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 Gov. Phil Scott allowed the bill to become law without his signature late Thursday, saying he is very concerned about the costs and outcome of the small state taking on “Big Oil” alone in what will likely be a grueling legal fight. But he acknowledged that he understands something has to be done to address the toll of climate change.

“I understand the desire to seek funding to mitigate the effects of climate change that has hurt our state in so many ways,” Scott, a moderate Republican in the largely blue state of Vermont, wrote in a letter to lawmakers.

The popular governor who recently announced that he's running for reelection to a fifth two-year term, has been at odds with the Democrat-controlled Legislature, which he has called out of balance. He was expected by environmental advocates to veto the bill but then allowed it to be enacted. Scott wrote to lawmakers that he was comforted that the Agency of Natural Resources is required to report back to the Legislature on the feasibility of the effort.

Last July's flooding from torrential rains inundated Vermont's capital city of Montpelier, the nearby city Barre, some southern Vermont communities and ripped through homes and washed away roads around the rural state. Some saw it as the state’s worst natural disaster since a 1927 flood that killed dozens of people and caused widespread destruction. It took months for businesses — from restaurants to shops — to rebuild, losing out on their summer and even fall seasons. Several have just recently reopened while scores of homeowners were left with flood-ravaged homes heading into the cold season.

Under the legislation, the Vermont state treasurer, in consultation with the Agency of Natural Resources, would provide a report by Jan. 15, 2026, on the total cost to Vermonters and the state from the emission of greenhouse gases from Jan. 1, 1995, to Dec. 31, 2024. The assessment would look at the effects on public health, natural resources, agriculture, economic development, housing and other areas. The state would use federal data to determine the amount of covered greenhouse gas emissions attributed to a fossil fuel company.

It’s a polluter-pays model affecting companies engaged in the trade or business of extracting fossil fuel or refining crude oil attributable to more than 1 billion metric tons of greenhouse gas emissions during the time period. The funds could be used by the state for such things as upgrading stormwater drainage systems; upgrading roads, bridges and railroads; relocating, elevating or retrofitting sewage treatment plants; and making energy efficient weatherization upgrades to public and private buildings. It's modeled after the federal Superfund pollution cleanup program.

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

Maryland, Massachusetts and New York are considering similar measures.

The American Petroleum Institute, the top lobbying group for the oil and gas industry, has said it’s 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 preempted by federal law.”

“This punitive new fee represents yet another step in a coordinated campaign to undermine America’s energy advantage and the economic and national security benefits it provides,” spokesman Scott Lauermann said in a statement Friday.

Vermont lawmakers know the state will face legal challenges, but the governor worries about the costs and what it means for other states if Vermont fails.

State Rep. Martin LaLonde, a Democrat and an attorney, believes Vermont has a solid legal case. Legislators worked closely with many legal scholars in crafting the bill, he said in statement.

“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.