Vermont Law Requires Energy Companies to Pay for Climate Change Damage

Vermont Law Requires Energy Companies to Pay for Climate Change Damage

Vermont passed a first-of-its-kind law requiring energy companies to pay for part of the damages from extreme weather events, but the law likely will face legal challenges.

On May 30, 2024, Vermont became the first state to pass a law that requires energy companies to pay for part of the damages from extreme weather events. Under the legislation, the Vermont state treasurer, in consultation with the Agency of Natural Resources, has until January 15, 2027, to calculate the total cost to Vermonters and the state of the emission of greenhouse gases from January 1, 1995, to December 31, 2024.  

The cost will be split among energy companies based on their share of global emissions during that time. Parties are liable only if they engaged in the trade or business of extracting, producing, or refining oil, gas, or coal and have a sufficient connection with Vermont. Parties that burned the fuels will not be liable. The amount of emissions for which a party is responsible will be determined using the EPA's Emissions Factors for Greenhouse Gas Inventories.  

The law likely will face many legal challenges. In fact, the American Petroleum Institute ("API") sent a letter to the Vermont legislature prior to the law's enactment. According to the letter, API was "extremely concerned" about the bill because it amounted to retroactive lawmaking that a court likely would find excessively harsh due to the long time frame and unknown but potentially extreme fines. API also expressed concern with the lack of nexus between the fine and actual responsibility, the use of strict liability, the possibility of unfair penalties, and the likelihood that the law is preempted by federal law due to its use of global emissions.  

Other states are considering similar measures. The New York Senate passed a similar bill for the second time earlier this month. Lawmakers in Massachusetts, California, and Maryland also have introduced climate superfund bills. Industry participants should carefully review the Vermont law as well as the laws proposed by other states to understand the potential liability they may face.

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