Energy Policy, Extraterritoriality, and the Dormant Commerce Clause

In the face of limited federal action to address climate change, states have attempted to fill the gap by creating new energy policies designed to promote renewable electricity generation, place limits on greenhouse gas emissions, and encourage the use of low-carbon fuels. In doing so, however, states necessarily influence regional and national energy markets, leading to challenges that they are discriminating against out-of-state interests and improperly interfering with interstate markets in violation of the dormant Commerce Clause. This article focuses specifically on potential challenges to state energy policy based on the “extraterritoriality doctrine” of the dormant Commerce Clause. In doing so, it considers two recent lawsuits involving dormant Commerce Clause challenges to state energy policy. In the first lawsuit, Midwestern ethanol producers sued the State of California over its Low Carbon Fuels Standard (LCFS) program on grounds that it discriminates against Midwest ethanol producers in favor of California ethanol producers and regulates extraterritorially in violation of the dormant Commerce Clause. In the second lawsuit, asserting similar claims, the State of North Dakota and the North Dakota lignite coal industry sued the State of Minnesota over provisions of its Next Generation Energy Act, which prohibits new coal-fired electricity generation in the state and prohibits imports of new coal-fired generation from outside the state without accompanying CO2 offsets. Like much state regulation, these laws impact interstate markets for goods and services, specifically, energy goods and services. Plaintiffs in the two cases use this fact to argue that the laws impermissibly control out of state activities and interfere with interstate markets in violation of the extraterritoriality doctrine of the dormant Commerce Clause. But to accept this argument requires courts to severely limit state energy policy to address climate change and to meet other legitimate state policy goals despite the fact that federal law gives states broad authority to regulate the use of fuels, electricity, and other energy sources within state borders. This article concludes by suggesting ways that courts can approach these types of cases that preserve state authority to develop innovative state energy policy while still upholding the principles of the dormant Commerce Clause