Industry Groups Will Probably Sue Re California Cap-and-Trade

"Previewing Legal Challenges to Cap-and-Trade"

By Robert Lawrence, Dustin Till and Svend Brandt-Erichsen

California’s greenhouse gas (GHG) cap-and-trade program is due to be finalized within a few weeks, over widespread opposition and concern about its effects on California’s economy. Looking forward, California business and citizens groups are considering how and when to challenge the regulations in court. Final regulations in California are subject to judicial review, and may be challenged as being unconstitutional or inconsistent with the statute that authorized their development, or for conflicting with other federal or state statutes. In the case of the Air Resource Board’s (ARB) cap-and-trade program, all of these objections are likely. A successful appeal can invalidate all or part of a new program, and sometimes requires an agency to start a new rulemaking process entirely.

Constitutionality

The most obvious challenge, and one that ARB prepared for, is that the cap-and-trade regulations violate the commerce clause of the federal Constitution. There are at least two ways to frame this argument. The first is that the program discriminates against out-of-state goods or services. The second is that the regulation impermissibly burdens or inhibits interstate commerce.

Consistency with AB32

There also are likely to be a large number of objections to ARB’s program arising from AB32 itself based on provisions limiting ARB’s authority. Among these requirements, the programs adopted by ARB must be “feasible,” “cost-effective” and “equitable.” These terms provide ample room for argument as to whether the costs imposed by the program are justified by the benefits, and whether the program could have been designed differently.

Consistency with other Federal and State Laws

There is a question of whether California’s regulations conflict with (or complement) federal actions to combat climate change. New and modified power plants and large industrial sources are subject to recently-implemented EPA regulations under the Clean Air Act (CAA). EPA has identified additional regulations that would address GHG emissions under the CAA. These federal regulations apply or would apply in California to some of the same entities that are subject to the cap-and-trade program, raising the potential for inconsistencies. [More at Marten Law, 11.22.2011]