States Making Big Oil Polluters Pay For Their Toxic Waste

Carolyn Fortuna for Clean Technica, January 2025

Last year may have been record-shattering for clean energy applications in the US, but not a whole lot was accomplished for emissions reductions. Demand for electricity and transport fuels rose fast enough to erase most of the benefits of new renewables and EVs. Yet the state of New York is doing something about emissions rather than accepting a status quo. By legislating a Superfund, New York will soon force major oil and gas companies to pay up for mounting climate damages caused by the burning of their products over the last two decades.

The Climate Change Superfund Act Holds Big Oil Accountable

On December 26, 2024 Governor Kathy Hochul and key members of the New York state legislative leadership announced an agreement to approve the Climate Change Superfund Act. “Superfund” is the common name given to the US law called the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA. Superfund is also the trust fund set up by Congress to handle emergency and hazardous waste sites needing long-term cleanup. The national Superfund is administered by the US Environmental Protection Agency (EPA).

New York will become the second state in the nation to hold the largest Big Oil companies accountable for costs resulting from the worsening climate catastrophe. The bills are quickly gaining momentum in statehouses: Vermont passed one into law in May, and similar proposals are under consideration in California, Massachusetts, and Maryland.

The Climate Change Superfund Act is modeled on the existing State and Federal Superfund law (which requires polluters to fund toxic waste dump cleanups) by making Big Oil climate polluters financially responsible for the environmental damages that they have caused. The Act has several dimensions. It:

• establishes the climate change adaptation cost recovery program to require companies that have contributed significantly to the buildup of climate-warming greenhouse gases in the atmosphere to bear a share of the costs of needed infrastructure investments to adapt to climate change

• mandates that projects funded by the program require compliance with prevailing wage requirements

• requires that contracts for funded projects contain a provision that the structural iron and structural steel used or supplied in the performance of the contract or any subcontract thereto shall be produced or made in whole or substantial part in the United States, its territories, or possessions

• makes additional provisions

• establishes the climate change adaptation fund

The top Big Oil companies will be required to pay a combined $3 billion annually, every year, for 25 years. New York legislators reminded their constituents that the $3 billion number represents a fraction of the annual profits from the oil and gas industry, where the top three domestic producers made a combined $85.6 billion in profits in 2023 alone.

Why the Superfund is Imperative in New York — and Elsewhere

New York is facing staggering — and growing — climate costs. In 2023 alone, Governor Hochul announced $2.2 billion in taxpayer funding for climate-related infrastructure repairs and upgrades and resilience projects. The US Army Corps of Engineers estimates that it will cost $52 billion just to protect NY Harbor. On top of that, the state will need $75-$100 billion to protect Long Island, and $55 billion for climate costs across the rest of the state. The state Comptroller has predicted that more than half of local governments’ costs will be attributable to the climate crisis. Big Oil is at fault for climate change, and it can certainly afford the costs.

According to a study in One Earth, the world’s 21 top polluting companies are responsible for $5.4 trillion in climate damages over a period of 26 years. While these climate damage bills pile up for taxpayers, the industry responsible for this mess is raking in cash. From January 2021 through now, Big Oil has made $1 trillion in profits.

The Climate Change Superfund Act isn’t just necessary, it’s popular. According to a poll from Data for Progress, 89% of New Yorkers support fossil fuel companies covering at least some of the cost for climate damages. Another poll found that 70% of New York voters support the Climate Change Superfund Act, including majorities across party lines. Nationally, 89% of Democratic voters support the Climate Superfund approach, and 53% of New York voters are more likely to vote for candidates who support passing a climate Superfund bill.

Who’s Really Paying for Big Oil’s Mess? Them — or New Yorkers?

New Yorkers were in a “perfect storm” situation created by the devastating impacts of the escalating climate crisis, the huge costs faced to mount a response, and the lack of a dedicated fund to pay for those soaring costs, says NYPIRG. Without a revenue source for climate programs, by default, the costs would have been placed on the backs of state and local taxpayers. The Superfund legislation costs won’t fall back on consumers, though, according to an analysis from the think tank Institute for Policy Integrity at NYU Law.

Because Big Oil’s payments would reflect past contributions to greenhouse gas emissions, oil companies would have to treat their payments as one-time fixed costs. The analysis has concluded that the Act is unlikely to alter the price of gasoline at the pump in New York or the price of crude oil more generally.

The Act’s compensatory payments would be based on companies’ historical contributions to the existing stock of greenhouse gas emissions such that these payments would reflect past sales of petroleum and not current or future sales. Oil companies would treat these payments as one-time fixed costs. Regardless of market structures, oil companies are unable to pass on increases in fixed costs to consumers due to economic incentives and competition. Due to profit motivations, oil companies have significant incentives to leave their production levels and retail gasoline prices unchanged, even if firms may make operational changes in response to the Act.

Final Thoughts

Nobel-prize winning economist Joseph Stiglitz summed up the importance of New York state’s Climate Change Superfund Act. “Give

n the
September 16, 2024
The Honorable Kathy Hochul Governor of New York
State State Capitol Building Albany, NY 12224

Dear Governor Hochul,

I write to offer my perspective on the question of the public cost impacts of the Climate Change Superfund Act (S.2129-B/A.3351-B). It is my understanding that your administration may have concerns about the potential effects on consumer gasoline prices of enacting the Climate Superfund.

To summarize, given that the assessment generated by the Climate Superfund is based on past pollution and therefore does not affect today’s marginal cost of production, there should be no shifting of costs to consumers.
The Climate Superfund assessment would be placed on companies that engaged in the extraction of fossil fuels or the refining of petroleum during the covered period, which runs from 2000 through 2018, a period long after the dangers of greenhouse gases were recognized. These companies would be charged a pro rata share of a fixed amount of $3 billion annually if their products resulted in the emission of at least one billion tons of greenhouse gases during the covered period.

There is a longstanding scientific consensus that greenhouse gas emissions contribute to climate change. According to the National Climate Assessment prepared by the United States government, climate change has already caused a wide range of damages that have placed a burden on taxpayers across the nation, including in New York. These costs will continue to increase. Substantial adaptation expenditures at all levels of government, as well as by businesses and individuals, will be required to reduce exposure to these harms as well as to remediate damages.

In a market economy, companies can be expected to charge prices that maximize their profits. The profit maximizing price for any good will be a function of the cost of production and demand. Companies will increase the price of their goods up to the point at which the marginal increase in profits from the price increase is offset by a decline in profits due to a reduction in the quantity of the goods demanded.

Because the contemplated assessment would be based on historic contributions to the current stock of greenhouse gases in the atmosphere, it would not affect future production costs. It would therefore be treated as a fixed cost that would be borne by the owners of the relevant companies.

There are additional strong market forces that will deter any cost shifting by the covered companies. The Climate Superfund assessments imposed on companies will vary from zero (companies that did not exceed the threshold) to hundreds of millions of dollars annually. Even if a company hit with a large assessment (Company A) might wish to raise its prices to recoup the cost of the assessment, it won’t be able to do so in a competitive market. If it does raise its price, however, and its competitors do not raise their prices, Company A will see demand for its product go down as consumers switch to a lower-priced competitor. To maximize its profits, Company A would abandon the price increase.

Further, the specific attributes of the global oil market preclude price increases resulting from the Climate Change Superfund assessments. The price of crude oil is set by the global market, based on the global balance of supply and demand. Individual companies cannot directly raise the price of crude even if it would be in their interest to do so. The price of gasoline at the pump, derived from crude oil, is set by a combination of global crude prices, refining costs, distribution and marketing costs, and local taxes and fees. The Superfund assessment does not impact any of those factors, as it is assessed too far upstream to impact local costs, and is far too small and affects too limited a universe of companies to impact global prices.

Finally, the companies likely to be covered by the Superfund assessment can easily afford these costs. The world’s largest oil companies all enjoy significant operating revenue and significantly large profits. ExxonMobil, for example, made $36 billion in profits last year alone. Even a substantial assessment could be absorbed by these companies without causing disruptions in their operations.

Given the growing damages caused by a worsening climate, the expenses needed to shore up public protections from climatic changes (such as rising sea levels, more intense storms, and hotter temperatures), the Climate Superfund offers a unique way to shift the burden of at least some of those costs from the taxpaying public to the companies most responsible. It does so in a way that should protect the public from cost shifting by the impacted companies.

Concerns about the impact of the Climate Change Superfund on consumer prices are unfounded and should not affect your support for this critical legislation.
Sincerely,

Joseph E. Stiglitz University Professor Columbia University