The Limits of Administrative Law as Regulatory Oversight in Linked Carbon Markets

Abstract

Many commentators have celebrated the link between carbonmarkets in California and Quebec as an example of effective coordination of sub-national climate policy instruments. Here, Iargue that this enthusiasm is misplaced. California recentlyamended its carbon market regulations to enable significantleakage of emissions to neighboring states. These reforms reducethe environmental effectiveness of the market, contradict clearstatutory guidelines, and dilute the integrity of the state’s compliance instruments. Moreover, the reforms took place in an administrative process that never recognized the leakage implications, raising questions as to whether California alerted itsCanadian counterparts of the consequences of its internal reforms.I review this transition from three perspectives: the relevantadministrative proceedings in California, the mutual obligationsboth governments accepted under a bilateral agreement,and the standards California law imposes on prospective linkedmarkets. Each perspective reveals major shortcomings. Ratherthan demonstrating a successful model for harmonizing carbonmarket systems across different legal jurisdictions, the link between California and Quebec exemplifies a major institutionalweakness: in a linked carbon market, participating governmentsmust continuously monitor the administrative processes of eachjurisdiction in order to maintain market integrity. But as theCalifornia experience demonstrates, administrative law may notbe up to the task of ensuring that practical market operation follows the rule of law.