On July 17, 2020, a California federal judge denied the last remaining challenge made by the Trump Administration to California's cap-and-trade program agreement with the Canadian province of Quebec. The lawsuit filed in the Eastern District of California by the Trump Administration in October 2019 had alleged, among other things, that California's agreement with Quebec improperly infringed on the federal government's exclusive power to set foreign policy.

The complaint argued that by entering into an international emissions agreement with Quebec, California unlawfully pursued an "independent foreign policy" about the control of greenhouse gas (GHG) emissions and undermined the President's ability to negotiate competitive agreements with other nations, in violation of the Federal Affairs Doctrine. With this ruling, the Administration lost its last remaining challenge to Canadian participation in the California cap-and-trade program. O, Canada!

California's Cap-and-Trade Program

California's cap-and-trade program, in operation since 2013, establishes an annual limit (cap) on nearly all of California's GHG emissions. California oil refineries, cement plants, and other industries can meet requirements by either lowering their emissions or buying state-auctioned allowances that allow them to pollute.

These allowances can then be bought and sold within an open market (the "trade" part of the program). The theory behind the program is that as the emissions cap is lowered, companies will find it more cost effective to decarbonize rather than continue to pay for pollution allowances.

Quebec partnered with California, expanding the size of the emissions-trading market. Under the agreement, companies in California can trade carbon emission allowances with companies in Quebec, enabling them to use interchangeably the carbon allowances issued by either country.

Federal Judge's Order

The Order issued by U.S. District Judge William B. Shubb rejects the Trump Administration's argument, stating that California's agreement with Quebec is not preempted by any specific federal policy, nor does it infringe on the federal government's broad power to set foreign policy. The Order comes on the heels of an earlier March Order in which the same federal court dismissed the Administration's treaty and compact clause claims, claiming the agreement between California and Quebec did not rise to the level of a treaty or compact as the Constitution envisions.

Specifically, the Order denies claims by the Trump Administration that the cap-and-trade program agreement is an "obstacle" to the 1987 Global Climate Protection Act, interferes with the nation's imminent withdrawal from the Paris accord, and interferes with negotiations or federal foreign affairs powers. The Order states, "While the President indisputably has 'a unique role in communicating with foreign governments,' the United States has failed to demonstrate that the power to do so has been substantially circumscribed or compromised by California's cap-and-trade program."

For additional information about developments regarding California's GHG cap-and-trade Program, please contact Kerry Shea or Tahiya Sultan.