IETA Statement on U.S. Department of Justice Civil Suit against State of California.

SAN FRANCISCO, 24 OCTOBER - The International Emissions Trading Association (IETA) today issued the following statement in response to the civil lawsuit filed by the US Department of Justice against the State of California regarding the linkage of its cap-and-trade program with another cap-and-trade program in the Canadian Province of Québec. 

This lawsuit represents the continuation of an unfortunate political battle waged by the Trump Administration against California’s climate leadership. The legal challenge seeks to disrupt a market-based climate program that has enabled companies in California and Québec to achieve their targets at lower cost. 

The attempt to terminate the link between California and Québec causes unnecessary market uncertainty by changing legitimate expectations of companies that invested in emissions reduction projects in the two jurisdictions. The program has operated since 2014 without federal interference.

“IETA supports both the California and Québec cap-and-trade programs as well as the linkage between them that allows businesses to achieve carbon reductions at the lowest economic cost,” said Dirk Forrister, President and CEO of IETA. “This program has grown stable with laws that extended the targets to 2030, and many companies have invested in reliance on that legal framework.”

IETA’s long-standing preference is for the U.S. federal government to adopt a national emissions trading program to provide a clear and effective policy framework for American businesses. In the absence of federal policy, IETA has applauded California and other states as they pioneered carbon market solutions to pave the way for a national policy in the years to come.

To create the linkage between the two markets, regulators in California and Québec signed a Memorandum of Understanding (MOU) rather than a treaty (which could have been in violation of the United States Constitution). This MOU followed a common practice in the modern world of MOUs between subnational jurisdictions in many areas of commerce. 

“The global economy and the interconnectedness of the environment has led to multilayered federalism: many states are parties to agreements with other subnational jurisdictions, and most of them were not approved in advance by Congress,” said Nico van Aelstyn, Partner at Sheppard Mullin LLP, who has acted on IETA’s behalf in prior litigation in California.  

The Department of Justice lawsuit focuses on the linkage between the California and Québec cap-and-trade programs. Even if the lawsuit succeeds in severing the linkage between the two programs each would nonetheless continue normal operations without benefits of cooperation. The Trump Administration’s complaint could force a loss of market-based efficiencies, potentially increasing the overall costs of carbon emissions across the two jurisdictions. 

“The climate challenge demands more market-driven cooperation across national borders, not less,” said Katie Sullivan, Managing Director of IETA. “The WCI’s cooperative approach is a proven winner in providing incentives for businesses to cut emissions while keeping costs down for consumers, giving the U.S. an extra climate benefit – not a harm."

25 October 2019

IETA