Constitutional Restrictions on Environmental Regulation by American States

Constitutional Restrictions on Regulation by American States

Daniel Farber

Today, both our economy and our ecosystem increasingly must be seen as global. Devoting equal attention to both, the 1992 Rio Declaration calledfor sustainable development on a global level. More specifically, Principle 12 of the Declaration endorses an open international economic system. Principle 7 requires all states to “cooperate in a spirit of global partnership” to preserve the ecosystem.

Inevitably, the regulatory policies of economically important political jurisdictions, such as California and the European Union, have extra-territorial impacts. These impacts include direct effects on the practices of firms based in one jurisdiction seeking to do business in the other, and indirect effects through policy emulation, learning and coordination. These policies can also impose differential costs on local and outside firms, changing the terms of economic competition and potentially causing economic distortions.

At the same time, policies may also have environmental effects in other jurisdictions, making coordination desirable. Explicit forms of cooperation between AmericanStates and other nations have also now begun to emerge. New England Governors have entered an agreement with Eastern Canadian Premiers to set goals for reducing CO2 emissions and monitor progress.[1] California has also begun a collaborative effort with the United Kingdom to aggressively pursue energy diversity and greenhouse gas limits by investigating and implementing common market-based approaches and sharing technical information and strategies.[2]

In seeking to further cooperation with the EU, California legislation may encounter a variety of constitutional barriers. The purpose of this paper is to explore the constitutional restrictions on state legislation that might limitCalifornia cooperation with the EU. For instance, an otherwise desirable innovation may be inconsistent with federal law. California also may be precluded from entering into certain kinds of agreements with the EU because doing so would invade the foreign policy prerogatives of the federal government.

American states are subject to three constitutional restrictions that are relevant to environmental and social regulation. The first is called the dormant commerce clause doctrine. It prohibits states from engaging in regulation that discriminates against interstate or foreign commerce or that unduly burdens such commerce. As we will see, this doctrine is analogous to EU mandates governing the free movement of goods or to WTO trade disciplines. WTO rules may themselves be a limitation on state legislation, just as they may be on federal legislation. We will only touch on this issue since it is not constitutional and since WTO rules are not judicially enforceable in the United States.

The second constitutional restriction is statutory preemption. Under the Supremacy Clause of the U.S. Constitution, a state law that conflicts with a federal statute is invalid. Preemption doctrine also invalidates state laws that interfere with the goals of federal statutes less directly. There is no equivalent of the subsidiarity concept in U.S. constitutional law.

A final constitutional restriction may be especially pertinent to EU-California cooperation. Under the doctrine of foreign policy preemption, a state law is invalid if it invades the core foreign-affairs domain that is exclusively reserved to the federal government. Unlike EU member-states, American states do not retain the power to engage in their own foreign policy, although their decisions inevitably have some impact on foreign entities. The line between permissible foreign impact and impermissible foreign policy is far from obvious. The Supreme Court has issued two recent opinions on this subject, which are generally regarded as unclear in their exact meaning but as significantly expanding this doctrine.[3]

This paper will describe the constitutional doctrines and their implications for EU-California cooperation. Some aspects of the doctrine are clear and provide strong warnings about the form of cooperation, such as the need to avoid any discrimination against goods from particular locales or actions that directly contravene U.S. federal legislation. But outside of these “unsafe harbors,” the rules are quite murky. The best defense to possible challenges in these gray areas is to document in depth how Californiapolicies address local needs and to coordinate as much as feasible with the federal government.

I. The Dormant Commerce Clause

In a unified national economy, the existence of a multitude of differing state environmental laws can impede the flow of commerce. Yet, the states have often been in the lead in the environmental area because of pressing local problems. The conflict between the local interest in regulation and the economic interests of other states (and foreign nations) cannot be resolved effectively by the courts of any of the states involved. Obviously, both the state that is engaging in regulation and the states that are affected by the regulation have interests which disable them from providing a completely neutral forum. For this reason, the federal courts have emerged as the tribunals in which these conflicting interests can be assessed. This doctrine traces back to the early years of the Nineteenth Century,[4] with perhaps the most influential opinion coming in the decade before the Civil War.[5]

The basis for federal court involvement in these issues is the commerce clause of the Constitution. The commerce clause, on its face, is a grant of power to Congress, not a grant of power to the federal courts or a restriction on state legislation. Yet, since the early 19th century, the Supreme Court has always construed the commerce clause as preventing certain kinds of state legislation even when Congress has not spoken. Various theories have been utilized in an effort to support judicial intervention, focusing on the lack of representation for out-of-state interests in state legislatures, the constitutional goal of creating an internal common market, and the role of freedom of economic movement as a component of national citizenship. The doctrine itself has been subject to changing formulations, in general moving from formalist categorizations to more pragmatic approaches. For present purposes, however, we can ignore the rather tangled history of commerce clause theory and concentrate on the doctrine as it exists today.[6]

At present, there are three strands to commerce clause theory. One test governs state legislation that discriminates against interstate commerce. Such legislation is virtually per se unconstitutional. A second test applies to the State’s proprietary activities. Such activities are virtually immune from restriction under the dormant commerce clause. The third test applies to the remaining forms of state legislation. These forms of legislation are dealt with by a balancing test, with a “thumb on the scale” in favor of the state regulation.

A. The Ban on Discriminatory State Regulation

The first test is illustrated by City of Philadelphia v. New Jersey.[7] This case involved a New Jersey statute prohibiting the import of most waste originating outside the state. The Supreme Court struck down this restriction. The parties in the case disputed whether the purpose of the restriction was economic favoritism toward local industry or environmental protection of the state’s resources from overuse. The Court found it unnecessary to resolve this dispute. According to the Court, the evil of protectionism can reside in legislative means as well as legislative ends:“Thus, whatever New Jersey’s ultimate purpose, it may not be accomplished by discriminating against articles of commerce coming from outside the State unless there is some reason, apart from their origin, to treat them differently.”[8] Having found that the statute was discriminatory, the Court found it easy to resolve the case:

The New Jersey law at issue in this case falls squarely within the area that the Commerce Clause puts off limits to state regulation. On its face, it imposes on out of state commercial interests the full burden of conserving the State’s remaining landfill space. It is true in our previous cases the scarce natural resource was itself the article of commerce, whereas here the scarce resource and the article in the commerce are distinct. But that difference is without consequence. In both instances, the State has overtly moved to slow or freeze the flow of commerce for protectionist reasons. It does not matter that the State has shut the article of commerce inside the State in one case and outside the State in the other. What is crucial is the attempt by one State to isolate itself from a problem common to many by erecting a barrier against the movement of interstate trade.[9]

The Court conceded that certain quarantine laws have not been considered forbidden by the commerce clause even though they were directed against out of-state commerce. The Court distinguished those quarantine laws, however, on the ground that in those cases the very movementof the articles risked contagion and other evils. According to the Court,

[T]hose laws thus did not discriminate against interstate commerce as such, but simply prevented traffic of noxious articles, whatever their origin.” Subject to this very narrow exception, legislation which on its face distinguishes out of state items from domestic items seems likely to be held unconstitutional, in the absence of compelling justification.[10]

As it turned out, Philadelphia v. New Jersey was simply the first in a series of cases in which the Court has thwarted efforts by states to control the flow of garbage.[11] One recurrent issue involves the converse of Philadelphia v. New Jersey: rather than attempting to exclude garbage imports, the government was trying to ban garbage exports. Such regulations were known as flow controls.

Many cities adopted flow control ordinances that required all waste generated in the locality to be sent to a designated facility. The main reason for the requirement was to assure a sufficient flow of waste in order to finance expensive new, state-of-the-art waste disposal facilities. A five-Justice majority in C & A Carbone, Inc. v. Town of Clarkstown[12] found that flow control was facially discriminatory and struck it down under the Philadelphia v. New Jersey test. The majority pointed to several alternatives to flow control, including the use of property taxes to subsidize the local disposal facility. Justice O’Connor concurred in the result. She considered the ordinance to be nondiscriminatory but struck it down as an undue burden on commerce under the balancing test discussed below. Applying the same balancing test, Justice Souter and two other dissenters would have upheld the local ordinance. Justice Souter argued that none of the alternatives to flow control were as desirable, and that the locality should be free to impose on its own residents the increased costs caused by flow control. As Carbone illustrates, what constitutes discrimination is sometimes in the eye of the beholder: what five Justices considered to be patent discrimination, the other four did not find to be discriminatory at all.

Thus, any regulation keyed to geography faces the risk that it will be considered discriminatory, even if the regulation merely favors one geographic location over the rest of the world. The lesson of these cases is clear: if possible, state law should avoid referring to the geographic origins or destinations of goods or services. Rather, they should describe goods in geographically neutral terms.

B. The Market Participant Exception

The second class of state regulations involved proprietary or quasi proprietary activities by the State.[13] Here, the leading case is Hughes v. Alexandria Scrap Corp.[14] This case involved a Maryland bounty system for old, abandoned cars. Prior to 1974, no title certificate was needed by the scrap processor in order to claim the bounty. After 1974, Maryland processors needed only to submit an indemnity agreement in which their suppliers certified their own rights to the hulks. In contrast, out-of-state processors were required to submit title certificates or police certificates. The legislation was challenged by a Virginia processor. The Court held that this statute was valid because the State was not exercising a regulatory function but rather had itself entered the market in order to bid up prices. As Justice Stevens noted in his concurrence, the interstate commerce at issue would never have existed except for the state’s bounty system. Because the state’s failure to create such commerce would have been unobjectionable under the commerce clause, Justice Stevens believed that out of state processors had no grounds for complaint if they were excluded from this commerce. Justice Brennan filed a strong dissent, viewing the proprietary-function exception as an unwarranted contraction of the anti-protectionism principle.

Even when a state law goes beyond the proprietary activity exemption, the involvement of the state as a market participant can help to justify otherwise impermissible restrictions on commerce. The Court’s most recent commerce clause decision illustrates how a state’s proprietary involvement can be used to limit out-of-state trade. In United Haulers Ass'n, Inc. v. OneidaHerkimer Solid Waste Management Authority,[15] a city ordinance required all local waste haulers to bring their waste to a city-owned facility. The proprietary exemption did not apply because the city was restricting sales by third-parties (the waste haulers) to out-of-state buyers, not merely restricting its own purchase and sales. Nevertheless, the city’s ownership of the facility was crucial to the result. If the facility had not been city-owned, the ordinance would have been struck down because it favored the in-state facility over out-of-state competitors.

In avoiding this result, the Court found this distinction between United Haulers and Carbone (where the facility had been privately-owned) to be critical:

The only salient difference is that the laws at issue here require haulers to bring waste to facilities owned and operated by a statecreated public benefit corporation. We find this difference constitutionally significant. Disposing of trash has been a traditional government activity for years, and laws that favor the government in such areasbut treat every private business, whether instate or outofstate, exactly the samedo not discriminate against interstate commerce for purposes of the Commerce Clause. Applying the Commerce Clause test reserved for regulations that do not discriminate against interstate commerce, we uphold these ordinances because any incidental burden they may have on interstate commerce does not outweigh the benefits they confer on the citizens of Oneida and HerkimerCounties.[16]

The Court explained the reasons for drawing this distinction as follows:

The contrary approach of treating public and private entities the same under the dormant Commerce Clause would lead to unprecedented and unbounded interference by the courts with state and local government. The dormant Commerce Clause is not a roving license for federal courts to decide what activities are appropriate for state and local government to undertake, and what activities must be the province of private market competition. In this case, the citizens of Oneida and HerkimerCounties have chosen the government to provide waste management services, with a limited role for the private sector in arranging for transport of waste from the curb to the public facilities. The citizens could have left the entire matter for the private sector, in which case any regulation they undertook could not discriminate against interstate commerce. But it was also open to them to vest responsibility for the matter with their government, and to adopt flow control ordinances to support the government effort. It is not the office of the Commerce Clause to control the decision of the voters on whether government or the private sector should provide waste management services.[17]

The Court did not exempt the ordinance entirely from judicial review, however, but then went on to consider its validity under the test usually applied to nondiscriminatory state laws. Still, the proprietary status of the facility resulted in a loosening of the usual per se rule against discriminatory regulation of commerce.

The proprietary exemption seems to rest in part on a reluctance to ban states from engaging in market conduct that is open to private parties – in a sense, market conduct is not given full status as a public activity even when the participant is the government. Perhaps the reason for favoring proprietary actions over regulations is that the costs of the actions are more transparent, leading to greater public accountability. In any event, California clearly has greater flexibility in entering into agreements with the EU to the extent the agreement concerns government-owned facilities.

C. Nondiscriminatory Regulation

Most state legislation is neither proprietary nor discriminatory, and thus falls into the third class. State legislation of this kind is not as suspect as legislation that is discriminatory on its face. Nevertheless, there is a real risk that a state may pass legislation without adequately considering its impact elsewhere in the country. In addition, the risk also exists that a state will use what appears to be nondiscriminatory legislation as covert means of burdening out of state businesses. Thus, some degree of judicial scrutiny seems warranted.