DOJ files suit over Calif. cap-and-trade agreement with Quebec

The United States Department of Justice on Wednesday, October 23, filed a civil complaint against California, arguing that the state’s cap-and-trade agreement with the Canadian Province of Quebec is unconstitutional. The DOJ is seeking a permanent injunction against the “operation and implementation” of the agreement.

The suit, USA vs. California, ratchets up the battle between the Trump administration and California over environmental policy. In September, President Donald Trump said he was taking away California’s authority to set its own, more stringent vehicle emissions standards, a power the state has exercised for years.

Later in September, the DOJ began an antitrust investigation into four automakers that struck deals with California on vehicle emission standards, claiming that those deals inhibit competition.

And, most germane to the new complaint, then Gov. Jerry Brown in 2018, in response to Trump’s announcement that he would withdraw from the Paris Climate Accord, aligned with three other states – Connecticut, Hawaii and Washington – to reaffirm their commitment to Paris greenhouse gas reduction targets.

Trump said he planned to renegotiate a new and better climate accord.

The cap-and-trade complaint was filed in the U.S. District Court for the Eastern District of California against the state of California, several of its officers, the California Air Resources Board, and the Western Climate Initiative, a non-profit corporation that provides administrative and technical services for the implementation of cap-and-trade programs.

California and Quebec entered into an agreement in 2013 and in 2014 linked their respective greenhouse gas reduction cap-and-trade programs with each other’s. In November 2017, the state and province began working toward making emissions allowances tradable between the two jurisdictions. The goal of linking the programs was to create a more liquid market for tradable emission allowances while driving down compliance costs.

In 2017, California and Québec entered into another similar agreement, replacing the 2013 agreement and this time including Ontario, which sought to harmonize the cap-and-trade programs across the three jurisdictions. Ontario later withdrew from the compact.

The DOJ, however, says California’s agreement with Quebec has the effect of “undermining the ability of the federal government as a whole, and the President in particular, of properly reconciling protection of the environment, promotion of economic growth, and maintenance of national security” and of undermining the ability of the president “to speak for the United States with one voice on a variety of complex and sensitive subjects of foreign policy.”

The complaint cites four legal grounds for the injunction it seeks. It cites the Constitution’s prohibition against any state entering into a “treaty, alliance or confederation” under the treaty clause or entering into any “agreement or compact” with a foreign power under the compact clause.

The complaint also cites the supremacy of the president’s authority to conducting foreign affairs as granted by the Constitution and says the agreement between California and Quebec falls “outside the area of any traditional state interest” and interferes with the “United States’ foreign policy on greenhouse gas regulation, including but not limited to the United States’ announcement of its intention to withdraw from the [Paris] Accord.”

And, finally, the complaint cites the foreign commerce clause, which places the federal government’s authority to regulate commerce with foreign nations above state’s abilities to regulate international trade, and argues that by forging an exclusive agreement with Quebec, California is imposing “a substantial and undue burden on foreign commerce.”

For relief, DOJ seeks: (1) a declaration that the agreement and relevant portions of California law linking California’s program with Québec are unlawful; and (2) a permanent injunction against any actions pursuant to that agreement or those laws.

California Attorney General Xavier Becerra responded to the complaint in a statement, saying, “California’s Cap-and-Trade Program has existed since 2012 and was only strengthened from our collaboration with Quebec.” He continued, “California has long been a leader in fighting climate change … We will continue leaning forward. We have no plans to back down.”

The lawsuit is unlikely to undermine California’s cap-and-trade program, which the California Supreme Court upheld in 2017. The case is nonetheless significant for its potential to reshape federal state relations and redefine the limits of state authority on the international stage. Many states routinely engage with foreign nations on trade, seeking to incentives local economies.  In addition, the suite raises issues regarding federal preemption of other transboundary activities, like state and local rule on environmental impacts of international pipelines.

One thing is certain the outcome of the lawsuit will have far reaching implications, whether affirming, rejecting or constraining state authority to operate in this space.