On July 13, the Tenth Circuit upheld Colorado's renewable energy mandate against a claim that it impermissibly interferes with interstate commerce. This decision, addressing a state's power to encourage or require the development of renewable energy resources and infrastructure, is significant because EPA's Clean Power Plan—expected to be finalized within weeks—contemplates such policies as one of four "building blocks" for regulating carbon dioxide emissions from power plants. Additionally, the Tenth Circuit's decision may influence the outcome of a challenge to a similar law pending before the Eighth Circuit.
The U.S. Constitution expressly gives Congress the power to "regulate Commerce . . . among the several States." Courts have long interpreted this provision as implying that the states cannot interfere with interstate commerce— a doctrine known as the "dormant" or "negative" Commerce Clause. With limited exceptions, a state may not treat out-of-state economic actors differently than in-state ones. The Supreme Court has often explained that the purpose of this doctrine is to prevent "economic Balkanization" among the states, a principle it recently referenced in Comptroller of Treasury of Maryland v. Wynne, 135 S. Ct. 1787 (2015), where it struck down an aspect of Maryland's income tax regime.
In Energy & Environment Legal Institute v. Epel, the plaintiffs argued that Colorado's policy requiring the state's electricity generators to ensure that 20 percent of the electricity they sell to in-state customers is renewably generated violates the Commerce Clause because it takes business away from out-of-state producers of fossil-fuel-fired electricity in favor of in-state renewable electricity generation. The plaintiffs claimed this result was inevitable based on the facts that the electric grid is interconnected, electricity is a fungible product, and Colorado is a net importer of electricity. The Tenth Circuit rejected this challenge and affirmed the district court's grant of summary judgment in favor of the state defendants, holding that the policy does not regulate conduct outside Colorado's territory (the only aspect of the lower court holding from which plaintiffs appealed). The court found the Colorado mandate, which regulates the quality of a good sold to in-state residents, "isn't a price control statute, it doesn't link prices paid in Colorado with those paid out of state, and it does not discriminate against out-of-staters." Op. at 8. In the absence of "a regulation more blatantly regulating price and discriminating against out-of-state consumers or producers," the court concluded that the plaintiffs' Commerce Clause argument, premised on Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935), could not succeed. Op. at 9.
The Tenth Circuit is not the only appellate court to address a dormant Commerce Clause challenge to a state law regulating energy. For instance, in 2013, the Ninth Circuit in Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, reversed a district court ruling and held that California's Low Carbon Fuel Standard regulations didn't facially violate the Commerce Clause. (The Supreme Court then denied cert.)
The Eighth Circuit is currently faced with a similar matter in North Dakota v. Heydinger, No. 14-2156. (The appeal has been briefed for months, but the court has not yet scheduled argument.) There, the district court, 15 F. Supp. 3d 891 (D. Minn. 2014), struck down aspects of Minnesota's Next Generation Energy Act under the dormant Commerce Clause. Minnesota's law differs significantly from the Colorado and California laws in the cases referenced above: It purports to forbid any person from importing into Minnesota power from a new large energy facility that would increase the state's power-sector carbon dioxide emissions, and from entering into any new long-term power purchase agreement that would have the same effect.
In essence, this law on its face forbade commercial activity that would increase Minnesota's "carbon footprint"—regardless of the location and residence of the actors. Despite Minnesota's contention that the law contained an implicit geographic restriction, the district court declined to read such a restriction into the text. Id. at 909-10. Expressly invoking the specter of "balkanization," id. at 916, the court held the law unconstitutional.
The Eighth Circuit is now in a position where it could create a circuit split, depending on its reasoning and treatment of dormant-Commerce-Clause precedent (although, as noted above, the state laws at issue have significant differences). Because renewable-energy policy has never been more prominent in the national conversation—and forms a major piece of EPA's forthcoming regulations—all participants in the resource and energy sectors should be aware of this recent ruling, the pending appeal, and their implications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
