How a Climate Superfund Act in New York Would Work
Policy Integrity research helped spur a novel climate bill introduced by New York state lawmakers: the Climate Change Superfund Act. Widely endorsed by the environmental community, the Act would establish a climate change adaptation fund by requiring the fossil-fuel companies most responsible for climate damages to pay $30 billion to the state over 10 years — at a time of “immense profits” for these companies. Ultimately, the bill aims to bring in a total of $75 billion over a 25-year period. The money would be used on building and improving climate adaptation infrastructure such as sea walls, storm water drainage systems, and grid-resilience measures.
This blog post highlights the key takeaways from our legal and economic research on the Act, establishing its legal basis and economic viability.
Legal Basis
The Act is modeled after federal and state superfund laws based on the “polluter pays” principle of environmental law, which holds the entities responsible for environmental damage responsible for remediating that damage. New York has previously adopted programs based on this principle, including the hazardous waste disposal site program (also known as the state superfund program) and the oil spill fund. But no similar compensation program exists yet to address the climate damages of greenhouse gas pollution from burning fossil fuels.
“While all the profits accrue to the companies, all of the costs of climate change are paid by taxpayers. This is a market failure that needs to be addressed through policy change” the legislation states.
The Act uses a standard of strict liability, meaning companies must make compensatory payments because the use of their products caused the pollution. Finding of wrongdoing is not required. The Act explains:
“Based on decades of research it is now possible to determine with great accuracy the share of carbon dioxide released into the atmosphere by specific fossil fuel companies over the last 70 years or more, making it possible to assign liability to and require compensation from companies commensurate with their emission of carbon dioxide into the atmosphere during a given time period.”
Liability will cover emissions “resulting from the use of fossil fuels or petroleum products extracted, produced, refined, or sold by such entity” but only parties “determined by the department to be responsible for more than one billion tons of covered greenhouse gas emissions” and only their emissions after the first billion tons.
The bill’s drafters expect that other states will introduce similar laws and that industry will mount legal challenges against any climate superfund laws. Rachel Rothschild, an Assistant Professor at the University of Michigan Law School, conducted research on the legal arguments fossil fuel companies will likely make to avoid liability under the law while a legal fellow at Policy Integrity. As she noted, fossil fuel companies may argue that the state climate superfund act is preempted by federal law and that it is unconstitutional because of its retroactivity, effects on interstate commerce, and jurisdiction over out-of-state companies.
In a memo to state legislators, Rothschild cited various cases, such as Pakootas v. Teck Cominco Metals, that suggest “a state can exercise jurisdiction over a polluter simply because it discharged harmful substances into the forum state,” meaning New York could claim jurisdiction over foreign or out-of-state companies. The state would have an even stronger case for jurisdiction over any fossil fuel company operating, selling or marketing in New York, Rothschild said in a press conference.
Rothschild’s memo also rebutted other likely legal arguments against the Act: that it is preempted by the Clean Air Act, violates the Constitution’s Due Process Clause, or violates the Commerce Clause. There are currently no federal laws preventing New York or another state from passing a Climate Change Superfund Act, she told Gothamist.
Economic Impacts
In a recent policy brief, economists Peter Howard and Minhong Xu analyzed how the Act would affect consumer gasoline prices. They found:
· The Act is unlikely to alter the price of gasoline at the pump in New York or the price of crude oil more generally. This is because companies would see these payments as one-time fixed costs and would not be incentivized to change current or future sales. Oil companies would be unable to pass on increases in fixed costs to consumers due to economic incentives and competition, and they have significant incentives to leave their production levels and retail gasoline prices unchanged.
· The structure of the oil market in New York and globally is also unlikely to change in response to the Act. Because the Act applies only to large companies with significant operating revenue, oil company profits will likely remain positive, making widespread bankruptcies and consolidation unlikely. Nor would companies be able to retaliate against New York by raising retail gasoline prices in the state, due to U.S. antitrust laws and the interconnectedness of the national and global energy markets.
· The Act could have a minor effect on retail gasoline prices by changing expectations about future liability, but it’s unclear how or if the Act would change companies’ expectations of future compensatory payments. The recent rise in climate lawsuits nationally and globally combined with oil companies’ internal carbon prices strongly suggest that oil companies already anticipate financial liability for their contribution to climate change and that New York’s Act represents only a tiny portion of their overall liability risk.
· As climate change is likely to disrupt energy markets, revenue generated by the Act will likely temper future energy cost impacts in the state. Future energy prices related to transportation will likely be lower in the state as a result of the Act’s ability to stimulate adaptation to future impacts of climate change.
· Overall, the Act would likely have a negligible impact on current and near-term oil and gasoline prices, while potentially lowering future energy prices in New York, including for transportation.
Overall, Policy Integrity’s legal and economic research indicate that the Act is a viable path to adapting to climate change without raising consumer energy costs.
