Dormant Commerce Clause to GHG Emissions Rule
Avista Corp. et al v. Washington State Dept of Ecology
Recent Developments: Four utilities filed a complaint in September 2016 in federal district court. In October 2016, the court stayed the case pending the outcome of a related case filed in state court.
Two natural gas utilities and two natural gas and electric utilities filed a lawsuit in federal district court in Washington challenging the state’s greenhouse gas rule. The utilities argue that the rule violates the dormant Commerce Clause by discriminating against interstate commerce, regulating extraterritorially, and unduly burdening interstate commerce.
The recently finalized GHG rule initially applies to large stationary sources that emit 100,000 metric tons of CO2 per year and major natural gas distributors. Beginning in 2017, most covered entities will have to reduce emissions by an average of 1.7 percent per year until 2020. Entities may comply by purchasing Emission Reduction Units (ERU) that can be generated by covered entities that reduce their emissions beyond the required level, by projects in Washington that permanently reduce GHG emissions, and by businesses in Washington that voluntarily reduce their GHG emissions. Covered entities may also comply by holding allowances purchased from another state’s multi-sector GHG program, but the percentage of an entity’ requirement that may be met with such allowances decreases over time.
The utilities characterize the rule as discriminatory because it “creates a restricted, in-state-only market” for ERUs “that favors in-state businesses and investments and excludes out-of-state actors and investments.” They argue that the rule provides “no explanation, much less one unrelated to economic protectionism, for the gradual restriction on using out-of-state allowances instead of in-state ERUs.” Such discrimination, they claim, is aimed at “block[ing] out-of-state wealth transfers: to keep money from flowing outside of Washington as covered parties comply.”
Their second claim is that the rule “regulates extraterritorially by allowing for only ‘one-way linkage’ to out-of-state carbon markets.” This linkage allows out-of-state allowances (presumably from California) into Washington “without letting ERUs cross state lines.” The utilities argue that the effect will be to raise prices out-of-state, which “would control conduct occurring entirely outside of Washington’s borders (e.g., allowance sales between two CARB-covered parties in California).” Furthermore, the rule “deprives Washington entities the freedom to generate and sell ERUs to any willing buyer across state lines.”
Finally, the utilities assert that the “burdens on interstate commerce are clearly excessive in relation to the regulation’s putative local benefits.” They challenge the state defendants to show that there is not a non-discriminatory alternative for achieving the legitimate local purpose of reducing greenhouse gas emissions.
The utilities have also filed a separate lawsuit in state court. In October, all parties filed a joint motion to hold the case in abeyance pending the outcome of the litigation in state court. The federal court granted that motion.
Department of Ecology Rule
Washington Clean Air Rule