With the incoming Trump administration poised for an attack on federal environmental regulations, states are quickly emerging with actions on climate change. On December 26, 2024, New York Governor Kathy Hochul signed into law the "Climate Change Superfund Act" (the "Climate Superfund Act" or the "Act"), which seeks to impose retroactive fees on fossil fuel producers for their disproportionately large contributions to negative climate change impacts.
New York is the second state after Vermont to pass a state "Climate Superfund" law. Multiple other states, including California, Massachusetts, and New Jersey, have proposed similar legislation. These laws borrow the "Superfund" moniker from the long-established federal environmental remediation law, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"). One key aspect of CERCLA was its creation of a special excise tax on chemical and petroleum companies, which was discontinued in 1995 and then reinstated for certain chemicals in 2022. The money collected under the chemical tax was deposited into a "Superfund" to clean up abandoned or uncontrolled hazardous waste sites.
The Climate Superfund Act seeks to establish a vaguely analogous Superfund program to transfer the costs of addressing climate change from taxpayers and individuals onto the companies that have contributed most significantly to the buildup of climate change-driving greenhouse gases. The program intends to use funds collected from these companies to support New York's climate change adaptation efforts and infrastructure investments.
The Climate Superfund Act creates a "climate change adaptation cost recovery program," which requires fossil fuel companies to pay into a "climate change adaptation fund" based on their proportional share of covered greenhouse gas emissions from companies in the state whose covered emissions exceed one billion tons. The program identifies "responsible parties" based on a strict liability standard; no finding of wrongdoing is required. Unlike CERCLA's chemical tax, which was neither backward-looking nor tied to any measure of damages, the Act's cost recovery demands are entirely retroactive. Companies are required to pay into the fund if they were engaged in the business of extracting fossil fuel or refining crude oil during the covered period of January 1, 2000, to December 31, 2018, and the New York State Department of Environmental Conservation determines that they are responsible for more than one billion tons of covered greenhouse gas emissions.
Unlike Vermont's Climate Superfund law, which did not identify a specific amount covered entities must pay into its fund, New York's law specifies that responsible parties will collectively be required to pay $75 billion, or $3 billion annually, spread out over 25 years. Legislative findings assert that this $75 billion sum represents far less than the costs of New York State climate adaptation investments through 2050, which are projected to easily exceed $150 billion.
The funds will support "climate change adaptive infrastructure projects," including coastal wetlands restoration projects, installation of energy-efficient cooling systems in public and private buildings, programs addressing climate-driven public health challenges, and coordinated responses to extreme weather events. Environmental Justice is a prime consideration: the State must dedicate at least 35 percent of overall expenditures from the fund towards climate change adaptive infrastructure projects that benefit the State's mapped disadvantaged communities.
New York has already dedicated substantial resources toward climate adaptation. The $4.2 billion Clean Water, Clean Air, and Green Jobs Environmental Bond Act, $5.5 billion Clean Water Infrastructure Act, and $300 million annual Environmental Protection Fund have given the State a major head start on adaptation programs. The Climate Superfund Act, if fully realized, would supercharge those efforts.
To be clear, the Climate Superfund Act is not designed to reduce emissions, distinguishing it from the state's 2019 climate law, the Climate Leadership and Community Protection Act ("CLCPA"). The primary focus of the CLCPA is compliance with long-term emissions reduction targets. The forthcoming regulations for New York State's Cap-and-Invest Program are emerging from the CLCPA and are expected to set a declining cap on greenhouse gas emissions with a price per ton set via auction, the proceeds from which will be directed toward various electrification programs.
Because the Climate Superfund Act only levies penalties for fossil fuel production that has already occurred, one might anticipate that the Act will not significantly impact the future pricing and consumption of fossil fuels. However, the thresholds for applicability under the Act could lead to unintended impacts on oil and gas markets. For instance, gas companies that are required to pay into the Superfund (by virtue of emitting over one billion tons of greenhouse gases) could end up being undercut at the pump by companies who don't meet the Act's "responsible party" criteria. Though proponents of the Act are hopeful that underbidding by competitors will prevent larger companies from raising prices for fear of losing out on market share, opponents argue that enacting a monetary penalty on the largest companies could result in higher consumer prices across the board.
Vermont's version of Climate Superfund, which went into effect on July 1, 2024, now faces a federal lawsuit brought by the U.S. Chamber of Commerce and the American Petroleum Institute. The plaintiffs argue in part that Vermont's law violates the Due Process Clause of the Fourteenth Amendment by arbitrarily and irrationally imposing retroactive penalties, that the federal Clean Air Act preempts the law, and that it unconstitutionally discriminates against the economic interests of other states by targeting large energy companies located outside Vermont. Depending on the outcome in Vermont, New York State's law may face similar legal challenges, though its passage may also pave the way for other states to move forward with their own Climate Superfund legislation.
The Department of Environmental Conservation has one year from the effective date of the Climate Superfund Act to promulgate regulations and two years to complete a statewide climate change adaptation master plan to guide the dispersal of funds throughout the State. The agency must hold at least two public hearings, one in-person and one virtual, on the proposed regulations, with a minimum of thirty days' public notice.
Foley Hoag will continue to monitor developments and any legal challenges to the Act and other state climate superfund laws. Check this space regularly for updates and contact our professionals for guidance.
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