New York Passes Climate Superfund Legislation

The New York Law

On December 26, 2024, New York passed the CCSA, finding that “‘fossil fuel companies’ historic contribution to the buildup of greenhouse gases” is “largely responsible for climate change.” As a result, the state would seek to impose liability on such companies for the costs of climate change adaptive infrastructure improvements. The CCSA, which imposes strict liability upon fossil fuel producers, creates a “Climate Change Adaptation Cost Recovery Program” to recover costs that will then be held in a fund, akin to the federal “Superfund” program established under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

Although styled as a “climate Superfund” act, there appear to be important differences between the CCSA and CERCLA.  For instance, while CERCLA imposes a tax on oil and certain chemical products as a way to raise funds for environmental cleanup¹—a tax that appears substantively similar in effect to cost recovery demands associated with fossil fuel production under the CCSA—those taxes are forward-looking, not retroactive. Understood as a retrospective cost recovery remedy, the CCSA approach appears more aggressive, with no apparent requirement to prove causation (as distinct from CERCLA’s attenuated causal nexus requirements), the imposition of liability determinations through an administrative process rather than judicial decision, and no express contribution remedy against other fossil fuel users that also contributed to any problems faced by New York (the existence of such remedies was a major factor in courts upholding the constitutionality of CERCLA’s liability scheme²). Such differences may well provide arguments to support challenges to the CCSA that it oversteps constitutional limits on retroactive liability.

The definition of a responsible party draws upon arguably nebulous concepts of a state nexus and could abrogate the concept of limited shareholder liability for liable entities

The CCSA requires the NYSDEC impose cost recovery demands on fossil fuel producers and refiners deemed “responsible parties” under the Act. These parties encompass any entity that (1) “was engaged in the trade or business of extracting fossil fuel or refining crude oil” at any point between January 1, 2000, and December 31, 2018 (the “Covered Period”); (2) “is determined by the [NYSDEC] to be responsible for more than one billion tons of covered GHG emissions” during the Covered Period; and (3) “has sufficient connection with the state [of New York] to satisfy the nexus requirements of the U.S. Constitution.”³

All emissions are covered, but the “responsibility mechanism” appears to encompass only a narrow group of parties

Covered GHG emissions under the Act include, but are not limited to, those resulting from the “extraction, storage, production, refinement, transport, manufacture, distribution, sale, and use of fossil fuels or petroleum products extracted, produced, refined, or sold” by a responsible party.⁵ Notably, the law does not include any limit on the geographic scope of the GHG emissions the NYSDEC will consider in assessing the cost recovery demand. Indeed, the covered GHG emissions are not limited to those emitted in or even connected to New York.⁴ However, the entities defined as responsible under this Act are only those engaged in a “fossil fuel business,” which is defined as a “business engaging in the extraction of fossil fuels or the refining of petroleum products.”  This definition thus excludes parties that use the fossil fuels, which would include the power industry in the case of coal.  Two other important limitations will play key roles in defining who is liable under the Act: only entities with covered GHG emissions in excess of 1 billion tons of CO₂ emissions during the period in question are liable; and the requirement that the “responsible party” must have a “sufficient connection with the state to satisfy the nexus requirements of the United States constitution” in order to be liable under the Act.

The calculation of cost recovery demands

Cost recovery demands are based on an responsible party’s covered GHG emissions in excess of one billion tons. The Act sets out carbon dioxide equivalents for different types of fossil fuels that are used to determine the GHG emissions attributable to an entity. The calculations the Act lays out are as follows:

The CCSA requires NYSDEC to collect an aggregate of $3 billion per year from responsible parties for 25 years, reaching a total a $75 billion. In theory, a responsible party under the Act will be held liable for an amount that bears the same ratio to $75 billion as that party’s applicable share of covered GHG emissions bears to the total amount of covered GHG emissions from all responsible parties.

A cost recovery demand under CCSA that has been imposed upon a party refining petroleum products can be adjusted if a responsible party shows “to the satisfaction of the commissioner” that a portion of the demand was attributable to the refining of crude oil extracted by another responsible party. No similar mechanism to dispute their assessment is provided for parties “extracting fossil fuels.” Although the legislature has proposed changes to the overall mechanism to challenge a cost recovery demand, as currently enacted, the Act affords a limited ability to “be heard” by contesting demands to NYSDEC or to the New York State Department of Taxation and Finance. While determinations made in favor of the party are final, determinations in favor of the state may be appealed in New York state court—though under a standard of review deferential to the state.⁶

Although $75 billion is a substantial sum, the New York legislature believes that this represents a “small percentage” of the costs the state will bear to repair and adapt infrastructure to withstand climate change-driven events over the next 25 years. Payments into the fund will be used for infrastructure projects aimed at adapting to and mitigating the effects of climate change, climate-driven public health initiatives, and responses to extreme weather events, including: upgrading stormwater drainage systems, coastal wetlands restoration, upgrades to roads and bridges, undertaking preventative healthcare programs, retrofitting sewage treatment plants vulnerable to flooding, and upgrading parts of the electrical grid to increase resilience. The law requires that at least 35% of the funds are put towards climate change adaptive infrastructure projects that benefit disadvantaged communities.

Under the Act as currently enacted, NYSDEC has until December 26, 2025, to promulgate regulations implementing the law, including adopting methodologies to identify responsible parties, determine their covered GHG emissions, and issue notices of cost recovery demands. Payments, which can be paid in full or in annual installments, are due on September 30, 2026, and annually thereafter.

NYSDEC must also publish a climate change adaptation master plan by December 26, 2026, to guide the dispersal of funds paid pursuant to the program and identify potential, proposed, and ongoing climate infrastructure projects within the state.

Other State Laws

State governments are increasingly taking action on climate issues. New York is the second state after Vermont to enact a climate Superfund law. Vermont’s Climate Superfund Act (the “Vermont Law”), which was passed on May 30, 2024, is analogous to the CCSA in many ways but covers GHG emissions from 1995 to 2024—a longer time period than the CCSA. Similar laws have been proposed in California, Maryland, Massachusetts, and New Jersey, but have not meaningfully advanced to date, but such state legislation could see new momentum following the enactment of the New York law. These developments come alongside climate financial reporting laws passed in California and proposed in New York, Illinois, Minnesota, and Washington.

Potential Impacts

Producers and refiners and their stockholders may face a number of negative consequences from the CCSA. Because the Act imposes strict liability for past GHG emissions—not present or future activities—those deemed “responsible parties” will face cost recovery demands imposing substantial new and retroactive liability upon their past lawful activities. Moreover, there is nothing in the Act indicating that any payments under this liability scheme would have any impact on their exposure to any other claims that may be made in the future by New York in any climate change litigation. Aggressive interpretations of the New York nexus requirements and the application of CCSA to extraterritorial fossil fuel production and use could cast a very broad net indeed. The Act may also impact mergers and acquisitions activity, since buyers will need to consider the impact of annual installments, which may be significant, over 25 years if an entity declines to pay the demand in full. Industry groups have also raised the alarm, in a letter to Governor Hochul, that consumers may also face increased costs due to the Act. The fossil fuel industry groups warn that cost recovery demands may increase responsible parties’ operating costs, which may then be passed on to consumers.

Legal Challenges

Industry groups are certain to bring legal challenges against the CCSA. On December 30, 2024, the U.S. Chamber of Commerce and American Petroleum Institute sued Vermont over its climate Superfund law, demonstrating the types of arguments that could be made against the CCSA. Challengers of these “climate Superfund” laws argue that this type of legislation is preempted by the federal Clean Air Act (“CAA”) because “state regulation of greenhouse gases is only permissible as authorized” by the CAA. The challengers to the Vermont Law also allege that the planned cost recovery demands violate the Fourteenth Amendment by imposing “harsh or oppressive” penalties for legal activities, violate the Commerce Clause by discriminating against economic interests important to other states, constitute an unconstitutional taking prohibited by the Fifth Amendment, and are unlawfully retroactive and territorial. Challengers will likely raise other federal and state law objections given the broad scope and heavy penalties raised under the CCSA. As lawmakers continue to advance climate change-related legislative efforts, companies should remain appraised of their potentially expanded liabilities.

Proposed Amendments

On January 8, 2025, the Act’s sponsor in the New York legislature proposed a bill to amend the CCSA. The proposed amendments include significant procedural changes to the existing CCSA and attempt to address some of the concerns that are very likely to be raised in opposition to the Act. For example, the proposed amendments set forth a new process for challenging the cost recovery demand—including addressing the potential instance in which a new responsible party is identified after the date in which the NYSDEC is required to issue initial cost recovery demands—and eliminates the minority interest liability provision in its entirety. The proposed amendments also extend the length of the Covered Period from 18 to 24 years (as proposed, the Covered Period would extend from January 1, 2000, to December 31, 2024), and remove a responsible party’s option to pay their cost recovery demand in annual installments over 25 years. Additionally, under the amended Act, New York authorities will be empowered to seek information from entities regarding their potential liability. It appears that the legislature contemplates that New York authorities will send out requests inquiring into, among other things, “past practices, production, extraction, refining, emissions, or other historical information” needed to make responsibility determinations. Fossil fuel companies that do not directly operate in New York, but meet the constitutional test for jurisdiction in New York, may well receive such letters. Indeed, the amendments plainly state that the New York authorities are considering “emissions attributable to all fossil fuel extraction and refining worldwide … and are not limited to such emissions within the state.”

Under the amended Act, the NYSDEC would be required to issue cost recovery demands by June 30, 2028, and responsible parties’ payments would be due by December 30, 2028. The proposed amendments also give the NYSDEC more time to promulgate regulations and publish the climate change adaptation master plan (referred to as a “resiliency plan” in the proposed amendments), extending the NYSDEC’s deadlines to June 2027 and December 2028, respectively. While it is not certain that these proposed amendments will be adopted, any such amendments have the potential to significantly change a company’s future obligations under the Act.

We will continue monitoring climate-related state laws. Please reach out to your Vinson & Elkins team to discuss these matters and their implications for your business.

¹ 26 U.S.C. § 9507(b). While the original taxes expired in 1995, they were reinstated through 2032 by the Inflation Reduction Act of 2022. Pub. L.  No. 117-169, tit. I, § 13601(b), 136 Stat. 1818, 1982 (2022) (codified at 26 U.S.C. § 9507).

² See, e.g., United States v. Conservation Chem. Co., 619 F. Supp. 162, 216 (W.D. Mo. 1985) (“The right of contribution operates to insulate defendant from being exposed to liability for more than its ‘fair share’ (which has not yet been determined)”).

³ The nexus to New York requirement of having “sufficient connection with the state [of New York] to satisfy the nexus requirements of the U.S. Constitution” remains ambiguous. Based on analysis of the legislative history of the law, it seems unclear how the New York legislators intend to apply the New York state nexus under the US Constitution. Similar issues with climate laws have been explored by Vinson & Elkins recently, including under California’s groundbreaking climate laws, which are tied to “doing business” in the state. It can be expected that this will be explored by litigants arguing the overbroad and ambiguous nature of the law.

⁴ The law, as written and signed into law by Governor Hochul, would also apply to entities that hold a “minority interest” of greater than 10% in a responsible entity. This ambiguously worded component of the law could arguably capture minority equity holders, including those that passively hold publicly traded equity in an implicated entity. This would be a highly unusual outcome from a corporate liability standpoint. Since passage of the law, Senator Krueger, a sponsor of the original bill, has since proposed amendments that, among other changes, would strike such broad “minority” language and replace it with concepts of interests with certain “control” rights over a reporting entity. Such amendments, should they be introduced and amend the current law, would potentially have implications for any parties that are in joint ventures or hold interests in portfolio companies through private equity or similar structures, but would be unlikely to ensnare holders of publicly traded stock.

⁵ The New York legislative history includes an approximate list of covered companies that have purportedly released more than 1 billion tons. This list could be supplemented and revised in due course.

⁶ The reviewing court may only consider whether the determination was made “in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion.” N.Y. Civ. Prac. Law § 7803.