New York State’s Probably Ill-Fated Attempt to Make Fossil Energy Providers Pay

     New York Governor Kathy Hochul just signed legislation known as the Supefund Act that requires fossil energy providers to pay fees for climate impacts, in order for the state to pay for climate adaptation. I have noted previously the state’s backward priorities: putting decarbonization of the energy sector ahead of adaptation to extreme weather. Now, the plan is to make fossil energy providers pay for climate impacts. Newsweek reports:

“Under the new law, companies with significant greenhouse gas emissions will be required to contribute to a state fund dedicated to infrastructure projects aimed at mitigating future climate change damage and repairing existing impacts.”

     If they succeed in making the suppliers pay, the demanders will pay soon enough and prices would likely go up for consumers one way or another, it would seem.

"This landmark legislation shifts the cost of climate adaptation from everyday New Yorkers to the fossil fuel companies most responsible for the pollution. By creating a Climate Change Adaptation Cost Recovery Program, this law ensures that these companies contribute to the funding of critical infrastructure investments, such as coastal protection and flood mitigation systems, to enhance the climate resilience of communities across the state," Hochul's office said in a statement.

     The American Petroleum Institute pushed back immediately on the legislation:

"This type of legislation represents nothing more than a punitive new fee on American energy, and we are evaluating our options moving forward."

     According to Newsweek:

“The law will not impose immediate penalties on companies. Instead, the state must first establish regulations to identify liable parties, notify them of the fines and develop a system for allocating funds to infrastructure projects. Legal challenges to the legislation are anticipated.”

     It is highly unlikely that large international companies would pay the fees. One might ask why one state would require such fees and others not require them. I have always said that support for lower carbon energy should be provided directly to clean energy providers rather than by trying to punish fossil energy providers. I would guess that this legislation will have significant trouble moving forward and will not be seen as fair.

     The law hopes to land $75 billion with hundreds of millions from many individual companies for their emissions from 2000-2018. Yeah, good luck with that. According to the New York Post:

“The 38 companies identified as carbon polluters include American petro giants such as Exxon and Chevron as well as Shell and BP in the UK, Total Energies IES in France, Petrobras in Brazil, BHP in Australia, Glencore in Switzerland, Equinor in Norway and ENI in Italy.”

     Environmental advocates like Sierra Club like the law but others wonder whether it will survive legal challenges and note the unlikelihood of companies paying, especially international ones.

“This legislation is bad public policy that raises significant implementation questions and constitutional concerns. Moreover, its $75 billion price tag will result in unintended consequences and increased costs for households and businesses,” the letter, co-signed by the Business Council, the American Petroleum Institute Northeast Region and National Fuel Gas Company, among others.

     Another thing that makes the law unfair is that GHG emissions are just one factor among many that are leading to climate impacts. Sea level rise has been occurring since the last glacial maximum began to retreat. That natural sea level rise is responsible for the vast majority of climate impacts from storms and tides. There may be some acceleration due to global warming, but it is difficult to measure. Other impacts from storms are only partially due to global warming and in many cases that influence may be negligible. The fact is that a huge percentage of those climate impacts would have occurred whether fossil fuels were used or not.

 According to an article about the legislation in Reason, there are several reasons to suspect that the law will not stand:

“The law does not merely set a rate at which future carbon dioxide emissions will be taxed. It applies retroactively, "based on the fossil fuel companies' historic contribution to the buildup of greenhouse gases that is largely responsible for climate change." State legislatures have the power to pass taxes, but the Constitution says in no uncertain terms that they may not pass ex post facto laws that penalize firms or individuals for behavior that was not legally restricted at the time.”

     The reserves 35% of funding for disadvantaged communities, which are not well-defined in the state. The fees are essentially an extreme corporate tax applied only to a small group of companies.

“The law vaguely gestures at the figure of "several hundred billion dollars" in climate adaptation investments it will make through 2050. "Several," at a minimum, means "three," meaning $300 billion over 25 years; that would amount to $12 billion per year. If 100 percent of this $12 billion is incurred from anthropogenic climate change, a global phenomenon, then the assessment of the fossil fuel industry should be proportional to its yearly contribution to global emissions. It's not: There were 37.4 billion tons of energy-related carbon dioxide emissions in 2023, and the U.S. was responsible for 12.8 percent (4.8 billion tons), which would come to a tax of no more than $1.54 billion per year.”

     The article in Reason also disputes the amount of profit attributed to the three companies with the highest liabilities: ExxonMobil, Chevron, and ConocoPhillips. As detailed below, what happened when Washington state launched a cap-and-trade program is likely to happen in New York as well, with taxpayers footing the bill.

“Regardless of their profitability, the cost of New York's Superfund assessment won't fall solely on fossil fuel firms; it will be passed on to consumers in the form of higher energy prices. This is exactly what happened in Washington state after it launched a cap-and-trade program: BP added a 56-cent-per-gallon "Cap at the Rack" charge for diesel fuel to compensate for the $56.01 allowance per metric ton of carbon dioxide. Increasing the cost of doing business for fossil fuel firms will not result in a reduced "burden borne by…taxpayers for climate adaptation," as the bill claims; it will lead to higher costs for home heating and at the gas pump.”

 

References:

 

NY Governor Signs Law That Charges Companies for Greenhouse Gas Emissions. Matthew Impelli. Newsweek. December 26, 2024. NY Governor Signs Law That Charges Companies for Greenhouse Gas Emissions

Hochul signs NY law that will charge $75B to oil, gas and coal companies for climate change — but critics say customers will pick up tab. Carl Campanile. New York Post. December 26, 2024. Hochul signs NY law that will charge $75B to oil, gas and coal companies for climate change — but critics say customers will pick up tab

New York's Climate 'Superfund' Is Costly, Arbitrary, and Unconstitutional. Jack Nicastro. Reason. December 30, 2024. New York's Climate 'Superfund' Is Costly, Arbitrary, and Unconstitutional