Calif. Climate Superfund Bill Faces Legal, Technical Hurdles

California could soon join forces with other states in sending the fossil fuel industry a massive bill for the costs of coping with climate change.

Senate Bill (SB) 684[i] and its companion act, Assembly Bill (AB) 1243,[ii] if passed, would enact the “Polluters Pay Climate Superfund Act of 2025.” This California legislation is part of a coordinated effort by Democratic stronghold states across the country—including Vermont and New York, which have already passed similar “climate Superfund” laws—to impose strict liability on the major entities engaged in fossil fuel extraction and refining.

If these laws survive challenges alleging they are facially unconstitutional, the state could seek to force statutorily defined responsible entities to pay for a wide range of past and future environmental and social costs related to climate change impacts in California, resulting from global fossil fuel emissions.   

Such a regime would not only reflect a significant expansion of the doctrine of “polluter pays” strict liability, it would face daunting technical issues—not to mention a significant risk of further legal challenges—with respect to implementation of key aspects of the proposed program.

Climate Superfund Laws

State legislative bills such as SB 684 and AB 1243 have been deemed “climate Superfund” laws by their proponents, because they are modeled after the federal “Superfund” statute, CERCLA,[iii] and similar state statutes that impose strict liability for environmental contamination cleanup costs on certain parties.

Both types of laws are based on the “polluter pays” principle, whose advocates assert that negative externalities associated with economic activity, such as environmental damage, should be internalized (i.e., paid for) by the entities that engage in, and profit from, that activity.

That said, these climate Superfund laws apply the “polluter pays” principle in a limited manner, focusing only on one subset of economic actors—very large entities that supply fossil fuels—who bear responsibility for climate change.

Many other economic actors responsible for large quantities of climate change emissions have similarly generated significant profits from the use of fossil fuels, including utilities with coal, oil, and gas-fired powerplants; manufacturers of chemicals, steel and aluminum, and cement and concrete; and the automotive and aircraft industries.

However, climate Superfund laws do not extend liability beyond fossil fuel extraction and production, presumably because broadening the pool of responsible parties would diminish the chances of these laws being enacted.

Status of Proposed California Legislation (SB 684 and AB 1243)

California Sen. Caroline Menjivar, D-Los Angeles, introduced SB 684 on February 21 as urgency legislation. The bill now has four coauthors in the California Senate and six coauthors in the California Assembly. Assembly Member Dawn Addis introduced AB 1243 on the same date, also as urgency legislation, and now has eight coauthors in the Assembly and five coauthors in the Senate.

Both bills are currently in committee and will need to be brought to a floor vote and passed by the current legislative session deadline of June 6. Although the Democratic Party has supermajorities in both legislative houses, there is some uncertainty as to whether these bills will be passed—in fact, similar legislation (SB 1497) died in the prior legislative session while in committee.^[iv]

And even if passed, there is a significant risk that Governor Gavin Newsom will veto the legislation. Over the prior three legislative sessions (2022-24), Newsom’s veto rate was about 15%.[v] This legislation in particular would need to be carefully scrutinized by the Governor, given its ramifications.

Massive Liability for Key Players in Fossil Fuel Industry

The proposed legislation is couched in terms of the “polluter pays” principle and, more generally, fundamental fairness.

SB 684 declares that the “fossil fuel industry should now contribute its fair share to government expenditures to protect the state from climate disaster,” and AB 1243 states that the purpose of the proposed program is to “require fossil fuel polluters to pay their fair share of the damage caused by covered fossil fuel emissions.” 

Fossil Fuel Producers To Be Assessed "Fair Share" Contributions

Both bills would extract this fair-share contribution by imposing strict liability on identified responsible parties, which include any “entity” that holds or held a “majority ownership interest” in a business engaged in extracting or refining fossil fuels at any time between 1990 and 2024, if the California Environmental Protection Agency (CalEPA) determines that the entity is responsible for over one billion metric tons of fossil fuel emissions, globally, during that time period. 

However, the bills define responsible parties in a manner that raises questions of legal enforceability,  including with respect to personal jurisdiction, shareholder liability, and causation.

“Entity” is defined broadly to include individuals, agents, partnerships, associations, corporations, and even “foreign nations”—which in the context of this bill could attempt to impose liability on a number of nations with state-owned oil companies, such as Mexico, Brazil, India, Russia, China, Saudi Arabia, and India. 

With respect to corporate (including LLC) liability, the imposition of strict liability on majority ownership interests would essentially allow piercing of the corporate veil without any evidentiary showing that the traditional grounds for veil-piercing (such as fraud, other illegal acts, and/or undercapitalization) exist.

In addition, the emissions for which each responsible party is held liable are not just those associated with the entity’s extraction or refining of the fossil fuel, but also with the subsequent combustion of those fuels by third parties. In essence, the responsible party will be held liable for the sum total of emissions associated with the life cycle of its product, even though the entity, in most instances, will have no control at all over how third parties ultimately use their products. 

For example, the responsible party bears the burden of liability, even if that third-party use is in violation of applicable laws (for example, industrial facilities that fail to implement required emission controls), or located in a jurisdiction outside California (or even outside the United States) that places no meaningful controls on the emissions at issue.

Climate Cost Study to Calculate “Total Damage Amount”

The consequences for responsible parties would be profound. The legislation creates a “Polluters Pay Climate Superfund Program” within CalEPA to ameliorate harm associated with climate change, funded by assessments on responsible parties.

Those assessments are based on a “climate cost study” that would calculate the total damage amount to be assessed, consisting of the costs incurred by state, local, and tribal governments and California residents since 1990, and projected to be incurred by the State in the future, through 2045, as a result of the effects of fossil fuel emissions on climate change. 

The categories of climate-change impacts to be analyzed are specified in the legislation—and they are vast—including effects on public health and safety, biodiversity and ecosystems, agriculture and food systems, water, wildfire, the built environment, and economic development, as well as “any other effects that may be relevant” in the eyes of CalEPA. 

The legislation also requires that many specific climate-change impacts be analyzed, including extreme weather events, sea level rise, air and water temperature shifts, wildfire smoke and air quality, and related economic impacts, such as health costs and housing insurability, affordability, and access.

Given this mandate, the “total damage amount” calculated by CalEPA in its climate cost study will presumably total hundreds of billions of dollars—if not more. And while the legislation requires that the study be based on a “review of existing best peer-reviewed and publicly available science,” it is doubtful whether the total damage amount can actually be calculated with a reasonable degree of scientific or economic certainty, to the satisfaction of all interested parties.

This is particularly true with respect to the two decades of future impacts, through 2045, whose costs will need to be assessed based on current projections and trends, as well as assumptions about the accuracy of those current forecasts due to ongoing global efforts to reduce emissions and related climate impacts.

Allocation of Total Damage Amount to Responsible Parties

The legislation provides that, within 60 days of completion of the climate cost study, CalEPA will assess a cost recovery demand on each responsible party, in an amount equal to its proportionate share of the total damage amount, calculated as the ratio of the responsible party’s fossil fuel emissions to fossil fuel emissions globally over the 1990-2024 time period. 

The assessment to each responsible party, once calculated, would be paid via twenty annual installments, with 10% due in the first year, and the remainder paid in equal installments over the next 19 years.

While an administrative challenge to CalEPA’s cost recovery demand would be permitted, the grounds are very narrow. The responsible party is required to establish “to the satisfaction of [CalEPA]” that a portion of the demand is actually attributable to fossil fuel extracted by another responsible party, and that CalEPA’s allocation to the other responsible party already took into account those emissions.

As such, it appears that the intent of the legislation is to preclude a responsible party from challenging the allocation on any other ground, including based on a claim that (1) the total damage amount is based on erroneous assumptions or calculations in the climate cost study, and/or (2) the emissions attributed to the responsible party were erroneously calculated for reasons other than attribution to another responsible party.

Finally, it remains to be seen whether CalEPA would define by regulation what specific burden of proof applies to such a challenge, if any, given the entirely subjective “agency satisfaction” standard that is set forth in the legislation.

Litigation Awaits

Multiple lawsuits are currently pending with respect to the facial constitutionality of similar “climate Superfund” laws already enacted by Vermont and New York, claiming those statutes are void on a plethora of grounds, including federal preemption, violation of the domestic and foreign Commerce Clauses, violation of due process and equal protection, imposition of excessive fines, and the illegal taking of private property. 

Those suits have been filed by the American Petroleum Institute, the U.S. Chamber of Commerce, other industry groups, and a number of State attorneys general.[vi] On May 1, even the Trump Administration joined in, filing actions against both states.[vii]

If SB 684 and AB 1243 are passed by the California Legislature and survive a veto by Governor Newsom, the state can expect to defend against a similar barrage of lawsuits, before even having the opportunity to see if such a “climate Superfund” program could be effectively implemented, despite the major legal and technical hurdles associated with its emission liability scheme. 

Conclusion

California’s SB 684 and AB 1243, similar to other climate Superfund laws enacted or proposed by other states, reflect a significant expansion of the doctrine of polluter-pays strict liability. 

CERCLA and its state law analogs impose such liability on a relatively broad range of parties for limited damages (i.e., cleanup costs) associated with specific facilities and properties. But the proposed California legislation would impose liability on a very narrow set of parties for a vast range of damages (in broad categories of environmental, social, and economic harm) resulting from emissions around the globe that cause climate-change impacts within California.  

Moreover, if these bills are enacted and survive facial challenges based on federal preemption and other constitutional grounds, California will face significant technical implementation issues and legal challenges with respect to key aspects of the program, including regarding identification of responsible parties, calculation of the total damage amount to be allocated, and determination of the allocable share for each responsible party.

Donald E. Sobelman is an environmental law partner in Farella Braun + Martel’s San Francisco office.