New York Governor Kathy Hochul has recently enacted the Climate Change Superfund Act, a law that seeks to address climate change by levying a substantial tax on fossil fuel companies.
The tax, estimated to be around $3 billion annually, will be imposed for 25 years starting from 2028. The legislation assumes that these taxes will be absorbed entirely by the profit margins of the energy companies. However, it is more likely that energy consumers will bear a significant portion of this financial burden.
As reported by Reason.com, the law begins with a dramatic assertion, describing climate change as "an immediate, grave threat to the state's communities, environment, and economy." It argues that investments in infrastructure will be necessary to mitigate the detrimental effects of climate change. The law mandates companies that have extracted fossil fuels or refined crude oil, and released at least a billion tons of carbon dioxide between January 1, 2000, and December 31, 2018, to shoulder "a proportionate share" of the cost of this infrastructure.
The law does not merely set a rate for future carbon dioxide emissions to 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." While state legislatures have the power to pass taxes, the Constitution explicitly prohibits them from passing ex post facto laws that penalize firms or individuals for behavior that was not legally restricted at the time.
Another constitutional issue arises from the law's stipulation that "at least 35 percentof the overall benefits of program spending [to] directly benefit disadvantaged communities." New York's definitions of "disadvantaged communities" are not limited to income level or similarly neutral criteria, but include "areas with concentrations of people that are members of groups that have historically experienced discrimination on the basis of race or ethnicity." This explicit discrimination is prohibited by the Fourteenth Amendment's Equal Protection Clause.
While it is not uncommon for a governmental body to attempt to internalize negative externalities with taxes, the challenge lies in determining the magnitude of the externalitythe cost nonconsensually borne by the publicand the extent to which those entities subject to taxation contributed to its production. The law asserts that it intends to tax proportionately and that "the data necessary to attribute proportional responsibility is very robust in the covered period." However, a brief examination of the climate-change-related costs borne by New York suggests that $3 billion per year for the fossil fuel industry is likely disproportionately high.
The law vaguely refers to "several hundred billion dollars" in climate adaptation investments it will make through 2050. If "several" means "three," that equates to $300 billion over 25 years, or $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. However, this is not the case. In 2023, there were 37.4 billion tons of energy-related carbon dioxide emissions, and the U.S. was responsible for 12.8 percent (4.8 billion tons), which would equate to a tax of no more than $1.54 billion per year.
The Superfund Act also inaccurately states that the three largest domestic oil and gas producers made $85.6 billion in profits in 2023. The cumulative 2023 fiscal year total earnings of the three leading fossil fuel companiesExxonMobil ($36 billion), Chevron ($21.4 billion), and ConocoPhillips ($11 billion)was $17 billion less than this inexplicable figure.
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 precisely what occurred 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 bytaxpayers for climate adaptation," as the bill claims; it will lead to higher costs for home heating and at the gas pump.
The original Superfundthe Comprehensive Environmental Response, Compensation, and Liability Act of 1980was found in a 1999 study to "not follow the expected pattern for efficient risk management." New York's Climate Superfund seems to be similarly ill-considered, raising questions about its potential effectiveness and the fairness of its financial burden distribution.
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