US Fights to Stop California and Quebec’s Cap-and-Trade Deal

SACRAMENTO, Calif. (CN) – As part of its strategy to derail California’s myriad climate change policies, the Trump administration is trying to contain and diminish the effectiveness of the state’s landmark cap-and-trade system.

The administration opposes the state’s lucrative carbon credit trading system – a long-established tool to combat climate change – contending that it interferes with the president’s ability to conduct foreign policy and that the state overstepped its boundaries by arranging a cap-and-trade system with a foreign government and is setting its own foreign policy. 

The stacks from the Valero Benicia Refinery in Benicia, Calif. (AP Photo/Rich Pedroncelli)

Hoping to stop the spread of California’s coordinated cap-and-trade system, the Trump administration argued Monday in federal court that the state’s 2013 decision to link the system with the Canadian province of Quebec was an “intrusion into the federal sphere” and an attempt to undermine the president’s ability to negotiate and craft international treaties.

“California is acting in foreign affairs,” said Principal Deputy Assistant Attorney General Jonathan Brightbill at the hearing in the U.S. District Court for the Eastern District of California.  

The Trump administration sued California and various state officials in October 2019 over the Quebec agreement, adding another notch in the parties’ lengthy list of legal fights. It accuses California and a host of officials of violating the Constitution’s Treaty and Compact clauses.

Approved in 2013 and renewed in 2017, California and Quebec voluntarily linked their respective cap-and-trade programs in hopes of making them more attractive to businesses. The states claim the deal boosts the ability for businesses to buy and sell so-called carbon allowances across boundaries and, in turn, make the programs better smog fighters.

California’s cap-and-trade program requires businesses to obtain permits for carbon emissions and allows them to purchase additional permits if they go over a limit set by state regulators. The system essentially creates a price for emitting greenhouse gases, and the revenue generated from the carbon permits is supposed to go toward clean air programs and infrastructure projects.

Republican Governor Arnold Schwarzenegger signed California’s original cap-and-trade bill in 2006 and Democratic Governor Jerry Brown renewed it in 2017. California has generated over $12.5 billion from the sale of carbon permits at its quarterly auctions and the program is set to expire in 2030.

Supporters of the carbon tax argue it is necessary to ensure that California and Quebec meet goals of reducing greenhouse gas emissions by 40% from 1990 levels by 2030. They contend forcing power plants and businesses to pay for polluting will encourage them to adopt clean energy methods.

In the eyes of California’s current officials, the deal with Quebec is not a cunning attempt to usurp the president’s treaty-making abilities but simply a way for the states to further their similar climate objectives. Current Governor Gavin Newsom has previously called the lawsuit “political retribution” and proof of Trump’s “political vendetta against California.”

Throughout the nearly four-hour hearing Monday, California and the other defendants’ lawyers pushed back on the feds’ claim the deal was a blatant expansion of the state’s powers.

“The agreement is simply about consultation and collaboration,” said Elaine Meckenstock, California deputy attorney general. “There’s no transfer of authority or sovereign power, and it’s not binding.”

Senior U.S. District Judge William Shubb, appointed by President George H.W. Bush in 1990, said the case boils down to whether or not California’s deal amounts to a treaty or compact. Shubb, 81, scolded Brightbill for overlapping and tip-toeing around the four causes of action and asked about the feds’ piecemeal approach of filing for summary judgment on just two of its four total claims.

“Don’t argue things you don’t want me to reach,” Shubb warned. “Put it all together in one basket, I can’t divide it up.”

Brightbill argued the cap-and-trade agreement amounts to an emissions treaty and therefore requires Congressional approval because it involves political cooperation between California and a foreign government.

“This was California’s Field of Dreams; they built it with consultation with foreign governments,” Brightbill said.

He added that if allowed to stand, California’s deal could encourage other states to enter similar arrangements with foreign governments. He claims the deal takes away Trump’s ability to negotiate international emissions treaties in wake of his decision to pull the U.S. from the Paris Agreement.

“California is taking emissions leverage the president could withhold during bargaining,” he continued. 

Several other parties have either been forced into or voluntarily intervened on California’s behalf. Aside from state officials, including Governor Gavin Newsom and Air Resources Board Chair Mary Nichols, Western Climate Initiative, which helps operate and administer the cap-and-trade system, the state of Oregon and a collection of environmental groups are fighting the federal government’s lawsuit.

Deputy attorney general Meckenstock capped her allotted time by highlighting the fact that both California and Quebec operated their own cap-and-trade systems before deciding to link them in 2013. To back the state’s claim the agreement is non-binding, Meckenstock noted that the province of Ontario exited the cap-and-trade agreement in 2018 with little notice or consequence.

“There’s no transfer of sovereign power,” Meckenstock said. “The Compact Clause is to protect the national government.”

Shubb took the feds’ motion for partial summary judgment and the defendants’ cross motions for summary judgment under submission but left the door open to the possibility of further briefing or oral arguments.

“As I sit here now, I haven’t decided the case yet,” Shubb said.

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