Update – October 23, 2019 – New Case — US Government Sues California over Cap and Trade Linkage with Quebec

This morning, the U.S. Government filed a complaint in the Eastern District of California against California, its Air Resources Board (CARB), the Western Climate Initiative (WCI), and various officials alleging that they “have pursued, or are attempting to pursue, an independent foreign policy in the area of greenhouse gas regulation.” The Government claims that the state’s agreement with the Quebec linking their two greenhouse gas cap-and-trade programs violates the U.S. Constitution. It asks the court to invalidate only the agreement and California regulations that implement the linkage between the two programs. If the U.S. government ultimately prevails, California’s program would remain operational.

California’s cap-and-trade program went into effect in 2013. It requires large emitters, including electricity generators, industrial facilities, and distributors of transportation fuel, to turn in allowances or offsets (for up to 8% of emissions) for each ton of carbon dioxide they emit. In April 2013, CARB made certain findings about Quebec’s cap-and-trade program and committed to link the two programs. In September 2013, California and Quebec officials signed an agreement that committed each jurisdiction to “work jointly and collaboratively toward harmonization and integration” of their greenhouse gas reporting and cap-and-trade programs. In 2014, California and Quebec began holding joint auctions for emission allowances and allowed covered entities in California to use such allowances to comply with California’s program. In 2017, the parties terminated the September 2013 agreement and signed a new “Harmonization and Integration” agreement that allows for inclusion of additional parties. (See Attachment B to the complaint).

The U.S. Government claims that California’s linkage with Quebec “intrudes into the federal sphere” and has “undermined the ability of the federal government as a whole, and the President in particular, to properly reconcile the protection of the environment, promotion of economic growth, and maintenance of national security.” California’s intrusion “complexifies and burdens the United States’ task . . . of negotiating competitive international agreements” and has “had the effect of enhancing the political power of that state vis-à-vis the United States.” WCI, according to the suit, is “aiding and abetting the other Defendants’ unlawful actions” and should therefore be subject to any injunctive relief.

The U.S. Government claims four violations of the U.S. Constitution. First, the agreement with Quebec “constitutes a ‘Treaty, Alliance, or Confederation’ in violation of the Treaty Clause.” Second, if the agreement is not a “Treaty,” the U.S. Government claims it is an unauthorized “Agreement or Compact . . . with a foreign Power” under the Compact Clause. Third, California’s actions “fall outside the area of any traditional state interest” and “implicate the conduct of foreign policy,” and are therefore preempted by the Foreign Affairs Doctrine. Fourth, because allowances and offsets may be used for compliance only in California and Quebec, the agreement “discriminates among categories of foreign commerce on their face” in violation of the Foreign Commerce Clause.

The lawsuit marks the latest effort by the federal government to undermine California’s environmental regulation. The government’s campaign has escalated in the wake of an agreement between California and auto makers about fuel efficiency standards and NHTSA’s preemption and EPA’s withdrawal of a waiver that allows California to set its own vehicle emission standards. In September, EPA singled out California’s National Ambient Air Quality Standard violations by threatening to cut the state’s federal highway funding and claimed that homelessness in California cities is linked to Clean Water Act noncompliance. Meanwhile, DOJ launched an antitrust probe into California’s agreement with four automakers about fuel efficiency. Earlier this year, the Federal Railroad Administration announced it was cancelling nearly a billion dollars of funding awarded to the state in 2010.