Court Rejects U.S. Constitutional Challenge of California’s Cap and Trade Legislation

On Friday, July 17, 2020, Judge William Shubb (U.S. District Court, California Eastern Division) rejected the U.S. Department of Justice (DOJ) constitutional challenge of California’s Cap and Trade legislation (the CA CT). The DOJ challenge was based largely on the CA CT’s link to the Quebec cap and trade market. The decision was critical for California and will be relevant to other countries and jurisdictions implementing carbon pricing. It supports the view that climate change may be beyond the area of traditional state responsibility but does not preclude state programs if there is no conflict with international climate commitments at the federal level. The decision may therefore provide guidance to the Supreme Court of Canada in its consideration of the pending Saskatchewan, Ontario and Alberta constitutional challenges of Canada’s Greenhouse Gas Pollution Pricing Act (to be heard September 23 and 24, 2020).

The DOJ challenge followed President Trump’s withdrawal from the Paris Agreement that is set to take effect November 4, 2020, the day after the next presidential election. The DOJ sought a summary judgement that the CA CT program was pre-empted by the Foreign Affairs Doctrine, arguing that it conflicted with the US withdrawal from the Paris Agreement, assisted Canada in complying with it, and undermined the US government’s ability to develop a new international arrangement.

Judge Shubb rejected this argument on the basis that the DOJ could not point to any specific federal policy that conflicted with the CA CT program. The DOJ further argued that the CA CT could facilitate Canada’s participation in the Paris Agreement by providing mitigation outcomes that satisfy Canada’s contribution obligations. On this point, Judge Shubb noted:

“Even if Canada were to ask the United States to authorize the use of mitigation outcomes acquired from California, the United States will presumably be unable to authorize the use after November. This is well before Canada’s 2030 contribution target is due, a target for which they intend to “explore” the use of mitigation outcomes. Consequently, California’s cap-and-trade program cannot facilitate Canada’s participation in the Paris Accord in the way the United States alleges.”

A finding of unconstitutionality under the Foreign Affairs Doctrine requires (i) that the state action or law is beyond an area of traditional responsibility, and (ii) it conflicts with or infringes on a clear and express federal foreign policy. In examining the Foreign Affairs Doctrine, Judge Shubb found that the programme extends beyond the area of traditional state responsibility, satisfying the first requirement of the Doctrine. However, in relation to the second requirement, Judge Shubb rejected the DOJ’s argument that the CA CT diminished or interfered with the President’s negotiation power to obtain a “better deal” and supported a rejected cross-border emissions mitigation strategies and the federal government’s ability to develop a new international mitigation arrangement.

Constitutionality of the programme. Judge Shubb noted in his decision that “The United States cites no authority for the proposition that an intent to negotiate for a “better deal” at some point in the future is enough to preempt state law.” Ultimately, it was determined that no clear and express foreign policy directly conflicted with the programme, and as such the programme was constitutionally valid. The DOJ has until September 15, 2020 (60 days) to appeal the decision to the U.S. Court of Appeals for the Ninth Circuit.

For additional information, please contact Lisa DeMarco at

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