Carbon markets — safe from possible Trump attack — could expand

By Anne C. Mulkern | 10/17/2024 06:49 AM EDT

Then-President Donald Trump lost a 2019 lawsuit challenging California’s carbon market. Experts say the markets are on solid legal footing.

Former President Donald Trump points a finger at a campaign event Tuesday in Atlanta.

Former President Donald Trump, gesturing at a campaign event Tuesday, would have difficulty trying to block state-run carbon markets, experts say. AP/Alexander Brandon

Former President Donald Trump filed a little-noticed lawsuit in 2019 to weaken a California program that addresses climate change.

His administration lost its legal challenge to California’s carbon-trading market, and experts now say the markets are likely safe from litigation that Trump might file if he becomes president.

“States have an awesome authority under the law and under the Constitution to advance climate action at the state level, regardless of federal leadership,” said Casey Katims, executive director of the U.S. Climate Alliance, a coalition of governors created 2017.

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Carbon markets run by California and Washington — and markets being considered by other states — aim to address climate change by forcing regulated polluters to cut carbon emissions each year or pay the state a penalty. States spend the money on their own climate-related projects.

The states considering creating carbon markets will face pressure to accelerate their efforts if Trump becomes president and weakens federal rules and programs that address climate change.

Experts say state-run carbon markets are protected from federal interference.

“What could Trump do?” said Ethan Elkind, director of the Center for Law, Energy & the Environment at University of California, Berkeley’s law school. “Nothing really by himself, because the cap-and-trade-program is pursuant to state law.”

The Clean Air Act gives states broad power to regulate emissions from facilities such as power plants and refineries, said Dan Farber, faculty director at the law center. The law also requires state emissions standards to be at least as strict as federal standards

“As long as states don’t dip below federal [pollution] standards,” Farber said, “anything goes.”

State authority over carbon markets was apparently strengthened by the Supreme Court’s decision in June to overturn a 40-year-old legal precedent that had required courts to defer to agency interpretations of ambiguous laws.

The decision by the court’s conservative majority to overturn the Chevron doctrine limits presidents’ ability to issue rules blocking state carbon markets or other climate policies, said Aseem Prakash, a political science professor at the University of Washington.

“This is purely a state decision,” Prakash said. “The federal government cannot intervene.”

Nevertheless, some fear that Trump might try to interfere with state carbon markets through costly lawsuits that would slow down climate action.

“He’s a serial litigator,” said Mary Nichols, who was chair of the California Air Resources Board in 2012 when it launched the nation’s first economywide carbon market, known as cap-and-trade.

“He’s a guy who loves to sue, not just on environmental issues, but on everything,” added Nichols, who was a CARB member when the Trump administration sued in 2019. “Litigation is a sport and a business tool for Donald Trump.”

Although she expects states would win legal challenges to carbon markets, Nichols said “the confusion and the delays and uncertainty that is caused by all this litigation will do damage.” Regulated businesses could delay compliance with emissions rules or “not make investments that they might otherwise have made.”

States face pressure to create carbon markets

Four states — Maryland, New York, Pennsylvania and Vermont — are considering creating carbon markets and could see increasing pressure to approve them if Trump is elected.

New York has made the most progress and plans to propose regulations for a carbon market that Democratic Gov. Kathy Hochul called for last year.

“A Trump reelection would certainly put a spotlight on the Hochul administration to really be as ambitious as possible,” said Kate Courtin, Environmental Defense Fund senior manager of state climate policy and strategy. Trump “could be part of the calculus of how far the state goes on its cap-and-invest program.”

A Hochul spokesperson did not answer questions on how a second Trump presidency would affect her actions.

Maryland is exploring a carbon market — called cap-and-invest — to help meet its climate goals, which include cutting greenhouse-gas emissions to 60 percent of their 2006 levels by 2031.

Trump’s election might influence the state, said Jamie DeMarco, Maryland director for the Chesapeake Climate Action Network.

If Trump cuts funding for climate programs such as grants to states “it will dramatically increase the need for Maryland to come up with its own climate revenue sources, one option of which is cap-and-invest,” DeMarco said.

Referring to Democratic Gov. Wes Moore, Kim Coble, executive director of the Maryland League of Conservation Voters, said, “We have a governor here who has fully committed to fighting climate change and being aggressive about that.”

The first Trump administration was “a wake up call for everyone that climate action can’t rely solely on federal action,” said Katims of the climate alliance. “States and [U.S.] territories have an absolutely essential role to play.”

Trump has said little during his presidential campaign about carbon markets. His campaign did not respond to E&E News questions about carbon markets or climate policies in general.

Trump did not directly address a question about climate change during his September debate with Vice President Kamala Harris.

Project 2025, developed by the conservative Heritage Foundation and seen as a potential playbook for a second Trump administration, does not specifically address carbon markets. It mentions “cap-and-trade” once, in a section on the perceived growth of EPA’s mandate after the 1990 Clean Air Act.

Project 2025 targets mandatory business reporting of greenhouse gas emissions, a pollutant blamed for climate change. The document says a president should significantly pare back EPA’s requirement that certain industries disclose their GHG emissions. That type of reporting is required under existing state carbon markets.

EPA currently requires 41 high-emitting sectors to report their greenhouse gas emission each year, a mandate affecting about 8,000 facilities. The data can be used for EPA regulatory decisions.

Project 2025 suggests limiting reporting to the few sectors now regulated for greenhouse gas emissions, such as power plants and oil and gas production, and exempting sectors such as municipal landfills and iron, steel and cement manufacturing.

Trump has disavowed any connection to Project 2025. However, many of its authors served in the first Trump administration and are potential candidates for a second one.

Trump’s legal options — and obstacles

The Trump administration lawsuit against California focused on a narrow issue.

The lawsuit challenged California’s ability to run its program jointly with Quebec province in Canada. Only the federal government can form treaties with another nation, the administration’s 2019 lawsuit argued.

“California’s unlawful cap-and-trade agreement with Quebec undermines the president’s ability to negotiate competitive agreements with other nations,” Jeffrey Bossert Clark, who headed the Justice Department’s environment and natural resources division under Trump, said at the time.

In 2020, a federal judge appointed by President George W. Bush disagreed, ruling that the California-Quebec pact didn’t interfere with federal treaty powers.

There are a few tactics Trump might try if he wants to challenge a state carbon market, especially if state carbon markets decide to operate together, legal experts said. Washington state wants to link its market to the one run jointly by California and Quebec.

Multi-state markets could be challenged under the federal Compact Clause, said Farber, of UC Berkeley School of Law. The law in some circumstances bars states from forming agreements with other states or foreign governments without congressional approval.

A Trump Justice Department could argue that any multi-state carbon market discriminates against economic activity from other states or unduly burdens a state’s purchase and sale of goods, Farber said.

“That would be the most promising basis for an attack,” Farber said, “but you’d have to come up with some convincing argument about how the linkage was hurting other states.”

Such a case would be tough to win, Farber said, “although you can never be sure.”

Trump could try to weaken state carbon markets by persuading Congress to repeal portions of the Inflation Reduction Act signed by President Joe Biden, said Elkind, director of the law school center for law, energy and the environment.

The law provides money to produce hydrogen for energy use and to develop renewable-energy facilities. Facilities regulated by a carbon market “could take advantage of any of these technologies to reduce their carbon footprint, their carbon pollution,” Elkind said. “That can help them comply more easily.”

“If they repeal the whole thing wholesale,” Elkind said referring to the IRA, “it would just make it a lot more expensive for businesses to comply with our cap and trade program.”