United States v. State

• Decision Date: 12 March 2020
• Docket Number: No. 2:19-cv-02142 WBS EFB,2:19-cv-02142 WBS EFB
• Citation: 444 F.Supp.3d 1181
• Parties: The UNITED STATES of America, Plaintiff, v. The State of CALIFORNIA; Gavin C. Newsom, in his official capacity as Governor of the State of California; The California Air Resources Board; Mary D. Nichols, in her official capacity as Chair of the California Air Resources Board and as Vice Chair and a board member of the Western Climate Initiative, Inc. ; Western Climate Initiative, Inc. ; Jared Blumenfeld, in his official capacity as Secretary for Environmental Protection and as a board member of the Western Climate Initiative, Inc. ; Kip Lipper, in his official capacity as a board member of the Western Climate Initiative, Inc., and Richard Bloom, in his official capacity as a board member of the Western Climate Initiative, Inc., Defendants.
• Court: U.S. District Court — Eastern District of California

444 F.Supp.3d 1181

The UNITED STATES of America, Plaintiff,

v.The State of CALIFORNIA; Gavin C. Newsom, in his official capacity as Governor of the State of California; The California Air Resources Board; Mary D. Nichols, in her official capacity as Chair of the California Air Resources Board and as Vice Chair and a board member of the Western Climate Initiative, Inc. ; Western Climate Initiative, Inc. ; Jared Blumenfeld, in his official capacity as Secretary for Environmental Protection and as a board member of the Western Climate Initiative, Inc. ; Kip Lipper, in his official capacity as a board member of the Western Climate Initiative, Inc., and Richard Bloom, in his official capacity as a board member of the Western Climate Initiative, Inc., Defendants.

No. 2:19-cv-02142 WBS EFB

United States District Court, E.D. California.

Signed March 12, 2020

Paul Emmanuel Salamanca, Peter James McVeigh, Govt, Jonathan D. Brightbill, Govt, U.S. Department of Justice, Washington, DC, for Plaintiff.

Margaret Elaine Meckenstock, Office of the Attorney General, Oakland, CA, Michael P. Cayaban, Phillip M. Hoos, California Office of the Attorney General, San Diego, CA, Michael Stephen Dorsi, California Department of Justice, San Francisco, CA, Monica Hans Folsom, Kristin Nicole Ivanco, Delfino Madden O'Malley Coyle Koewler, Sacramento, CA, Seth Throop Karpinski, Oregon Department of Justice, Salem, OR, for Defendants.

MEMORANDUM AND ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT

WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE

Plaintiff United States of America ("United States") brought this action against the State of California¹ and other related individuals and entities² alleging California's cap-and-trade program violates, inter alia, the Treaty Clause and the Compact Clause of the United States Constitution. (First Am. Compl. ("FAC") (Docket No. 7).) Presently before the court are the parties' cross-motions for summary judgment on those claims. (Docket Nos. 12, 46, 50.)

I. Facts & Procedural History

For over half a century, the United States government has tried to contain air pollution through legislation. It started in 1955, when Congress passed The Air Pollution Control Act of 1955, Pub. L. 84–159, 69 Stat. 322 (1955). The Clean Air Act of 1963, 42 U.S.C. § 7401 et seq., followed, which sought to "protect and enhance the quality of the Nation's air resources" by "encourag[ing] ... reasonable Federal, State, and local governmental actions ... for pollution prevention." 42 U.S.C. §§ 7401(b) - (c). Over time, the Clean Air Act expanded its reach through various amendments, and Congress created an agency charged with its enforcement -- the Environmental Protection Agency. See, e.g., Clean Air Amendments of 1970, Pub. L. 91–604, 84 Stat. 1676 (1970); Clean Air Act Amendments of 1977, Pub. L. 95-95, 91 Stat. 685 (1977); Clean Air Act Amendments of 1990, Pub. L. 101-549, 104 Stat. 2399 (1990). Then, in the early 1990s, the United States took on a new challenge -- combatting greenhouse gas emissions.³

The United States and other signatories to the United Nations Framework Convention on Climate Change of 1992 ("1992 Convention") sought to "stabiliz[e] [ ] greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system" by formulating and adopting "regional programmes containing measures to mitigate climate change." (Decl. of Rachel E. Iacangelo ("Iacangelo Decl.") ¶ 3, Ex. 1 at 4, Arts. 2, 4 (Docket No. 12-2).) It was ratified by then-President, George H.W. Bush, with the advice and consent of the Senate. (Iacangelo Decl. ¶ 4, Ex. 2 at D1316.) Following these national and international commitments, the federal and state governments have sought to combat greenhouse gas emissions in a variety of ways, including through the enactment of cap-and-trade programs.

Cap-and-trade programs are intended to be a market-based approach to reducing greenhouse gas emissions. (Decl. of Michael S. Dorsi ("Dorsi Decl.") ¶ 3, Ex. 1 at 1-1, 1-2 (Docket No. 50-3).) Typically, the program's regulating authority imposes a collective "cap" on the amount of pollution a group of emissions sources may emit for a set period. (Id. at 1-2.) Then, the regulator divides the collective cap into individual "allowances," which are distributed among the separate sources. (Id. ) These allowances permit the sources to "emit a specific quantity (e.g., 1 ton) of a pollutant" for the compliance period. (Id. ) The sources monitor and report their emissions, and at the end of the compliance period, each source surrenders the number of allowances equal to its emissions output. (Id. ) If the source's emissions output exceeds the allowances it has, the source may buy additional allowances on a "carbon market" to avoid penalties imposed by the regulator. (Id. )

A. The Origins of California's Cap-and-Trade Program

In 2006, the California legislature enacted the California Global Warming Solutions Act of 2006, Cal. Health & Safety Code § 38500 et seq. ("the Global Warming Act"), to combat the effects of global warming. The Global Warming Act aimed to assuage the "serious threat to the economic well-being, public health, natural resources, and the environment of California" by adopting a series of programs to limit the emissions of greenhouse gases. See Cal. Health & Safety Code § 38501(a). Specifically, the legislature sought to reduce greenhouse gas emissions to their 1990 levels by 2020 through "facilitat[ing] the development of integrated and cost-effective regional, national, and international greenhouse gas reduction programs." Cal. Health & Safety Code § 38564. This mandate was expanded in 2017 to reduce emissions levels to 40 percent below the statewide greenhouse gas emissions limit by December 2030. Cal. Health & Safety Code § 38566.

The state legislature vested the California Air Resources Board ("CARB"), an agency within the California Environmental Protection Agency ("CalEPA"), with the power to adopt rules and regulations to effectuate these directives. Cal. Health & Safety Code §§ 38560, 38561(a). The Global Warming Act gave CARB the power to "adopt rules and regulations ... to achieve the maximum technologically feasible and cost-effective greenhouse gas emissions reductions." Cal. Health & Safety Code § 38560. This included the power to design and adopt a "market-based" program to "achieve the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions." Cal. Health & Safety Code § 38562(c)(2).

In its statutorily-mandated 2008 Climate Change Scoping Plan, see Cal. Health & Safety § 38561(a), CARB concluded that the best way to reduce emissions limits would be to enact a "cap-and-trade program that links with other [ ] programs to create a regional market system." (Dorsi Delc. ¶ 4, Ex. 2 at ES-3.) In CARB's eyes, participating in a regional system had "several advantages" for California, among them greater reduction of emissions, greater market liquidity, and overall more stability. (Id. at 33.)

1. The Western Climate Initiative

In 2007, the premiers of several Canadian provinces⁴ and the governors of California and numerous other western states⁵ formed the Western Climate Initiative. (Decl. of Rajinder Sahota ("Sahota Decl.") ¶ 13 (Docket No. 50-2); see also Dorsi Decl. ¶ 14, Ex. 12 at 1 n.1.) The Western Climate Initiative was intended to be a "collaboration of independent jurisdictions working together to identify, evaluate, and implement policies to tackle climate change at a regional level." (Sahota Decl. ¶ 13 (quoting http://westernclimateinitiative.org).) Among its recommendations was a regional cap-and-trade program. (Id. ¶ 15.)

In 2010, the Western Climate Initiative released its design recommendations for a regional program. (Dorsi Decl. ¶ 14, Ex. 12 at 1 n.1.) The following year, the Western Climate Initiative formed Western Climate Initiative, Inc. ("WCI, Inc."), a separate entity, to "support the implementation of state and provincial greenhouse gas [ ] emissions trading programs." (Id. at 1.)

2. WCI, Inc.

WCI, Inc. is a non-profit corporation incorporated under the laws of Delaware. (Decl. of Greg Tamblyn ("Tamblyn Decl.") ¶ 2, Ex. A (Docket No. 46-2).) WCI, Inc.'s board of directors is composed of two Class A voting members and two Class B non-voting members from each participating jurisdiction. (Id. ¶ 4.)

WCI, Inc. provides technical support to its member jurisdictions by hosting joint auctions and maintaining a computer system that tracks emissions allowances and other compliance instruments. (Id. ¶ 5.) These administrative and technological support services are provided under contract and for remuneration. (Id. ) However, its services are limited to those alone. (Id. ¶ 6.) WCI, Inc. does not retain any enforcement or policymaking authority and plays no role in whether participating jurisdictions will accept each other's compliance instruments. (Id. )

3. California's Cap-and-Trade Program

Fulfilling its mandate under the Global Warming Act, CARB proposed a cap-and-trade program for California in October 2010. (Sahota Decl. ¶¶ 16, 19-20; Dorsi Decl. ¶ 5, Ex. 3 at 2.) In so doing, it substantially relied upon the design recommendations promulgated by the Western Climate Initiative. (Sahota Decl. ¶¶ 15-16.) CARB formally adopted the cap-and-trade program in October 2011, (Id. ¶ 20), and began using WCI, Inc.'s services to facilitate the program in 2012. (Tamblyn Decl. ¶ 5; see also Agreement 11-415 Between Air Resources Board and WCI, Inc. ("Agreement 11-415") (Docket No. 7-3).) However, California was careful to limit WCI, Inc.'s services to technical and administrative support alone. See Cal. Gov. Code § 12894.5(a)(1) ("Given its limited scope of activities, the [WCI, Inc.] does not have the authority to create policy with respect to any existing or future program or regulation"); see also Cal. Gov. Code § 12894.5(b)(3). Under Agreement 11-415,...