Polluter Pays: A Pathway to Affordability and Financing Climate Justice

By Jennifer Moon, PhD. & Brandon Dawson

States and localities are leading the way towards holding fossil fuel interests accountable for the climate damage they cause. They are sending a message that communities will not bear the costs for the harm caused by others. Whether it’s through legislation related to environmental damage from past climate pollution, lawsuits to hold polluters responsible for effects of their products, taxation to raise revenue going forward for the costs of responding to environmental harm, or the levying of fines and fees to incentivize a transition away from fossil fuels, states and cities are setting precedent and creating the means for communities to finance climate mitigation, adaptation, and recovery. But these actions are about more than money: they’re about fairness.

What Does “Polluter Pays” Mean?

At its core, the polluter pays principle¹ is simple: those responsible for environmental harm should bear the costs of addressing it. This idea isn’t new: the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, more commonly known as the “Superfund law,”² required industries to finance the cleanup of toxic waste sites, ensuring taxpayers weren’t left with the bill. Today, frontline communities and advocates are expanding this principle to meet the climate crisis. Instead of communities carrying the costs of climate-related infrastructure upgrades, resilience, and remediation, polluter pays frameworks shift the burden to the corporations most responsible for environmental and climate damage that impacts these communities.

Not only is the concept important to remedy physical harm to communities resulting from climate change, but it also can provide a financing mechanism to ensure that costs associated with climate change planning, response, adaptation, and recovery are not borne by communities but rather by the corporations that have contributed to the climate crisis. New York, for example, has estimated that the cumulative damages to the state from the fossil fuel industry will cost $3 billion per year over the next 25 years.³ Funds from polluter pay mechanisms can be directed to investing in various measures to lower household energy costs, strengthen public health protections, and finance climate resilience without squeezing household budgets.

Pathways to Making Polluters Pay

State and local governments are crafting and implementing bold new pathways linking polluter pays principles to climate policy. These pathways generally fall into a few key buckets:

1. Climate Superfund Legislation

Modeled after the federal Superfund law, state-level laws require fossil fuel companies to pay for the costs of climate damages associated with the use of their products. In 2024, Vermont and New York became the first states to pass Climate Superfund legislation.⁴ Both laws seek cost recovery from the fossil fuel industry based on proportional liability–in other words, assessing the degree to which each company contributed to the states’ climate-related costs and fines levied accordingly. New York’s Climate Superfund Act also requires fossil fuel companies to contribute $3 billion annually to climate adaptation and resilience. And at least 35–40% of the funds must go to disadvantaged communities, in an effort to directly reduce household burdens and taxpayer costs associated with climate-related damages imposed upon frontline communities by these polluters.⁵ Similar bills have been proposed or introduced in California,⁶ Hawaiʻi,⁷ Maryland,⁸ Massachusetts,⁹ New Jersey,¹⁰ and Oregon.¹¹

2. Lawsuits

In 2020, the City and County of Honolulu filed a lawsuit against several major fossil fuel companies for damages associated with harms caused by the industry’s climate pollution.¹² Similar to strategies employed against tobacco companies and opioid pharmaceutical companies, the lawsuit claims that the fossil fuel companies created a public nuisance and knowingly profited from products that caused extensive harm.¹³ For the past five years, the case has been making its way through the court system, with the fossil fuel companies seeking to block the lawsuit. In a significant win for the plaintiffs, the U.S. Supreme Court recently denied the defendants’ petition to review a lower court’s decision, meaning that the case continues to move forward and proceed with discovery.¹⁴ Honolulu’s case is one of several lawsuits¹⁵ brought by states and local governments against fossil fuel companies that are based on state common law, which is generally not preempted by federal law.

Such legal action against polluters holds the potential to withstand judicial review and hold polluters accountable. In May 2025, the U.S. Department of Justice filed lawsuits against Hawaiʻi and Michigan to preemptively stop them from filing lawsuits in state courts against the fossil fuel industry,¹⁶ suggesting that this strategy is perceived to be a threat to fossil fuel interests.

3. Taxation

Richmond, California is showing how local governments can demand accountability for pollution while bolstering strained local budgets. In 2024, Richmond secured a $550 million settlement with Chevron after the City threatened a ballot measure that would have imposed a new tax on the company's oil refinery located in the city.¹⁷ This gave the City a decade of revenue to stabilize budgets, fund services, and reduce dependence on the refinery’s taxes.

4. Imposing Fees and Fines on Polluters

States have taken a number of actions to impose fees and/or fines on various industries or activities in order to mitigate fossil fuel emissions and their resulting health and safety costs. For example, California’s Idle Well Law (AB 1866), which was enacted in 2024, implements an escalating fee schedule over the next several years on the state’s 35,000 idle oil wells, charging up to $60,000 per well for those left idle for more than 25 years.¹⁸ This policy incentivizes cleanup, mitigates greenhouse gas emissions,¹⁹ and protects nearly 600,000 residents who live within a kilometer of wells in the region, most of them in low-income and BIPOC communities.²⁰

Some policies go further by linking polluter payments directly to local reinvestment. California’s AB 2716, also enacted in 2024, requires shutting down and sealing the Inglewood Oil Field, the state’s largest urban oil field, by 2030, with interim fines on low-production wells funding a dedicated Equitable Community Repair and Reinvestment Account that will support nearby residents through park creation, affordable housing, and resilience projects.²¹

The polluter pays principle is also being applied to transportation in an effort to reduce emissions and generate revenue for public transit. New York’s Central Business District Tolling Program–which was created in 2024 and is also known as “Congestion Pricing”–is expected to generate $500 million annually for the first three years, $700 million annually after the first toll increase, and $1 billion annually beginning in 2031, while improving air quality and noise pollution in the Central Business District of Manhattan.²² Revenue will be directed to making much-needed improvements to New York City’s public transit system.²³

Challenges and Legal Battles

Naturally, the polluter pays principle is not without opposition. Fossil fuel companies and allied states have filed lawsuits against Vermont and New York’s Climate Superfund Acts. As described above, the U.S. Department of Justice also filed lawsuits against Michigan and Hawaiʻi to prevent them from pursuing polluter pay-related legal action, as directed by an April 2025 federal Executive Order framing the laws as “state overreach.”²⁴ At the same time, the U.S. Supreme Court’s decision allowing Honolulu’s climate liability lawsuit to proceed may strengthen the legal footing for these efforts.²⁵

The key takeaway for advocates and policymakers is clear: polluter pays strategies have the potential to hold polluters accountable for climate-related damages, provide much-needed revenue to help communities fund climate adaptation and resilience measures, and ensure that communities are not left holding the bag for the costs associated with increased climate risks imposed upon them by fossil fuel interests. To ensure success, polluter pays policies should be grounded in strong legal foundations, especially those based in state law that are not preempted by federal law. States should ensure that funds collected are dedicated to frontline communities, and advocates should build coalitions ready to defend them in court. If efforts are weakened or overturned, communities will be left to cover the costs of climate damage. That’s why strong legal design and long-term protections are essential.

Conclusion

The polluter pays principle begins with fairness, but it doesn’t end there. It’s also a strategy to fund the clean energy transition without raising household costs. Fundamentally, it puts the responsibility of who should shoulder the costs where it belongs, instead of on residents and taxpayers. The states and models highlighted in this paper provide a pathway forward, one that we encourage other states learn from to expand these tools, defend them from corporate attacks, and ensure frontline communities see the benefits first.