STATES:

Climate clash in Midwest could trigger more border challenges

Climate change may have sparked its first border war. Two states are in early maneuvers for a potential legal battle over one's effort to curtail carbon and another's aspiration to become an energy "powerhouse."

Those divergent designs have driven coal-rich North Dakota to threaten Minnesota with a lawsuit that could rise to the Supreme Court, observers say, while challenging an untested pillar in climate policy: the ability of states to place carbon fees on electricity imported from their neighbors.

"It's one of the first cases of its kind," said Patrick Hogan, the regional policy coordinator for the Pew Center on Global Climate Change. "But it's also something people have expected. Whatever precedent that comes out of that might be quite important in determining future cases that are analogous."

North Dakota Attorney General Wayne Stenehjem told local news outlets at the end of December that it's likely his office will sue Minnesota for discriminating against North Dakota power producers. He says a Minnesota law requiring utilities beginning in 2012 to consider future carbon prices would violate the U.S. Constitution's Commerce Clause. No suit has yet been filed.

The Midwestern dispute is sharpened by its timing. It comes as 13 other states and several Canadian provinces are designing sprawling financial programs intended to put a price on carbon dioxide released from sources like electricity plants, industrial processing sites and vehicles.

Those states, clustered in the West and Midwest, intend to include imported voltage in their climate programs. So utilities would be required to buy pollution permits, or allowances, for every ton of carbon released during the production of power they use, even if that occurred in a state without carbon laws.

If that didn't happen, climate programs would spring leaks, and power from states without carbon prices could come flooding in, experts believe.

From trash to milk to coal

California and the Western Climate Initiative, a multi-state cap-and-trade plan set to begin in 2012, believe they have found a way to regulate imported power. The first in-state utility to receive cross-border electricity would buy the pollution permits. There would be no new costs for the out-of-state producer, but its power, in effect, would be more expensive in carbon-controlled states.

That might draw debate around the Commerce Clause, which tacitly forbids states from interfering with commercial activities that cross state lines, especially if one state is trying to give its companies a competitive edge. The key to avoiding that legal pitfall is applying the disadvantage -- here, a new price for carbon -- on everyone.

"The general principle is that you can skirt the interstate Commerce Clause if you are treating the out-of-state resource the same way you treat an in-state resource," said Susan Tierney, a former assistant secretary of Energy under past President Clinton.

Trash and milk helped the Supreme Court reach its precedent, as states sought to give themselves advantages -- less smell, more milk sales. A future decision might be based on a gas that has been emitted into the air without restriction for generations.

"Milk, garbage, or truck mud flaps. Those are the three big issues," Mehmet Konar-Steenberg, an associate professor at William Mitchell College of Law in St. Paul, Minn., said of the Commerce Clause. "So now it's going to be global warming."

A 'difficult issue'

States have been careful to tread gingerly around the Constitution when designing policies for out-of-state power. The threat in North Dakota is the only legal rumbling to occur so far. But California and other states are entering a critical period in which they are drafting the regulations that will increase the price of imported power beginning in two years.

"I don't know whether to be optimistic or pessimistic," Michael Gibbs, an assistant secretary with the California EPA, said of the absence of legal trouble so far. "But we think we are taking a prudent approach."

Asked if he expects neighboring states to challenge California's climate policy, he responded, "I can't predict."

The same strategy for dealing with emissions from outside electricity sources will be used in the Western Climate Initiative, a collection of seven states and four Canadian provinces. But the political landscape in some of those states is shifting as the time draws near to implement the cap-and-trade program.

It's unclear if Utah, for example, will begin the program at the same time as its counterparts. That raises the prospects of putting California in a position that is similar to Minnesota's tussle with North Dakota. Utah is the single biggest provider of electricity to California.

Overall, the effort to account for emissions from imported energy "has proven to be a particularly difficult issue to resolve," says a document outlining that aspect of the WCI program.

Big coal and strong wind

Minnesota got North Dakota's attention when the Minnesota Legislature instructed its Public Utilities Commission to notify utilities that they must begin reckoning with future carbon costs, in the range of $9 to $34 a ton.

The law only applies to Minnesota utilities, which buy power from sources in and out of the state.

"The claim sounds premature," Franz Litz, an expert with the World Resources Institute who is helping several states develop carbon markets, said of the North Dakota threat. "They [Minnesota officials] haven't done anything discriminatory."

Consider it from the perspective of North Dakota. The vast Great Plains state is home to just 641,000 people and emits less greenhouse gases than 36 U.S. states. It ranks as the top state with wind energy potential and grows more than enough corn to make it an exporter of ethanol. It also plans to capture carbon dioxide at a coal plant and inject it underground to enhance oil recovery.

North Dakota holds 7 percent of the nation's coal reserves, a commodity that would suffer under carbon regulation. Republican Gov. John Hoeven, who announced his candidacy for outgoing Democratic Sen. Byron Dorgan's seat last night, opposes federal cap-and-trade legislation. He prefers an all-hands-on-deck approach that promotes renewable and fossil fuel energies, creating jobs along the way.

The state lags much of the country in addressing climate change.

N.D. is 'avoiding the inevitable'

North Dakota is one of 14 states that haven't developed a climate action plan. It also has not proposed greenhouse gas reduction targets. And officials declined to participate in the Midwestern Greenhouse Gas Reduction Accord, a cap-and-trade program that six central states and one Canadian province will launch in 2012 to cut emissions 15 to 25 percent by 2020.

North Dakota, however, launched a voluntary program in 2007 that is meant to help it find 10 percent of its power from renewable sources by 2015. The law says there is "no penalty or sanction" for utilities that don't participate. The state also provides tax incentives to promote the production of ethanol.

All of this comes as North Dakota's leaders are aggressively ramping up the state's power supply. Hoeven wants North Dakota to become a voltage-exporting "powerhouse."

None of that is lost on Minnesota state Sen. Ellen Anderson, a Democrat who helped author the state climate law. She said North Dakota is "mischaracterizing" the measure as a direct price on emissions.

It's not, Anderson noted. But she hopes that will change soon.

"There will be a price put on carbon soon," she said. "And North Dakota, I think, is sort of avoiding the inevitable. They need to incorporate that into their future planning, just as we are doing."

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