October 29, 2012

SINCE THE SENATE failed to pass a climate bill in 2010, environmentalists have looked to the states to cut the country’s greenhouse-gas emissions, and their gaze has been fixed most firmly on California. Continuing its tradition of pioneering green policies that others copy, the Golden State is implementing a landmark greenhouse-gas law that would do what Congress didn’t — put a price on carbon-dioxide emissions through a cap-and-trade program, at least in California.

But in San Francisco this month, the 9th Circuit Court of Appeals considered one of a class of cases that could lead to severe limits on the ability of states to reduce their carbon footprint.

Among other things, California is demanding that certain liquid fuels sold in the state produce fewer carbon emissions. Chemically identical fuels can result in varying amounts of greenhouse gases, depending in part on how they are manufactured. A gallon of ethanol from a plant that uses carbon-heavy coal-fired electricity, for example, has higher emissions across its “life cycle” than does a gallon from a plant hooked into a cleaner grid. So officials decided to calculate the carbon intensity of identical fuels from different sources by considering their full life cycle — from corn field to gas tank, in the case of ethanol — and to penalize the dirtier ones more.

The problem is that ethanol manufacturers in the Midwest tend to use more coal-fired power than do those in California. The state’s life-cycle analysis, then, makes Midwestern ethanol less competitive in the California market. Midwestern farmers and others in the ethanol industry contend that the Constitution’s commerce clause prohibits California from discriminating against their products simply because they come from other states, and that the life-cycle rules are impermissibly discriminatory on their face.

But California is not really discriminating against other states. It is discriminating against carbon. If Midwestern ethanol producers discovered some way to slash their fuel’s life-cycle carbon emissions, they would gain an advantage under the state’s system. Failing to subject fuels to life-cycle analysis, meanwhile, would artificially benefit dirtier operations. California might not have the right to decide how Oklahomans produce ethanol or how Utahns generate electricity. But it should be able to cut the carbon emissions for which it is responsible.

The case before the 9th Circuit involves only a small part of a very big California law, a piece that we would not favor on the policy merits. But, legally, it is a preview of much more to come, and not just in California. North Dakota is challenging an anti-coal measure in Minnesota on similar grounds. Renewable energy mandates in many more states might be next. And it seems impossible that the most ambitious state-level climate policy, California’s new cap-and-trade program, won’t also end up in court. All of these cases will test traditional notions of territory and state sovereignty.

Federal courts must work carefully, recognizing the unique challenges of cutting carbon and leaving environmentally-conscious states with some viable options to reduce their greenhouse emissions without rewarding dirtier neighbors.