Climate policy and the United States system of divided powers: Dealing with carbon leakage and regulatory linkage

Transnational Environmental Law

Volumn 3, Issue 1, 2014, Pages 31-55

  Farber, Daniel A ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

Carbon Leakage; Climate Change; Environmental Trading Systems; Extraterritoriality; Sub national Governments; US Constitutional Law

Indexed keywords

EID: 84898944540     PISSN: 20471025     EISSN: 20471033     Source Type: Journal    
DOI: 10.1017/S2047102513000186     Document Type: Conference Paper

References (163)

1. See B. Ewing&D.A. Kysar, 'Prods and Pleas: Limited Government in an Era of Unlimited Harm' (2011) 121 Yale Law Journal, pp. 350-425.
2. For suggestions that state climate regulations should enjoy a strong presumption of validity under the dormant commerce clause unless they are facially discriminatory
3. see R.B. Stewart, 'States and Cities as Actors in Global Climate Regulation: Unitary vs. Plural Architectures' (2008) 50 Arizona Law Review, pp. 681-708, at 796;
4. D.A. Farber, 'Climate Change, Federalism, and the Constitution' (2008) 50 Arizona Law Review, pp. 879-924, at 881.
5. For other views of potential challenges to state climate regulations, see S. Ferrey, 'Goblets of Fire: Potential Constitutional Impediments to the Regulation of Global Warming' (2008) 35 Ecology Law Quarterly, pp. 835-910;
6. D.A. Kysar, 'Like a Nation State' (2008) 55 UCLA Law Review, pp. 1621-74;
7. H.J. Drapalski III, 'The Viability of Interstate Collaboration in the Absence of Federal Climate Change Legislation' (2010) 21 Duke Environmental Law& Policy Forum, pp. 469-94.
8. D.A. Farber, 'Carbon Leakage Versus Policy Diffusion: The Perils and Promise of Subglobal Climate Action' (2013) 13 Chicago Journal of International Law, pp. 359-79.
9. For example, California is now considering increasing the number of free allowances to industry in order to reduce leakage from the operation of its emissions trading system:
10. see D. Kahn, 'California Mulls Risk of "Leakage" to Its Cap-and-Trade Participants', E&E Reporter, 2 Aug. 2012.
11. See Drapalski, n. 2 above; Kysar, n. 2 above;
12. Note, 'Foreign Affairs Preemption and State Regulation of Greenhouse Gas Emissions' (2006) 119 Harvard Law Review, pp. 1877-98.
13. New York, NY (US), 9 May 1992, in force 21 Mar. 1994, available at: http://unfccc.int.
14. Of course, such market shifts can happen with any form of regulation.
15. But most regulations deal with the localized harms, so that this form of leakage does not undo the benefits of the policy to the enacting states.
16. However, if a consumer buys goods that were produced with high carbon emissions, those emissions cause as much harm to the state as emissions within its borders.
17. State efforts are described in E. Stein, 'Regional Initiatives to Reduce Greenhouse Gas Emissions', in M.B. Gerrard (ed), Global Climate Change and US Law (American Bar Association, 2007), pp. 315-42;
18. D. Hodas, 'State Initiatives', in Gerrard, ibid., pp. 343-70.
19. Hodas, ibid., at p. 343.
20. E.C. Schlanger, K.H. Engel&S. Rider (eds), Navigating Climate Change Policy: The Opportunities of Federalism (University of Arizona Press, 2011)
21. Provides a collection of thoughtful evaluations of this trend.
22. M. Burger, 'Empowering Local Autonomy and Encouraging Experimentation in Climate Change Governance: The Case for a Layered Regime' (2009) 39 Environmental Law Reporter pp. 11161, 11163.
23. T.P. Duane, 'Greening the Grid: Implementing Climate Change Policy through Energy Efficiency, Renewable Portfolio Standards, and Strategic Transmission System Investments' (2010) 34 Vermont Law Review, pp. 711-80, at 759-63;
24. M.B. Gerrard, 'Introduction', in Gerrard, n. 8 above, pp. 1-27, at 22.
25. Duane, ibid., at p. 761;
26. California Air Resources Board (CARB), 'RPS Program Overview', available at: http://www.cpuc.ca.gov/PUC/energy/Renewables/overview.
27. AB 4420 (Sher), Chapter 1506, Statutes of 1988.
28. AB 32 (Nunez), Chapter 488, California Statutes of 2006, codified at California Health & Safety Code x 38500 et seq.
29. E. Chemerinsky et al., 'California, Climate Change, and the Constitution' (2007) 37(9) Environmental Law Reporter pp. 10653-65.
30. AB 32 (Nunez), n.14 above, California Health & Safety Code x 38560.5(a-b).
31. Governor Arnold Schwarzenegger, Executive Order S-01-07, 18 Jan. 2007, available at: http://www.arb.ca.gov/fuels/lcfs/eos0107.pdf.
32. CARB, 'Low Carbon Fuel Program', available at: http://www.arb.ca.gov/ fuels/lcfs/lcfs.htm.
33. See generally, CARB, 'ARB Emissions Trading Program Overview,' available at: http://www.arb.ca.gov/newsrel/2010/capandtrade.pdf.
34. CARB, 'Overview of ARB Emissions Trading Program', 20 Oct. 2011, available at: http://www.arb.ca. gov/newsrel/2011/cap-trade-overview.pdf.
35. The RGGI is an initiative of the following Northeast and Mid-Atlantic States of the US: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.
36. See http://www.rggi.org/design. 27 127 S. Ct. 1438 (2007).
37. See EPA, 'Finding of Endangerment', available at: http://www.epa.gov/ climatechange/endangerment.
38. The regulations are described on the EPA website, available at: http://www.epa.gov/climatechange/initiatives/index.html.
39. The endangerment finding and the regulations were upheld in Coalition for Responsible Regulation, Inc. v. EPA, 684 F.3d 102 (D.C. Cir. 2012).
40. D. Burtraw, A.G. Fraas & N.D. Richardson, 'Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists', Resources for the Future, Discussion Paper No. 11-08, 9 Feb. 2011, at p. 14, available at: http://ssrn.com/abstract51759571.
41. Copenhagen Accord, Decision 2/CP.15, FCCC/CP/2009/11/Add.1, 18 Dec. 2009, para. 2, available at: http://unfccc.int/resource/docs/2009/cop15/eng/11a01. pdf.
42. L. Friedman, 'U.S. Bound by Obama's Copenhagen Emissions Pledge-U.N. Official', New York Times Greenwire, 20 Jan. 2010, available at: http://www.nytimes.com/gwire/2010/01/20/20greenwire-usbound-by-obamas- copenhagen-emissions-pledge-17687.html.
43. UN, 'Durban Conference Delivers Breakthrough in International Community's Response to Climate Change', available at: http://www.un.org/wcm/content/site/ climatechange/pages/gateway/thenegotiations/durban.
44. White House Office of the Press Secretary, 'Fact Sheet: U.S.-China Cooperation on Climate Change, Clean Energy, and the Environment', 19 Jan. 2011, available at: http://www.whitehouse.gov/the-pressoffice/2011/01/19/fact-sheet- us-china-cooperation-climate-change-clean-energy-and-environm.
45. See J.B. Wiener, 'Think Globally, Act Globally: The Limits of Local Climate Policies' (2007) 155 University of Pennsylvania Law Review, pp. 1961-80, at 1967-8;
46. C. Coglianese & J. D'Ambrosio, 'Policymaking under Pressure: The Perils of Incremental Responses to Climate Change' (2008) 40 Connecticut Law Review, pp. 1411-30, at 1419.
47. L. Adkins et al., 'Carbon Pricing with Output-Based Subsidies: Impact on US Industries over Multiple Time Frames', Resources for the Future, Discussion Paper No. 12-27, 28 June 2012, available at: http://ssrn.com/abstract52099768.
48. J. Elliott et al., 'Unilateral Carbon Taxes, Border Tax Adjustments and Carbon Leakage', University of Chicago Institute for Law & Economics, Olin Research Paper No. 600, 27 Feb. 2012, available at: http://ssrn.com/ abstract52072696.
49. Federal regulation of an activity, even if less vigorous than state regulation, may lower the incentive to shift emissions out of state.
50. In addition, federal agencies may be able to pre-empt regulations that favour fossil fuels in some states
51. Though this is a complex issue and dependent on a suitable federal statutory scheme to be used as a basis for pre-emption:
52. see C.M. Sharkey, 'Inside Agency Preemption' (2012) 110 Michigan Law Review, pp. 521-96.
53. - 47 42 U.S.C. x 7545(o)(2)(A).
54. CAA x 169(3), 42 U.S.C. x 7479(3).
55. For instance, California is now considering steps to combat leakage.
56. see Kahn, n. 4 above.
57. F.Supp.2d 1071 (E.D. Cal., 2011).
58. - 397 U.S. 137 (1970).
59. - 127 S. Ct. 1438 (2007).
60. One possible argument is that, although the state's interests are weighty, state legislation can only have a minimal effect in attaining those goals.
61. The Court rejected a similar argument in Massachusetts.
62. EPA that a federal action was too minor to have any effect on climate change by itself: ibid., at 1457.
63. - 437 U.S. 617 (1978).
64. Allstate Insurance Co. v. Abbott, 495 F.3d 151, 163 (9th Cir. 2007). 61 437 U.S. 117 (1978);
65. accord, Hampton Feedlot, Inc. v. Nixon, 249 F.3d 814, 819 (8th Cir. 2001).
66. Black Star Farms LLCv.
67. Oliver, 600 F.3d 1225, 1232 (9thCir. 2010).
68. The plaintiffs had failed to carry this burden of proof.
69. The Ninth Circuit also said in Black Star Farms that '[a]n effect is not discriminatory
70. Violation of the dormant commerce clause, if it results from natural conditions': ibid., at 1234, quoting CherryHill Vineyard, LLC v. Baldacci, 505 F.3d 28, 38 n.7 (1st Cir. 2007).
71. The fact that some production processes produce more carbon than others might be considered such a natural phenomenon.
72. See K.H. Engel, 'The Dormant Commerce Clause Threat to Market-Based Environmental Regulation: The Case of Electricity Deregulation' (1999) 26 Ecology Law Quarterly, pp. 243-349, at 288-9.
73. Brown-Forman Distillers Corporation v. New York State Liquor Authority, 476 U.S. 573 (1986).
74. The Court held that '[r]equiring a merchant to seek regulatory approval in one State before undertaking a transaction in another directly regulates interstate commerce':
75. The Court held a similar law applicable to beer sales to be invalid per se as it had the same practical effect: Healy v. Beer Inst., 491 U.S. 324 (1989).
76. A recent commentator describes Healy as the high tide of the extraterritoriality principle, which has since retreated and now may be moribund:
77. see B.P. Denning, 'Extraterritoriality and the Dormant Commerce Clause: A Doctrinal Post-Mortem', 7 Feb. 2013, available at: http://ssrn.com/ abstract52213511.
78. The details of the laws differed, but the Court found no practical difference between the New York and Connecticut laws
79. Which were equally coercive of out-of-state conduct: ibid., at pp. 338-99.
80. Edgar v. MITE Corporation, 457 U.S. 624 (1982) (plurality opinion), cited in Healy, n.
81. Edgar involved an Illinois law that required approval of tender offer terms by Illinois officials if a corporation had a modest Illinois connection: ibid., at 627.
82. The majority struck down the law as an undue burden on commerce: ibid., at 646.
83. A plurality opinion also faulted the law for banning some transactions between citizens of other states with no state nexus: ibid., at 642.
84. Making a tender offer to these non-residents would trigger financial penalties and criminal prosecution: ibid., at 630 n.5. 68 294 U.S. 511 (1935).
85. Notably, the Court held that New York could require out-of-state producers to comply with the same safeguards defined by New York in producing milk for the New York market: ibid., at 501.
86. See Gravquick A/S v. Trimble Navigation Intern. Ltd, 323 F.3d 1219 (9th Cir. 2003);
87. Nat'l Elec. Mfrs. Ass'n, 272 F.3d 104, 110-2 (2d Cir. 2001);
88. Cotto Waxo Co. v. Williams, 46 F.3d 790 (8th Cir. 1995);
89. SPGGC, LLC v. Blumenthal, 505 F.3d 183, 193-6 (2d Cir. 2007).
90. In Nat'l Collegiate Athletic Ass'n v. Miller, 10 F.3d 633 (9th Cir. 1993)
91. A state law effectively required a nationwide organization to change its procedural rules in many cases that had zero connection with that state: ibid., at 639.
92. Similarly, in Nat'l Solid Wastes Mgt. Ass'n v. Meyer, 63 F.3d 652 (7th Cir. 1995) (Meyer I)
93. Wisconsin banned imports of waste from communities that failed to recycle enough of their waste, including waste-streams headed elsewhere than Wisconsin.
94. When the Court struck down that law, Wisconsin responded by requiring that an exporting community pass an ordinance.
95. Imposing recycling standards for waste destined for Wisconsin: Nat'l Solid Wastes Mgt. Ass'n v. Meyer, 65 F.3d 1151 (7th Cir. 1999) (Meyer II).
96. Besides holding that Wisconsin lacked the power to require other jurisdictions to enact laws, the court found this cosmetic change
97. The statute irrelevant because of the expense, if not impossibility, of separating waste streams: ibid., at 1151-2.
98. Gravquick A/S, n.
99. above, at 1124.
100. This argument is developed in C. Aung, 'The Regulation of Greenhouse Gas Emissions by New York State from a Legal Perspective: Is a Tax or Market-Based System Optimal?' (2009) 29 Pace Law Review, pp. 739-46, at 745-9;
101. F. Muller & J.A. Hoerner, 'Greening State Energy Taxes: Carbon Taxes for Revenue and the Environment' (1994) 12 Pace Environmental Law Review, pp. 5-60, at 44-56.
102. See Fulton Corporation v. Faulkner, 516 U.S. 325, 334-44 (1996).
103. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).
104. K.H. Engel, 'Mitigating Global Climate Change in the United States: A Regional Approach' (2005) 14 New York University Environmental Law Journal, pp. 54-85, at 65.
105. For discussion of the advantages of regional linkage, see Engel, ibid., at pp. 68-73.
106. US Constitution, Art. I, s. 10, cl. 3.
107. Virginia v. Tennessee, 148 U.S. 503, 519 (1893).
108. United States Steel Corporation v. Multistate Tax Commission, 434 U.S. 452 (1978).
109. - 472 U.S. 159 (1985).
110. See Duane, n.11 above, at p. 733.
111. Recall that, under the Supreme Court's ruling in Massachusetts v. EPA, GHGs are considered to be 'air pollutants' covered by the CAA.
112. CAA x 102, 42 U.S.C. x7402.
113. A concluding sentence provides that compacts relating to 'control and abatement of air pollution in any air quality control region' can only include states in that region.
114. That sentence seems to have no application to climate change, which does not relate to a specific air quality control region.
115. Section 102 may also be relevant to certain kinds of discrimination claim.
116. States outside the agreement (and their firms) can hardly complain that they fail to receive the benefits of an agreement that they have not entered into.
117. See Note, 'Foreign Affairs Preemption and State Regulation of Greenhouse Gas Emissions,' n. 5 above;
118. Kysar, n. 2 above.A concise doctrinal overview can be found .
119. J. Resnick, 'Foreign as Domestic Affairs: Rethinking Horizontal Federalism and Foreign Affairs Preemption in Light of Translocal Internationalism' (2007) 57 Emory Law Journal, pp. 31-92, at 71-8.
120. As Kysar points out, similar issues arise under one prong of the Supreme Court's foreign commerce clause jurisprudence
121. Which prohibits state regulation when it might prevent the nation from 'speaking with one voice when regulating commercial relations with foreign governments'
122. Kysar, n. 2 above, at p. 1654
123. Quoting Japan Line, Ltd v. County of Los Angeles, 441 U.S. 434 (1979).
124. An earlier significant decision was Zschernig v. Miller, 389 U.S. 429 (1968)
125. which struck down an Oregon law that allowed aliens to inherit property in that state only if their home country allowed Americans to inherit the property of that country's citizens.
126. - 530 U.S. 363 (2000).
127. CAA x 101(a)(4), 42 U.S.C. x 7401(a)(3).
128. - 539 U.S. 396 (2003).
129. The majority included a conservative (Chief Justice Rehnquist) and four of the Court's centrist judges (Souter, O'Connor, Kennedy, and Breyer), while the dissent contained two liberals (Ginsburg and Stevens)
130. as well as the Court's two most conservative members (Scalia and Thomas).
131. The dissent cogently argued that upholding the state law 'would not compromise the President's ability to speak with one voice for the Nation'
132. That the Court should reserve foreign affairs pre-emption for 'circumstances where the President, acting under statutory or constitutional authority
133. has spoken clearly to the issue at hand': 539 U.S. 396 (2003), at 442.
134. For criticismof Garamendi, see B.P. Denning&M.D. Ramsey, 'American Ins.
135. Ass'n v. Garamendi and Executive Preemption in Foreign Affairs' (2004) 46 William & Mary Law Review, pp. 825-950, at 919-21.
136. - 552 U.S. 491 (2008).
137. N. 6 above, and see http://unfccc.int/essential-background/convention/ status-of-ratification/items/2631.php.
138. Kyoto Protocol to the UNFCCC, Kyoto (Japan), 11 Dec. 1997, in force 16 Feb. 2005, available at: http://unfccc.int/kyoto-protocol/items/2830.php.
139. Resnick, n.94 above, at p. 35.
140. For instance, the EU and Australia recently agreed to link their trading systems:
141. see M. Griffin & S. Gardner, 'EU, Australia to Link Carbon Schemes with First Phase Scheduled to Start in 2015', International Environment Reporter, 29 Aug. 2012, available at: http://news.bna.com/ieln/IELNWB/split- display.adpfedfid=27703916&vname=inernotallissues&wsn= 506012000&searchid=20764052&doctypeid=1&type=date&mode= doc&split=0&scm=IELNWB&pg=.
142. A.H. Salyid, 'US, Canada Sign Water Quality Agreement with Provisions on Climate, Invasive Species', BNA Daily Environment Report, 10 Sept. 2012, available at: http://yosemite.epa.gov/opa/admpress. nsf/ bd4379a92ceceeac8525735900400c27/9e6415ec5260e5c885257a7200669766!OpenDocument.
143. TheUS and the EUare also seeking to coordinate regulations: see C. Bolen, 'US, EU Seek Public Comment on How to Coordinate Regulations', International Environment Reporter, 20 Sept. 2012, available at: http://news.bna.com/ieln/ IELNWB/split-display.adp?fedfid=27859244&vname=inernotallissues& wsn=505808000&searchid=20764084&doctypeid=1&type=date&mode= doc&split=0&scm= IELNWB&pg=0.
144. For criticisms of sole executive agreements, see H.H. Koh, The National Security Constitution: Sharing Power after the Iran-Contra Affair (Yale University Press, 1990), at pp. 139-40;
145. O.A. Hathaway, 'Presidential Power over International Law: Restoring the Balance' (2009) 119 Yale Law Journal, pp. 140-269;
146. B.R. Clark, 'Domesticating Sole Executive Agreements' (2007) 93 Virginia Law Review, pp. 1573-662.
147. U.S. Constitution, Art. II, x 2, cl. 2.
148. Hathaway, n. 109 above, at 150.
149. - 301 U.S. 324 (1937).
150. - 301 U.S. 203 (1942).
151. - 453 U.S. 654 (1981).
152. - 539 U.S. 396 (2003), at 415-6.
153. See Clark, n. 109 above, at pp. 1581-2.
154. See O.A. Hathaway, 'Treaties' End: The Past, Present, and Future of International Lawmaking in the United States' (2008) 117 Yale Law Journal, pp. 1236-373, at 1250.
155. Since this article is premised on congressional deadlock, it will not discuss the possible use of an executive-congressional agreement as an alternative to an international climate treaty.
156. Current practice, however, would seem to make this an available option, to the unhappiness of some commentators.
157. See ibid, at pp. 1243-70.
158. As we saw in the previous section, executive agreements may pre-empt state law.
159. his reason, executive agreements on climate change might pre-empt state laws in carbon-friendly states.
160. Note that the argument is not that the UNFCCC of its own force creates such linkages, merely that it provides support for executive agreements that link regulatory systems.
161. If valid, those executive agreements would then in turn support regulatory action by the EPA.
162. H.J. Powell, The President's Authority over Foreign Affairs: An Essay in Constitutional Interpretation, (Carolina Academic Press, 2002), at p. 147.
163. For a compendium of these non-congressional options see Ewing&Kysar, n. 1 above, at p. 362 Table 1.