ROAD AMIDST ROCKS AGAINST SKY

State-led climate actions rise with anticipated federal pullback

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5 minute read 04 Mar 2025
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Tax
Sustainability
Climate change and sustainability services

State policies reshape business landscape with new reporting, taxes and fees to curb carbon emissions and fund climate-related projects.

In brief

  • State climate superfund regimes target fossil fuel producers, levying fees based on historical carbon emissions.
  • California’s first-of-its-kind climate disclosure laws set a new standard for environmental accountability, with New York and others eyeing similar measures.
  • States are advancing circularity goals with EPR regulations, encouraging producers to design products that are easier to recycle, reuse or dispose of safely.

Ernst & Young LLP contributors to this article include David Sawyer, Senior Manager – US State Policy Services, and Sam Perlmutter, Assistant Consultant – Sustainability Tax.

Introduction

US states are taking proactive measures to address environmental challenges through innovative legislative frameworks. This article explores the emergence of state-level climate change superfund laws, which aim to hold fossil fuel companies accountable for environmental damages, alongside the growing trend of climate-related reporting regulations that mandate transparency in emissions and other sustainability practices. Additionally, it examines extended producer responsibility (EPR) regimes, which shift the burden of waste management from consumers to producers to encourage sustainable product design and waste reduction. Together, these developments represent a significant shift in how states are approaching environmental policy, resulting in both challenges and opportunities for businesses.

Key state trends

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Climate change superfund provisions

In a significant shift toward addressing cost recovery for climate-related impacts, several US states have enacted or proposed climate change superfund levies aimed at fossil fuel producers. These states are seeking to recoup environmental damages and offset climate-related costs by levying fees based on historical carbon emissions. New York Governor Kathy Hochul on December 26, 2024, signed legislation (SB 2129 and AB 3351) enacting the Climate Change Superfund Act (the Act) to implement a new climate change adaptation cost recovery program. The Act will require entities engaged in the trade or business of extracting fossil fuel or refining crude oil to remit a fee intended to reflect the purported damages of greenhouse gas (GHG) emissions from the covered period between January 1, 2000 and December 31, 2018. The superfund fee will be administered and enforced by the New York State Department of Environmental Conservation, the New York State Department of Taxation and Finance¹, and the New York State Attorney General. For more information on the mechanics of the Act, see EY Tax Alert 2025-0234. A proposal, S. 824, pending Governor Hochul’s signature would make additional administrative changes to the program.
 

Both the New York measure and a similar measure enacted in Vermont in 2024 (Act 122) have been challenged in federal court. Additionally, similar proposals have emerged in California (AB 1243 and SB 684), Maryland (HB 128 and SB 149), Massachusetts (HD 3369 and SD 1674), Hawaii (SB 1652), Connecticut (HB 6280 and SB 1199), Oregon (SB 682), Rhode Island (SB 326), Tennessee (HB 716 and SB 702), Virginia (HB 2233 and SB 1123) and New Jersey (S3545).
 

These superfund proposals share common elements, with varying measurement periods ranging from 1995 to 2024 and differing levy amounts. Emissions are typically determined using the EPA’s Emission Factors for GHG Inventories or standard rates of carbon dioxide equivalent for coal, oil or gas attributable to each entity. This method is intended to ensure a consistent approach to calculating the financial impact on fossil fuel producers.

With this new approach to climate policy, the fossil fuel industry, in particular, may face increased financial burdens as states seek to fund climate-related initiatives with accountability measures linked to historical carbon emissions.

Carbon emissions and other climate-related reporting and disclosures

California has taken a pioneering step in climate policy by implementing the nation’s first state-level carbon emissions and climate-related risk disclosure requirements for businesses operating within the state.2 This groundbreaking regulation mandates comprehensive reporting on scope 1, 2 and 3 emissions alongside detailed climate risk disclosures. Despite facing legal challenges and potential federal pushback, California’s initiative is enacted law and has been approved for regulatory development, signalling a significant shift in state-level climate governance. The California laws follow the European Union’s Corporate Sustainability Reporting Directive (CSRD) in requiring companies to publish GHG emissions and other sustainability-related disclosures.3

The implications for businesses are substantial. Starting in 2026, over a thousand public and private entities will need to comply with these rigorous disclosure requirements.4 Companies must assess whether they fall under this mandate, determine whether robust data collection processes are in place and fully understand the compliance obligations. The complexity and scope of these requirements underscore the need for meticulous preparation and proactive strategy.

With initial disclosures required in 2026 impacting over a thousand public and private entities, it’s critical that businesses understand if they’re impacted, whether they have sufficient data collection processes and the extent of their compliance requirements.

Historically, California’s regulatory innovations have often served as a blueprint for other states. For example, New York proposals would require businesses with over $1 billion in revenue to annually disclose, and to obtain assurance on, scope 1 and 2 GHG emissions starting in 2027. Scope 3 emissions reporting would additionally be required starting in 2028.5 Washington, New Jersey and Illinois have proposed similar climate reporting legislation.

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Extended producer responsibility regulations

As states advance their environmental and circular business goals, policymakers are increasingly turning attention to packaging and product waste through EPR regulations. These measures aim to reduce the environmental impact of products by incentivizing producers to design items that are easier to recycle, reuse or dispose of safely. States like California, Colorado, Oregon, Minnesota and Washington are at the forefront of this movement, implementing EPR regulations that hold producers accountable for the entire lifecycle of their products. Oregon has the earliest EPR filing requirement for producers, with the first filings due by March 31, 2025.

EPR regulations reach much further into sectors perhaps less aware of sustainability policies. Sectors dealing in packaging, electronic devices, batteries and chemicals will need to understand the impact in terms of increased input costs, compliance obligation and supply chain impacts.

The growing interest in EPR regulations reflects a broader shift toward sustainability that extends beyond traditional emission reduction targets. These regulations are designed to reduce packaging waste and boost recycling efforts, placing the onus on producers to manage the environmental footprint of their products from creation to disposal.

For businesses, particularly in sectors like packaging, electronic devices, batteries and chemicals, the implications are substantial. EPR regulations can lead to significantly increased input costs, a higher compliance obligation and potential supply chain disruptions.

Summary

State sustainability policies stand to reshape the financial and operational strategies of many companies doing business in the United States.

Three key actions business leaders can take now to prepare:

  1. Closely monitor state climate change superfund regimes and potential federal and state legal challenges.
  2. Consider state-level climate-reporting rules and assurance requirements in the company’s nonfinancial sustainability reporting readiness and gap assessments.
  3. Assess the impact of multistate EPR regimes, including fees, compliance costs and supply chain impacts.

About this article

Authors

Related topics
Tax
Sustainability
Climate change and sustainability services

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