Constitutional Implications of Regional CO2 Cap-and-Trade Programs: The Northeast Regional Greenhouse Gas Initiative as a Case in Point

Abstract

I. INTRODUCTION II. THE RGGI III. PREEMPTION IV. COMPACT CLAUSE V. THE DORMANT COMMERCE CLAUSE A. Offsets B. Leakage VI. CONCLUSION I. INTRODUCTION For eight years the Bush administration avoided addressing global warming, first denying its existence, then denying its anthropogenic contributions, and finally denying the government's legal ability to combat it. There is a new administration, however, and Presidential candidate Obama campaigned in favor of a national cap-and-trade program. Nevertheless, there are many matters of critical importance on the U.S. Congress' plate, and as of this writing Senate Majority Leader, Harry Reid, was hoping to take up climate change legislation by the end of the summer of 2009. The chances of passage even then are not clear. Economic woes and Republican opposition could still do it in. This political reality suggests that existing and proposed regional cap-and-trade programs may have continuing importance. Consequently, the constitutional implications of these programs are worthy of consideration. The Regional Greenhouse Gas Initiative (RGGI) is already in effect in ten northeastern and mid-Atlantic states, (1) while the Western Climate Initiative and Mid-western Regional GHG Reduction Accord are still far from operational. This Article considers three possible constitutional issues with regard to a regional cap-and-trade program, focusing on the RGGI: preemption, the Compact Clause, and the Dormant Commerce Clause. II. THE RGGI The RGGI is a cooperative undertaking of ten states (2) that began in 2005 with a Memorandum of Understanding. (3) In 2006 the RGGI developed a Model Rule. (4) Each state undertook to cap overall C[O.sub.2] emissions from electrical generating plants in the state in accordance with the RGGI Model Rule. (5) In essence, beginning in 2009 and lasting until 2014, the cap is set at the estimated amount of emissions in 2008. Thereafter, the cap is decreased by 2.5 percent each year until 2018, for a total decrease in emissions of 10 percent from the 2008 baseline. Each fossil-fuel-fired electric generating unit serving a generator of twenty-five MW or larger must possess sufficient for its emissions in any compliance period. Most of these are sold at auction, and the purchasers can freely trade them on the market. Those who need more to cover their emissions will need to buy them; those that possess more than they need may sell them. The money generated by the auctions will be used to fund energy conservation, energy efficiency, and clean energy programs. The RGGI also allows for the assignment of allowances to generating facilities for certain types of projects that reduce or sequester greenhouse gas emissions in areas outside of electrical generation. Currently, only five types of projects can qualify for offset allowances. (6) Generally no more than 3.3 percent of a facility's can be offset allowances. (7) There are strict application and verification processes to qualify an offset. An offset project may be located in any state, not just a RGGI state, if the other state has a cooperating regulatory agency that has entered into a Memorandum of Understanding with the RGGI states to provide oversight of the offset projects in that state. The RGGI is implemented by each state enacting its own laws, which must conform to the RGGI Model Rule, to govern the generating facilities in its state. (8) RGGI, Inc., a nonprofit corporation, was created to provide technical and administrative services to the RGGI states. The allowance auctions are performed by World Energy Solutions, Inc., which operates online exchanges for energy and green commodities, and Potomac Economics, which performs monitoring and competitive assessment of wholesale electricity markets in the United States, oversees the auction. III. …