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Commerce Clause Conflict

In-state green mandates face Constitutional challenges.

Fortnightly Magazine - December 2010

treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” 9 Examples of state laws that discriminate are those that prohibit out-of-state direct shipment of wine into the state, but allow in-state shipments, 10 grant tax credits only for ethanol produced in a particular state, 11 and require electric utilities to use coal produced in that state. 12

If the law “discriminates” within the meaning of the Dormant Commerce Clause, then it’s subject to strict scrutiny and will be upheld only if it “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” 13 This is a difficult standard to satisfy. Indeed, “[s]tate laws that discriminate against interstate commerce face a virtually per se rule of invalidity.” 14 Facially discriminatory laws are routinely struck down, and generally have been upheld only in the very narrow quarantine context, where the very movement of articles in interstate commerce risks imminent contamination and disease. 15

If there is no “discrimination,” however, then the much more forgiving balancing test of Pike v. Bruce Church, Inc .16 applies. The Pike test is “reserved for laws directed to legitimate local concerns, with effects upon interstate commerce that are only incidental.” 17 Under this test, a court will uphold a nondiscriminatory statute “unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits.” 18 State laws frequently survive Pike scrutiny, 19 though not always, as in Pike itself. 20

There are two exceptions to these principles by which a seemingly discriminatory law can pass Dormant Commerce Clause muster. The first is the “market participant” exception. If the state is acting as a “market participant” rather than a regulator, discrimination is permissible. 21 Thus, for example, a state-owned cement plant can give preference to in-state customers without running afoul of the Dormant Commerce Clause. 22 The second is the “public entity” exception, whereby discrimination is permissible if it favors public entities while treating in-state and out-of-state private entities the same. 23

Harmonizing the Supreme Court’s Dormant Commerce Clause guidance is difficult enough in traditional contexts. It is even more so in the context of renewable power plants.

At first glance, the analysis seems straightforward enough: a power plant is a factory—a big, expensive one, but a factory all the same—that from the outside looks much like any conventional factory.

A power plant, like all factories, is a large-scale economic engine. Factories create construction jobs, permanent jobs, multiplier-effect jobs that ripple through a local economy, and long-term tax revenues. State and local governments must either embrace or tolerate the development of factories in order for them to get built. Indeed, public entities often go even farther and compete against one another, utilizing a mix of grants, tax holidays, and other incentives to persuade the owners of auto plants, baseball parks, and green technology factories to build them in their state. None of these economic incentives would appear to implicate the Commerce Clause. The decision by State A to allow construction of a factory in State