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California successfully defends Department of Justice lawsuit against cap-and-trade programme’s Quebec link

17 Jul 2020 10:14 PM | Anonymous member (Administrator)

SAN FRANCISCO, 17 July - IETA congratulates the state of California on successfully defending its emissions trading system against a federal lawsuit seeking to sever the program’s link with Quebec. 

A US District Court has ruled that the Western Climate Initiative – representing the linked carbon markets of California and Quebec – does not unconstitutionally conflict with the federal government’s foreign policy nor its decision to withdraw from the Paris Agreement.

IETA joined the state of California as a defendant in the case.

“We congratulate the state of California on defending its carefully crafted programme that allows businesses in California and Quebec to cooperate to reduce greenhouse gas emissions through a market system,” said Dirk Forrister, IETA’s CEO. “For businesses in the WCI market, this will add an extra dose of confidence for future investment.”

The state successfully rebutted US Department of Justice (DoJ) arguments that the linkage between the two markets represented an unconstitutional incursion by California into the area of foreign policy, which is the sole preserve of the federal government. 

The Court found that “[The UNFCCC] does not preempt the challenged agreements and regulations because they are entirely consistent with its objectives. . . .  Article 3 of [the UNFCCC] explicitly provides that “policies and measures deal[ing] with climate change should be cost-effective so as to ensure global benefits at the lowest possible cost,” and Article 4 echoes the same.”

California also successfully rejected DoJ assertions that the WCI market and its cross-border linkage may frustrate the US government’s decision to withdraw from the Paris Agreement.

Specifically on Article 6, the court echoed IETA’s reasoning in rejecting the US’s contention that “that California could “facilitate Canada’s participation in the Paris Agreement” by providing Canada with mitigation outcomes to satisfy its contribution obligation…  “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.”

The court also found that the cap-and-trade programme does not present a conflict with any Federal foreign policy.

“[T]he United States offers no concrete evidence that California’s cap-and-trade program has interfered with either negotiations for a better deal or the nation’s imminent withdrawal from the Paris Accord. The United States repeatedly suggests California’s program would incentivize other countries to negotiate with California to the exclusion of the federal government. That is a distinct possibility, but the United States offers no evidence that this has happened or will happen.” 

“The WCI programme can now move ahead to achieve ambitious targets at lower costs, enabling participating states and provinces to achieve more together than they could do alone,” said Clayton Munnings, IETA’s West Coast Representative. 

“It’s not just “society” or “the economy” that benefits from this market, it’s real businesses, made up of real people and their jobs and livelihoods that benefit,” he added.

IETA is confident that this ruling may serve as an encouragement for further such linkages between state and provincial markets.

“We hope the Department of Justice will stand down from its legally baseless attack on efficient market mechanisms,” said Nico van Aelstyn of Sheppard Mullin LLP, who represented IETA in the lawsuit. “However, if it does choose to appeal, we are ready to carry the fight to the Court of Appeals, which we are confident will uphold the District Court’s well-reasoned decision.”

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