New York's Climate 'Superfund' Is Costly, Arbitrary, and Unconstitutional
Increasing energy costs in New York will not significantly address climate change.
New York Gov. Kathy Hochul signed the Climate Change Superfund Act on Thursday. The law would address climate change by imposing a huge tax on fossil fuel companies—they will collectively owe an estimated $3 billion annually—for 25 years, beginning in 2028. The legislation supposes that these taxes will be paid entirely out of the profit margins of the energy companies. In reality, energy users will foot at least part of the bill.
The law opens dramatically by describing climate change as "an immediate, grave threat to the state's communities, environment, and economy," and it argues that investments in infrastructure will be necessary to mitigate its detrimental effects. The law requires companies that 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 bear "a proportionate share" of the cost of this infrastructure.
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.
Another constitutional wrinkle is the law's reservation of "at least 35 percent…of 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." The Fourteenth Amendment's Equal Protection Clause prohibits such explicit discrimination.
Constitutional questions aside, it is not unusual for a governmental body to try to internalize negative externalities with taxes. The problem lies in determining the magnitude of the externality—the cost nonconsensually borne by the public—and the extent to which those entities subject to taxation contributed to its production. The law states that it intends to tax proportionately and that "the data necessary to attribute proportional responsibility is very robust in the covered period." A cursory examination of the climate-change-related costs borne by New York suggests that $3 billion per year for the fossil fuel industry is probably disproportionately high.
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 Superfund Act also inaccurately claims 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 companies—ExxonMobil ($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 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.
The original Superfund—the Comprehensive Environmental Response, Compensation, and Liability Act of 1980—was found in a 1999 study for The American Economic Review to "not follow the expected pattern for efficient risk management." New York's Climate Superfund is similarly ill-considered.
