POWER May 2023 - 14

LEGAL & REGULATORY
Regional Greenhouse Gas
Initiative: An Unconstitutional
Interstate Compact?
Shohin Vance
O
ne of the primary objectives of the powerful anti-fossil
fuel lobby over the past two decades has been a federally
mandated limit on carbon emissions. But the
Supreme Court's recent decision in West Virginia v. Environmental
Protection Agency suggests that a sweeping regulatory
framework on carbon emissions is unlikely, absent an
act of Congress.
Recognizing that federal action is not likely in the foreseeable
future, many of these anti-fossil fuel interest groups
have shifted to state-level politics by promoting regional capand-trade
agreements as a method for limiting emissions. A
prime example of this is the Regional Greenhouse Gas Initiative
(RGGI), described as a " cooperative effort " among about
a dozen states in the U.S. Northeast. Whether RGGI and other
similar programs are sound from a policy perspective is far
from clear. But the focus of this article is not on the wisdom
of the policy, but on its legality, as we explore how RGGI could
implicate issues of constitutional law and what that means for
the energy industry moving forward.
Understanding the Compacts Clause
A key legal consideration is the constitution's Compacts
Clause, which provides that " no state shall, without the Consent
of Congress ... enter into any Agreement or Compact with
another State, or with a foreign power. " Despite what its plain
language suggests, this provision has never been interpreted
as requiring congressional approval of every conceivable type
of multi-state agreement.
Rather, as explained by the United States Supreme Court
in U.S. Steel Corp. v. Multistate Tax Commission, the clause
requires consent of congress in two general types of cases:
■ Where the interstate agreement " tends to the increase of
political power in the States, which may encroach upon or
interfere with the just supremacy of the United States. "
■ If the agreement " enhances the political power " of the compacting
states at the " expense of other States. "
It is safe to assume the intellectual architects of RGGI thoroughly
considered these constitutional principles and made every
effort to avoid running afoul of the Compacts Clause. But
as with most things in law, it is the impact of the arrangement
among the states that is determinative. And examining RGGI's
overarching structure and effect, its constitutionality under the
Compacts Clause is not a foregone conclusion.
Exploring Constitutionality
To start, RGGI does in fact increase the political power of the
states participating in the agreement. Those who disagree may
argue that membership in RGGI does not give states any pow14
ers
they don't already have, as states are free to implement
cap-and-trade regulations within their border. But the question
is not whether an interstate agreement grants states power
they would otherwise lack. Instead, it is whether partaking is
such a compact augments their political power.
A multi-state cap-and-trade system, like the one established
by RGGI, allows states to take advantage of " markets " that
would be unavailable if each were acting alone. In fact, this
interstate access is RGGI's central selling point. In addition,
the suggestion that participating in RGGI does not grant the
member states more political powers than they would have if
acting independently defies common sense, since a member's
decision to join is likely based on the assessment that it would
benefit their state.
However, as noted above, the increase in political power resulting
from the arrangement is not sufficient to trigger the
Compacts Clause's congressional approval requirement-the
enlargement of political power must also be such that it " may
encroach upon or interfere with the just supremacy of the United
States. " Applying this to RGGI, there is a strong argument
to be made that the interstate cap-and-trade compact has the
potential to interfere with a power vested exclusively in the
federal government-regulation of interstate commerce.
At the outset, it should be noted that an interstate agreement
does not encroach or infringe on the " just supremacy of
the United States " merely because it concerns matters that
could fall within the interstate commerce clause. But regulating
the generation and distribution of energy is not a power
that is somehow ancillary or incidental to federal power. To
the contrary, ensuring an efficient distribution of power-and
in particular electricity-is a matter of substantial federal concern,
interference with which has the potential to affect not
only commerce, but also interstate comity, foreign policy, and
national security.
Those concerns could become particularly pronounced if the
policies adopted by the RGGI member states begin to impact
the import or export of energy by the bordering states. If this
were to occur, RGGI would also be susceptible to challenge
on the second overarching basis identified by the U.S. Steel
case-namely the enhancement of political power at the expense
of other states.
That said, nothing in the above analysis should be construed
as suggesting that a challenge to RGGI under the Compacts
Clause is preordained to succeed, as exploring the many nuances,
arguments, and counter-arguments on this matter could
fill a small book. But by the same token, it should be clear that
challenges to the constitutionality of RGGI are inevitable, and
mounting such challenges will likely require leadership, involvement,
and collaboration from the affected industries. ■
-Shohin Vance (svance@kleinbard.com) is an attorney with
Kleinbard LLC in Philadelphia, Pennsylvania.
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POWER May 2023

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