Inside WCI: Federal Pre-emption

This is the eighth in a short series of posts that explain some important but often overlooked policy issues in the Western Climate Initiative—the West’s regional cap-and-trade system. (Much to readers’ delight, thisis the last installment I’m planning to write.)

You can’t talk about regional cap and trade very long before someone brings up the subject of pre-emption. What happens if the federal government creates a national cap and trade program? Would the regional programs disappear? And if so, why bother working on them?

First, let’s get one thing straight: no one knows what will happen.

Seriously. No one has any idea. And that includes me.

No matter how confidently anybody expresses an opinion on pre-emption, you can rest assured that it’s just speculation. And that uncertainty is precisely why it’s so important to work on regional programs like WCI: regional cap and trade is what we’ve got. There’s simply no guarantee we’ll have a federal alternative soon.

Sure, we know that a new president will be elected in November. But while both John McCain and Barack Obama have proposals for a national cap and trade program, it is hardly a foregone conclusion that a serious policy will emerge intact in the near future. Here are a few ways that things could play out:

• Let’s say John McCain is elected. McCain has supported cap and trade in the past, but here’s growing reason to worry that he may not make it a high priority — see here, here, and here — and even if he did, his current proposal leaves a lot to be desired. So it’s entirely possible that a McCain presidency would mean no comprehensive climate policy or a very watered-down version.
•  What if Obama is elected? Even though, generally speaking, democrats have been more amenable to good climate legislation, there’s absolutely no guarantee Obama’s current (and excellent) proposal would see the light of day. Obama would have dozens of competing high priorities, including the wars, the economy, high energy prices, health care, and so on. So even with Obama as president, there’s a high probability that comprehensive climate policy would be delayed, perhaps substantially so.
• Congress will have a lot to say about whether legislation moves and what it looks like—no matter who’s in the Oval Office. It’s really anybody’s guess how the next Congress will treat energy policy. Certainly, there have been promising proposals, but none have garnered majority support in either house. And there are, of course, some powerful opponents who know a thing or two about killing legislation.

If a federal cap and trade program is delayed or sub-optimal, then it may be critically important for large regions to pursue genuine climate leadership without guidance from Washington DC.

Is this too depressing? Fine, then let’s be a more optimistic for a moment. Say that decent legislation gets approved by Congress and signed into law by the president. Even then the fate of regional cap and trade is an open question. A lot depends on how the legislative process plays out.

• States could be given a choice about where to play in the cap and trade sandbox.(This could be much as with California tailpipe standards in which states can join the federal or California rules.)  It’s easy to imagine that states could choose opt into a new federal system or remain with some other approved regional system such as WCI. (States might be encouraged, but not required, to join a federal program, as the Boxer Amendment to the recently deceased Lieberman-Warner bill would have done.)

   

• Regional systems might stay intact while a new federal system would simply roll up the non-participating states into a new program. Alternatively, the feds might just authorize one, or several, interstate compacts but decline to create a new federal program. As I pointed out, with “linking,” it’s perfectly possible to create new federal, regional, or state programs without undoing what’s already been done. Linking means that states don’t have to agree about all the details of cap and trade in order to get along.

   

• States might simply get pre-empted by federal policy. A new national cap and trade program could make the current regional efforts illegal. (I think this is somewhat unlikely, but it’s a common view.) I should note that even if this were to happen, it’s still important to work on regional efforts because they will inform the national debate, and help to set the standards by which future policy is judged.

I’ve been ignoring Canada so far in this post, but Canadian and US policies interact in fascinating ways. Already in the Western Climate Initiative we’ve seen the beginnings of a genuinely bilateral system, with nearly 59 million Americans and 26 million Canadians living in WCI jurisdictions. Any number of interesting things could happen in the next few years.

Ottawa could start displaying some leadership and initiate a national program for Canada. It’s even conceivable that some US states might participate, or at least link with such a program. Just so, a US federal cap and trade program could be open to participation or linking from Canadian provinces.

Another intriguing possibility is that the Western Climate Initiative could morph or divide—and that WCI would essentially become US or Canadian policy. It may sound far-fetched, but consider that nearly 80 percent of Canada’s population is already within WCI. It wouldn’t be a big leap to just make a new Canadian policy conform to WCI.

It’s even theoretically possible for the same thing to happen in the US. While WCI only represents about 19 percent of the US population, there are rumors that Florida may soon join, boosting the share to 26 percent. And that’s nothing compared to the potential addition of the Midwest Greenhouse Gas Reduction Accord, which is reportedly following WCI’s footsteps in many respects. The Midwest would raise the share to 39 percent of the US population. If the Northeastern states (which are politically inclined to treat climate policy seriously), expand their current RGGI system beyond electricity generators, they might follow WCI too. All told, that would mean 55 percent of the US would be participating in a non-federal system that would either be WCI, or at least be heavily influenced by WCI.

I’m not even counting WCI’s “observer” states that include Alaska, Colorado, Idaho, Kansas, Nevada, and Wyoming; nor the Midwest’s observers of Indiana, Ohio, and South Dakota; nor Pennsylvania and DC, which are observers to RGGI. And I’m not counting the six Mexican states that are also observers to WCI; they’d lend yet more weight.

The point is: no one knows what will happen. Federal pre-emption could obviate regional cap and trade or pre-emption could be completely irrelevant. Or federal policy could be important but not over-riding. No one knows. And until we can predict the future, developing sound regional climate policy is of paramount importance for North America.