Vermont has become the first state to enact a law requiring fossil fuel companies to pay a share of the damage caused by climate change after the state suffered catastrophic summer flooding and damage from other extreme weather.

Republican Governor Phil Scott allowed the Bill to become law without his signature on Thursday.

He said in his message to lawmakers that he is “deeply concerned about both short and long-term costs and outcomes”, and if the state fails in this legal challenge “it will set precedent and hamper other states’ ability to recover damages”.

Maryland, Massachusetts and New York are considering similar measures.

Vermont Governor Phil Scott (Alamy/PA)
Vermont Governor Phil Scott voiced concerns about the Bill (Alamy/PA)

Under the legislation, the Vermont state treasurer, in consultation with the Agency of Natural Resources, would provide a report by January 15, 2026, on the total cost to Vermonters and the state from the emission of greenhouse gases from January 1 1995, to December 31, 2024.

The assessment would look at the affects on public health, natural resources, agriculture, economic development, housing and other areas.

It is a polluter-pays model affecting companies engaged in the trade or business of extracting fossil fuel or refining crude oil attributable to more than one billion metric tons of greenhouse gas emissions during the time period.

The funds could be used by the state for such things as upgrading storm water drainage systems; upgrading roads, bridges and railways; relocating, elevating or retrofitting sewage treatment plants and making energy efficient weatherisation upgrades to public and private buildings.

“For too long, giant fossil fuel companies have knowingly lit the match of climate disruption without being required to do a thing to put out the fire,” Paul Burns, executive director of the Vermont Public Interest Research Group, said.

“Finally, maybe for the first time anywhere, Vermont is going to hold the companies most responsible for climate-driven floods, fires and heatwaves financially accountable for a fair share of the damages they’ve caused.”

The American Petroleum Institute, the top lobbying group for the oil and gas industry, has said it is extremely concerned the legislation “retroactively imposes costs and liability on prior activities that were legal, violates equal protection and due process rights by holding companies responsible for the actions of society at large; and is pre-empted by federal law”.

It also said in a letter to lawmakers before the Bill became law that the measure does not provide notice to affected businesses about the size of the potential fees.

Vermont legislators know that the law will face legal challenges, and the governor has voiced worries about costs to the small state.

“Instead of coordinating with other states like New York and California, with far more abundant resources, Vermont – one of the least populated states with the lowest GDP in the country – has decided to recover costs associated with climate change on its own,” Mr Scott wrote.

But he said he understands “the desire to seek funding to mitigate the effects of climate change that has hurt our state in so many ways”.

Vermont state representative Martin LaLonde, an attorney, said in statement that lawmakers worked closely with many legal scholars in shaping the Bill.

“I believe we have a solid legal case. Most importantly, the stakes are too high – and the costs too steep for Vermonters – to release corporations that caused the mess from their obligation to help clean it up,” he said.