State court upholds carbon trading
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December 26, 2013
State court upholds carbon trading

A legal challenge to New York State’s participation in the multistate Regional Greenhouse Gas Initiative (RGGI) was turned back by the state’s Supreme Court.  The decision upholds the nation’s first market-based regulatory program to reduce greenhouse gas (GHG) emissions.  Also, the outcome is part of a growing body of legal decisions at both the federal and state levels supporting the regulation of GHGs. 

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In this case, the plaintiffs—described in the court’s order as three New York residents and electricity rate payers—launched a multipronged attack against the state, including the argument that the RGGI imposed a tax that had not been authorized by the legislature.  The case was initially heard by the Albany County Supreme Court, which rejected the petition because the petitioners lacked standing and had not filed the case in a timely manner.  The state Supreme Court affirmed that decision. 

RGGI Background

The RGGI was launched in 2005 when governors of seven Northeastern states, including then-NY governor George Pataki, signed a nonbinding memorandum of understanding (MOU) in which they agreed to a proposal for legislative or regulatory approval of a cap-and-trade program to target CO2 emissions from electric power plants. 

In 2008, the New York Department of Environmental Conservation (DEC) adopted final regulations implementing New York's participation in the RGGI program.  The regulations require power plants generating 25 megawatts or more of electricity to obtain a permit from the DEC, which, in turn, obligates the regulated entities to purchase and hold sufficient CO2 allowances to cover emissions for the past 3-year control period.  

Additional regulations issued by the New York State Energy Research and Development Authority (NYSERDA) authorize the state’s participation in quarterly multistate auctions through which the CO2 allowances allocated for sale by the DEC are sold to regulated entities.  The auction proceeds are controlled by NYSERDA and used to promote programs for energy efficiency, renewable or non-carbon- emitting technologies, and innovative carbon emissions abatement technologies.  

Plaintiff petition

The plaintiffs alleged that the MOU was executed and the regulations were promulgated without legislative approval or statutory authorization and in violation of the state constitution and the separation of powers doctrine.  Plaintiffs further asserted that the RGGI program imposes an unlawful tax on ratepayers not authorized by the legislature and that the RGGI program, as implemented, is arbitrary and capricious.  Lastly, plaintiffs claimed that the MOU constituted an interstate compact signed in violation of the U.S. Constitution.

‘Quasi-legislative’

According to the State Supreme Court panel, the plaintiffs’ case failed for two reasons. 

  1. The court found that the RGGI regulations issued by the DEC are “quasi-legislative” and under state law are subject to a 4-month statute of limitations.  The challenge brought by the plaintiffs occurred 2.5 years after the regulations took effect.  Therefore, the court found that the challenge was not made in a timely manner.
  2. The court stated that by signing the MOU, Governor Pataki did not obligate New York to participate in the RGGI program, but merely agreed to propose a CO2 emissions cap-and-trade program in New York.  “It is the regulations implementing RGGI in New York—not the MOU—that form the legal basis for the state's participation in the RGGI program,” said the court.  “As the MOU did not actually effectuate the RGGI program or the state's participation in it, invalidating the MOU will not have the effect of repealing the regulations or otherwise affect their legality.”

Based on the second finding, the court said it did not need to consider any other arguments by the plaintiffs.

Thrun et al. v. Cuomo 

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