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Carbon and the Constitution

State GHG policies confront federal roadblocks.

Fortnightly Magazine - April 2009

renewable power sales. 63 Promotion of certain types of low-carbon renewable fuels for power supply, via a price preference above and beyond the FERC-established price of other wholesale power transactions, was held preempted by the Federal Power Act and stricken.

Precedent holds that a higher price set by California for renewable low-carbon electric power supply sources isn’t permissible. 64 If a state is prohibited from inflating the quantity of certain renewable resources by setting higher wholesale prices for such favored technologies, it also could be prohibited from accomplishing the same tilt in wholesale prices by the opposite mechanism: inflating the wholesale operating costs of what it deems less desirable high-carbon-emitting generation resources via carbon-emission allowances. This same relative tilt in the wholesale market is achieved if high-carbon sources of power have their costs of operation increased, which decreases their ultimate position in the operation dispatch order.

A state law may not frustrate the operation of federal law, even if the state legislature has a valid purposes for the legislation. 65 The wholesale price determination is reserved exclusively to federal authority. 66 In Snohomish County Public Utility District No. 1 v. F.E.R.C., 471 F.3d 1053, 1080 (2006) aff’d in part and rev’d in part sub nom. Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1 et al., 128 S. Ct. 2733 (2008) , the court affirmed that the federal government, through FERC, must protect all stakeholders in the electric wholesale market against any state regulatory actions or mistakes. FERC has an ongoing obligation to continually monitor and police wholesale markets against impermissible actions or mistakes. Id. at 1066-67, 1080.

The RGGI states and California operate under FERC-approved terms and conditions for ISOs. 67 The respective ISOs manage the electricity transmission grid and oversee wholesale electricity markets. All power sold into the grid, which is managed by the ISO, is sold under wholesale terms and conditions that are part of its approved FERC tariff.

Bullet-Proof Carbon Regulation

First, because states do not want the carbon-reduction costs they impose on their in-state generators to attract higher-carbon power from out-of-state power imports, they seek virtually to secure the borders, or at least surcharge and dissuade the intruding power flows. Because the states are attempting not only to regulate carbon produced within their borders, but also create carbon-regulated islands into which externally-produced wholesale power can no longer enter freely without penalty, there are Commerce Clause issues. Wholesale electricity moves in interstate commerce at near the speed of light. While it’s perfectly understandable why certain states see this as a policy imperative, their actions trip over historic legal prohibitions against impeding the free flow of articles in commerce based on the geographic point of origin of that commerce.

Second, the decision of most of these states to maximize associated revenues by auctioning all of their newly created allocations to emit carbon triggers Supremacy Clause concerns. Again here, the motives may be worthy: public money is limited, carbon emissions loom large on the policy landscape, and auctioning allocations to emit carbon maximizes public income while rationing the