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Parlez-Vous Cap-and-Trade?—A Commentary by Douglas A. Kysar and Webb Lyons ’14

The following commentary was posted on the Huffington Post on May 23, 2012.

Parlez-Vous Cap-and-Trade?
By Douglas A. Kysar and Webb Lyons ’14

To some observers, Arnold Schwarzenegger only became an action hero on July 31, 2006. On that day, with Tony Blair by his side, then-Governor Schwarzenegger declared, "California is a great part of the United States, but we happen to be a leading state with a huge economy, and we are, like I say, a nation state." Two weeks ago California moved one step closer to this "nation state" status, as the California Air Resources Board, or CARB, announced that California would link its cap-and-trade system for reducing greenhouse gas emissions with a similar system belonging to a foreign neighbor, the Canadian province of Québec.

This significant development has been in the works since the California legislature passed AB 32, the landmark climate change legislation that not only espoused California's "global leadership role," but also laid the groundwork for linking its cap-and-trade system with others around the world. There are, of course, sound policy reasons for California to link up with Québec. The basic idea behind cap-and-trade is that once governments set the overall cap, the market will work its magic, with emitters trading allowances and allocating the responsibility of actual emissions reduction to the actors best positioned to bear it. Therefore, the more actors the better. Further, because climate change is the ultimate international dilemma -- with each greenhouse gas emitter contributing to a problem that affects everyone else in the world -- it makes sense to link across national borders. The more governments that commit to linking emissions reduction policies, the fewer that may be tempted to free-ride off of the sacrifices of others.

But this lofty rationale masks a key point: as much as California may envision itself a global player, the fact remains that it is a state, and as such operates under a set of constitutional restraints that limit its involvement on the international stage. There are at least three ways that California may be on constitutionally shaky ground.

The first issue concerns what is known by constitutional law wonks as the dormant foreign affairs preemption theory. This doctrine essentially states that because the Constitution gives the federal government the sole power to conduct foreign policy, the logical converse is that individual states cannot interfere in this area. Even before the federal government has acted, courts sometimes "preempt" state laws if they seem likely to disrupt the federal government's ability to speak with "one voice" on foreign policy. So, what's the connection with linking cap-and-trade systems? As Erwin Chemerinsky, Dean of UC Irvine School of Law said, "The more that California attempts to engage in negotiations about economic or political discrepancies between trading systems, the more likely that it will enter the realm of foreign policy." This type of negotiation, however, is precisely what California must do in order to ensure that this new scheme works. It will negotiate reduction goals, reach difficult decisions about regulatory compatibility, and, perhaps most importantly, judge a foreign government's ability to monitor and enforce this complex system. As CARB stated in its Notice of Public Hearing, "Quebec's cap-and-trade regulation is being amended to include auction rules in common with California's amendments." By linking with other systems, California has become a player in foreign policy.

The second issue is similar, but focuses on commerce. Just as states cannot interfere with the federal government's "one voice" on foreign policy, so too does the dormant Foreign Commerce Clause prevent states from interfering with the federal government's "one voice" on international commerce, which California's linkage program arguably does. Further, courts have construed the Foreign Commerce Clause to disallow states from pursuing action that, on its face, discriminates against foreign commerce, even if that action advances a legitimate state interest. As a result, California may run into problems if it treats a foreign trading scheme differently than its own by, for instance, discounting the value of foreign emissions permits on account of the comparatively lower stringency of a foreign scheme's cap.

The third point is a much broader one: California's cap-and-trade system, and its corresponding linkage program, can undermine the president's bargaining position with the rest of the world, a power the president is granted by the Treaty Clause of the Constitution. The basic idea is that nations of the world are currently locked in a game of greenhouse gas chicken. By committing itself to reduce emissions in advance of federal action, California takes away some of the force of the U.S. threat to keep burning as usual until all major emitting nations agree on a common reduction plan. While President Obama has not made this argument, his predecessor was fond of doing so, and the constitutional implications are still important, particularly if the White House changes hands later this year.

For each of these issues, California could make a host of good counterarguments, and it's likely it could prevail. But from a certain perspective, the constitutionality of California's linkage program may be beside the point. By moving forward with its cap-and-trade scheme -- even in the face of constitutional uncertainty -- California is engaging in a form of state civil disobedience. And perhaps it's only through the lens of civil disobedience that we can understand California's action: the goal is not merely to create linkages with foreign cap-and-trade systems, but also to inspire and cajole its own federal government, and indeed the world, to act. In the oft-quoted words of Supreme Court Justice Benjamin Cardozo, "[t]he Constitution was framed... upon the theory that the peoples of the several states must sink or swim together." Let's hope California's civil disobedience works. Otherwise, we may all sink together, regardless of what the Constitution says.