One of the primary objectives of the powerful anti-fossil fuel lobby over the past two decades has been a federally mandated limit on carbon emissions. But the Supreme Court’s recent decision in West Virginia v. Environmental Protection Agency suggests that a sweeping regulatory framework on carbon emissions is unlikely, absent an act of Congress.
Recognizing that federal action is not likely in the foreseeable future, many of these anti-fossil fuel interest groups have shifted to state-level politics by promoting regional cap-and-trade agreements as a method for limiting emissions. A prime example of this is the Regional Greenhouse Gas Initiative (RGGI), described as a “cooperative effort” among about a dozen states in the U.S. Northeast. Whether RGGI and other similar programs are sound from a policy perspective is far from clear. But the focus of this article is not on the wisdom of the policy, but on its legality, as we explore how RGGI could implicate issues of constitutional law and what that means for the energy industry moving forward.
Understanding the Compacts Clause
A key legal consideration is the constitution’s Compacts Clause, which provides that “no state shall, without the Consent of Congress… enter into any Agreement or Compact with another State, or with a foreign power.” Despite what its plain language suggests, this provision has never been interpreted as requiring congressional approval of every conceivable type of multi-state agreement.
Rather, as explained by the United States Supreme Court in U.S. Steel Corp. v. Multistate Tax Commission, the clause requires consent of congress in two general types of cases:
■ Where the interstate agreement “tends to the increase of political power in the States, which may encroach upon or interfere with the just supremacy of the United States.”
■ If the agreement “enhances the political power” of the compacting states at the “expense of other States.”
It is safe to assume the intellectual architects of RGGI thoroughly considered these constitutional principles and made every effort to avoid running afoul of the Compacts Clause. But as with most things in law, it is the impact of the arrangement among the states that is determinative. And examining RGGI’s overarching structure and effect, its constitutionality under the Compacts Clause is not a foregone conclusion.
To start, RGGI does in fact increase the political power of the states participating in the agreement. Those who disagree may argue that membership in RGGI does not give states any powers they don’t already have, as states are free to implement cap-and-trade regulations within their border. But the question is not whether an interstate agreement grants states power they would otherwise lack. Instead, it is whether partaking is such a compact augments their political power.
A multi-state cap-and-trade system, like the one established by RGGI, allows states to take advantage of “markets” that would be unavailable if each were acting alone. In fact, this interstate access is RGGI’s central selling point. In addition, the suggestion that participating in RGGI does not grant the member states more political powers than they would have if acting independently defies common sense, since a member’s decision to join is likely based on the assessment that it would benefit their state.
However, as noted above, the increase in political power resulting from the arrangement is not sufficient to trigger the Compacts Clause’s congressional approval requirement—the enlargement of political power must also be such that it “may encroach upon or interfere with the just supremacy of the United States.” Applying this to RGGI, there is a strong argument to be made that the interstate cap-and-trade compact has the potential to interfere with a power vested exclusively in the federal government—regulation of interstate commerce.
At the outset, it should be noted that an interstate agreement does not encroach or infringe on the “just supremacy of the United States” merely because it concerns matters that could fall within the interstate commerce clause. But regulating the generation and distribution of energy is not a power that is somehow ancillary or incidental to federal power. To the contrary, ensuring an efficient distribution of power—and in particular electricity—is a matter of substantial federal concern, interference with which has the potential to affect not only commerce, but also interstate comity, foreign policy, and national security.
Those concerns could become particularly pronounced if the policies adopted by the RGGI member states begin to impact the import or export of energy by the bordering states. If this were to occur, RGGI would also be susceptible to challenge on the second overarching basis identified by the U.S. Steel case—namely the enhancement of political power at the expense of other states.
That said, nothing in the above analysis should be construed as suggesting that a challenge to RGGI under the Compacts Clause is preordained to succeed, as exploring the many nuances, arguments, and counter-arguments on this matter could fill a small book. But by the same token, it should be clear that challenges to the constitutionality of RGGI are inevitable, and mounting such challenges will likely require leadership, involvement, and collaboration from the affected industries.
—Shohin Vance ([email protected]) is an attorney with Kleinbard LLC in Philadelphia, Pennsylvania.