States Are Exploring Paths to Finance Climate Resilient Infrastructure

As extreme weather events become more intense and more common, states already face an estimated backlog of nearly $1 trillion for deferred maintenance and needed upgrades to public infrastructure. To finance long-overdue repairs and ensure that America’s roads, bridges, and water systems can withstand future climate impacts, states are turning to new strategies and adapting existing approaches to address the substantial work needed to boost the resilience of these vital systems.

Doing so is critical as aging and often undermaintained systems are increasingly vulnerable to the rising frequency and intensity of natural disasters, extreme heat, heavy rainfalls, drought, and other shifting environmental impacts—all of which increase maintenance costs.

In recent years, policymakers have been exploring approaches to manage these rising costs and address emerging financial challenges while also attending to other essential public spending priorities such as health care and education.

To get a better accounting of what these policymakers are doing, The Pew Charitable Trusts examined the current landscape of climate resilience funding and financing strategies. Researchers reviewed legislation and policy announcements in all 50 states in 2023 and 2024. The collected information provides a snapshot of creative approaches, highlighting the ways in which states are successfully spending historic levels of funding from the Infrastructure Investment and Jobs Act (IIJA) that was enacted in 2021 to help them address climate change, as well as other methods states are exploring to pay for these critical investments.

Table 1

Examples of Recent State Approaches to Financing Climate-Related Infrastructure Work

Some are experimenting with new funding and financing strategies to address climate change

Making use of existing borrowing tools: Climate bonds and federal funding

Climate bonds, or “green bonds,” are one way for states to fund climate programs that is gaining traction. States issue bonds, which are sold to investors, to raise money upfront. In exchange, investors receive the bonds, which are a promise to repay the principal amount plus interest over a set period. This approach can provide states with a stable funding source for years to come for costly longer-term projects such as resilience improvements to infrastructure.

In recent years, lawmakers in California and New York have enacted climate bond proposals that would use the proceeds to invest in infrastructure resilience from climate impacts and to protect water supplies. New York’s bond proposal, passed in 2022, is being used for a range of climate projects, including water system upgrades and infrastructure improvements to withstand extreme heat and storms. California residents recently passed a $10 billion bond proposal, which would cover similar water infrastructure improvements and projects to protect these systems from the effects of extreme heat.

States are also tapping into federal funds to bolster their own efforts to fund resilience. For example, the IIJA created the Promoting Resilient Operations for Transformative, Efficient, and Cost-saving Transportation (PROTECT) program. States can use the grants for surface transportation improvements. In 2022, California allocated PROTECT funds to develop the Local Transportation Climate Adaptation Program to help pay for climate resilient improvements to the state’s roads, bridges, and highways.

New and emerging revenue sources

“Cap-and-invest” programs are another emerging approach to resilience financing. These programs set a limit on greenhouse gas (GHG) emissions from polluters and create a market where additional emissions allowances can be purchased at “auction.” A fixed number of allowances is allocated each year, with the goal of gradually reducing the amount in following years to encourage emissions reductions. The prices set on carbon vary by state, and policymakers can then reinvest the proceeds into clean energy, resilience, and environmental justice-focused projects.

Cap-and-invest proponents say that the strategy provides a new revenue stream for resilience while limiting the additional costs facing consumers. It also could potentially offset costs for low-income residents if auction proceeds are reinvested into low-income communities.

California was the first state to introduce a cap-and-trade program in 2012, but the cap-and-invest approach is a more recent development. Washington and other states are exploring a shift to a cap-and-invest approach that would reinvest revenues to offset utility rate increases and help fund clean transportation projects. The Washington program went into effect in 2023 and raised $1.8 billion in the first year, much of which has gone to public transportation projects and capacity building. However, specifics on its effects on GHG emissions are unclear, indicating a need for improved data collection and reporting. Officials in Washington are also planning to link their program to existing initiatives in California and Quebec, Canada, to expand their carbon market coverage.

Similarly, New York estimates that its cap-and-invest program, launched in 2024, could generate between $6 billion and $12 billion annually by 2030, with $4 billion to $8 billion available for investments.

Several states are also exploring climate superfund, or “polluter pays,” models for funding climate-relate costs, as a way to pay for resilience without the state taking on debt or imposing additional taxes or fees on residents. This approach more directly holds parties accountable for hazardous waste contamination to fund cleanup costs. Vermont was the first state to enact climate superfund legislation in 2024. The state issues a “cost recovery demand” to polluters and then uses the funds collected to pay for climate change adaptation projects, including infrastructure upgrades and disaster preparedness.

Lawmakers in New York have passed similar legislation, which has not yet been signed by Governor Kathy Hochul, while legislators in California, Massachusetts, and Maryland are considering proposals. New York designed its program to accrue $75 billion in cost recovery funds over the next 25 years. Massachusetts also anticipates $75 billion over 25 years, and Maryland expects to achieve $9 billion. California’s estimates are less well defined, anticipating anywhere from tens of billions to hundreds of billions of dollars over the next 20 years.

Implementation challenges

Many of these new approaches are already facing significant implementation challenges. For example, Vermont’s Superfund legislation may encounter legal challenges from fossil fuel companies on the grounds that it preempts federal law on GHG emissions regulations and unfairly targets specific industries. Similarly, California’s cap-and-trade plan has been challenged by the federal government, and although Washington voters recently rejected a ballot initiative attempting to repeal that state’s program, the various challenges foreshadow that additional litigation likely looms for state cap-and-invest plans.

In addition, delays in implementing state and federal climate disclosure requirements have made getting accurate numbers more complicated; without these rules, reporting on emissions are on a voluntary basis. Even after these climate disclosure requirements are enacted, states can face challenges in enforcing them because it is difficult to account for total emissions and climate impacts.

Legal challenges aside, these laws could also face stark political and practical challenges. For example, businesses could respond to more stringent regulations and cost burdens by moving out of the state, potentially reducing a state’s tax base. Critics also argue that these types of legislative initiatives could raise consumer costs as businesses adjust to increased state financial pressure.

Despite such impediments, the need for proactive resilience funding remains urgent as states work to upgrade infrastructure systems for the challenges they face now and in the future. By some estimates, upgrades to ensure that the nation’s roads can withstand changing conditions could cost $20 billion annually by the end of the century. In addition, experts have estimated the total cost of similar resilience and adaptation needs for the nation’s water infrastructure to be between $448 billion and $944 billion over the next 20 years.

Elijah Gullett is an associate and Fatima Yousofi is a senior officer with The Pew Charitable Trusts’ state fiscal policy project.