As federal policy makers push for GHG regulation and transparent markets, the California experience shows what works and what doesn’t work.
Carbon and the Constitution
State GHG policies confront federal roadblocks.
“differential treatment [to] in-state and out-of-state economic interests that benefits the former and burdens the latter” will be “virtually per se invalid.” 31
In the U.S. Supreme Court decision in West Lynn Creamery, Inc. v. Healy ,32 the court found a violation of the dormant Commerce Clause in the state regulatory scheme. The combination of tax on interstate articles and subsidized projects together violated the Commerce Clause. RGGI states will use the proceeds of their carbon auction for in-state purposes or relief. In Healy, the environmental purpose of the Massachusetts state regulation did not save the regulation from being struck by the Supreme Court. The state argued that any incidental burden on interstate commerce resulting from the pricing order in Healy is outweighed by local benefits, including “protecting unique open space and related benefits.” 33 The Court states that “even if environmental preservation were the central purpose of the pricing order, that would not be sufficient to uphold a discriminatory regulation.” 34
The use of facially discriminatory economic means taints an otherwise laudable end and violates the dormant Commerce Clause. In New Jersey v. Philadelphia , the Court held that however legitimate a state’s ultimate environmental protection purpose, such may not be accomplished by discriminating against out-of-state articles of commerce, unless justified by some rationale apart from place of origin. 35 The Court consistently has maintained that a Commerce Clause violation occurs from either discriminatory purpose or discriminatory effect—either by the design or application of regulation. 36
The narrow quarantine exception was recognized in Maine v. Taylor .37 The state demonstrated in that case a distinct danger to the ecosystem and no less discriminatory way to realize the state interest than quarantining the commodity out-of-state. 38 Even in applying this exception, the Supreme Court stated that the “Commerce Clause significantly limits the ability of States and localities to regulate or otherwise burden the flow of interstate commerce, but it does not elevate free trade above all other values.” 39
Problems exist, however, in extending the holding of Maine v. Taylor to a carbon-regulating scheme for out-of-state electricity. First, in contrast to a key fact in Taylor, in-state CO 2 is identical to out-of-region CO 2. Second, CO 2 impact isn’t local and isolated as is the environmental toxin in Taylor; cumulatively, climate change poses an international problem. Third, the state can pursue less discriminatory alternatives to achieve CO 2 reductions, 40 including some proposed by committees associated with RGGI. Therefore, the state has a hard time legally transfiguring carbon-emission regulation into the judicially limited last-resort quarantine exception recognized in Taylor.
Whether electricity is a “good” under state law is debatable, 41 but it shouldn’t fundamentally alter the Commerce Clause analysis, even though no one has examined whether power-plant emissions are articles in commerce. A surcharge on higher-carbon, out-of-state, wholesale power also won’t pass muster. While the state can segment the market among resources, a state can’t discriminate in price or require an arbitrary price be paid for wholesale power.
The U.S. utility industry and its policymakers have constructed a