The Dormant Commerce Clause and State Clean Energy Legislation

Michigan Journal of Environmental & Administrative Law Michigan Journal of Environmental & Administrative Law

Volume 9 Issue 1

2020

The Dormant Commerce Clause and State Clean Energy The Dormant Commerce Clause and State Clean Energy

Legislation Legislation

Kevin Todd

University of Michigan Law School

Follow this and additional works at: https://repository.law.umich.edu/mjeal

Part of the Constitutional Law Commons, Energy and Utilities Law Commons, Legislation Commons,

and the State and Local Government Law Commons

Recommended Citation Recommended Citation

Kevin Todd,

The Dormant Commerce Clause and State Clean Energy Legislation

, 9 MICH. J. ENVTL. &

ADMIN. L. 189 (2020).

Available at: https://repository.law.umich.edu/mjeal/vol9/iss1/6

10.36640/mjeal.9.1.dormant

This Note is brought to you for free and open access by the Journals at University of Michigan Law School

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189

THE DORMANT COMMERCE CLAUSE AND

STATE CLEAN ENERGY LEGISLATION

Kevin Todd*

BSTRACT

This Note analyzes recent litigation concerning the constitutionality of state renewable

portfolio standards (RPSs) and similar environmental legislation designed to promote

clean energy. It begins with a discussion of the current state of both federal and state

responses to climate change. From there, it analyzes several legal challenges to state RPSs

and other climate-related laws that focus on potential violations of the dormant

Commerce Clause. It concludes with a brief exploration of how these cases fit the history

and purpose of the dormant Commerce Clause. The Note argues that a narrow view of

the doctrine is consistent with the purpose of the dormant Commerce Clause, will reaffirm

principles of federalism, will enable state innovation in the renewable energy field, and

will make a positive contribution to efforts to mitigate climate change. By structuring

statutes so as to draw a court’s attention to the ways in which their legislation fits within

the purpose of the dormant Commerce Clause, states can give themselves more space to

take aggressive action to promote clean energy and reduce the impacts of climate change.

TABLE OF CONTENTS

NTRODUCTION ................................................................................. 190

I. D

ORMANT COMMERCE CLAUSE OVERVIEW .......................... 194

II. D

ORMANT COMMERCE CLAUSE CHALLENGES TO

TATE RENEWABLE PORTFOLIO STANDARDS ........................ 196

A. Extraterritoriality Challenges to Renewable Portfolio

Standards ...........................................................................197

B. Facial Discrimination Challenges to Renewable Portfolio

Standards .......................................................................... 200

III. I

MPLICATIONS FOR THE DORMANT COMMERCE CLAUSE

AND THE FUTURE DESIGN OF RENEWABLE PORTFOLIO

STANDARDS ........................................................................... 204

A. Extraterritoriality ............................................................... 204

B. Facial Discrimination .......................................................... 207

ONCLUSION ..................................................................................... 210

* J.D. Candidate, May 2020, University of Michigan Law School. Thank you to Howard

Learner for inspiring this Note, to the MJEAL editorial staff for their thoughtful comments, and to

Kris Jones for supporting me throughout this process.

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190 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

INTRODUCTION

Seemingly every week, a new report or event highlights the severity of the

slow-rolling climate crisis. In November 2018, thirteen federal agencies issued a

report estimating that climate change will reduce economic growth in the United

States by ten percent by the turn of the century.

Scientists have presented strong

evidence that weather extremes such as the severe cold of the “polar vortex,” record

heat waves across the globe, and extended droughts in California and Australia are

connected to our changing climate.

An October 2018 report from the Intergov-

ernmental Panel on Climate Change (IPCC) found that limiting warming to two

degrees Celsius, long a political target of the United Nations (UN), will likely not

be enough to ward off many catastrophic impacts of climate change.

These warnings and real-life impacts stand in stark contrast to the blasé atti-

tude of the federal government toward mitigating the impacts of climate change.

Since taking office, President Trump has taken steps to pull the United States out

of the Paris climate agreement, rolled back the Clean Power Plan, and moved to

prop up struggling coal plants despite their contributions to air pollution and flag-

ging ability to compete in the energy marketplace.

While the federal government

was more environmentally friendly prior to 2017, critics have argued that even the

Obama Administration did not do enough to make the climate a priority.

The shortcomings of the Obama Administration in combating climate change,

like the climate negligence of the Trump Administration, highlight the need for

1. See U.S. GLOBAL CHANGE RES. PROGRAM, FOURTH NAT’L CLIMATE ASSESSMENT:

SUMMARY FINDINGS (2018), at 26, https://nca2018.globalchange.gov/downloads/NCA4_Ch01_

Summary-Findings.pdf; Coral Davenport & Kendra Pierre-Louis, U.S. Climate Report Warns of Dam-

aged Environment and Shrinking Economy, N.Y.

TIMES (Nov. 23, 2018), https://www.nytimes.com/

2018/11/23/climate/us-climate-report.html?module=inline.

2. Somini Sengupta, U.S. Midwest Freezes, Australia Burns: This is the Age of Weather Extremes,

N.Y.

TIMES (Jan. 29, 2019), https://www.nytimes.com/2019/01/29/climate/global-warming-extreme-

weather.html.

3. I

NTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, SUMMARY FOR POLICYMAKERS

IPCC SPECIAL REPORT ON GLOBAL WARMING OF 1.5

C APPROVED BY GOVERNMENTS,

(Oct. 8, 2018), https://www.ipcc.ch/2018/10/08/summary-for-policymakers-of-ipcc-special-report-on-

global-warming-of-1-5c-approved-by-governments (finding that 2 degrees warming would dramatically

increase the chances of an ice-free Artic and lead to significantly higher sea levels relative to 1.5 degrees

of warming).

4. Timmons Roberts, One Year Since Trump’s Withdrawal From the Paris Climate Agreement,

ROOKINGS: PLANETPOLICY (June 1, 2018), https://www.brookings.edu/blog/planetpolicy/2018/06/01/

one-year-since-trumps-withdrawal-from-the-paris-climate-agreement/; Jeff Brady, Trump’s EPA Plans to

Ease Carbon Emissions Rules for New Coal Plants, NPR (Dec. 6, 2018), https://www.npr.org/

2018/12/06/674255402/trumps-epa-plans-to-ease-carbon-emissions-rule-for-new-coal-plants.

5. See, e.g., David Bookbinder, Obama Had a Chance to Really Fight Climate Change. He Blew It.,

OX (Apr. 29, 2017), https://www.vox.com/the-big-idea/2017/4/28/15472508/obama-climate-change-

legacy-overrated-clean-power; Marianne Lavelle, Obama’s Climate Legacy Marked by Triumphs and Lost

Opportunities, I

NSIDE CLIMATE NEWS (Dec. 26, 2016), https://insideclimatenews.org/news/23122016/

obama-climate-change-legacy-trump-policies.

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Fall 2019] State Clean Energy Legislation 191

robust state level action to tackle the issue. Without new legislation, even a Presi-

dent motivated to address climate change will be left attempting to shoehorn cli-

mate policy into the Clean Air Act (CAA) and other existing environmental laws.

The fate of President Obama’s signature climate initiative, the Clean Power Plan,

highlights the limits on Executive authority to address climate change under exist-

ing legislation. Even before President Trump was elected, the Supreme Court

placed a stay on the Plan—which the Obama Administration argued was author-

ized by the CAA,

pending judicial review.

This move signaled the Court’s appar-

ent concern that the Clean Power Plan went beyond Congress’s grant of statutory

authority.

Given a narrow judicial view of existing Executive authority in the climate

space,

a new President could be left to take only modest administrative steps

while advocating for major new legislation such as the Green New Deal.

Such

legislation is certainly possible, but any bill would have a steep hill to overcome,

particularly if skepticism of climate change continues to be a prominent position

among Republican legislators.

Among Democratic legislators, less debate exists

on the existence of climate change, but support for aggressive new legislation varies

widely among the party’s elected officials.

6. Carbon Pollution Emission Guidelines for Existing Stationary Sources, 80 Fed. Reg. 64662

(2015).

7. Order in Pending Case, Chamber of Commerce v. EPA, 577 U.S. __ (2016) (granting a stay

pending review of the Clean Power Plan).

8. See Jonathan H. Adler, Supreme Court Puts the Brakes on EPA’s Clean Power Plan, W

ASH.

POST: THE VOLOKH CONSPIRACY (Feb. 9, 2016), https://www.washingtonpost.com/news/volokh-

conspiracy/wp/2016/02/09/supreme-court-puts-the-brakes-on-the-epas-clean-power-plan/?utm_term=

.67eb46aa599d (noting that although the stay order was short and gave no reasoning, it “suggests that a

majority of the court has concerns about the EPA’s authority to impose the CPP under the Clean Air

Act”).

9. See id.

10. Green New Deal, N

EW CONSENSUS, https://newconsensus.com/green-new-deal/ (last visited

June 14, 2019) (describing the Green New Deal as “a World War II-scale mobilization” designed to

“achieve net-zero greenhouse gas emissions”).

11. See Congress Climate History, C

TR. FOR CLIMATE AND ENERGY SOLUTIONS,

https://www.c2es.org/content/congress-climate-history/ (last visited Dec. 8, 2018).

12. See Mark K. Matthews, Inside Conservatives’ Disarray on Climate, E&E

NEWS (Apr. 15,

2019), https://www.eenews.net/stories/1060162805 (describing the ongoing debate among conservatives

as to the existence of climate change, and highlighting Republican resistance as a key obstacle in passing

any climate legislation).

13. See Mark K. Matthews, In GOP Senate, a Rare Climate Hearing and Hints of More, E&E

NEWS (Mar. 6, 2019), https://www.eenews.net/climatewire/2019/03/06/stories/1060123255 (quoting

Democratic Senator Joe Manchin as acknowledging the existence of climate change, but saying that

solutions “[require] the recognition that fossil fuels aren’t going anywhere anytime soon”). See also

Rashaan Ayesh, Where the 2020 Presidential Candidates Stand on the Green New Deal, A

XIOS (last updated

May 23, 2019), https://www.axios.com/2020-presidential-candidates-green-new-deal-22faff60-3fee-

45f3-8636-09e437c82431.html (highlighting statements from six Democratic presidential candidates

who are cosponsors of the Green New Deal in the Senate).

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192 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

In the absence of significant federal action, several states have taken the lead

on advancing US climate policy. California, in particular, has taken significant

steps to reduce its carbon pollution. The state first set greenhouse gas (GHG)

emissions standards for motor vehicles in 2002.

California has since committed to

reduce GHG emissions to 80% below 1990 levels by 2050, and has implemented a

Low Carbon Fuel Standard (LCFS) designed to reduce life cycle emissions of fuels

consumed in state.

However, the state is far from alone in advancing a positive

climate agenda. Nine northeastern states have created a cap and trade market, the

Regional Greenhouse Gas Initiative (RGGI).

Numerous governors and local

leaders across the country have pledged that their state or city will still work to

meet the targets of the Paris climate agreement.

In all, current policies adopted

by cities, states, and businesses are projected to reduce total US emissions to 17%

below 2005 levels by 2025.

One key policy adopted by many states is the Renewable Portfolio Standard

(RPS). As of Spring 2019, twenty nine states and Washington D.C. had adopted a

mandatory RPS.

Under these policies, states mandate that a set percentage of the

electricity sold by in-state utilities comes from renewable sources.

RPSs have

been a driver of growth in the U.S. renewable energy market, particularly in the

first decade of the 21st century.

As states continue to raise the percentage of en-

14. Vicki Arroyo, State and Local Climate Leadership in the Trumpocene, 2017 CARBON &

CLIMATE L. REV. 303, 304 (2017).

15. Id.; Low Carbon Fuel Standard, C

AL. AIR RES. BD., https://www.arb.ca.gov/

fuels/lcfs/lcfs.htm (last reviewed July 18, 2019) (Life cycle emissions are calculated by examining the

“greenhouse gas emissions associated with the production, transportation, and use of a given fuel. The

life cycle assessment includes direct emissions associated with producing, transporting, and using the

fuels, as well as significant indirect effects on greenhouse gas emissions, such as changes in land use for

some biofuels.”).

16. Arroyo, supra note 14.

17. Id. at 305-06. See also Who’s In, W

E ARE STILL IN, https://www.wearestillin.com/signatories

(last visited Aug. 12, 2019) (listing 10 states and 287 cities and counties among over 2,800 entities

around the country that have pledged to continue working toward the goals laid out in the Paris

Agreement).

18. R

OCKY MOUNTAIN INSTITUTE, ET AL., FULFILLING AMERICA’S PLEDGE: EXECUTIVE

SUMMARY 5 (2018), https://www.bbhub.io/dotorg/sites/28/2018/09/Fulfilling-Americas-Pledge_

Executive-Summary_2018.pdf.

19. See State Renewable Portfolio Standards and Goals, N

AT’L CONF. OF STATE LEGISLATURES

(Feb. 1, 2019), http://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx (including a

map showing every state with an RPS).

20. Project Overview, S

TATE POWER PROJECT, https://statepowerproject.org/ (last visited June

16, 2019).

21. G

ALEN BARBOSE, U.S. RENEWABLE PORTFOLIO STANDARDS: 2017 ANNUAL STATUS

REPORT 12 (July 2017) (showing that from 2000 until roughly 2007 nationwide renewable energy

growth tightly tracked RPS requirements); see also Herman K. Trabish, Modernizing Renewables Man-

dates is No Longer About the Megawatts, U

TILITY DIVE (Aug. 16, 2018), https://www.utilitydive.com/

news/modernizing-renewables-mandates-is-no-longer-about-the-megawatts/529895/.

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Fall 2019] State Clean Energy Legislation 193

ergy that must come from renewable sources—Hawaii and Washington have set

the goal of obtaining 100% of their electricity from renewable sources by 2045

—

RPSs are likely to continue playing a vital role in driving energy innovation.

Alongside their admirable environmental goals, state legislatures also fre-

quently hope to “wring economic development benefits” from RPSs by bolstering

their local renewable energy industry.

States have typically sought to capture this

localized benefit in a handful of ways. In some instances, policymakers argue that

increased local investment may naturally be expected to flow into the state as a re-

sult of a firm commitment to green energy.

Sometimes however, as will be dis-

cussed further in Section II, policymakers’ attempts to capture economic benefit

through an RPS may impermissibly discriminate against out-of-state commerce. A

state legislature’s presumed or actual intent to capture economic development ben-

efits through such discrimination has led to constitutional challenges under the

dormant Commerce Clause.

Across a series of cases, constitutional challenges to state RPSs have generally

had the same thrust—allegations that an RPS, either through facial operation or

practical effect, serves a primarily protectionist function. To date, these challenges

have focused on one of two arguments. First, that the program is designed in such

a way as to effectively regulate commerce that takes place entirely outside of the

state.

Second, that the RPS is structured to capture the local or regional econom-

ic benefits of renewable energy development while shielding local industry from

outside competition.

While the elimination of an RPS is likely to primarily bene-

fit traditional energy interests,

court battles have not been limited to fossil fuel

companies suing states as they attempt to go green. In some instances, out-of-state

renewable energy companies have argued that states are attempting to limit com-

petition to local producers.

22. Securing the Renewable Future, HAW. ST. ENERGY OFF., http://energy.hawaii.gov/

renewable-energy (last visited Dec. 9, 2018); Catherine Morehouse, Inslee Signs 100% Clean Energy Bill

in Midst of 2020 White House Bid, U

TILITY DIVE (May 8, 2019), https://www.utilitydive.com/news/

washington-100-clean-energy-law-only-a-signature-from-inslee-away/552627/.

23. Thomas P. Lyon & Haitao Yin, Why Do States Adopt Renewable Portfolio Standards?: An Em-

pirical Investigation, 31 E

NERGY J. 133, 135 (2010).

24. T

RAVIS MADSEN ET AL., ENV’T MICH. RESEARCH & POLICY CTR., ENERGIZING

MICHIGAN’S ECONOMY 43-44 (Feb. 2007) (arguing that increased energy investment will flow into

Michigan should the state adopt an RPS).

25. See infra Section II.

26. See infra Section II.A.

27. See infra Section II.B.

28. See Lyon & Yin, supra note 23, at 140 (“Fossil-fuel based electricity generation and fossil

fuel producers stand to lose from an RPS.”). See also K

AREN PALMER & DALLAS BURTRAW,

ESOURCES FOR THE FUTURE, COST-EFFECTIVENESS OF RENEWABLE ENERGY POLICIES 2 (Jan.

2005) (“The RPS tends to encourage renewables largely at the expense of natural gas.”).

29. See infra Section II.B for a discussion of the case Allco Fin. Ltd. v. Klee, in which out-of-state

renewable energy producers sued Connecticut over the structure of its RPS.

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194 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

The remainder of this Note is broken into three sections. Section I will pro-

vide a brief overview of dormant Commerce Clause jurisprudence and the current

debates over its scope. This analysis demonstrates that the judiciary has become

increasingly skeptical of a broad dormant Commerce Clause in recent years. Sec-

tion II will analyze a series of dormant Commerce Clause challenges to state RPS.

This portion shows that most constitutional challenges to RPS-like laws have

failed, while also examining why a Minnesota clean energy statute was struck

down. Section III will explore the merits of the approach to the dormant Com-

merce Clause advanced by each circuit, and extract lessons for how state RPSs

could be drafted to withstand a constitutional challenge. This section argues that

the judiciary has largely demonstrated an intent to limit the scope of the dormant

Commerce Clause, which will enable states to move aggressively in the promotion

of renewable energy.

I. DORMANT COMMERCE CLAUSE OVERVIEW

The dormant Commerce Clause is an implied extension of the Commerce

Clause with “deep roots” in American jurisprudence.

While its application has

varied somewhat over time, the general thrust of the doctrine is perhaps best

summed up as a prohibition on “discriminat[ion] between transactions on the basis

of some interstate element.”

The modern Court has identified three broad

strands of dormant Commerce Clause jurisprudence.

First, the Court subjects any law that facially discriminates against out-of-

state commerce to strict scrutiny, which has been described in practice as virtually

a per se bar.

In order for a state law that facially discriminates against out-of-state

commerce to be upheld, it must be “demonstrably justified by a valid factor unre-

lated to economic protectionism.”

Second, if a law’s burden on interstate com-

merce is only incidental, it is subject to review under a more lenient balancing test.

Often called “Pike balancing,”

laws are only struck down under this standard if

the burden on interstate commerce substantially outweighs the local benefit of the

law.

Third, the Court has occasionally struck down statutes when they act to reg-

30. Comptroller of the Treasury v. Wynne, 135 S. Ct. 1787, 1794 (2015) (citing Gibbons v. Og-

den, 22 U.S. 1 (1824); Cooley v. Bd. of Wardens, 53 U.S. 299 (1852); and Case of the State Freight

Tax, 82 U.S. 232 (1873) as foundational cases in the development of the dormant Commerce Clause).

31. Bos. Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 332 n.12 (1977).

32. See City of Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978) (describing a “virtually per

se rule of invalidity” for state legislation clearly motivated by economic protectionism).

33. Wyoming v. Oklahoma, 502 U.S. 437, 454 (1992). See also Maine v. Taylor, 477 U.S. 131

(1986) for an example of a statute that was upheld despite facial discrimination against out-of-state

commerce.

34. See Pike v. Bruce Church, Inc., 397 U.S. 137, 146 (1970).

35. See, e.g., Heffner v. Murphy, 745 F.3d 56, 71 (3d Cir. 2014).

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Fall 2019] State Clean Energy Legislation 195

ulate transactions taking place entirely outside the state.

Under this “extraterrito-

riality doctrine,” the key question is whether the statute has the “practical effect”

of controlling conduct “beyond the boundaries of the state.”

As described below,

RPSs or similar statutes have been challenged under each of these three prongs of

dormant Commerce Clause jurisprudence.

The only successful suit to date has

relied on the extraterritoriality doctrine.

While these three strands of dormant Commerce Clause jurisprudence are

well established, there is an ongoing debate about whether the provision exists at

all.

The Court has slowly narrowed the scope of the dormant Commerce Clause

over the past several decades.

Justices Scalia and Thomas have gone further still,

arguing both that the dormant—or negative—Commerce Clause lacks a foundation

in the text of the Constitution, and that the Court’s application of the doctrine is

hopelessly confused.

During his tenure as a circuit judge, Justice Gorsuch sug-

gested potential agreement with Justices Thomas and Scalia’s critiques. In a key

case, Gorsuch cited to their criticisms of the dormant Commerce Clause before

concluding that, “as an inferior court we take Supreme Court precedent as we find

it.”

As a member of the Supreme Court, he may be unlikely to apply strict

dormant Commerce Clause jurisprudence to state laws. While many of the Court’s

dormant Commerce Clause opinions are fractured, reflecting a diverse array of

views on the doctrine, at least six Justices on the current Court have affirmed the

clause’s existence.

The debate over the existence and scope of the dormant

36. See Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935) (striking down a New York law for

“establish[ing] a wage scale or a scale of prices for use in other states”).

37. Healy v. Beer Inst., 491 U.S. 324, 336 (1989).

38. See infra Section II.

39. See North Dakota v. Heydinger, 825 F.3d 912 (8th Cir. 2016).

40. See, e.g., Martin H. Redish & Shane V. Nugent, The Dormant Commerce Clause and the Con-

stitutional Balance of Federalism, 1987

DUKE L. J. 569, 569 (1987) (arguing that the Constitution provides

“no textual basis for” the exercise of the dormant Commerce Clause, and that the doctrine undermines

the balance of federalism embodied in the text).

41. See Daniel Francis, The Decline of the Dormant Commerce Clause, 94 D

ENVER L. REV. 255,

255

(2017).

42. See, e.g., Comptroller of the Treasury v. Wynne, 135 S. Ct. 1787, 1808 (2015) (Scalia, J.,

dissenting) (“The fundamental problem with our negative Commerce Clause cases is that the Constitu-

tion does not contain a negative Commerce Clause.”); Hillside Dairy v. Lyons, 539 U.S. 59, 68 (2003)

(Thomas, J., concurring in part and dissenting in part) (“The negative Commerce Clause has no basis in

the text of the Constitution, makes little sense, and has proved virtually unworkable in application.”).

43. Energy & Env’t Legal Inst. v. Epel, 793 F.3d 1169, 1171 (2015).

44. See, e.g., South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) (In this case, four dissent-

ers—Chief Justice Roberts, along with Justices Breyer, Sotomayor, and Kagan—voted to strike down a

state law under the dormant Commerce Clause. Justice Kennedy’s majority opinion, joined by Justices

Ginsburg, Alito, Thomas and Gorsuch analyzed the statute under the dormant Commerce Clause be-

fore concluding that the law did not run afoul of the Constitution. Justices Thomas and Gorsuch each

concurred. Justice Thomas reasserted his disagreement with the Court’s entire dormant Commerce

Clause jurisprudence despite believing the majority reached the right outcome in this case, while Justice

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196 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

Commerce Clause will be a key one to watch if a case involving an RPS or similar

state-level clean energy law makes its way to the Court.

II. DORMANT COMMERCE CLAUSE CHALLENGES TO STATE

RENEWABLE PORTFOLIO STANDARDS

State RPSs and other similar state-level environmental statutes have been

challenged on dormant Commerce Clause grounds in several jurisdictions.

Typi-

cally, plaintiffs have been out-of-state fossil fuel companies alleging that, under the

new policy, they are unable to sell their goods into the state on a level playing

field.

In at least one instance the policy was challenged by an out of state renew-

able energy producer.

This indicates that the policy divide does not always cut

cleanly across green energy/fossil fuel lines. To date, four federal circuits have

ruled on a state RPS or similar policy

and a fifth, the Seventh Circuit, has

weighed in.

In Illinois Commerce Commission v. FERC, Judge Posner addressed the constitu-

tionality of Michigan’s RPS in a line of dicta.

Writing for a Seventh Circuit pan-

el on a case involving transmission line financing, Posner briefly noted that in his

view, “Michigan cannot, without violating the commerce clause of Article I of the

Constitution, discriminate against out-of-state renewable energy.”

Although this

opinion only briefly touched on Michigan’s RPS, it was still a notable moment in

the development of RPS litigation. Judge Posner’s opinion led to a surge in activi-

ty and speculation about the future of state clean energy standards among envi-

ronmental and energy lawyers.

Gorsuch wrote to note that his joining the opinion did not signal support for the Court’s history of

dormant Commerce Clause case law).

45. See infra Sections II.A & II.B.

46. See, e.g., Energy & Env’t Legal Inst. v. Epel, 793 F.3d 1169, 1077 (10th Cir. 2015) (noting

that many Energy & Environment Legal Institute members are “out-of-state coal producers”); Rocky

Mtn. Farmers Union v. Corey, 730 F.3d 1070, 1077 (9th Cir. 2013) (showing that one plaintiff challeng-

ing California’s Low Carbon Fuel Standard was the American Fuel and Petrochemical Manufacturers

Association); North Dakota v. Heydinger, 15 F. Supp. 3d 891, 899 (D. Minn. 2014) (naming plaintiffs

including the Industrial Commission of North Dakota, the Lignite Energy Council, and North Ameri-

can Coal Corporation).

47. Allco Fin. Ltd. v. Klee, 861 F.3d 82 (2nd Cir. 2017).

48. See infra Sections II.A & II.B (discussing recent cases from the Second, Eighth, Ninth, and

Tenth circuits).

49. See Ill. Commerce Comm’n v. Fed. Energy Reg. Comm’n, 721 F.3d 764 (7th Cir. 2013).

50. See id.

51. Id. at 776.

52. E.g., Justin Graham, Judge Posner Suggests Some Renewable Portfolio Standards are Unconstitu-

tional, T

HE ENERGY & NAT. RES. BLOG (July 3, 2013) https://blog.lrrc.com/energy/2013/07/03/judge-

posner-suggests-some-renewable-portfolio-standards-are-unconstitutional/; Hannah Northey & Jeremy

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Fall 2019] State Clean Energy Legislation 197

A. Extraterritoriality Challenges to Renewable Portfolio Standards

Judge Posner’s opinion has since been followed by a series of RPS cases across

the country. The first opinion to rule directly on the constitutionality of an RPS

was authored by then-Judge Gorsuch in the Tenth Circuit.

Plaintiffs in that case,

the Energy and Environment Legal Institute (EELI), argued that Colorado’s RPS

violated the extraterritoriality doctrine of the dormant Commerce Clause.

The

three judge panel unanimously upheld Colorado’s law, finding that EELI had of-

fered no explanation for how out-of-state fossil-fuel producers would be hurt worse

than in-state fossil fuel producers.

EELI’s extraterritoriality argument hinged on

the idea that Colorado’s RPS places an improper control on how out-of-state ener-

gy may be generated.

Both the district court and appellate courts dismissed this

theory out of hand. The district court found that even under the plaintiff’s telling,

the statute only limited out-of-state producers in their transactions with in-state

Colorado utilities.

This type of interaction is, by definition, not wholly out of

state.

At the appellate level, Judge Gorsuch did not revisit this particular finding of

the district court. He did, however, take the opportunity to advance a narrow read-

ing of the extraterritoriality doctrine that could prove influential in future RPS

cases. Describing extraterritoriality as “the most dormant doctrine in dormant

commerce clause jurisprudence,”

Judge Gorsuch wrote that extraterritoriality is

properly applied—to the extent that it is a valid doctrine at all—only in the context

of direct price control statutes.

The opinion contrasted such direct regulation of

prices with more typical state regulation of product safety, quality, or health, which

should be reviewed under the more relaxed Pike balancing test.

As will be dis-

cussed further below, if this narrow view of extraterritoriality prevails nationwide,

states will have much more flexibility to adopt environmental statutes such as

RPSs. A more robust view of extraterritoriality by contrast would endanger not

only RPS statutes, but a whole range of health and safety laws that are a traditional

province of state government.

P. Jacobs, Key Judge’s Take on Clean-Power Mandates Sparks Legal Debate, E&E NEWS (June 21, 2013),

https://www.eenews.net/stories/1059983289.

53. See Energy & Env’t Legal Inst. v. Epel, 793 F.3d 1169 (10th Cir. 2015).

54. Id. at 1172. Colorado required 20% of the electricity sold in the state to come from renewa-

ble sources. Id. at 1170.

55. Id. at 1173-74.

56. Energy & Env’t Legal Inst. v. Epel, 43 F. Supp. 3d 1171, 1179 (D. Colo. 2014).

57. Id.

58. Id.

59. 793 F.3d at 1170.

60. Id. at 1171.

61. Id. at 1173.

62. See infra Section III.A.

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198 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

Roughly a year after EELI, a panel of the Eighth Circuit took a contrary posi-

tion on the extraterritoriality doctrine in North Dakota v. Heydinger (Heydinger).

North Dakota’s challenge here did not involve an RPS, but instead attacked the

constitutionality of Minnesota’s Next Generation Energy Act (NGEA).

Under

the NGEA, Minnesota barred in-state utilities from using electricity produced by a

“new large energy facility” that would contribute to “statewide power sector carbon

dioxide emissions.”

In essence, the NGEA barred the importation or use of elec-

tricity from new fossil fuel driven power plants.

While not an RPS, this statute

operates in a similar fashion by regulating the type of energy source an in-state

utility can rely on.

As such, the court could have upheld the statute following the

same logic as the Tenth Circuit, relying on Judge Gorsuch’s opinion as persuasive

precedent. Judge Loken’s lead opinion seemed to acknowledge as much, suggesting

that under the Tenth Circuit’s analysis, Minnesota’s statute would likely survive.

Instead of following that persuasive precedent however, he struck down the rele-

vant NGEA provisions as an impermissible regulation of extraterritorial activity.

Part of the reason for this shift may be the new argument advanced by North

Dakota. North Dakota alleged that the NGEA improperly regulated transactions

between North Dakota utilities and other states, not just Minnesota.

In contrast,

EELI argued that Colorado’s RPS influenced their businesses by restricting trans-

actions between out-of-state power plants and Colorado in-state utilities, Judge

Loken found merit in North Dakota’s argument, focusing in particular on the un-

predictability of electron flows within the power grid.

Since electrons do not fol-

low a direct path from producer to utility to end user, the court agreed that any

energy producer selling electricity onto the regional power grid would, intentional-

ly or not, send some of that power into Minnesota and be subject to potential ac-

tion under the NGEA.

Minnesota, like Colorado, is part of a regional electric

63. North Dakota v. Heydinger, 825 F.3d 912 (8th Cir. 2016).

64. Id. at 915.

65. Id. at 915-16.

66. See Minn. Stat. § 216H.03, subd. 3(2) (2017) (quoted in 825 F.3d at 913) (later amended

after Heydinger case).

67. See Tessa Gellerson, Note, Extraterritoriality and the Electric Grid: North Dakota v. Heyding-

er, A Case Study for State Energy Regulation, H

ARV. ENVTL. L. REV. 563, 590-94 (2017) (analogizing

Minnesota’s NGEA to Hawaii’s 100% RPS mandate).

68. See Heydinger, 825 F.3d at 920 (acknowledging the “somewhat contrary position” on extra-

territoriality taken by Judge Gorsuch’s Tenth Circuit opinion).

69. Id. at 913-14.

70. See id. at 916 (noting declarations by a North Dakota-based utility that they are “apprehen-

sive” about entering into agreements to serve non-Minnesota load due to the NGEA).

71. Id. at 921.

72. Id.

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Fall 2019] State Clean Energy Legislation 199

power grid that includes numerous other states.

As such, many transactions on

the regional grid take place entirely outside of Minnesota.

Because of that unpre-

dictability the judge held that out-of-state power generators were justified in their

hesitation, and thus that the NGEA had an impermissible extraterritorial effect.

In reaching this conclusion, Judge Loken took notice of and dismissed Judge

Gorsuch’s view of extraterritoriality.

Rather than limiting the doctrine to cases of

price control statutes, he argued that, “the Supreme Court has never so limited the

doctrine, and indeed has applied it more broadly.”

Judge Loken found that the

key question is not whether a statute explicitly regulates out-of-state conduct

through price controls, but more broadly whether, under Healy v. Beer Institute,

“the practical effect” of the law is to regulate conduct entirely beyond the bounda-

ries of the state.

If this view of extraterritoriality prevails before the Supreme Court, the effect

could be to strike down nearly every RPS in states across the country. Nearly eve-

ry state is part of a regional transmission grid that includes multiple other states.

Because the actual flow of electrons on the grid is unpredictable, as noted in Hey-

dinger,

the only real way to ensure that a certain percentage of power consumed

in a specific state comes from renewable sources would be to mandate that the

same percentage of power across the full regional grid is produced by renewable

sources. Such an assurance would necessarily involve regulation of conduct occur-

ring wholly outside the state, and thus would be subject to a dormant Commerce

Clause challenge.

73. Electric Power Markets: Midcontinent (MISO), FED. ENERGY REG. COMM’N,

https://www.ferc.gov/market-oversight/mkt-electric/midwest.asp (last visited Dec. 18, 2018) (map

showing regional power grid encompassing Minnesota along with several other states in the upper

Midwest).

74. See Heydinger, 825 F.3d at 916.

75. Id. at 922.

76. Id. at 920 (“A panel of the Tenth Circuit recently took a somewhat contrary position . . .

The court ruled that non-price standards for products sold in-state may be amenable to commerce

clause scrutiny under the Pike balancing test.” (internal citations omitted)).

77. Id.

78. Id. (quoting Healy v. Beer Inst., 491 U.S. 324, 336 (1989)).

79. Electric Power Markets: National Overview, F

ED. ENERGY REG. COMM’N,

https://www.ferc.gov/market-oversight/mkt-electric/overview.asp?csrt=3378524401904867453 (last

visited Dec. 18, 2018) (showing that the vast majority of regional transmission grids encompass several

states).

80. 825 F.3d at 924.

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200 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

B. Facial Discrimination Challenges to

Renewable Portfolio Standards

The Second Circuit became the most recent appellate court to uphold a state

RPS in the face of a dormant Commerce Clause challenge in the 2017 case Allco

Fin. Ltd. v. Klee (Allco). The challenge to Connecticut’s RPS took a somewhat dif-

ferent tack than either EELI or Heydinger, focusing on facial discrimination as op-

posed to extraterritoriality.

Connecticut’s RPS allows utilities to meet its renew-

able energy requirement either through their own production of energy or through

the purchase of Renewable Energy Credits (RECs).

The challenge, brought by

renewable energy producers in Georgia and New York, focused on the structure of

the RECs.

Connecticut structured its RECs in such a way as to limit a utility’s use of out

of region generation to meet their mandated proportion of renewable energy. The

state legislature defined two tiers of RECs.

The first could be generated only by

renewable energy sources located within the regional transmission grid ISO-NE,

which includes Connecticut, Massachusetts, Vermont, New Hampshire, Rhode Is-

land, and part of Maine.

The second could be generated by sources on adjacent

regional transmission grids and imported into the state pursuant to rules issued by

the New England Power Pool General Information System (NEPOOL-GIS).

order for a REC from an adjacent transmission grid to count towards the RPS

however, the generator is required by NEPOOL-GIS rules to pay a fee to transmit

their power onto the ISO-NE grid that includes Connecticut.

According to Allco

Finance, the owner of the relevant renewable power producers, this structure of

RECs excludes renewable energy produced throughout most of the country and

amounts to unconstitutional “regional protectionism.”

The Second Circuit rejected this argument. The court agreed with Connecti-

cut that RECs are creations of state property law, and as such, Connecticut is free

to define them as it wishes.

Because Connecticut defines a REC as a specific

product that only encompasses renewable generation from a particular region and

not from other regions, any REC produced in Georgia is a fundamentally different

81. Allco Fin. Ltd. v. Klee, 861 F.3d 82 (2d Cir. 2017).

82. Id. at 86. A renewable energy credit is a “tradable commodity that represents a specific

amount of energy generated from a renewable resource.” Renewable Portfolio Standards, S

TATE POWER

PROJECT, https://statepowerproject.org/renewable-portfolio-standard/ (last visited June 16, 2019).

83. 861 F.3d at 93.

84. Id.

85. Id. NEPOOL-GIS “issues and tracks certificates for all MWh of generation and load pro-

duced in the ISO New England control area, as well as imported MWh from adjacent control areas.

NEPOOL

GENERAL INFORMATION SYSTEM, https://www.nepoolgis.com/ (last visited June 16, 2019).

86. 861 F.3d at 94.

87. Id. at 93.

88. Id. at 103.

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Fall 2019] State Clean Energy Legislation 201

product.

Therefore, Connecticut’s program amounts to no more than “treat[ing]

different products differently in a nondiscriminatory fashion.”

Because of this

determination, the panel found that any discrimination against out-of-state com-

merce was merely incidental, and therefore applied the more permissive Pike bal-

ancing test.

Under the Pike test, the court gave weight to Connecticut’s professed need for

its consumers to have a more diversified and renewable energy supply.

They

found that, because Connecticut can only access such a supply if the electricity is

produced in a region where it can be transmitted into the state,

its need can only

be met through this type of program.

Given that local benefit, and the fact that

Connecticut has no option to change the boundaries of the electric grid to which it

has access, the court found this incidental discrimination permissible under the

dormant Commerce Clause.

After analyzing the challenge posed by the Georgia

RECs, the panel quickly disposed of the challenge brought by the New York pro-

ducers. The judges analogized the transmission fees charged to make New York-

produced RECs qualify for Connecticut’s program to a road toll, which “regularly

pass[es] constitutional muster.”

While Allco is the first case to uphold an RPS using this logic regarding

RECs, the Second Circuit found strong support for its holding in Supreme Court

precedent. The Court has stated that discrimination against an out-of-state, or in

this case out-of-region, product “assumes a comparison of substantially similar en-

tities.”

In most scenarios, products that appear similar are in fact similar, but the

Court found that this is not always the case. Instead, “difference in products may

mean that the different entities serve different markets, and would continue to do

so even if the supposedly discriminatory burden were removed.”

The Second

Circuit found that this was exactly the case with the Connecticut program. Alt-

hough RECs produced in Georgia appear similar to those produced in New Eng-

land, the regional structure of the electric grid meant that in practice, the credits

(and renewable energy) produced in Georgia and in Connecticut were isolated

from each other regardless of how Connecticut chose to structure its REC mar-

89. Id. at 105.

90. Id. at 103.

91. Id.; see also Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

92. 861 F.3d at 105.

93. See id. at 106 (deciding that Connecticut could give preference to power generators that had

the ability to connect to their local grid).

94. Id.

95. Id. at 105.

96. Id. at 108.

97. Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298 (1997).

98. Id. at 299.

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202 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

ket.

Because the products were considered dissimilar due to their isolation, the

court found that a state preference for one over the other was not facially discrimi-

natory.

100

The Second Circuit has been the only appellate court to date to consider the

claim that an RPS facially discriminates against interstate commerce. However, the

Ninth Circuit has addressed similar claims in relation to a California policy resem-

bling an RPS.

101

In the 2013 case Rocky Mountain Farmers Union v. Corey (Corey), a

three-judge panel upheld California’s Low Carbon Fuel Standard (LCFS) against a

constitutional challenge. The LCFS is distinct from California’s RPS. Rather than

mandating the use of renewable energy for electricity, the regulatory package seeks

to reduce the carbon intensity of transportation fuels used in the state.

102

To do so,

the California Air Resources Board (CARB) developed a life cycle “carbon intensi-

ty rating” for each transportation fuel source used within the state.

103

Based on this

determination of life cycle carbon emissions, which includes emissions that occur

during transport from the production location to point of use, the program gives

each fuel a carbon intensity score.

104

By reducing the allowable average carbon in-

tensity score for fuels used across the state, California incentivizes producers to

either alter their mix of transportation fuel in a less carbon-intensive direction, or

buy and sell credits to offset their most emissions-intensive fuels.

105

California’s LCFS is not an RPS, but the litigation over the LCFS is relevant

for analyzing the viability of some RPS lawsuits. Plaintiffs argued that the life cy-

cle emissions analysis, in particular the fact that such analysis accounted for emis-

sions that occur during transportation of fuel from the production site to the end

user, amounted to facial discrimination against out-of-state commerce.

106

While no

RPS lawsuits have taken on this structure to date, the Ninth Circuit’s logic here

highlights another path going forward for states to promote environmental values

while capturing some economic benefit for themselves.

99. See 861 F.3d at 104-05. (explaining the case’s connection to Tracy and noting that power

producers in Georgia serve a distinct market from those in the Northeast).

100. Id. at 106-07.

101. Rocky Mtn. Farmers Union v. Corey, 730 F.3d 1070 (9th Cir. 2013).

102. C

AL. AIR RES. BD., REGULATORY ADVISORY: LOW CARBON FUEL STANDARD

SUPPLEMENTAL ADVISORY 10-04A 1 (July 2011), https://www.arb.ca.gov/fuels/lcfs/070111lcfs-rep-

adv.pdf.

103. See supra note 15 for a description of the life cycle emissions analysis. See also Kathryn Ab-

bott, Note, The Dormant Commerce Clause and California’s Low Carbon Fuel Standard, 3

MICH. J. OF

ENVTL. & ADMIN. LAW 179, 185 (2013) for a more in-depth overview of California’s LCFS and the

constitutional challenge to it.

104. See Low Carbon Fuel Standard, C

AL. AIR RES. BD. (Nov. 26, 2018), https://www.arb.ca.gov/

Fuels/Lcfs/Lcfs.htm.

105. Debra Kahn, California to Extend Low-Carbon Fuel Standard Through 2030, S

CI. AM.

(Apr. 30, 2018), https://www.scientificamerican.com/article/california-to-extend-low-carbon-fuel-

standard-through-2030/.

106. Rocky Mtn. Farmers Union, 730 F.3d at 1077.

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Fall 2019] State Clean Energy Legislation 203

Corey contains two key holdings that are particularly relevant for both the

RPS policy discussion and future litigation over RPS laws. First, the Court held

that because California’s law does not simply draw a hard boundary at the state line

and raise the carbon intensity score for any fuel that crosses it, the LCFS did not

facially discriminate against out-of-state commerce.

107

CARB did, for ease of ad-

ministration, group fuel sources into three broad categories—fuels originating from

within California, from the Midwestern United States, and from Brazil.

108

Howev-

er, the court found this to be a reasonable distinction given the purpose of the pro-

gram.

109

While not explicitly stated in the case, California’s ability to draw one

source region entirely in state may be due to their not receiving ethanol from

neighboring states.

110

Rather than receiving ethanol from Nevada or Oregon, Cali-

fornia received almost the entire remainder of its transportation fuel from the

corn-belt in the Midwest or from sugar producers in Brazil.

111

Transportation from

those regions, unlike perhaps from neighboring states, could be thought to present

enough of a unique transportation challenge that they were justified in being

grouped and scored separately.

112

In drawing this distinction, the court did note

that California “must treat ethanol from all sources evenhandedly.”

113

However, it

concluded that the LCFS’ regional categories—including the region containing on-

ly in-state fuels—“show every sign that they were chosen to accurately measure

and control GHGs and were not an attempt to protect California ethanol produc-

ers.”

114

Because the panel found that California’s program did not facially discrimi-

nate, it applied the Pike balancing test to the incidental discrimination caused by

regional groupings.

115

The court’s second key holding was that, under Pike, avoid-

ance of climate change is a significant local benefit that offsets at least some of the

incidental protectionist impact of the LCFS.

116

This conclusion largely relied on

the Supreme Court’s landmark decision in Massachusetts v. EPA.

117

There, the Su-

107. Id. at 1097.

108. Id. at 1093.

109. Id. at 1094 (explaining that while fuels produced within California’s borders cannot all be

expected to have the same carbon intensity, the state does not need to create individualized scores for

every fuel from every source. Instead, for purposes of accounting for transportation emissions, CARB

may group fuels by region of origin, including one region drawn at the state line).

110. Id. at 1096 (“There were no registered producers of corn ethanol from any state neighboring

California.”).

111. Id. (noting that outside of one registered producer in Idaho, all ethanol producers that sold

to California were located either east of the Rocky Mountains or in Brazil).

112. Id.

113. Id. at 1094.

114. Id. at 1097.

115. Pike v. Bruce Church, Inc. 397 U.S. 137, 142 (1970).

116. See Rocky Mtn. Farmers Union, 730 F.3d at 1106-07.

117. Massachusetts v. Envtl. Prot. Agency, 549 U.S. 497 (2007).

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204 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

preme Court found that expected future harm caused by climate change was

enough of an injury to grant a state standing to sue.

118

The Ninth Circuit reasoned

that if future climate change is a sufficient injury to merit standing, avoidance of

that injury is a significant local interest for purposes of dormant Commerce Clause

balancing.

119

If the Ninth Circuit’s reasoning on this issue is taken up by other courts, it

could have significant implications for the fate of RPS and other state climate ini-

tiatives. Even if an RPS incidentally places some burden on interstate commerce,

climate change avoidance would be considered a significant local benefit to coun-

terbalance that burden. As such, any RPS that survives a challenge based on facial

discrimination or extraterritoriality, and is instead analyzed under Pike balancing, is

likely to be upheld.

III. IMPLICATIONS FOR THE DORMANT COMMERCE CLAUSE AND THE

FUTURE DESIGN OF RENEWABLE PORTFOLIO STANDARDS

This section explores the implications of the four primary cases discussed

above: EELI, Heydinger, Allco, and Corey. These cases are analyzed with regard to

future litigation consequences and implications for state legislative action. States

can create more room to pass aggressive renewable energy laws through careful

drafting of their statutes to shift courts’ focus away from the complexities of the

electric grid, and through consideration of how such statutes map onto the under-

lying structure of the national economy and congressional action. The section will

then examine the history and purpose of the dormant Commerce Clause to explore

how courts should analyze cases that arguably present questions of extraterritorial

impact or facial discrimination. Within each subsection, it will also consider ways

states might craft renewable energy programs in order to maintain positive envi-

ronmental and economic effects while minimizing the danger of a constitutional

challenge.

A. Extraterritoriality

In EELI and Heydinger, the Tenth and Eighth Circuits advanced two distinct

views of the extraterritoriality doctrine. Under Judge Loken’s view on the Eighth

Circuit, a combination of the unpredictable flow of electrons on the multi-state

grid and the professed hesitance of out-of-state producers to enter into agreements

118. See id. at 522-23 (“Because the Commonwealth owns a substantial portion of the state’s

coastal property, it has alleged a particularized injury in its capacity as a landowner. The severity of that

injury will only increase over the course of the next century.”) (internal citations omitted).

119. See Rocky Mtn. Farmers Union, 730 F.3d at 1106 (comparing California’s interest in avoid-

ance of climate change as comparable to that recognized by the Supreme Court in the case of Massachu-

setts).

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Fall 2019] State Clean Energy Legislation 205

to sell power onto the grid constitutes an impermissible extraterritorial effect.

120

While the statute at issue in Heydinger was not an RPS, adoption of this robust po-

licing of extraterritorial effects would endanger virtually every state RPS in the

country. As I described above, nearly every state is part of a multi-state transmis-

sion grid, within which the actual flow of electricity is unpredictable.

121

In Heyding-

er, the court could have avoided the particular holding it came to by assuming that

Minnesota’s statute restricted only contracts to import energy into the state, rather

than attempting to restrict actual flow of electrons into the state.

122

The fact that it

did not accept such a view likely indicates that the court would view virtually all

state limitations on the energy market, including RPSs, as an impermissible in-

fringement on entirely extraterritorial conduct.

The view of extraterritoriality set forth in Heydinger would not only endanger

RPS laws, but potentially any state health and safety regulation. In modern com-

mercial practice, goods flow worldwide. One product may be designed in one loca-

tion, have parts manufactured in another, warehoused in another, and be assembled

from parts built on supply chains that stretch around the world. Due to this com-

plexity, the function of the global supply chain for a given product is little differ-

ent than the electric grid as the Eighth Circuit conceives it.

123

Just as a unit of en-

ergy generated at a power plant in North Dakota could end up anywhere on the

regional transmission grid, a car part made in Texas could be shipped to an assem-

bly line in Detroit before going to its final sales lot in California. The business re-

lationship between the manufacturer and assembler would naturally be affected by

a new auto safety or emissions standard enacted in California. If the logic of Hey-

dinger were applied to such a scenario, then California’s health or safety regulation

may be found to have an impermissible extraterritorial effect. Making these poten-

tial broader implications clear in future cases could be a key for states looking to

halt its adoption in other circuits.

Since the Lochner era, the courts have been wary of interpreting any portion of

the Constitution in a way that would significantly infringe on the core state func-

tion of health and safety regulation.

124

Judge Loken’s view of extraterritoriality es-

120. See supra Section II.A.

121. Id.

122. North Dakota v. Heydinger, 825 F.3d 912, 924-25 (8th Cir. 2016) (Murphy, J., concurring

in part) (arguing that because electrons do not “flow” in the way the majority describes, a sounder read-

ing of the statute would show that it applies only to bilateral contracts between Minnesota utilities and

out-of-state energy generators).

123. To be sure, the analogy between the electric grid and a global supply chain is not perfect.

Unlike the path of a given unit of electrical charge on the grid, the path of one component in an auto-

mobile would be easily tracked from designer to manufacturer to assembly to final sale. However, the

point about extraterritorial effect would be the same, as a regulation in the state where a final sale takes

place could impact arrangements between entities in entirely different states in either case.

124. See generally Lochner v. New York, 198 U.S. 45 (1905). Since being overturned, dissenting

judges in a variety of cases have accused the majority of using a strained view of the Constitution to go

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206 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

poused in Heydinger would be a step toward Lochner, quashing state regulation and

innovation rather than allowing states to function as laboratories of democracy.

125

Given extraterritoriality’s potentially expansive and disruptive effect on a host of

state laws, it is unsurprising that there have been calls for the diminishment, or

even the discarding, of the doctrine.

126

The view adopted by then-Judge Gorsuch in EELI, under which extraterrito-

riality is a narrow doctrine that applies only to price control statutes, is a position

more in line with the goal of state flexibility.

127

It provides states with the space to

pursue RPSs and other innovative policies to push the development of renewable

energy, along with maintaining the states’ traditional authority over a broad scope

of health and safety regulation. Justice Gorsuch’s elevation to the Supreme Court

indicates that this narrow view of extraterritoriality, and possibly a narrow view of

the dormant Commerce Clause more generally, could be taking hold on the highest

court in the land.

Should the expansive extraterritoriality doctrine advanced in Heydinger gain

steam across the judiciary though, there may be some steps a state legislature could

take to bolster its RPS against constitutional attack. In Heydinger itself, a portion of

the court’s reasoning appeared to rely on a misguided assumption about how elec-

tricity moves on the grid, and how the statute could realistically be enforced. In

Heydinger, Judge Loken’s lead opinion argued that the statutory command that “no

person” shall “import or commit to import” meant that Minnesota intended to

regulate not only the “contract path” of energy—the agreement between buyer and

seller—but each individual electron that happened to make its way onto the state’s

portion of the grid.

128

A concurring judge did note the practical impossibilities of

tracking one specific unit of energy from an individual producer to an end consum-

er.

129

However, complexities of the grid combined with unclear statutory language

back to the Lochner era. See, e.g., Obergefell v. Hodges, 135 S. Ct. 2584, 2616 (2015) (Roberts, C.J., dis-

senting) (“The majority’s approach has no basis in principle or tradition, except for the unprincipled

tradition of judicial policymaking that characterized discredited decisions such as Lochner.”); Alden v.

Maine, 527 U.S. 706, 814 (1999) (Souter, J., dissenting) (“The resemblance of today’s state sovereign

immunity to the Lochner era’s industrial due process is striking . . . I expect the Court’s late essay into

immunity doctrine will prove the equal of its earlier experiment in laissez-faire, the one being as unreal-

istic as the other, as indefensible, and probably as fleeting.”).

125. See New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting)

(“[A] single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and

economic experiments without risk to the rest of the country.).

126. See Brandon P. Denning, Extraterritoriality and the Dormant Commerce Clause: A Doctrinal

Post-Mortem, 73 L

A. L. REV. 979, 1006 (2013); Tessa Gellerson, Note, Extraterritoriality and the Electric

Grid: North Dakota v. Heydinger, A Case Study for State Energy Regulation, 41 H

ARV. ENVTL. L. REV. 563

(2017).

127. See Energy & Env’t Legal Inst. v. Epel, 793 F.3d 1169, 1173 (10th Cir. 2015).

128. North Dakota v. Heydinger, 825 F.3d 912, 921 (8th Cir. 2016).

129. Id. at 92425 (Murphy, J., concurring).

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Fall 2019] State Clean Energy Legislation 207

may have nudged Judge Loken toward a more expansive reading of extraterritorial-

ity than he otherwise would have taken.

130

To bolster their statutes, states may be advised to explicitly focus only on the

financial transaction in power markets. This could be easily done by dropping the

“import or commit to import” language from Minnesota’s NGEA. A legislature

could sub in language barring any person from “entering into a contract to import”

fossil fuel energy or, in the case of an RPS, more than a certain percentage of their

energy from non-renewable sources. This would not necessarily dispose of any

constitutional attack. A court determined to take a strong view of extraterritoriali-

ty, as described above, could still strike it down. By forcing a court to focus on spe-

cific transactions rather than the complex working of the electric grid though, a

legislature would push the court to either uphold their statute or take a much more

explicitly expansive view of extraterritoriality.

131

Given the strength of traditional

state authority over general public health and welfare regulations,

132

courts may be

unwilling to so expand the doctrine. By forcing the court to choose between a per-

missive attitude towards state regulation or a more explicitly Lochnerian view of

the dormant Commerce Clause, states may be able to more aggressively pursue

RPSs and similar clean energy legislation.

B. Facial Discrimination

The Ninth and Second Circuits, in the Corey and Allco cases, respectively, ad-

dressed challenges to state environmental legislation that alleged facial discrimina-

tion. In both cases, the plaintiffs appeared to have strong cases. In Corey, Califor-

nia’s LCFS explicitly created three groups of fuels based on origin, one of which

included only those ethanol sources within the state.

133

In Allco, the Connecticut

provision at issue allowed only RECs from within a specified region to count to-

wards fulfillment of a utility’s obligation under the RPS.

134

In both cases however,

the courts agreed with the state that the seemingly protectionist lines were in fact

consistent with the overall purpose of the statute, and thus did not constitute facial

discrimination.

135

These cases each strike a balance; they remain consistent with the purpose of

the dormant Commerce Clause while maintaining states’ ability to experiment

130. See id. (suggesting that Judge Loken’s primary opinion in the case misunderstood the com-

plexities of the grid, leading him to read the import provision of the statute in a way that is “absurd,

impossible of execution, or unreasonable”).

131. See supra notes 120-23 and accompanying text for a discussion of the potential consequences

of this broader view of extraterritoriality.

132. See, e.g., Bond v. United States, 572 U.S. 844, 854 (2014) (“The States have broad authority

to enact legislation for the public good—what we have often called a ‘police power.’”).

133. Rocky Mtn. Farmers Union v. Corey, 730 F.3d 1070, 1094 (9th Cir. 2013).

134. Allco Fin. Ltd. v. Klee, 861 F.3d 82, 86 (2d Cir. 2017).

135. Supra Section II.B.

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208 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

within our federal system of governance. The dormant Commerce Clause is not

explicit within the text of the Constitution. It operates on the theory that while the

founders wanted to maintain the core powers of the states, they were also con-

cerned about the dangers of a fragmented national economy.

136

In the years prior

to the enactment of the Constitution, James Madison specifically called out “the

practice of many States in restricting the commercial intercourse with other States,

and putting their productions and manufactures on the same footing with those of

foreign nations.”

137

Our economy today is far more interconnected, both among

states and among nations, than it was in the late 1700s. As such, it is even more

important today for the courts to find ways to police protectionist activity while

maintaining the states’ ability to regulate in their core fields of public health and

safety.

In Allco, the court recognized that the state alone was not responsible for the

arguably protectionist boundaries it had drawn. While the Connecticut RPS only

allowed RECs from within its regional transmission grid or a directly adjacent

grid, the court reasoned that the primary purpose for this was not discriminatory,

but was in response to FERC’s decision at the federal level to design and support

regional transmission grids.

138

This view of the dormant Commerce Clause, in

which state regulations that have some discriminatory impact—and arguably even

facial discrimination—are judged with the underlying federal system in mind, is

the most consistent with the purposes of the doctrine. The dormant Commerce

Clause is a background presumption that operates in the absence of Congressional

action.

139

Through FERC, Congress has granted its approval to the regional

transmission grid that makes it virtually impossible for Connecticut to receive en-

ergy generated on the other side of the country.

140

The court correctly read this

136. See, e.g., Barry Friedman & Daniel T. Deacon, A Course Unbroken: The Constitutional Legiti-

macy of the Dormant Commerce Clause, 97 V

A. L. REV. 1877, 1890 (2011) (“Many people in the [founding]

period, including but not limited to some of the most influential Framers, believed interstate discrimi-

nation to be an extremely serious problem meriting a profound response.”).

137. Id. at 1885 (quoting James Madison, Vices of the Political System of the United States, in

James Madison: Writings 69, 70-71 (Jack N. Rakove ed., 1999)).

138. 861 F.3d at 107 (“Significantly, we note that Connecticut’s RPS program makes geographic

distinctions between RECs only insofar as it piggybacks on top of geographic lines drawn by ISO-NE

and the NEPOOL-GIS, both of which are supervised by FERC—not the state of Connecticut.”).

139. See, e.g., Friedman & Deacon, supra note 136, at 1897 (describing dormant Commerce

Clause questions as those that arise in cases where Congress has not moved to either approve or bar the

state action).

140. 861 F.3d at 105 (“Connecticut consumers’ need for a more diversified and renewable energy

supply, accessible to them directly through their regional grid or indirectly through adjacent control

areas, would not be served by RECs produced by Allco’s facility in Georgia—which is unable to trans-

mit its electricity into ISO-NE.”); see also David C. Wagman, It’s Time to Tie the U.S. Electric Grid To-

gether, Says NREL Study, IEEE

SPECTRUM (Aug. 8, 2018), https://spectrum.ieee.org/energywise/

energy/the-smarter-grid/after-almost-100-years-of-talk-time-might-be-right-to-strengthen-the-

interconnect (“The U.S. electrical grid is really made up of three largely separate grids with puny

transmission connections at the seams.”).

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Fall 2019] State Clean Energy Legislation 209

action by the federal government to set up a fragmented energy system as blessing

the development of state level energy regulations that track those regional lines.

141

Although California did not map its LCFS regions onto preexisting, federally

approved lines, the Ninth Circuit correctly held in Corey that the distinction did

not facially discriminate against out-of-state commerce.

142

To arrive at that conclu-

sion, the court rejected a rigidly formalistic approach to application of the doctrine,

and instead ruled with its purpose in mind.

143

The dormant Commerce Clause is

designed to prevent states from erecting artificial barriers for the purpose of pro-

tecting interstate commerce from competition.

144

While California did create one

ethanol source region entirely within the state, that distinction fell squarely within

the purpose of the LCFS rather than for some extraneous protectionist purpose.

145

Rather than being principally motivated by economic protectionism, California

was primarily attempting to force fuel producers to pay for the externalities of fuel

production that are not adequately captured in the bare cost of the fuel – namely,

the environmental cost that climate change will inflict on California and its citi-

zens.

146

That core justification suggests that the state had primarily non-protective

reasons for their action, and thus that the LCFS should not be subject to the virtu-

ally per se bar that comes with a finding of facial discrimination. Recognizing that

any potential discriminatory impact of the LCFS was tangential to the primary

purpose of the law, the court properly analyzed it under the Pike balancing frame-

work.

147

The dormant Commerce Clause analyses in Allco and Corey provide important

signposts for states hoping to enact an RPS or bolster it against constitutional chal-

lenge. A state can capture some of the economic benefits of renewable energy de-

141. See id. at 106 (“The RPS program’s definition of qualifying RECs appears to be a response

to, rather than a cause of, the fact that Connecticut has direct access only to electricity on the ISO-NE

grid, and indirect access only to electricity imported from adjacent control areas.”); see also Felix Mor-

mann, Market Segmentation vs. Subsidization: Clean Energy Credits and the Commerce Clause’s Economic

Wisdom, 93 W

ASH. L. REV. 1854, 1872-73 (2018) (making the case that even if the Second Circuit’s

treatment of state property law under the dormant Commerce Clause was incorrect, the court was on

stronger footing in its argument that FERC had segregated the energy market such that Connecticut

could not receive energy from Georgia).

142. Rocky Mtn. Farmers Union v. Corey, 730 F.3d 1070, 1107 (9th Cir. 2013).

143. See id. (criticizing plaintiff’s reliance on “archaic formalism” in their attempt to strike down

California’s law using the dormant Commerce Clause).

144. See Donald H. Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant

Commerce Clause, 84 M

ICH. L. REV. 1091, 1092 (1986).

145. See supra Section II.B.

146. See Lisa Grow Sun & Brigham Daniels, Externality Entrepreneurism, 50 U.C.

DAVIS L. REV.

321, 371-73 (2016) (exploring how identification of policy solutions to address externalities can lead to

political breakthroughs in fields as such as climate change and vaccination).

147. See Rocky Mtn. Farmers Union, 730 F.3d at 1105-06 (recognizing that while California’s

LCFS did have differential effects across state lines, this was merely incidental to the state’s policy de-

cision to “pay for environmental protection”).

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210 Michigan Journal of Environmental & Administrative Law [Vol. 9:1

velopment, as long as its statutes have a primary purpose unrelated to economic

protectionism. The two cases present contrasting ways states may be able to cap-

ture this benefit.

First, under the Allco analysis, if a state can point to a preexisting federal law

that is outside its control and serves to segment the market, it can validly claim

that a law tracking that dividing line is not protectionist. The clearest way to do

this is outlined in Allco, where the state REC boundaries tracked the federally sup-

ported regional transmission grid.

Second, as California did with its LCFS, a state might validly link a distance-

based distinction to the primary purpose of the law. There, transporting ethanol

over great distances increased overall emissions, so a fee could be charged to ac-

count for those emissions. The fact that with minimal exceptions, ethanol sold in

California was produced either in state, in the Midwest, or in Brazil was a back-

ground national condition that also likely bolstered the law against an attack on

dormant Commerce Clause grounds.

148

In the case of an RPS, a state’s primary

purpose for passing the law is likely some combination of avoiding climate change

and bolstering the reliability and diversity of generation sources on the electric

grid.

149

The state may validly be able to argue that avoided emissions or increased

reliability brought about by rooftop solar and other localized projects are consistent

with that purpose.

150

If that case is adequately made, a state could argue that under

Corey, modestly favoring local projects is not protectionist, but is a natural conse-

quence of the statute’s purpose. At that point the statute would be analyzed under

the more permissive Pike balancing test.

CONCLUSION

In the coming decades, state level innovations such as RPSs will likely be a

key driver of U.S. environmental and energy policy. This Note has highlighted the

ways in which the dormant Commerce Clause could serve as a stumbling block for

these laws. An expansive reading of dormant Commerce Clause doctrine not only

bodes ill for state environmental laws, it is inconsistent with the purpose of the

Clause to balance promotion of a unified national economy with allowance of suffi-

cient space for state experimentation. This Note argues for a slightly narrower

view of the dormant Commerce Clause, and of the extraterritoriality doctrine in

particular. It also highlights a few key steps states can take to bolster their policies

against constitutional attacks. Without significantly fragmenting the national

148. See supra notes 107-11 and accompanying text.

149. State Renewable Portfolio Standards and Goals, supra note 19 (RPS “can play an integral role in

state efforts to diversify their energy mix, promote economic development and reduce emissions.”).

150. Peter Fairley, How Rooftop Solar Can Stabilize the Grid, IEEE

SPECTRUM (Jan. 21, 2015),

https://spectrum.ieee.org/green-tech/solar/how-rooftop-solar-can-stabilize-the-grid.

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Fall 2019] State Clean Energy Legislation 211

economy, these small shifts would clear the way for continued state innovation to

drive our nation forward into a green energy future.