by Christopher Rizzo

States’ cap-and-trade programs for greenhouse gases are being challenged around the nation in both courts and legislatures.  Most recently, on June 27, 2011, three plaintiffs filed a complaint against New York, alleging that the state’s cap-and-trade program is illegal.  This is the second court challenge to the Regional Greenhouse Gas Initiative (“RGGI”) and comes at the same time as legislatures in five of the RGGI states are debating the merits of the program.  While I strongly believe that RGGI will survive this tumultuous time, the attacks reflect the deep ideological divides in this country regarding climate change, which will only deepen as we approach the 2012 presidential election.

Thrun, Ford & Ashendorff v. Cuomo et al.:  The plaintiffs’  allege in their complaint that New York, in enacting regulations to implement RGGI in this state, has violated the compact clause of the U.S. Constitution and illegally bypassed the N.Y.S. legislature.    Unlike the other nine RGGI states, New York did not enact a statute creating RGGI.  Rather, the N.Y.S. Department of Environmental Conservation and New York State Energy, Research and Development Authority merely enacted implementing regulations.  While a 2009 lawsuit raised the same objections to RGGI, the State and those plaintiffs settled. 

 Unlike the power plant owner that initiated the 2009 lawsuit, the plaintiffs in this case sue merely in their capacity as taxpayers.  A major threshold issue in this case will probably be standing, since RGGI seems to have increased utility rates by only 46 cents per month, arguably a de minimis increase.  But the complaint makes for good reading, especially when the plaintiffs allege “[h]aving thrown off one monarch (i.e., George III, the King of England), the framers of the American Constitution understood the importance of guaranteeing to its citizens that they be governed by state governments (such as New York) in the form of a republic….”  According to the plaintiffs, RGGI imposes taxes on citizens without legislative approval and therefore violates this core American principle.

Elsewhere in RGGI.            RGGI will conclude three years of operation at the end of 2011.  This first compliance period has generated hundreds of millions of dollars in revenues for states from the sale of carbon credits to power plants, which states have used to fund energy efficiency projects and balance budgets.   Greenhouse gas emissions have declined during this period, although at least some of that decline is probably due to the economic recession and utilities’ increased use of natural gas rather than oil.  Despite these successes, RGGI is subject to challenges in various states, including the following:

  • New Hampshire’s legislature passed bills to rescind that state’s participation in RGGI.  Governor Lynch has promised to veto the bills this week.
  • New Jersey Governor Chris Christie has directed the N.J. Department of Environmental Protection to end participation in RGGI in 2012.  Last week, however, the state’s legislature passed a resolution calling that unilateral effort illegal.  (After all, since when can the executive branch simply rescind laws passed by the legislature?)
  • Earlier this year, legislators in Delaware and Maine considered but failed to enact bills to rescind those states’ participation in RGGI.
  • This month, the governors of Maryland and Vermont issued statements criticizing Governor Chris Christie’s effort to withdraw from RGGI and restating their support for the program.

WCI.  The Western Climate Initiative (WCI) would create a cap-and-trade program among western states and Canadian provinces.  Only California and New Mexico are anywhere close to creating their programs however.  New Mexico’s Environmental Improvement Board created its cap-and-trade program in late 2010 with the support of then-governor Bill Richardson.  California’s Air Resources Board created its cap-and-trade program in January 2011.  Both programs were promptly challenged.

New Mexico’s new governor attempted to unilaterally rescind the state’s cap-and-trade program by prohibiting the publication of implementing regulations in the state register, a necessary step to the program’s becoming law.  Environmental organizations challenged the governor’s authority to block validly-enacted legislation in this manner and the N.M. Supreme Court agreed earlier this year, ordering the Governor to permit the publication.  It remains unclear, however, whether the program can go forward without any support from the state’s executive branch.

Environmental organizations also challenged California’s program in court, alleging that the Air Resources Board failed to comply with the Environmental Quality Act, which requires environmental impact reviews.  The main complaint is that the board failed to consider alternatives to cap-and-trade programs, such as a carbon tax.  The trial court agreed and enjoined the program.  The board appealed and the court has stayed the injunction while it considers the appeal.

I suspect that there are two reasons for these legal and legislative challenges.  First, certain politicians are eager to show their constituents some action on the economy, which has failed to recover quickly from the 2008 recession.  Although cap-and-trade programs appear to have little real impact on ratepayers, many Americans view them as “taxes,” which makes them a good punching bag.  Second, certain politicians are eager to burnish their conservative credentials as the important 2012 election approaches.  This appears to be particularly true in New Jersey.

I don’t believe these challenges will ultimately succeed, but not because cap-and-trade is an effective (albeit imperfect) means of reducing greenhouse gas emissions.  Rather,  RGGI is generating huge revenues for states each year, totaling hundreds of millions of dollars in fees from the sale of carbon credits.  With states in dire financial circumstances, I suspect they will find it hard to give up these revenues any time soon.