Key Takeaways

1. Several entities and regulators have raised concerns regarding the newly launched Washington Cap-and-Invest program surrounding its legality and application.
2. Invenergy filed a lawsuit against the Climate Commitment Act calling it unconstitutional because it violates the Commerce Clause of the U.S. Constitution by attempting to regulate the emissions from sources outside of the state.
3. Both lawsuits are currently ongoing and unresolved, and experts suggest that they are expected to have a negligible impact on the program.

The Climate Commitment Act, which was signed into law in May 2021, is a ground-breaking piece of legislation that seeks to create a cap-and-invest system to reduce the state’s greenhouse gas emissions. The law sets ambitious targets for reducing carbon emissions and creates a market-based mechanism to put a price on carbon. It is designed to incentivize businesses to invest in clean energy and transition to low-carbon practices. However, the act has already seen two lawsuits filed against it, by Invenergy and the Utah Division of Public Utilities, which seeks to question its constitutionality. The lawsuits have raised concerns over the future of the legislation, which has been seen as a critical step toward addressing the effects of climate change in the state. In addition to this, the Federal Energy Regulatory Commission (FERC) has expressed its own concerns regarding possible overreach by the CCA, but has not pursued legal action yet.

Invenergy v Washington’s CCA

Invenergy is one of the largest developers of renewable energy in the United States, with wind, solar, and energy storage projects across the country. However, the company has faced criticism from some environmental groups for allegedly opposing clean energy policies in other states and prioritizing profits over the environment.

In June 2021, Invenergy filed a lawsuit against the Climate Commitment Act (CCA) in the state of Washington. The lawsuit alleges that the CCA is unconstitutional because it violates the Commerce Clause of the U.S. Constitution by attempting to regulate emissions from sources outside of the state. They also argue that the law interferes with the federal government’s authority over interstate commerce and energy policy. Invenergy also claims that the Act unfairly burdens out-of-state companies and gives preferential treatment to in-state businesses. We spoke to legal experts from the industry regarding the ongoing lawsuit who remains skeptical of the outcome. According to them, “There’s a legitimate distinction between a utility like Puget Sound Energy and independent or non-utility generator like Invenergy. So there’s a legitimate basis for the legislature to provide the free allowances at a considerable reduction rate that doesn’t apply in the same way to Invenergy because they’re not a regulated utility with a certificate of service territory.” However, despite the outcome of the lawsuit, the impact on CCA will remain negligible.

FERC v Washington CCA

The Federal Energy Regulatory Commission (FERC) is an independent agency that regulates the interstate transmission of electricity, natural gas, and oil in the United States. FERC is responsible for regulating the wholesale electricity markets and ensuring that they operate fairly and efficiently. While the entity has not filed a lawsuit against the Climate Commitment Act (CCA), it has raised some concerns that the proposed legislation could affect the interstate energy market and the reliability of the electric grid.  One of the concerns raised by FERC is that the cap-and-trade program could create market uncertainty and potentially result in higher energy costs for consumers. The agency has also expressed concerns over how the program would interact with other state and federal energy policies, such as renewable portfolio standards and federal tax incentives for renewable energy. Another concern raised by FERC points towards the potential impact on the reliability of the electric grid and the agency has questioned whether the legislation could lead to the closure of existing power plants and potentially cause a shortage of electricity during times of high demand.

Convergingly, criticism has also been raised regarding the CCA’s potential interference with FERC’s authority to regulate the interstate transmission of electricity, possibly leading to conflicting regulatory frameworks. Critics have argued that the CCA would create a patchwork of state regulations that interfere with FERC’s oversight. However, supporters of the bill argue that it’s necessary to take action at the state level to address the urgent threat of climate change and point out that FERC has been criticized for its slow response to climate change. They argue that states should be allowed to take more aggressive actions to reduce emissions.

Overall, there has been some discussion about FERC’s role in regulating electricity under the CCA and FERC has recognized the need to address climate change and reduce greenhouse gas emissions. The agency has raised some valid concerns about the potential impact of the Climate Commitment Act on energy markets and the reliability of the electric grid. These concerns will need to be carefully considered and addressed as the legislation moves forward, particularly in the context of other state climate legislation’s building momentum.

UDPU v Washington CCA

In August 2021, the Utah Division of Public Utilities (UDPU) challenged the constitutionality of Washington’s Cap-and-Invest program. This new challenge emerged from the California Independent System Operator’s request that FERC modifies tariffs and account for compliance costs related to Washington’s greenhouse gas reference levels for Western Energy Imbalance Market participants, including PacifiCorp, that operate in the state. The lawsuit alleges that the Act violates the dormant Commerce Clause, which prohibits states from regulating commerce that occurs outside their borders and Utah claims that the Act would unfairly impact the state’s coal and natural gas industry, and would interfere with interstate commerce.

The FERC has not yet made a decision on the UDPU’s challenge, and it remains to be seen how this will impact the implementation and enforcement of the CCA in Washington state.

Conclusion

These lawsuits have created uncertainty around the future of the Climate Commitment Act. The Act is seen as a critical step in the state’s efforts to combat climate change and is expected to set an example for other states to follow. However, if the lawsuits are successful, they could set a dangerous precedent that could undermine state-level efforts to address climate change. The Washington State Attorney General’s Office has defended the Act, arguing that it is constitutional and a valid exercise of the state’s police power. The state has argued that the Act does not discriminate against out-of-state entities and that it is a legitimate effort to address the negative effects of climate change.

The lawsuits are still ongoing, and it remains to be seen how they will be resolved. However, the legal challenges facing the Climate Commitment Act highlight the challenges of implementing effective climate policy at the state level. While the Act is a significant step towards reducing greenhouse gas emissions, it is clear that there are still powerful interests that are opposed to it. As other state climate programs begin to emerge, the outcome of these lawsuits will be closely watched by advocates of climate action across the country.

Analyst Contact:

Megha Jha (mjha@ckinetics.com)