Stiglitz sends letter to Gov Hochul dispelling concerns about consumer impact

NEW YORK – As Climate Week kicks off at the United Nations, the Nobel Prize winning Economist, Joseph Stiglitz, wrote a letter to Governor Kathy Hochul dispelling any industry talking points about the climate change effect on consumers. In a letter to the Governor, Professor Stiglitz – who is also the former chief economist of the World Bank and a former member and chairman of the US Council of Economic Advisers – emphasized that the price of oil is set by the global market, writing:

“Given the growing damages caused by a worsening climate, the expenses needed to shore up public protections from climatic changes (such as rising sea levels, more intense storms, and hotter temperatures), the Climate Superfund offers a unique way to shift the burden of at least some of those costs from the taxpaying public to the companies most responsible. It does so in a way that should protect the public from cost shifting by the impacted companies.”

Full letter is below.

This year alone, with New Yorkers experiencing a record number of extreme weather events, Governor Hochul has pledged a whopping $1.3 billion in taxpayer spending to clean up Big Oil’s climate change mess – but the Climate Change Superfund Act would give that bill to Big Oil. The Superfund would cover costs to mitigate the negative impacts of climate change, and clean up the damage caused by the types of extreme weather events New Yorkers suffered from this year, including:

- Long Island roads that cannot handle the constant heavy rains and floods, studies show
- Weeks of extreme heat - by July 17 in NYC, New Yorkers had already experienced more 90+ degree days than the last two years combined
- The devastating tornado in Rome, with cleanup still ongoing over a month later
- Another devastating tornado in Buffalo, which damaged buildings and shut down streets
- Hurricane Beryl in July caused extreme damage across Upstate, damaging roads, buildings
- Flooding in NYC on August 6 flooded buildings, trapped people in their cars, and canceled flights
- Torrential rain and flash flooding in New York City and Long Island from Tropical Storm Debby August 13, destroying 72 homes, disrupting trains, and causing 2,441 reports of damage to roads and dams in Suffolk County. The cost to taxpayers from Debby is estimated at $100 million, on top of the $50,000 grants Governor Hochul is offering individual homeowners to address storm repairs, funded by taxpayers instead of the Big Oil companies responsible.

Last week, Assembly Majority Leader Crystal Peoples-Stokes joined local electeds and advocates in Buffalo to urge Governor Hochul to sign the legislation, saying: “So how about the people who created the problem paying for it? I think that’s fair. I think that’s fair.”

FULL LETTER

September 16, 2024
The Honorable Kathy Hochul Governor of New York
State State Capitol Building Albany, NY 12224

Dear Governor Hochul,

I write to offer my perspective on the question of the public cost impacts of the Climate Change Superfund Act (S.2129-B/A.3351-B). It is my understanding that your administration may have concerns about the potential effects on consumer gasoline prices of enacting the Climate Superfund.

To summarize, given that the assessment generated by the Climate Superfund is based on past pollution and therefore does not affect today’s marginal cost of production, there should be no shifting of costs to consumers.
The Climate Superfund assessment would be placed on companies that engaged in the extraction of fossil fuels or the refining of petroleum during the covered period, which runs from 2000 through 2018, a period long after the dangers of greenhouse gases were recognized. These companies would be charged a pro rata share of a fixed amount of $3 billion annually if their products resulted in the emission of at least one billion tons of greenhouse gases during the covered period.

There is a longstanding scientific consensus that greenhouse gas emissions contribute to climate change. According to the National Climate Assessment prepared by the United States government, climate change has already caused a wide range of damages that have placed a burden on taxpayers across the nation, including in New York. These costs will continue to increase. Substantial adaptation expenditures at all levels of government, as well as by businesses and individuals, will be required to reduce exposure to these harms as well as to remediate damages.

In a market economy, companies can be expected to charge prices that maximize their profits. The profit maximizing price for any good will be a function of the cost of production and demand. Companies will increase the price of their goods up to the point at which the marginal increase in profits from the price increase is offset by a decline in profits due to a reduction in the quantity of the goods demanded.

Because the contemplated assessment would be based on historic contributions to the current stock of greenhouse gases in the atmosphere, it would not affect future production costs. It would therefore be treated as a fixed cost that would be borne by the owners of the relevant companies.

There are additional strong market forces that will deter any cost shifting by the covered companies. The Climate Superfund assessments imposed on companies will vary from zero (companies that did not exceed the threshold) to hundreds of millions of dollars annually. Even if a company hit with a large assessment (Company A) might wish to raise its prices to recoup the cost of the assessment, it won’t be able to do so in a competitive market. If it does raise its price, however, and its competitors do not raise their prices, Company A will see demand for its product go down as consumers switch to a lower-priced competitor. To maximize its profits, Company A would abandon the price increase.

Further, the specific attributes of the global oil market preclude price increases resulting from the Climate Change Superfund assessments. The price of crude oil is set by the global market, based on the global balance of supply and demand. Individual companies cannot directly raise the price of crude even if it would be in their interest to do so. The price of gasoline at the pump, derived from crude oil, is set by a combination of global crude prices, refining costs, distribution and marketing costs, and local taxes and fees. The Superfund assessment does not impact any of those factors, as it is assessed too far upstream to impact local costs, and is far too small and affects too limited a universe of companies to impact global prices.

Finally, the companies likely to be covered by the Superfund assessment can easily afford these costs. The world’s largest oil companies all enjoy significant operating revenue and significantly large profits. ExxonMobil, for example, made $36 billion in profits last year alone. Even a substantial assessment could be absorbed by these companies without causing disruptions in their operations.

Given the growing damages caused by a worsening climate, the expenses needed to shore up public protections from climatic changes (such as rising sea levels, more intense storms, and hotter temperatures), the Climate Superfund offers a unique way to shift the burden of at least some of those costs from the taxpaying public to the companies most responsible. It does so in a way that should protect the public from cost shifting by the impacted companies.

Concerns about the impact of the Climate Change Superfund on consumer prices are unfounded and should not affect your support for this critical legislation.
Sincerely,

Joseph E. Stiglitz University Professor Columbia University

Background

In the final hours of the 2024 Legislative Session, the NYS Assembly passed the Climate Change Superfund Act 92-49. The Senate passed it 43-17 earlier this session, for the second time. Now, all Governor Hochul needs to do is sign the bill to make it law.

The Climate Change Superfund Act is modeled on the existing State and Federal Superfund law (which requires polluters to fund toxic waste dump cleanups) by making Big Oil climate polluters financially responsible for the environmental damages that they have caused. The top Big Oil companies will be required to pay a combined $3 Billion annually, every year for 25 years.

These costs won’t fall back on consumers, according to economists and an analysis from the think tank Institute for Policy Integrity at NYU Law. According to experts, because Big Oil’s payments would reflect past contributions to greenhouse gas emissions, oil companies would have to treat their payments as one-time fixed costs. “Regardless of market structures, oil companies are unable to pass on increases in fixed costs to consumers due to economic incentives and competition.” Experts also argued that “beyond the design of the Act, oil companies would also be unable to retaliate against New York by raising retail gasoline prices in the state due to the interconnectedness of the national and global energy markets and existing U.S. antitrust laws.”

New York is facing staggering – and growing – climate costs. In 2023 alone, Governor Hochul announced $2.2 billion in taxpayer funding for climate-related infrastructure repairs and upgrades and resilience projects. The U.S. Army Corps of Engineers estimates that it will cost $52 billion just to protect NY Harbor. On top of that, we’ll need $75-$100 billion to protect Long Island, and $55 billion for climate costs across the rest of the state. The state Comptroller has predicted that more than half of local governments’ costs will be attributable to the climate crisis.

Big Oil is at fault for climate change, and it can certainly afford the costs. According to a study in One Earth, the world’s 21 top polluting companies are responsible for $5.4 trillion in climate damages over a period of 26 years. While these climate damage bills pile up for taxpayers, the industry responsible for this mess is raking in cash. From January 2021 through now, Big Oil has made $1 trillion in profits.

Those record profits allowed them to deliver unprecedented returns to shareholders while doing little to address the climate crisis they knew was coming, but did all they could to undermine climate action. Starting in the 1970s, scientists working for Exxon made “remarkably accurate projections of just how much burning fossil fuels would warm the planet.” Yet for years, “the oil giant publicly cast doubt on climate science, and cautioned against any drastic move away from burning fossil fuels, the main driver of climate change.”

The Climate Change Superfund Act isn’t just necessary – it’s popular. According to a poll from Data for Progress, a whopping 89% of New Yorkers support fossil fuel companies covering at least some of the cost for climate damages. Another poll found that 70% of New York voters support the Climate Change Superfund Act, including majorities across party lines. Nationally, 89% of Democratic voters support the climate superfund approach, and 53% of New York voters are more likely to vote for candidates who support passing a climate superfund bill. Over 400 community, environmental, labor, religious, and youth groups supported the legislation and it is backed by the NYS Association of Counties, NY Conference of Mayors and Elected Officials to Protect America.