New York’s Climate Superfund Act: A Major Step in Climate Policy
Late last year, Governor Kathy Hochul signed into law the Climate Change Superfund Act, making New York the second state after Vermont to enact such legislation.
The fund allows the state to apply a levy on companies, called a "cost recovery demand," proportional to their share of emissions from extraction, production, transportation, and use of fossil fuels in amounts over 1 billion metric tonnes between 1 January 2000 and 31 December 2018. Payments must be made in full on 30 September 2026 or in 24 annual installments, with 8% of the total amount due on 30 September 2026 followed by 23 annual installments of 4% of the total amount. The total proceeds are anticipated to be around USD 75 billion over the next 25 years and will be allocated to climate change adaptation and mitigation projects.
Notably, the fund requires that 35-40% of the proceeds be attributed to projects that directly benefit disadvantaged communities (DACs), which is similar to the requirements for investments under the state-wide Cap-and-Invest program, “NYCI”. While the fund is a fixed penalty applied to past emissions, NYCI will use a market-based price to regulate future emissions.
New York’s Cap-and-Invest Program: Structure and Timeline
NYCI aims to implement a steadily declining cap on greenhouse gas emissions from major sectors, including power generation, transportation, and industrials, with the declining cap aligning with state goals of reducing emissions by 40% by 2030 and 85% by 2050 from 1990 levels. Notably, offsets will not be a part of the program. NYCI released a pre-proposal for the program in early 2024, and draft regulations are expected sometime this year. Program launch is now anticipated for 2026. An important area of focus will be linkage opportunities. New York regulators have not indicated whether the program will seek to join an existing market, such as the Regional Greenhouse Gas Initiative (RGGI) or the Western Climate Initiative, or operate as a standalone system. Consideration of the interoperability with RGGI is more likely in the near term, given the regional alignment on power sector emissions and New York’s role as a RGGI member state.
Overlapping Programs and Financial Implications
Nothing has been stated at this time about how the two programs will overlap. It is possible that a company may be covered under both, as NYCI covers all state-wide sources of emissions, and the fund applies to any company that has “nexus” with the state, meaning they pay taxes, operate offices, or have some sort of connection to the state.
As both programs will allocate funding for climate-related projects, the fund could provide a more immediate source of revenue given the delay of NYCI’s launch, allowing NYCI regulators to take a methodical approach to implementing the Cap-and-Invest program. Market-based carbon pricing programs can be complex to design, given the need to balance emissions reductions with everyday affordability. This is a common area of public concern when it comes to carbon pricing. While the actual impact on fuel costs is often more modest than perceived, carbon pricing is frequently portrayed as having a significant financial burden, which can create a negative public perception.
Lessons from Washington’s Cap-and-Invest Program
For example, the Washington state Cap-and-Invest program was designed to have a tight cap relative to state-wide emissions, causing the carbon price to reach the program’s ceiling price. The program then experienced price volatility in its first year due to unexpected regulatory changes brought about by the regulator. A ballot initiative aimed to repeal the program, tying the carbon pricing to the high cost of fuels in the state. While voters ultimately rejected the repeal in November 2024, New York regulators could be leveraging these lessons and adopting best practices to inform their program design.
Legal Challenges and Future Outlook
The Superfund Act is modeled after existing federal laws that hold polluters financially accountable for environmental damage, namely the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) enacted in 1980. During his first administration, Trump did not attempt to directly dismantle CERCLA. However, while the law's provision requiring responsible parties to cover clean-up costs is generally well supported, efforts by his administration to reduce regulatory oversight could indirectly affect the Act in his present term.
Public reaction to New York's Climate Change Superfund Act has been mixed, with environmental groups praising its accountability for polluters and support for disadvantaged communities, while a coalition of 22 states, led by West Virginia, filed a lawsuit arguing it unfairly targets fossil fuel companies and could raise consumer costs. As the court reviews the case, New York will proceed with implementation, including a public report on labor and compliance enforcement by April 2025, finalized regulations by December 2026, and a statewide climate adaptation plan within two years.
The longevity of the Act will ultimately depend on the court’s interpretation of the lawsuit. ClearBlue will continue to monitor these developments, alongside the timing to launch New York’s Cap and Invest, and will provide updates as needed.