The California Cap-and-trade Program's Linkage With Quebec: an Application of Conflict and Field Preemption

• Publication year: 2014
• Author: By Annie Tsai*

The California Cap-and-Trade Program's Linkage with Quebec: An Application of Conflict and Field Preemption

By Annie Tsai*

I. INTRODUCTION

In 1997, the Kyoto Protocol ("Protocol"), a binding international agreement on greenhouse gas ("GHG") emissions that limited its signatories' GHG emissions to predetermined targets, recognized a concept called the "Carbon Market."¹ A Carbon Market defines a geographical jurisdiction, and provides an emissions target with the corresponding quantity of emissions allowances for regulated "Emitting Entities." A Carbon Market also offers a mechanism for those Emitting Entities which emit more GHG to trade with those that emit less. In other words, some Emitting Entities could buy the right to emit, while others with excess pollution credits could sell these rights for monetary gain. This mechanism is also known as "Cap-and-Trade."²

California Assembly Bill 32 ("AB 32"), the "California Global Warming Solutions Act of 2006," pursued a Cap-and-Trade program in 2011.³ AB 32 also provides the state agency in charge of implementation, California Air Resources Board ("ARB"), the authority to facilitate California's GHG emissions reduction on an international scale.⁴In 2013, the California Governor made required findings that enabled ARB to solidify California and Quebec emissions markets' linkage.⁵ On October 1, 2013, ARB and the Government of Quebec agreed to integrate and harmonize their Cap-and-Trade programs.⁶ Through collaborative market regulatory changes, participants within two distinct jurisdictions could potentially trade emissions credits.⁷

This paper focuses on the legality of California's Cap-and-Trade program linkage with Quebec. The discussions regarding the validity of concerns for climate change and potential solutions fall outside the scope of this paper. This paper examines specifically whether California has the legal authority to link its Cap-and-Trade program with Quebec. Stated differently, is market linkage legal? This paper argues that the United States federal government—particularly the U.S. Executive Branch ("executive") in recent years—has firm policies in place to achieve an international emissions policy. In the Obama Administration's "Climate Action Plan," the president reaffirms his efforts to include developing countries in international climate negotiations.⁸ Expressed federal policy aimed at the international domain always preempts state law.⁹ However, even when there is no explicit policy, two doctrinal frameworks developed by the Supreme Court under the Supremacy Clause allow extensive federal control in the field of foreign affairs. First, conflict preemption invalidates state law that is in direct conflict with the federal government's defined foreign affairs policy. Second, field preemption invalidates state law that invades a field that the federal government thoroughly occupies through direct action or the policies such actions imply. If litigated under either doctrine, the federal policies will most likely be found to preempt California's efforts to link its Cap-and-Trade program with Quebec.

II. THE BEGINNING - THE UNFCCC AND THE UNITED STATES

The United Nations Framework Convention on Climate Change (the "UNFCCC") entered into force in 1994 after years of negotiation between developing and developed nations.¹⁰ The UNFCCC fell short of its initial goal to create a legally binding document with mandated emissions targets. Instead, the UNFCCC established a general framework to discuss GHG emissions.¹¹ The economic divide between developing and developed nations was already apparent during the negotiations. Developing countries feared binding obligations would hinder industrialization, while developed countries were reluctant to support developing nations' efforts in emissions reduction.¹²

In 1992, President George H. W. Bush signed the UNFCCC, and presented the document to the Senate for consultation and consent. The Senate ratified the UNFCCC with the understanding that any amendments or new developments under the treaty were not self-executing.¹³ Rather, the executive branch must submit to the Senate for advice and consent any executive action that would legally bind the U.S. to GHG emissions targets.

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In 1997, the UNFCCC adopted the Protocol.¹⁴ Although President Clinton signed the Protocol, the Clinton Administration failed to present the Protocol to Congress for ratification.¹⁵ As a result, the U.S. was not a party to the binding international agreement to reduce GHG.¹⁶ The 1997 Byrd-Hagel Congressional Resolution may have influenced President Clinton's decision.¹⁷ In the Resolution, Congress explicitly iterated its opposition to the U.S. as a signatory to the Protocol if the developing nations do not also commit to a binding target.¹⁸ The U.S. has served as an observing party to the Protocol ever since. Subsequently, the U.S. has pursued—and continues to pursue—an international voluntary framework.¹⁹ In sum, U.S. federal policy rejects an international binding GHG emissions target without participation from countries such as China, India and Russia.

III. THE OBAMA ADMINISTRATION'S FEDERAL POLICY

In the international arena, the Obama Administration's policy is clear: Until large GHG emitting nations can credibly commit to a binding cap, the U.S. will continue to advocate for an international voluntary emissions effort.²⁰ President Obama first clarified this goal at the 2009 UNFCCC meeting in Copenhagen, and continues to work towards this policy today.

Prior to the 2009 UNFCCC meeting in Copenhagen, President Obama launched the "Major Economies Forum on Energy and Climate" to promote a successful outcome at the UNFCCC meeting in Copenhagen.²¹ Subsequently, at the UNFCCC meeting, President Obama outlined U.S. terms that also reflected congressional objectives at the time: China and other emerging countries should provide mitigation contributions of their own.²² Since 2007, China, India, Russia, and the U.S. are the largest emitters worldwide of carbon dioxide (CO2). China is the largest emitter, followed by the U.S., with India and Russia contending for third place.²³

However, the "Copenhagen Accord" failed to pass by UNFCCC consensus. Instead, the parties "took note" of the political agreement.²⁴ By doing so, the Copenhagen Accord was not incorporated into the UNFCCC. The Copenhagen Accord called for an assessment consistent with efforts to reduce emissions to hold increases of global temperature below two degrees Celsius, and to be completed by 2015.²⁵ It was only at the UNFCCC meeting in Cancun, a year later, that the member nations incorporated parts of the Copenhagen Accord into the UNFCCC and formalized its goals.²⁶ Under the Cancun Agreements, parties can voluntarily pledge an emissions target, regardless of the country's status as a developed or developing nation. The U.S. signed on to the Cancun Agreements and voluntarily pledged the same targets expressed ahead of the meetings in Copenhagen.²⁷ Thus, once more, the Obama Administration continued to solidify an interim voluntary emissions target approach.

The Durban Platform, passed in December of 2011, set out a timeline for UNFCCC negotiations and the development of the second compliance phase of the Protocol, setting a deadline for 2015 to outline a final agreement to be implemented by 2020. Moreover, it mandated this final agreement to take form in a binding GHG emissions reduction target.²⁸ The U.S. Special Envoy on Climate Change, Todd Stern, expressed again that the U.S. was not opposed to a legally binding treaty. Rather, the executive branch's goal was to work towards a legally binding agreement that applied to all major countries' emissions.²⁹

Consistent with this goal, the Obama Administration continues to engage China in bilateral discussions. In early 2013, the U.S. and China initiated a Climate Change Working Group.³⁰ On June 8, 2013, both countries agreed to phase down the use of hydrofluorocarbons ("HFC"), and improve accounting and reporting of emissions in China.³¹ Furthermore, the U.S. continues to express its intent to meet the UNFCCC policy goal for a legally binding target on GHG emissions by 2015.³²

IV. STATE LAW: CALIFORNIA'S CAP-AND-TRADE PROGRAM

California's air pollution bill, AB 32, addressed GHG pollution across industries, and became a part of California's Health and Safety Code.³³ California's intent was described as a part of AB 32, and partially reads:

California has long been a national and international leader on energy conservation and environmental stewardship efforts, including the areas of air quality protections . . . National and international actions are necessary to fully address the issue of global warming. However, action taken by California to reduce emissions of GHG will have far-reaching effects by encouraging other states, the federal government, and other countries to act. The State Air Resources Board [is to] design emissions reductions measures . . . in a manner that minimizes costs and maximizes benefits for California's economy. . . .³⁴

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AB 32 designated ARB as the state agency to implement various policies to "ensure a statewide greenhouse gas emissions limit equivalent to the statewide greenhouse gas emissions levels in 1990 to be achieved by 2020."³⁵ To combat state air pollution, AB 32 authorized ARB to implement a Cap-and-Trade mechanism. California's Cap-and-Trade program regulates the same GHGs as those under the UNFCCC.³⁶

The Cap-and-Trade mechanism, however, is not the only viable market solution to curb GHG emissions. Another economic alternative is a direct tax on emissions, referred to as Command and Control.³⁷ AB 32 required ARB to develop a scoping plan to consider all alternatives and recommend the best way forward. Three major steps define this rulemaking process: first, an initial public workshop with notice; second, an opportunity for stakeholder comment; and finally an approval process at a public...