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US Justice Department targets Calif. cap-and-trade agreement with Quebec

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Essential Energy Insights - January 2021


US Justice Department targets Calif. cap-and-trade agreement with Quebec

The U.S. Department of Justice is taking aim at a California cap-and-trade program designed to curb planet-warming carbon dioxide emissions, arguing the scheme is unconstitutional because it is linked to a similar program administered by the Canadian province of Quebec.

Asserting that the federal government has "full and exclusive responsibility" over foreign affairs, the DOJ claimed in an Oct. 23 lawsuit that California's program represents an attempt by the state to pursue "an independent foreign policy in the area of greenhouse gas regulation."

The lawsuit — USA v. California (No. 2:19-at-01013) — was filed in the U.S. District Court for the Eastern District of California against the state of California; the California Air Resources Board, or CARB; and the Western Climate Initiative, a nonprofit that supports the program with technical and advisory services.

California's cap-and-trade program covers power generation; large industrial sources of greenhouse gas emissions; and suppliers of gasoline, diesel, natural gas and propane burned at industrial, commercial and residential sites. Under the program, CARB establishes a declining cap on total statewide emissions and issues allowances to polluters that are traded in quarterly auctions. The proceeds flow to the Greenhouse Gas Reduction Fund and are allocated through the state's annual budget process. As of 2017, the fund had provided roughly $3.4 billion for clean energy and transportation, and environmental projects, according to CARB.

The California and Quebec cap-and-trade programs were formally linked under the Western Climate Initiative at the start of 2014, with their first joint sale held in November 2014. The goal of linking the two programs was to create a more liquid market for tradeable emission allowances while driving down compliance costs for affected sources.

In 2017, California and Quebec agreed to work together toward harmonizing and integrating their cap-and-trade and greenhouse gas reporting programs, with the eventual goal of making emission allowances tradeable between the two jurisdictions. That same year, U.S. President Donald Trump initiated the process of pulling the U.S. out of the Paris Agreement on climate change, stating at the time that he is willing to renegotiate the U.S.'s commitments to the agreement or seek a "new deal."

In its Oct. 23 complaint, the DOJ argued that California's cap-and-trade agreement with a provincial government "complexifies and burdens" U.S. efforts to negotiate other competitive international agreements. In addition, the DOJ argued that the program could entice other states to enter into "similarly illegal arrangments," effectively curbing the political power of the federal government.

As relief, the DOJ asked the court to declare California's agreement with Quebec and the underlying state law illegal. The complaint also requested a permanent injunction against the implementation of the joint program.

In a statement, California Gov. Gavin Newsom said the lawsuit represents another example of the Trump administration's "political vendetta" against California and its climate policies.

"Carbon pollution knows no borders, and the Trump administration’s abysmal record of denying climate change and propping up big polluters makes cross-border collaboration all the more necessary," he said.

The suit comes after the Trump administration in September issued a rule that revoked California's authority to set its own tough clean car rules under the Clean Air Act. California and 22 other states challenged that action in federal appeals court the following day.