Can a Climate ‘Superfund’ Really Deliver?

Peter Alpert, Partner at Ropes & Gray, considers the barriers facing New York State’s efforts to make polluters pay.

The enactment late last year in New York State of a climate ‘superfund’ law (S.2129-B/A.3351-B) has attracted a lot of attention in mainstream media and the legal trade press. It has also served as a reminder that other states, led first by Vermont, had already taken or were contemplating similar action.

Now, the New York law has been challenged, largely on constitutional grounds, by 22 red state attorneys general, and we have a federal administration candidly hostile to the notion that there is a climate crisis – never mind one warranting any response. The enactment of similar climate superfund laws in other states – and federal, red state and private challenges to them – are inevitable.

These laws impose a special tax or levy on the entities that played a significant, upstream role in the extraction and burning of fossil fuels, with the proceeds to be used by the states to avoid, mitigate, adapt to, or repair climate harms within their borders. The Vermont and New York laws are virtually identical in their structure and wording, and we can expect the basic legal structure, and the overarching ‘superfund’ framing, to be followed in other states.

The naming gimmick

‘Superfund’ is a euphemism for the federal Comprehensive Environmental Response, Compensation and Liability Act (or CERCLA), and belongs with clean water and clean air on the short list of environmental programmes that have historically enjoyed broad bipartisan support.

There is a general consensus that land contaminated by historic and largely unregulated industrial operations should be remediated at the expense of the polluters, and not by society generally. It might seem just as appealing on a policy level to compel the actors who caused climate harms to bear the cost of the repairs. There is a logical conceptual reason for labeling these as superfund laws, and doing so may help to popularise them.

The naming gimmick – if it is one – will fail, however, without widespread public and political acceptance of the scientific consensus about anthropogenic climate change.

This acceptance obviously is absent at the federal level and in many states. The federal agenda now is to not only deny the existence of the problem, but to affirmatively impede efforts at all levels of government to address it. Red state hosts to the fossil industry, and the industry itself, are fully on board with that. The challenges to climate superfund laws will come from nearly all angles – federal, red state and private industry.

Suspect contentions

As evident in the red states’ challenge to New York’s law and other pending cases, the attack will to a large extent be framed in lofty constitutional principles about the limits of state power.

One argument, based on the commerce clause, is that one state cannot penalise or impose a cost on conduct occurring in another. Another, based on preemption principles, is that climate regulation is a form of air pollution regulation, a field fully and adequately occupied by the federal government, leaving no room for individual states to regulate differently.

These contentions are suspect. The commerce argument ignores that the enacting states are not regulating commercial activity occurring elsewhere so much as seeking redress for extensive harm experienced within their borders. Traditional state superfund laws have long been available for this purpose, without being invalidated on commerce grounds.

The preemption argument seems nonsensical at a time when the federal government is in full retreat from any form of climate action or regulation and explicitly intends to no longer regulate carbon as an air pollutant.

CERCLA itself was the target of – and survived – numerous constitutional challenges, but because it is a federal law, the arguments were different.

They were generally about the permissibility of imposing potentially crippling liability on conduct that may have been lawful when it occurred. Because the original superfund law (and many analogous state laws) survived these challenges, it might be tempting to conclude that all ‘superfund’ laws are largely immune to constitutional challenge if you strip away the commerce and preemption arguments.

Similarities and differences

But do the new climate superfund laws share the attributes that insulated the traditional superfund laws from challenge? And, if they do not, what might the differences suggest about their vulnerability to constitutional challenge?

Like a traditional superfund law, the climate laws impose strict and retroactive liability for conduct that was lawful at the time it occurred, animated by a familiar ‘polluter pays’ principle. And the climate laws will apply the collected money to remedial projects.

But the similarities might end around there. Unlike a traditional superfund law, the climate laws:

Impose liability on a several, rather than joint and several, basis on the responsible parties (RPs) defined in the statutes. Cost recovery demands are to be based on a formulaic quantification of the RP’s carbon emissions relative to all emissions occurring during a defined timeframe. Relatedly, there is no apparent mechanism for an RP to seek contribution or cost recovery from other RPs.
Do not recognise affirmative defences to liability, such as an act of God, war, or third party.
Raise funds for remedial projects that will occur not at specific locations, but rather anywhere within the assessing state, eliminating the need for the government to establish a clear, causal nexus between a particular RP’s emissions and the harm being remediated using the RP’s payment.
Allow RPs no apparent role in the selection and implementation of remedial projects, and no apparent right to challenge or self-perform the projects selected.
Impose liability directly on affiliates of an RP, through provisions requiring emissions occurring within a “controlled group” of entities to be aggregated for purposes of identifying RPs and making assessments against them, possibly contradicting the ‘best foods’ construct immunising affiliates from CERCLA liability.
Might impose liability directly on entities that own significant equity in an RP (i.e., shareholders), in an even more stark potential departure from ‘best foods’.
Relatedly, this might create an avenue for a state to collect more than 100% of the several shares allocable to any particular RP through the imposition of full liability on the RP plus proportional liability on its large shareholders.

CERCLA survived those challenges in some part because of attributes lacking in the climate laws. See e.g., Wagner Seed Co. v. Daggett, 800 F.2d 310 (2d Cir. 1986) (takings challenge defeated because of availability of affirmative defenses); US v. Shell Oil Co., 841 F. Supp. 962 (C.D. Cal. 1993) (takings challenge defeated because of ameliorative mechanisms for contribution and allocation between liable parties); US v. Monsanto Co., 858 F.2d 160 (4th Cir. 1988) (no violation of due process or ex post facto principles because costs are spread “among all parties that played a role” in the contamination).

Some initial reactions to the New York litigation were to the effect that the climate superfund laws must be constitutionally sound because CERCLA was sound.

These observations might be based more on the superfund label than on substance, and do not take into account the preemption and commerce arguments that could not be made against CERCLA.

All that is clear now is that these laws are potentially very different from superfund laws in the established sense of the term, that they will be challenged from many directions, and that they will not necessarily survive just because CERCLA and its state cohorts survived.

Sources of vulnerability

Whether the apparent distinctions between ‘climate superfund’ and ‘traditional superfund’ materialise in practice and become actual sources of vulnerability for these laws might hinge to some extent on the outcome of rulemaking processes in the states. It will be very interesting to see, for example, how the rulemakings deal with the disruptive spectre of shareholder and affiliate liability.

There is only so much the rule-drafters can do to minimise the distinctions without creating other legal problems. In addition to challenges to the laws themselves, we can expect vigorous comment on draft rules and then legal challenges to the final rules.

The best solution to this morass would be a federal effort to fairly and constitutionally extract climate compensation from an appropriate range of entities. This, clearly, is not in the cards.

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