be cited in major climate cases to come. More than a dozen local and state governments have sued Exxon and other energy companies seeking damages to help pay the costs imposed on cities by rising seas and extreme weather caused by climate change. On Tuesday, U.S. Supreme Court justices denied requests by energy companies in three of those cases—involving Baltimore, Rhode Island, and three Colorado municipalities—to intervene as the companies try to have the cases heard in federal rather than state courts.

The Problem with Two Estimates

Since at least 2010, Exxon had been reporting that it was using something called a proxy cost of carbon to model the financial impacts of climate policies decades into the future.

But as the company came under increasing pressure from some investors to better disclose the risks it was facing, Wallace told the court in his opening statement, “Exxon realized it had a problem.”

In May 2014, the company’s top management was given a presentation written by Guy Powell, Exxon’s corporate greenhouse gas manager, warning that the way the company had been accounting for climate risks was potentially misleading. Even as it was reporting its proxy cost to the public, it was using a separate estimate for carbon costs—which it called a “greenhouse gas cost”—to evaluate investment opportunities internally. The proxy cost assumed carbon costs would be significantly higher than the internal estimate.

One effect of using a lower estimate for future carbon costs was that it made high-polluting oil projects look like more attractive investments, compared to if the higher proxy cost were applied.

Powell recommended aligning the costs. Soon after the presentation, Wallace said, Exxon’s management directed company planners to start using the higher cost for their internal evaluations, as well. Exxon attorney Wells told the court Tuesday that the decision had nothing to do with the presentation but was a reflection of how the company saw climate policies evolving.

But even after Exxon aligned its two carbon price estimates in the summer of 2014, corporate planners continued to apply lower estimates when evaluating whether to invest in new energy projects, documents obtained by the attorney general show. In Alberta, for example, where Exxon has spent tens of billions of dollars on projects in Canada’s oil sands, the company directed planners to apply an existing carbon fee that was much lower than the corporate estimates. In particular, while corporate estimates projected carbon prices continuing to rise up to $80 per ton in 2040, planners in Canada applied a fee that held flat at $24 decades into the future and didn’t apply to all of a given project’s emissions.

“Assuming that existing legislation would remain frozen in place forever is the exact opposite of accounting for increasingly stringent regulation,” Wallace said.

The attorney general argues that this practice hid tens of billions of dollars in potential future costs at these oil sands projects from investors.

In his opening statement for Exxon, Wells argued that the public proxy cost was used to model global supply and demand for its products decades into the future.

Because it was global in scope, the proxy cost was informed by a suite of policies Exxon expects to see adopted around the world, from fuel efficiency standards in the U.S. to carbon taxes in Europe. The lower greenhouse gas cost, Wells said, was meant to reflect direct costs at specific Exxon facilities around the globe, so it was informed by a more limited set of policies. Wells used the example of a hypothetical refinery in Brooklyn, which would pay for its emissions if New York were to implement a tax or fee on polluters.

He pointed to a specific sentence in one report that Exxon issued in 2014 in response to investor pressure, where the company said “we require that all our business segments include, where appropriate, GHG costs in their economics when seeking funding for capital investments.” The sentence made clear that the proxy cost and greenhouse gas cost were distinct, he argued.

Wallace countered that this claim hangs on a “tortured reading” of the company’s disclosures, and pointed to other reports that he argued obfuscated any difference. In some, Exxon used the term “GHG proxy cost.”

“A reasonable investor had every reason to believe that Exxon was using the term proxy costs and greenhouse gas costs interchangeably,” Wallace said.

Toward the end of his statement, Wells drew a smile from Ostrager when he mentioned what he called “the elephant in the room,” charging that the allegations are part of a political conspiracy by liberal attorneys general, backed by activists, to smear the company. He cited a 2016 press conference held by then-Attorney General Eric Schneiderman with many of his counterparts from other states promising to go after energy companies for their role in fueling climate change.

Ostrager has already dismissed an attempt by Exxon to halt the case on such a claim, as has a federal judge in New York.

Years of Investigation

The New York investigation began in the fall of 2015, when then-Attorney General Eric Schneiderman issued a subpoena seeking documents spanning four decades of research findings and communications about climate change. Massachusetts investigators followed several months later with a separate subpoena. While Massachusetts has yet to file a lawsuit, that state’s attorney general sent a letter to Exxon earlier this month saying it plans to file a claim soon.

The two investigations followed the publication of the Pulitzer Prize-finalist investigative series of stories by InsideClimate News and later reporting by the Los Angeles Times that disclosed that Exxon had long understood the science of global warming, predicted its catastrophic consequences, and then spent millions of dollars to promote misinformation about global warming and the role of fossil fuels.

Ostrager has allotted three weeks for the trial and has said he will issue a ruling shortly after it ends. If he rules against Exxon, the company could face substantial fines and be ordered to revise how it discloses climate risks.