More Power for States: Good or Bad?

One of the most pleasant surprises that I discovered upon becoming a frequent follower of this blog was the whole world of energy regulation. RGGI, and, now, TCI, were new terms for me. I became aware of the cap- and-trade concept in its first widespread use in dealing with sulfur dioxide emissions, but was not aware of its current use for carbon dioxide.

Steve Haner’s recent post on TCI referred to RGGI and TCI as interstate compacts. That caught my attention. Long ago, in my political science courses, I learned about interstate compacts (my professor wrote what was then the definitive study on interstate compacts). The U.S. Constitution provides, “No state shall, without the consent of Congress…enter into any agreement or compact with another state….” (Article I, Section 10) Virginia has entered into a number of agreements with other states that fall under the ambit of this provision.  The Atlantic States Marine Fisheries Commission, which sets limits on the catches of certain fish species, is one example. Another, more familiar, example is the Washington Metropolitan Area Transit Authority. But  RGGI and TCI have not been approved by Congress, which puzzled me.

It turns out that not all agreements among states constitute an “interstate compact” in the Constitutional sense. The Supreme Court in its first case dealing with interstate compacts (Tennessee v. Virginia, 1895), and confirmed in 1985 in its most recent case on this subject, declared that an agreement among states does not require the consent of Congress if it does not infringe on, or encroach upon, federal supremacy.

The issue of whether RGGI needed Congressional approval came up in its early days. A  Harvard Law Review note set out the arguments in great detail. It would seem that the terms and wording of an agreement among states is important in this consideration. A recent article in the National Tax Journal suggests that “the states’ retention of their individual powers to adopt or reject regulations and to withdraw from the agreement at any time is relevant to finding that an agreement does not require congressional consent under the compact clause.” So far, the RGGI has not been challenged in federal court on the issue of whether it is an interstate compact within the meaning of Article I of the Constitution.

This method of banding together to address a problem without triggering the interstate compact provision of the Constitution provides states flexibility in an era in which Congress is largely dysfunctional. It also presents a conundrum for conservatives and liberals alike. On the one hand, conservative generally like states exercising independence from the federal government. On the other, when it comes to addressing climate change, they do not like the directions in which some states are going. For liberals, who usually like to turn to the federal government for action and distrust states, this use of states to bypass the federal government must seem disconcerting.

Without getting into the details of RGGI, of which I am not knowledgeable, I do not have a problem with the idea of states joining together to reduce carbon emissions. It is a prime example of their performing their function as “laboratories of democracy,” as Justice Brandeis so well phrased it. I am uneasy, however, about Virginia participating in RGGI through executive action, rather than legislative.

If a democratic government, federal or state, is going to embark on a major initiative, the representatives, chosen by the citizens of that government to make policy, should be the ones that make the decision to do so. It is worth noting that eight of the original nine member states enacted legislation authorizing participation in RGGI. Only New York utilized existing statutory authority. New York courts upheld this action of the executive branch and there may be sufficient existing statutory authority for the Northam administration to join RGGI without further action by the General Assembly. Nevertheless, whether positive or negative, this action will have a significant impact on Virginia citizens and it should be the legislative branch that makes the decision on such a major policy initiative.

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12 responses to “More Power for States: Good or Bad?”

  1. LarrytheG Avatar

    A thought-provoking issue! A State-Rights issue! ;-)’

    I’d agree that Virginia should not be able to “join” much less levy the equivalent of taxes without legislative approval and I have to admit that it sounds like a major Constitutional flaw if a Governor is able to do it by fiat without legislative approval.

    Another seeming “compact”, the multi-state regional Chesapeake Bay Cleanup, I think came from Federal legislation as did the 1990 Clean Air Act that Acid Rain Cap and Trade program that I believe RGGI is modeled on.

    Apparently, States are also allowed to enact regulations that are more strict than the Feds sometimes – e.g. the California emissions limits on cars but others like requiring disclosure of how much mercury is in tuna and other food is not.

    And one more – PJM – which one could argue has undermined Dominoin’s ability to completely control 3rd party players in electricity generation.

    I suppose these things are reasons we have so many lawyers, eh?

    Thanks for doing a blog post on this subject… this morning!

    1. “Apparently, States are also allowed to enact regulations that are more strict than the Feds sometimes” — Yes, that is true IF the underlying federal legislation expressly allows the States to impose stricter requirements. If it does not, then the federal legislation on a subject usually pre-empts any further State regulation.

  2. Steve Haner Avatar
    Steve Haner

    Dick I’m sure remembers when the House of Delegates had a standing committee on interstate compacts, so inactive and unimportant it became a standing joke. Perhaps it needs a comeback. The now-vetoed bills on RGGI and TCI both required two-thirds votes for Virginia to join, which I thought excessive, but I agree that policies such as these bypassing the legislature is wrong.

  3. If there is a strong legal case to be made that joining RGGI and TCI without legislative approval violates the state constitution, why hasn’t anyone filed suit yet? Is it because there’s no special interest constituency out there with the resources to file and sustain a lawsuit — retail electricity consumers are too disorganized to do so — that cares enough to do so?

    The Attorney General’s office is supposed to represent the consumers’ interest in such matters. But this AG seems to be far more concerned about climate change than rising electric rates.

    Might there be an industry group willing to pursue such a case? Where is the Chamber? Where is the Virginia Manufacturers Association? Can we surmise from the business lobbies’ silence that they’ve looked at the issue and decided that, legally speaking, it’s not worth pursuing?

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      In response to some of the comments, I did some more research. For those wanting to place blame for Virginia’s RGGI initiative, the original blame lies not with Northam, but with an old nemesis, Terry McAuliffe. In June 2016, Governor McAuliffe issued an executive order directing the Secretary of Natural Resources to convene a work group to develop recommendations to reduce Virginia’s carbon emissions under existing state authority. In May 2017, the Attorney General issued an official opinion concluding that the Air Pollution Control Board, under its general statutory authority to regulate air pollution, which was generally considered to include greenhouse gases, could regulate carbon dioxide, including the imposition of a statewide cap on carbon emissions. Several days after the issuance of that AG opinion, Governor McAulliffe issued an Executive Directive directing the Air Pollution Control Board to develop a proposed regulation to regulate carbon dioxide through a multi-state, market-based trading program.

      That is the legal basis being used for Virginia to join RGGI through executive action. As for why it has not been challenged in court, the regulation is not yet final and, therefore, in legal terms, the time is not “ripe” for litigation. The comment period for the revised proposed regulation ended earlier this month. It should be going to the Governor for final approval soon.

  4. TooManyTaxes Avatar

    I don’t like Trump bypassing the appropriations process to fund a wall. I do think border walls in certain locations make sense but I like the separation of powers. I find Northam’s similar end-run around the General Assembly equally distasteful. But since his racism and lies have surfaced right after he
    pledged support for infanticide in certain situations, I find everything about Northam disgusting.

    I hope someone stops the Governor from shredding the state constitution and its separation of powers requirements.

  5. The bigger issue is that EPA gave California authority to demand stricter pollution controls in cars than national regs, including the right to mandate electric vehicles sales. The orginal reason for this agreement was smog control, which is reasonable, but Calfornia is using the priviledge to mandate stricter CO2 controls than national level. This has enormous impact for example on auto industry R&D and sales. So we now have a free-for-all with blue states opting to set their own extremely strict standards.

    Now we have a conflict between Ca. and EPA, with EPA essentially having ceded control to California and the so-called CARB states. When we talk electric cars, you gotta realize the sales are not so much popularity as government mandates. I need to do my 2018 year end calcs, but Ca. was approaching 55% of U.S. plug-in sales. Ca. gives free HOV for newer plug-ins, you get about 3-4 years of free HOV and $$.

    1. P.S.- CARB is another acronym you may need to know Dick. CARB states are CA, OR, WA, DE, MD, PA, NY, NJ, MA, VT, CT, DC? that’s from memory NH is former CARB (not in there) but RI might be. At one time there was talk of NoVA joining CARB, apparently (I get the impression from Google hits).

  6. LarrytheG Avatar

    just a little history:

    ” On Aug. 30, 1967, a diverse group of California leaders came together to unify statewide efforts to address severe air pollution. Governor Ronald Reagan approved the Mulford-Carrell Air Resources Act to create the State Air Resources Board, committing California to a unified, statewide approach to aggressively address the serious issue of air pollution in the state.

    That same year, the Federal Air Quality Act of 1967 was enacted, giving California the ability to set its own more stringent air quality rules due to California’s unique geography, weather and expanding number of people and vehicles.”

  7. Some more history. I think some people think RGGI is some kind of a federal scheme. On the contrary, it arose from the failure of the federal cap-and-trade legislation back in the Bush years.

    DHS, you raise a fascinating theoretical question about when a multi-State collaboration requires a compact. But as a practical matter I think the Regional Greenhouse Gas Initiative, RGGI, arose within, and because of, the wholesale markets/independent system operator (ISO) framework established by the FERC. Those ISOs are premised on “economic dispatch” of all generation within a region, regardless of who owns it, according to each generating unit’s marginal cost of operation — and without directly considering externalities such as a generator’s type of fuel consumed or contribution to greenhouse gasses. However a generator owner would be expected to include the economic cost of RGGI allowances consumed as a marginal cost of operation.

    FERC’s orders in the 1990s created the ISOs and their regional wholesale markets and generation interconnection queues across State lines, necessarily forcing the States in each ISO to work together on shared regional regulatory objectives (or thrash out their differences). For example, the thirteen States included in the PJM ISO region formed a parallel organization called formally, in proper bureaucratese, the “Organization of PJM States, Inc.”, and universally known by the acronym “OPSI.” OPSI participates in PJM member meetings and committees and occasionally lobbies PJM to try to achieve PJM market and operating policies that dovetail with OPSI goals, particularly where compliance with FERC orders and coordinated long-term regional planning of grid transmission is involved. OPSI in turn helps resolve disagreements between the PJM States on regulatory and planning issues at the State level affecting PJM. There is a similar group of States that participates in the affairs of ISO-NE, the New England ISO, called the New England States Committee On Electricity, “NESCOE.” NYISO, the New York ISO, comprises only one State, but has always coordinated closely with its neighbors. In addition several of the big utility systems cross State lines, which invites coordinated retail regulation even though there had rarely been any before the 1990s.

    The original idea for RGGI arose from discussions among NESCOE and the New York PSC, and a few easternmost OPSI state commissions. These discussions evolved to deal with the fact that all of the RGGI States are downwind of the “Rust Belt” states of the Midwest where coal-fired generation (along with some nuclear) dominated the scene into the 1980s. Some of these Rust Belt states also had became part of PJM’s marketplace; others joined the Midwest ISO. but in any case the downwind states along the eastern seaboard started talking among themselves about how to implement the EPA’s Clean Power Plan emissions rules, with all its myriad rate and reliability implications for retail customers in each State, and later expanded their discussions to joint planning of interregional grid transmission facilities and to the coordinating of State RPS (Renewable Portfolio Standards) goals, and finally, to some form of State-run regional carbon cap-and-trade initiative to keep the idea alive until Congress might again take up action at the federal level. It was apparent that the ISOs were not able to take on carbon trading within their FERC-assigned framework, so these States decided to do it themselves. Other States within OPSI, however, contributed to the design of RGGI on the assumption that it might someday become the template for a broader federal requirement affecting them as well. RGGI was first proposed in 2003 and became effective in 2008. Originally it included all the New England states plus New York and, within PJM, the coastal states of New Jersey, Maryland and Delaware. Pennsylvania was actively solicited but did not join; there is a lot of coal mining and coal-fired generation in Pennsylvania. New Jersey dropped out from 2013-17 (the Christie years) but rejoined RGGI in 2018.

    Each State runs its own RGGI allowance market but those individual markets subscribe to a common market “model” and they allow cross trading of allowances by agreement among the participating markets; all this is described on the RGGI website as follows: “RGGI is composed of individual CO2 Budget Trading Programs in each participating state. Through independent regulations, based on the RGGI Model Rule, each state’s CO2 Budget Trading Program limits emissions of CO2 from electric power plants, issues CO2 allowances and establishes participation in regional CO2 allowance auctions.” There has never been an effort to create a formal interstate compact on greenhouse emissions (like, say, the Chesapeake Bay Agreements) to my knowledge.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      Wow! It will take me some time to absorb all this. My intent was not to imply that RGGI could be invalidated due to noncompliance with the interstate compact of the U.S. Constitution. My curiosity was piqued by the fact that RGGI has existed so long without being approved by Congress. I found out that there are circumstances when states can act in coordination without having to go through the interstate compact hoops. The history that you have set out could very well be part of any defense if it is challenged in court, which would have happened already if there were any grounds to do so.

      So, it is fascinating to me that states can forge ahead on issues when Congress refuses to move. That opens up a lot of possibilities and upends the traditional conservative/liberal predispositions toward state action.

      My other concern was that any such state initiative should be approved by the legislature and not be solely executive action.

  8. LarrytheG Avatar

    No question, Acbar KNOW this history!

    The thought occurred that this issue basically hinges on one thing for most people and that is whether or not one believes that CO2 is a pollutant that needs to be reduced or not and this, of course, goes to whether one believes it’s an existential threat to the world’s climate or not.

    If you think it is, you’re going to support RGGI – supposed Constitutional or Governance warts and all and if you don’t you’re going to knit pick it to death as a “wrong” way to govern.

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