SF4126

Purpose

• Establish a new program to recover costs the state incurs from greenhouse gas emissions tied to fossil fuels.
• Create a special fund (the greenhouse gas pollution account) to collect payments and to finance climate change adaptation projects.
• Direct most disbursements to projects that help communities, especially disadvantaged ones, adapt to climate change.

Main Provisions

• Program and Account
  • Creates a greenhouse gas pollution cost-recovery program within Minnesota law and a greenhouse gas pollution account in the Environmental Fund.
  • Money in the account is used to pay for climate change adaptation projects and related costs (operation, monitoring, maintenance, and administrative expenses).
  • At least 40% of disbursements must benefit disadvantaged communities.
• Definitions
  • Key terms include: greenhouse gas (CO2, methane, nitrous oxide, certain fluorinated gases, etc. from human activity), covered greenhouse gas emissions, covered period (Jan 1, 1995 through Dec 31, 2026), fossil fuels, fossil fuel business, controlled group, cost-recovery demand, and responsible party.
  • A “responsible party” is an entity that, during part of the covered period, was in the business of extracting fossil fuels or refining crude oil and is found to be responsible for more than one billion metric tons of covered GHG emissions in that period. Parties that lack sufficient connection to Minnesota are excluded (Constitutional nexus).
• Liability and How Amounts are Calculated
  • Liability is strictly liable for a share of costs the state and residents incur from emissions.
  • Entities in a controlled group are treated as a single entity for liability; all members are jointly and severally liable.
  • Each responsible party’s share is proportional to its emissions relative to total emissions from fossil fuels used/refined in the covered period.
  • If a party has a minority stake (10% or more) in another entity, the share is increased by that entity’s share proportionally to the stake.
  • Specific conversion factors for attribution:
  • Coal: 942.5 metric tons CO2e per 1,000,000 pounds of coal.
  • Crude oil: 432,180 metric tons CO2e per 1,000,000 barrels.
  • Fuel gases: 53,440 metric tons CO2e per 1,000,000 cubic feet.
  • The commissioner can adjust a cost-recovery amount if refining crude oil by another party changes the accounting.
• How Cost-Recovery Demands Work
  • The commissioner issues written cost-recovery demands within six months after rules are adopted.
  • Payment options:
  • Full payment within six months, or
  • Nine annual installments: 20% upfront, then 10% each year.
  • Interest can be charged on installment payments; adjustments may be made for changes in the Consumer Price Index.
  • If the responsible party fails to timely pay, events like liquidation, sale of most assets, or business cessation can trigger payment of the remaining balance, with one exception if a buyer agrees to take on the remaining installments.
  • Payments go into the greenhouse gas pollution account.
  • A party can request a contested case hearing to challenge the demand.
• Use of Funds and Projects
  • Money from the account funds climate change adaptation projects recommended in a public plan.
  • Projects funded must be able to show benefits to climate adaptation, and related costs (including operation and maintenance) are eligible.
  • Projects funded under this program are treated as public works for wage and contracting purposes, with prevailing wage requirements.
• Rulemaking and Administration
  • The commissioner must adopt rules to implement the program, including:
  • How to determine responsible parties and their shares,
  • How to register entities and issue notices,
  • How to accept payments and identify public plans,
  • Criteria for climate change adaptation projects and cost-qualifying expenditures,
  • Ensuring at least 40% of disbursements benefit disadvantaged communities.
  • One full-time staff position is created at the Pollution Control Agency to run the program, with potential for more as needed.
• Oversight, Reporting, and Audits
  • The account can be audited by the State Auditor; periodic fiscal and program audits are allowed.
  • The State Auditor must prepare a climate cost assessment within two years of the act’s effective date and update it every four years, detailing costs from emissions and costs to adapt to those emissions.
  • The assessment covers impacts to infrastructure, public health, natural resources, housing, and more.
  • Biennial reporting (every two years, starting in 2030) to the governor and relevant legislative committees on:
  • Cost-recovery payments received and disbursements made,
  • Status of funded climate adaptation projects, and
  • The share of disbursements benefiting disadvantaged communities.
• Appropriations and Effective Date
  • In fiscal year 2027, general fund money is appropriated to the Pollution Control Agency and to the State Auditor to implement the program (staffing, administrative support, and experts).
• Public Plan Requirement
  • Climate change adaptation projects funded must be recommended in a public plan.

Significant Changes to Existing Law

• Creates an entirely new cost-recovery program and a dedicated account to recover state costs from historical greenhouse gas emissions.
• Establishes strict liability on large fossil fuel entities (and their controlled groups) for a defined share of emissions, with a formal method to calculate each party’s liability.
• Requires large-scale funding for climate adaptation projects, with a strong emphasis on benefiting disadvantaged communities.
• Introduces new regulatory rules, reporting, and auditing obligations for state agencies and the State Auditor.
• Converts fossil-fuel related activities into public works obligations with prevailing wage requirements for funded projects.
• Adds a defined timeline and process for cost-recovery demands, including installment payments and potential asset liquidation if payments are not made.

Relevant Terms - greenhouse gas pollution cost-recovery program - greenhouse gas pollution account - climate change adaptation project - disadvantaged community - cost-recovery demand - responsible party - controlled group - covered greenhouse gas emissions - covered period - fossil fuel business - crude oil - petroleum product - public plan - rulemaking - prevailing wage - state auditor - climate cost assessment - environmental fund - threshold emissions (one billion metric tons)