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Thanks GMATNinja and ExpertsGlobal5 for the explanation !!
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I think this tests prepositional //ism. ‘For injury to’ people in the non-underlined part should be matched by a corresponding ‘for damage to’ in the underlined portion. Note that only A keeps such a prepositional //ism perfectly; hence that is the correct choice. Because all other choices foul this basic tenet, I would confidently dump them and go to the next.

Also i think permit followed by giving is sounding redundant. Both have similar meaning.
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Federal legislation establishing a fund for the cleanup of sites damaged by toxic chemicals permits compensating state governments for damage to their natural resources but does not allow claims for injury to people.

Option Elimination -

(A) compensating state governments for damage to - "compensating" - Gerund acting as a Noun is parallel to "claims" - Noun. Compensating....for damage to is parallel to claims for injury to. Ok.

(B) compensating state governments for the damaging of - breaks parallelism and conveys a wired meaning as if governments are paid for damaging their natural resources instead of damage to their natural resources, which is the intended meaning. Wrong.

(C) giving state governments compensation for damaging - "giving" and "compensation" - redundant. "for damaging" same issues.

(D) giving compensation to state governments for the damage of - "giving" and "compensation" - redundant.

(E) the giving of compensation to state governments for damaging - "giving" and "compensation" - redundant. "for damaging" same issues.
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AjiteshArun MartyMurray DmitryFarber I am not able to eliminate any options on solid grounds can you guys please explain ?
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Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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