Behind-the-meter energy threatens the utility business model. Does history offer a lesson for crafting a response?
Carbon and the Constitution
State GHG policies confront federal roadblocks.
In the absence of federal action in the United States, several states have taken the lead with innovative carbon regulatory schemes. Ten Eastern states have combined into the Regional Greenhouse Gas Initiative (RGGI) to regulate CO 2 from their power plants, 1 California has initiated a comprehensive regulation of all greenhouse gases (GHGs) from all sources, 2 and other Western 3 and Midwestern 4 states are undertaking global-warming mitigation programs.
However, significant constitutional questions accompany some of the legal designs of the carbon-reduction schemes initiated by these leading states. If not addressed, those could embroil state carbon-reduction efforts in litigation while the world grows hotter. First, there are Commerce Clause issues: Because states do not want the carbon costs that they impose on their in-state power generators to encourage higher-carbon power imports from out-of-state, they are moving to secure their borders, or at least are on the verge of imposing surcharges to dissuade intruding power flows. 5 States are trying to restrict leakage past their borders of less-costly power with carbon that isn’t regulated or affected, which easily leaps state boundaries. Because the states may employ point-of-origin regulation to create carbon-regulated islands into which externally-produced wholesale power can’t enter without penalty, they will have to navigate limitations on this under the dormant Commerce Clause of the Constitution.
Second, there are Constitutional Supremacy Clause issues. In the first instance of U.S. carbon regulation, which began in January in the Northeast, RGGI states implemented the first total auction of rights to emit pollutants in the history of environmental regulation. In all former environmental regulation, emission rights were allocated to currently emitting sources without charge. 6 States officially have expressed that the purpose of this auction is to increase the price for certain high-emitting carbon power plant operations (coal in particular), as a way to change the dispatch order by the regional independent system operator (ISO), which controls plant operating schedules in order of lowest cost of operation. When states deliberately, even if indirectly, change wholesale electric power dispatch order by use of regulations inflating the otherwise federally jurisdictional wholesale power price at which power plants are approved to operate, those regulations can be questioned constitutionally as not within state power pursuant to the Supremacy Clause.