28/04/25
Environmental markets wary of Trump's next moves
Environmental markets wary of Trump's next moves
Houston, 28 April (Argus) — US President Donald Trump's recent threat of legal
challenges against state climate and clean energy policies has roiled
environmental markets waiting to learn the scope and avenues those
confrontations could take. Trump's 8 April executive order, which directed the
Department of Justice (DOJ) to consider contesting state policies that threaten
"American energy dominance", targeted California's cap-and-trade program by
name, but it may also extend to other policies, including renewable portfolio
standards (RPS). But uncertainty about the extent of the administration's
ambitions has injected another variable into an already volatile economic
landscape. Market anxieties may not fade soon. US attorney general Pam Bondi has
until early June to report on actions she has taken and make recommendations for
other steps by the White House or Congress. Conservatives in some states already
have asked her to scrutinize particular programs. Administration arguments One
angle from which the DOJ could attack state programs is the well-trod "dormant
Commerce Clause", a legal doctrine that says state laws cannot discriminate
against or impose undue burdens on another state's economic activity. But such a
challenge is more difficult if a program is merely stipulating, "if you want to
come to our state, our electricity market or our fuel market, here are the rules
to play by", according to Matthew Dobbins, a partner at Vinson & Elkins and
member of the law firm's environment and natural resources team in Houston.
Courts have dismissed lawsuits that tried this approach against low-carbon fuel
standards in California and Oregon , as well Colorado's RPS. In addition, an
appeals court last year threw out a case against Washington's cap-and-invest
program, ruling it did not overstep in its handling of in-state versus
out-of-state electricity suppliers. The US Supreme Court may soon decide whether
to hear an appeal of the case. More broadly, a 2023 Supreme Court decision
upholding a California law restricting interstate pork sales based on animal
treatment makes such dormant Commerce Clause challenges "a lot harder",
according to Nico van Aelstyn, partner at Sheppard Mullin in San Francisco. The
DOJ could try using the "Equal Sovereignty" doctrine, which stipulates that one
state's rights cannot exceed another's, van Aelstyn said. This has been used in
cases against California's vehicle emissions standards and other states' climate
"superfund" laws, which penalize oil and gas companies for historical emissions.
But van Aelstyn described it as "not really tested yet." That administration has
also been hoping to fast-track Supreme Court rulings on the executive orders by
justifying them through "declared emergencies," according to Dobbins. This use
of emergency powers will likely reveal how far the court will go to "pressure
test" the administration's requests for speedy judicial relief, as justices work
through a growing emergency docket through the end of term in June or July.
Relitigating the past Amid growing trade tensions between the US and Canada, the
DOJ could also revive a 2019 lawsuit against California's cap-and-trade program.
A US district court at the time ruled that federal purview over foreign affairs
does not preempt the state linking its program with Quebec's. Although the first
Trump administration appealed the ruling, former president Joe Biden withdrew
the case, leaving the matter undecided with one claim potentially still ripe for
judicial review. "What that'll probably come down to is how much Canada has
expressed its anger . . . and if the administration is willing to go 'all in' on
trying to provoke one of our largest trading partners," Dobbins said. But even
if California severed ties with Quebec, the province is a small part of the
market, and its absence is unlikely to cripple the state's program. Meanwhile,
in the markets… Trump's executive order has put states and US companies alike on
the back foot, adding to a "shock and awe" barrage from tariffs and potential
rollbacks to federal clean electricity incentives , said Tom Harper, a partner
on consultant Baringa's energy advisory team in New York City. That volatility
has led clean energy developers and buyers to hold off on decisions until they
have a bit more stability. "You're almost in a state of paralysis because you
can't go and deploy a team on a project. You can't go and arrange finance
because the cost is moving day to day," Harper said. The tariffs have also fed
growing concerns about the US economy, which have spilled into environmental
markets. The California Carbon Allowance (CCA) market, already a bit bearish
because of ongoing delays to planned program changes, plunged the day after
Trump's executive order. Argus assessed CCAs for December delivery that day at
$26.74/t — at the time their lowest price since November 2022. The lack of
certainty around federal legal developments continues to whittle away at bullish
signals, leaving market participants to wait for a clear outcome. Adding another
layer of uncertainty is the fact that disputes may spill outside of the court
system. Following the same logic as of Trump's " national energy emergency ",
the US Federal Energy Regulatory Commission (FERC) could hypothetically issue an
emergency order to halt carbon and clean energy programs. The recent resignation
of a Democratic commissioner, giving Trump the ability to install a Republican
majority, could facilitate that pathway. But using FERC to shutter these
programs would be on weak legal footing, van Aelstyn said. The Trump
administration has no issue using extrajudicial tools to enforce its policies,
such as its January pause on federal funding that left states like California —
which receives more than $100bn in backing and grants from the US government
each fiscal year — grappling with potential budget holes. Two federal courts
have said the administration must dole out the funds, but agencies have been
slow to comply. "If they can withhold congressionally appropriated research
funds for universities because they don't like their policies with regard to
free speech on their campuses, what else might they do?" van Aelstyn said.
"Withhold Medicaid funding to states where they don't like their renewable
energy standards?" By Denise Cathey and Patrick Zemanek Send comments and
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