In New York, no past commercial activity is ever safe from political risk. Last week, Governor Kathy Hochul signed the Climate Change Superfund Act into law. Over the next 25 years, it will collect $3 billion annually from companies that, between 2000 and 2018, “engaged in the trade or business of extracting fossil fuel or refining crude oil.” About three dozen firms, foreign and domestic, whose lawful activities resulted in the emission of at least 1 billion tons of greenhouse gases (GHGs), will have to pay. The state will use the $75 billion collected to fund infrastructure projects—paying prevailing (union) wages—to mitigate and adapt to the effects of climate change. At least 35 percent of this spending will go to state-designated “disadvantaged” communities, injecting an element of poorly defined preferentialism that will reward Democratic-aligned interest groups.

New York is following Vermont’s lead in passing such legislation. On May 30, Granite State governor Phil Scott, a Republican, allowed the nation’s first “superfund” law to take effect without his signature. Like New York’s law, it mandates so-called compensatory payments from firms (or their successors) that produced fossil fuel or refined crude oil between 1995 and 2024 and resulted in 1 billion tons of GHG emissions. It allocates $300,000 to pay consultants to assess the cost to Vermont of GHGs, with payments going to a state fund used for climate-related infrastructure projects. Lawmakers in California, Maryland, and Massachusetts have proposed similar legislation.

Despite their superficial resemblance to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), these state laws differ strikingly from that 1980 law. Unlike CERCLA, New York and Vermont aren’t going after businesses for abandoned waste sites, accidents, or illegal dumping. These firms were legally producing, processing, and distributing the fuels necessary to move cars, heat homes, and keep the lights on, at a time when renewable alternatives were less developed and accessible.

Climate change also differs markedly from the acute and localized harms that the federal superfund law remediates. Firms and nations from across the globe have emitted GHGs that the law’s proponents claim have raised the risks for environmental hazards like forest fires and rising sea levels in New York. Yet the U.S. Constitution’s due-process requirement that firms have minimum contacts with a state to be subject to its jurisdiction effectively means that—despite a global, commoditized oil market—only those who meet this test will be subject to state superfund laws’ penalties.

These laws will doubtless face lawsuits from the affected producers and others, but challengers face an uphill battle. Some may point to the Constitution’s protections against retroactivity, such as its prohibitions on ex post facto laws and Bills of Attainder, as grounds for invalidation. In fact, however, the Supreme Court has long held that these constitutional protections pertain only to criminal laws, not civil laws or private contractual rights. While the Court has sometimes disfavored statutes that apply retroactively, that doesn’t mean climate superfund legislation is presumptively unconstitutional. Other challenges may come from the Fourteenth Amendment’s Due Process Clause, but that protects only against arbitrary and irrational economic legislation. Given that high bar, such legislation almost always stands. Challengers will likely fare better with the claim that state laws like New York’s are preempted, or displaced, by federal statutes like the Clean Air Act. As City Journal economics editor Jordan McGillis explained in October, the Supreme Court may take up a case on whether federal law preempts state-law tort claims for climate harms.

Policy-wise and practically, New York’s law will bring a number of foreseeable negative consequences and likely many unforeseeable ones. Most obviously, there’s the risk that oil producers will try to pass on costs to consumers through higher fuel prices, a concern that Hochul apparently shares. The industry warned that households would face “increased costs” in a December 5 letter urging Hochul to veto the bill. But Nobel Laureate Joseph Stiglitz gave Hochul cover in a September letter, stating that “there should be no shifting of costs to consumers.” The relatively small assessments would be easily absorbed as one-time fixed costs, he reasoned, and firms sell into a global commodity market that wouldn’t be materially affected by this change.

Even assuming, for argument’s sake, that the new superfund law makes little direct impact at the pump, it signals New York’s hostility to business. Its retroactive application against what was—and still is—entirely lawful activity introduces what businesses loathe even more than fines and taxes: uncertainty. Firms across industries may respond to heightened political risk by factoring in higher production costs, thus potentially raising prices on consumers across the board.

Now hanging over every company in the state is the expectation that New York can seek to raise revenue for any number of “remediation” projects by levying penalties for past activities. Short of a lawsuit, there’s nothing affected firms can do to avoid liability, as the policy doesn’t apply to present or future production. And there’s no clear or principled way to determine what activities will be deemed to have negative consequences sufficient to trigger similar fines. Political considerations will decide that, setting a troubling precedent. Big tech and AI firms may well be next.

New York State already ranks at or near the bottom nationally in economic competitiveness and outlook, and the superfund legislation will only make this worse. Investors will need to determine what negative impact New York’s political risk carries for future earnings, and doubly so if other states follow suit. The law further misallocates taxes among shareholders across time: oil-company shareholders between 2000 and 2018 didn’t pay the new levy as production occurred, leading to higher earnings in those years. Today’s shareholders paying these penalties will effectively subsidize those who already sold their shares.

New York’s superfund law tells all businesses that today’s lawful activity may be tomorrow’s liability. When the state needs money—and it always does—its lawmakers will simply take it from firms whose wares have fallen out of fashion.

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