The Center for Climate Change’s latest publication, Legal Issues in Regulating Imports in State and Regional Cap and Trade Programs, can be found on the Center website, here.
As the Regional Greenhouse Gas Initiative (RGGI) undertakes its 2012 program review, one key consideration is whether to adopt regulations on imported electricity to control for “emissions leakage,” in order to ensure that emissions reduced in the region do not simply spill over into neighboring states and provinces. Regulating leakage presents potential legal challenges: states are limited by the Constitution in the extent to which they can regulate activities occurring beyond their own borders and may be preempted by federal statutes from regulating certain interstate activities altogether.
This paper analyzes the legal hurdles that RGGI may face should it choose to address emissions leakage through regulating imported electricity. It focuses on two legal issues in particular, which are generally thought to be the most likely arguments raised against imports regulations: (1) whether imports regulations violate the dormant Commerce Clause (DCC) of the Constitution; and (2) whether such regulations are preempted by the Federal Power Act (FPA).
The analysis concludes that imports regulations would likely be ruled constitutional on both counts by a reviewing court. Although the DCC prohibits states from regulating extraterritorially or in a manner that discriminates against interstate commerce, properly crafted imports regulations are best interpreted as placing only permissible, comparable requirements on imported electricity to those requirements already placed on in-state electricity generators. Although imports regulations would require treating imports slightly differently from in-state emissions for the purposes of monitoring and calculating emissions, these differences would not likely amount to discrimination against out-of-state generators as a whole. At most, imports regulations might disadvantage one set of out-of-state generators while advantaging other out-of-state generators. Relevant Supreme Court precedent suggests that state laws that merely shift comparative advantage in this manner are permissible under the DCC.
Moreover, it is likely that RGGI could defend imports regulations—if justified by states as necessary to correct for a predicted leakage problem—as bringing participating states benefits that are not outweighed by any incidental burdens placed on out-of-state generators. Finally, it is unlikely that a court would strike imports regulations as preempted by the FPA, as these regulations would only incidentally affect the interstate wholesale electricity market and would not impede FERC’s ability to fully carry out its FPA responsibilities.
