The Constitutionality of California\u27s Cap-and-Trade Program and Recommendations for Design of Future State Programs

Global climate change has emerged as one of the greatest challenges of our time. While action has stalled on the national stage, states have started to take action to reduce their greenhouse gas emissions. Confronted with the risk of severe impacts that could cost it tens of billions of dollars annually by the end of the century, California has taken the lead and developed the first comprehensive cap-and-trade program in the nation and seeks to achieve significant reductions in the greenhouse gas emissions associated with its economy. The success of California’s program will determine whether other states and the federal government follow California’s lead. If California’s cap-and-trade program is defeated by legal challenges or is excessively economically burdensome, it might spell the end of cap-and-trade programs in the United States. The most formidable legal challenge will be brought under the dormant Commerce Clause, which prohibits states from discriminating against, regulating, or unduly burdening interstate commerce. This Article analyzes California’s cap-and-trade program under the dormant Commerce Clause and suggests refinements that could be adopted by California or other states implementing cap-and-trade programs to improve the odds of prevailing against such a challenge. While California will almost certainly be forced to make regulatory concessions, especially in its regulation of the electricity sector, I conclude that state cap-and-trade programs can be structured in a way that, while not ideal, can survive dormant Commerce Clause scrutiny while providing meaningful regulation of greenhouse gas emissions and protection from emissions leakage