Albany’s New Fossil Fuel ‘Superfund’ Will Place a Heavy Burden on Consumers
Albany’s financial strategists have discovered a new method to inject funds into the state’s dwindling budget. On the day following Christmas, Gov. Hochul enacted Bill S2129A, empowering the Department of Environmental Conservation to impose hefty fines on fossil fuel corporations for their past greenhouse gas emissions. The funds will be directed into a Climate Change Superfund that is expected to help prepare for and manage adverse weather events, such as floods.
Championed by five Senate Democrats — Liz Krueger (28th Senate District), Joe Addabbo (15th), Neil Breslin (46th), Jabari Brisport (25th), and Samra Brouk (55th) — and following in the footsteps of a law passed in Vermont last year, the Climate Change Superfund mandates retroactive fees on companies that “engaged in the trade or business of extracting fossil fuel or refining crude oil” during a “covered period” from January 1, 2000, to December 31, 2018; specifically targeting those that exceeded 1 billion metric tons of emissions and sold their products in New York. Notably, major foreign players like China National Petroleum Company and Rosneft are excluded from concern.
The plan aims to amass $75 billion from these companies over a period of 25 years. Starting from this (arbitrary) financial target, a “cost recovery demand” will be calculated for large American energy firms designated as “responsible parties” based on their historical emission levels. Where will the funds be allocated? As Manhattan Institute legal fellow and cities director John Ketcham points out, the cash will be distributed to influential trade unions engaged in infrastructure projects, “disadvantaged” communities, and specialized interest groups through a system characterized by “poorly defined preferentialism.”
The new initiative takes cues from the US Environmental Protection Agency’s 1980 superfund law, yet bears little resemblance in practice. The EPA’s superfund makes polluters accountable for the direct environmental damage resulting from their hazardous waste releases — injuries that are specified, localized, particular, and attributable.
The concept of a climate superfund merely imposes retroactive charges on companies whose products are no longer favored by the state. While total global fossil fuel usage has contributed to climate change, these specific companies represent only a small fraction of total emissions. Thus, the state cannot credibly assert that Company X’s emissions directly caused Damage Y, which is why it avoids this crucial detail.
The legislation does not hold accountable the decision-makers from the “covered period”; instead, it is current company shareholders who face the repercussions. Ultimately, customers — everyday users of fossil fuel products — will absorb the costs of the superfund through increased prices on heating bills, at the gas station, and for various products reliant on oil and natural gas.
The Climate Change Superfund functions as a carbon tax devoid of economic rationale. Unlike a carbon tax or a cap-and-trade system that fairly applies across the economy, incentivizing emitters to reduce their emissions, this retroactive “taxation” targets only firms linked to New York, creating a clear incentive for them to relocate.
Fossil fuel companies, along with the beverage industry, Big Tech, and any other business that risks falling out of favor with public sentiment, now have reasons to contemplate departing the state.
The retroactive aspect of this law raises significant concerns regarding the state’s commitment to rule-of-law principles. The actions of the so-called responsible parties were fully compliant with existing regulations, and no specific harm has been attributed to them. Essentially, the term “cost recovery demand” serves as a euphemism for the appropriation of legitimately earned profits.
Although the law has been signed, the future of the superfund remains ambiguous. Gov. Hochul is expected to produce a report with compliance guidelines for companies by the end of April, and firms are on schedule to start paying their dues next year. However, legal challenges in federal court are likely to prolong the proceedings, questioning whether states like New York, Vermont, and Hawaii can impose liabilities for greenhouse gas emissions across state and international lines, or if they are barred by the US Clean Air Act.
Regardless of the judicial outcomes, New York has communicated clearly to businesses that it is not a trustworthy environment. Intended to alleviate flood damage, the Climate Change Superfund is likely to accelerate an exodus of businesses.
Jordan McGillis (@jordanmcgillis) is the economics editor of City Journal.
