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US targets California cap-and-trade agreement with Quebec

Highlights

DOJ says state is pursuing 'independent foreign policy'

California, Quebec programs were linked in 2014

Washington — The US Department of Justice is taking aim at a California cap-and-trade program designed to curb 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 argued in a Wednesday 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 suit -- USA vs. California (No. 2:19-at-01013) -- was filed in the US District Court for the Eastern District of California against the state of California, the California Air Resources Board (CARB) and the Western Climate Initiative (WCI), a non-profit 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 established 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 as well as environmental projects, according to CARB.

The California and Quebec cap-and-trade programs were formally linked under the WCI 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 tradable 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 tradable between the two jurisdictions. That same year, President Donald Trump initiated the process of pulling the US out of the Paris Agreement on climate change, stating at the time that he was willing to renegotiate the US' commitments to the agreement or seek a "new deal."

In its Wednesday complaint, the DOJ argued California's cap-and-trade agreement with a provincial government "complexifies and burdens" US efforts to negotiate other competitive international agreements. In addition, DOJ argued the program could entice other states to enter into "similarly illegal arrangements," 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 Governor 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.

-- Zack Hale, S&P Global Market Intelligence, newsdesk@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com