New Jersey has joined the list of states that may add a huge new cost for businesses and consumers. Lawmakers in Trenton are working on legislation that would make energy companies strictly liable for historical emissions—to the tune of $50 billion. Though the bill describes itself as purely “remedial” and “not regulatory or punitive,” it amounts to a massive targeted fine on energy companies that have done business in New Jersey.

Here, we look at two ways New Jersey households could be impacted by this fine. We’ve included more on the methodology below – but here are the numbers.

A Single, Giant Price Tag…

If energy companies serving New Jersey paid the full $50 billion in one year, and if that full cost were passed on to energy consumers, households would face a completely unmanageable burden. Each household in this scenario could pay:

• $7,740 more in transportation costs.
• $2,551 more in electrical bills.
• $3,444 more in pass-through costs from other affected businesses.

For a total of $13,735 more per household.

…Or a Slow Drip of New Costs

Of course, it is possible (even likely) that most targeted companies cannot or will not wish to pay the full amount all at once. The bill makes it possible for targeted companies to pay in 20 annual installments instead. If all target companies did that, the cost would instead be $2.5 billion per year, plus annual inflation adjustments. In just the first year, New Jersey households could pay:

• $387 more in transportation costs.
• $128 more in electrical bills.
• $172 more in pass-through costs from other affected businesses.

For a total of $687 per household.

Either Way, the Price Is High

Supporters of this bill would argue that the true numbers are somewhere in between – some companies would choose to spread out payment, and some would pay all at once. Supporters might also argue that companies won’t try to recoup costs through price increases, or that they would try to spread their price increases across multiple states to weaken the impact. Our view is that massive new costs usually turn into price effects one way or another. And the fact that over a dozen other states and counting are considering similar bills—which could in theory hit most of the same energy companies at mostly the same time—means there may not be many options to spread those costs around.

A Note on Methodology

This bill would make companies “with a sufficient connection with the State” that engaged in the fossil fuel value chain between 1995 and 2024 “strictly liable to the State for a proportionate share of funds needed for climate adaptation projects, in the total amount of $50 billion.”

Targeted companies would face a choice of whether to pay their portion of the $50 billion all at once or in 20 annual installments. For the sake of clarity, we model two payment scenarios: In the first scenario, the state issues demands to its full list of target companies, and they all choose to pay at once, for a single-year impact of $50 billion. In the second scenario, all target companies choose the installment plan, so the payment is spread out into 20 parts that are adjusted for inflation.

Importantly, when we discuss the second scenario, we look only at the “year-one” costs. Assuming the state issues demands to its full list of target companies, and all companies choose the installment plan, the year-one cost would be $2.5 billion ($50 billion divided by 20). Over time in this scenario, companies and households could actually pay more than $2.5 billion annually after the first year because of inflation. Even assuming a very conservative rate of Consumer Price Index inflation of 2% per year, the full price tag would add up to $60.7 billion after 20 years.

To calculate the impact on consumers in both scenarios, we divided the cost input among major sectors (commercial, electric, industrial, transportation) in New Jersey according to those sectors’ proportional contributions to carbon emissions in the state according to the Energy Information Agency’s latest assessment. We believe this approach offers a realistic snapshot into how costs might be distributed among sectors, given the bill’s focus on historical emissions. Given the lack of a public list of companies that this bill would target, we do not attempt to calculate how a sectoral distribution of costs would look if assessed against specific companies based on proportional contributions to global emissions, as the bill envisions. Finally, we divided the sectoral impacts by the number of New Jersey households and assumed that the cost increases would be entirely passed on to consumers.