New York Passes Second-in-the-Nation Climate Change Superfund Act

On Thursday, December 26, 2024, New York Governor Kathy Hochul signed into law the second-in-the-nation Climate Change Superfund Act (the “Act”). The Act had first passed the New York legislature in June 2024, shortly after Vermont’s Climate Superfund Act became law. See, Sidley Update.

The Act establishes a Climate Change Adaptation Cost Recovery Program (the “Program”), to be overseen by the New York State Department of Environmental Conservation (the “Department”) and enforced by the Department, the Department of Tax and Finance, and the Office of the New York State Attorney General. The law authorizes the state government to levy billions of dollars in fines on fossil fuel companies over the next two decades for alleged contribution to greenhouse gas (GHG) emissions. New York would then be allowed to collect and deposit the monies in a “fund” — akin to a federal superfund, though structured differently — that the state may use to pay for projects to address the effects of climate change.

What will the Program do?

The Act will require “cost recovery demand” payments from entities that the Department deems “responsible parties” under the law, primarily to fund “climate change adaptive infrastructure projects” within New York. The law defines a “responsible party” as an entity (or successor in interest) that “engaged in the trade or business of extracting fossil fuel or refining crude oil” from January 1, 2000 to December 31, 2018 (the “covered period”), and that the Department determines is accountable for more than 1 billion metric tons of certain GHG emissions. Responsible party does not include any person lacking “sufficient connection with the state to satisfy the nexus” of the U.S. Constitution. The Vermont law parallels this definition of a responsible party, save for Vermont’s longer covered period, which extends from 1995 to 2024.

How will New York collect funds from responsible parties?

Like its Vermont counterpart, the Act establishes strict liability for parties allegedly responsible for GHG emissions. For the New York law, the total assessment rate is set at $3 billion per year, with a goal of raising $75 billion over 25 years. For each responsible party, the “cost recovery demand” — the charges asserted against an alleged responsible party for payments under the Program to the fund — will equal the responsible party’s alleged proportionate share of covered GHG emissions as defined by the statute to the aggregate $75 billion in covered GHG emissions. “Covered GHG emissions” means, the total quantity of GHGs released into the atmosphere, expressed in metric tons of CO₂ equivalent, including but not limited to, “the release of GHGs due to the extraction, storage, production, refinement, transport, manufacture, distribution, sale, and use of fossil fuels or petroleum products extracted, produced, refined, or sold by [any] such entity.”

The Act establishes methodologies for calculating the covered GHG emissions that New York is attributing to responsible parties, including specific metrics for coal, crude oil, and fuel gases. Specifically:

Payments can be made in full by the applicable payment date, September 30, 2026 (second calendar year following the year enacted), or in 24 annual installments with 8% of the total due in the first installment, and 4% due in each of the following 23 installments.

Where will the money go?

Cost recovery-demand payments will be deposited in a newly formed Climate Change Adaptation Fund. These funds collected through the Program will be used for various “climate change adaptation infrastructure projects,” including, but not limited to:

• Coastal wetlands restoration,
• Storm water drainage system upgrades,
• Energy-efficient cooling systems in public and private buildings,
• Support for public health programs addressing climate-drive challenges, and
• Responses to extreme weather events.

The Act also requires funds to be allocated such that 35%‒40% of program benefits would go to projects that directly benefit disadvantaged communities.

For public entity contracts, there are specific labor, wage, and materials requirements. For example, certain materials and products must be produced or made in whole or substantial part in the United States, its territories, or possessions. Specifically, all manufacturing of iron, steel, and aluminum product, must take place in the United States.

What happens next?

By April 25, 2025 (120 days from the effective date), the Governor is required to publish a public report that will provide steps to be taken to ensure compliance with the Act’s labor and job contracting requirements, the necessary regulations to ensure good jobs and employment opportunities, and how public entities will establish a system to track compliance, accept reports of non-compliance for enforcement action, and report annually on the legislature’s adoption of these standards.

By December 26, 2026 (one year from the effective date), the Act requires the Department to promulgate implementing regulations. And, within two years, the Department is required to complete a statewide climate change adaptation master plan.

Interested parties are also likely to file legal challenges raising a variety of issues, such as:

• Unlawful retroactivity ‒ The Act imposes penalties for actions that were entirely lawful during the covered time period — including under New York state law — and indeed, remain lawful today. The Supreme Court has long-expressed disfavor with statutes that would impose retroactive legal consequences to events completed before a law’s enactment. See, Landgraf v. USI Film Products, 511 U.S. 244, 270 (1994).
• Supremacy Clause ‒ Additionally, the Act imposes penalties on covered parties for activities lawfully authorized under federal law and by other states. Allowing the individual states to establish these types of laws would create a patchwork of state requirements that stakeholders would argue are preempted by federal law. See, Carolina, ex rel. Cooper v. Tennessee Valley Auth., 615 F.3d 291, 296 (4th Cir. 2010). Similar issues are being raised in tort actions brought by states and cities seeking damages from alleged sources of GHG emissions.
• Due Process ‒ Moreover, opponents of the Act may raise other constitutional challenges, such as that the Act is arbitrary and irrational, and violates Due Process by imposing responsibility for the effects of global climate change within a single state on a select group of entities.

Given the scope, goals, and penalties to be imposed by the Act, other federal and state law objections are likely to be raised.

Since June 2024, there have been no major updates from the three other states considering climate change superfund legislation — California, Maryland, and Massachusetts. Industry stakeholders should continue to watch these states closely as they or others may advance legislation similar to New York or Vermont’s climate-related superfund laws.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.