States have often been the incubators for “novel social and economic experiments without risk to the rest of the country,” as long as courts do not cut down these statutes. Though the federal judiciary could curb state power, Justice Brandeis warned of encroaching on the power held by states and dissolving core principles of federalism. This warning rings particularly true when it comes to state climate policy. Federal efforts that constrain state-specific climate policy could collide with Brandeis’s admonition.
On April 8, 2025, President Trump issued an Executive Order (EO), entitled “Protecting American Energy from State Overreach.” The order broadly attacks State efforts that hamper domestic energy resources. In particular, the President cites State actions that “target or discriminate against out-of-State energy producers,” impose excessive fines, or impede the permitting and development process. The Administration will particularly scrutinize state and local actions that address climate change, fight for environmental justice, account for carbon/greenhouse gas emissions, and create carbon funds/taxes. The Trump Administration’s order retreads old ground but with a particular focus on States, especially given that the EO directs the Attorney General to bring cases against the States that are unconstitutional, preempted, or unenforceable.
In the EO, California receives additional scrutiny for its cap-and-trade program. In 2012, California led states by implementing the first carbon trading market. The State codified the carbon neutral targets and requirements in 2022, and in the face of federal scrutiny, California Governor Gavin Newsom looked to extend the program in order to meet its 2045 carbon-neutrality goal. During the first Trump Administration, the Department of Justice (DOJ) unsuccessfully sued California over its linkage to Quebec’s carbon market, under the theory that the program was preempted by the Foreign Affairs Doctrine. Though a seeming anomaly from the first Administration, more lawsuits from either the Trump Administration or other entities will surely follow, especially directed towards other states with cap-and-trade programs.
Washington’s green energy laws are modeled off California’s. For example, as is traditional in most cap-and-trade models, Assembly Bill (AB) 32, the California Global Warming Solutions Act of 2006, tasks the California Air Resources Board (CARB) to set a statewide annual Greenhouse Gas (GHG) emissions limit to 1990 levels and requires reductions over certain time increments. Washington’s Climate Commitment Act (CCA) directs the Department of Ecology (Ecology) to set GHG emissions limits to 1990 levels and requires reductions as well.
Similar to California’s energy laws, Washington’s green energy plans may soon come under similar scrutiny. In 2019 and 2021, Washington made strides towards transitioning its economy to green energy with the Clean Energy Transformation Act (CETA) and the CCA, which develop a cap-and-invest program. Though responses from the federal executive branch are yet to come, there are numerous challenges that have and will likely proceed in courts. Depending on the entity filing suit, CARB faced challenges when setting GHG limits and when creating the carbon trading system. Washington’s clean energy laws could face similar suits that challenge the scope of the statute or suits from industry challenging the ability to adopt regulations.
The likeliest challenge to Washington’s green energy laws will be claims based on the Dormant Commerce Clause. Broadly, two principles, which will be covered in a subsequent section, underlie a Dormant Commerce Clause analysis. First, States may not burden out-of-state competitors to the benefit of in-state economic interests. If a state is shown to have discriminated against interstate commerce, then the State bears the burden to demonstrate that its statute serves a legitimate local purpose. Second, states may not burden interstate commerce through facially neutral actions or laws.
In the subsequent sections, this Blog will outline Washington’s major clean energy acts, CETA and CCA, as well as the Dormant Commerce Clause doctrine. The Blog will illustrate two unsuccessful cases challenging CETA and the CCA and will explore other potential arguments that litigants may take. Ultimately, there are no crystal balls in litigation, but given current precedent, CETA and the CCA do not pose a threat under the Dormant Commerce Clause.
Requirements for Electric Utilities in the Washington’s Clean Energy Transformation Act (CETA)
CETA commits Washington to a clean energy future by setting benchmarks for electric utilities. The act recognizes that transitioning to clean energy will modernize the state’s energy supply, and ideally, benefits will flow to utilities, customers, and workers. By 2026, electric utilities must eliminate coal-fired resources from their portfolios. Next, CETA mandates that a certain percentage of electricity must come from certain non-emitting sources or in other words, sets a Renewable Portfolio Standard (RPS). By 2030, electric utilities must transition the state’s electricity supply to one hundred percent carbon neutral. By 2045, utilities must transition to one hundred percent GHG-free, non-carbon-emitting sources.
Through CETA, utilities must submit a Clean Energy Implementation Plan (CEIP), which hold utilities responsible for CETA obligations. Starting in January 1, 2022 and every four years afterwards, utilities must create plans for equitable clean energy transitions by setting goals, objectives, and outcomes while collaborating with vulnerable, highly impacted groups. CETA requires that utilities provide efficient, renewable energy infrastructure and energy transformation projects. CETA obligates two different utilities to submit CEIPs: Investor-Owned Utilities (IOUs) and Consumer-Owner Utilities (COUs). IOUs must submit their CEIPs to the Washington Utilities and Transportation Commission (UTC) for achieving their CETA benchmarks. COUs must obtain a public hearing and public meeting and must submit their CEIPs, which the Washington Department of Commerce reviews. If administrative proceedings occur, such as the UTC finding that a CEIP has not been followed, then a trial court may take judicial notice of these records, though they may not alter the substance of a trial.
The CETA mandate covers only electricity sold to Washington customers. Though federal court cases will unlikely hinge on CEIPs, courts may take judicial notice of administrative proceedings before the regulatory bodies as examples of CETA compliance. As will become apparent in subsequent sections, challengers will likely attack Washington’s RPS, possibly similar to challenges in Colorado, or the cap-and-trade system set by Washington’s CCA, like challenges in California.
Setting Caps on Carbon Through the Washington’s Climate Commitment Act (CCA).
In 2021, Washington’s CCA created market-based solutions to reduce carbon pollution and set greenhouse gas limits. The state adopted a cap-and-trade model rather than a carbon tax. Cap-and-trade has been utilized in a number of different of states and regions, such as California and the Regional Greenhouse Gas Initiative, which sets emissions limits for approximately eleven states in the Northeastern United States.
As the name suggests, the cap-and-trade system sets a limit on total emissions and encourages businesses to reduce that limit through carbon trading. First, the CCA sets a cap from which to reduce overall emissions of greenhouse gas. The limit, after accounting for all of the state’s emissions of greenhouse gases, is set to 90.5 million metric tons or overall emissions of GHG in the state at 1990 levels. Ecology gradually ratchets down this number in ten-year increments. By 2020, the CCA required that the state reduce total emissions to 1990 levels, which the state met. In subsequent ten year increments, the state must reduce GHG levels to forty-five percent below 1990 levels by 2030, to seventy percent below 1990 levels by 2040, and to ninety-five percent below 1990 levels by 2050.
In order to achieve this gradual decrease in GHG emissions, the CCA requires certain emitters to purchase carbon offset allowances. These allowances are authorizations to emit one metric ton of carbon dioxide. “Covered entities,” facilities emitting 25,000 metric tons of CO2 equivalent or more, must acquire allowances equivalent to their emissions through a quarterly auction managed by the Washington Department of Ecology (Ecology), through a secondary trading market, or for free as an exempted industry. As each ten-year increment elapses, the allowances shrink. For example, the number of allowances at Ecology’s auction shrank from 8 million in 2023 to 3 million in 2025.
As of 2025, certain specifications will ensure that covered entities meet their requirements under the CCA. Covered facilities, which emit the requisite GHG levels, are fossil fuel suppliers, natural gas suppliers, and electric importers. Specifically, these facilities include “first jurisdictional” deliverers—owners and operators of electricity generating facilities in Washington or electricity importers. Certain fossil fuel suppliers are those whose electricity was generated outside of Washington but whose final delivery point is within the state. Electricity “wheeled through the state” is not considered imported. Certain suppliers, businesses that emit the requisite amount of CO2 equivalent and supply fossil fuel other than natural gas, will be addressed in October 2026 after consultation with requisite commerce, utilities and transportation commissions, and linked jurisdictions. Ecology exempts certain entities from the CCA, including combustion aviation fuels, and watercraft fuels.
Not all entities must purchase allowances. When it comes to electric utilities, CETA and the CCA work in tandem to provide no-cost allowances to electric utilities. Ecology allocates no-cost allowances to electric utilities in order to phase out their power generation to 100 percent carbon-free sources or those electric utilities already covered under CETA. Natural gas suppliers receive free allowances as well to mitigate cost transfers to their customers. Approximately forty Emissions-Intensive, Trade-Exposed (EITE) industries in Washington, as categorized by the North American industry classification system, will be given no-cost allowances. These include metals manufacturing, paper manufacturing, aerospace manufacturers, and others as detailed in the statute. The EITE allowances are meant to account for “leakage” or when businesses relocate because of the high cost of reducing emissions.
Ecology stores these funds in three separate accounts: the Carbon Emissions Reduction Account (CERA), the Climate Investment Account (CIA), and the Air Quality & Health Disparities Improvement Account (AQHDIA). CERA focuses on reducing transportation emissions, investing in alternatives to single occupancy vehicles, and minimizing emissions for freight, ferries, and ports. The CIA, which cannot exceed five percent of the total auction revenue, funds the administration of the cap-and-invest program. Lastly, the AQHDIA, which utilizes a minimum of thirty-five percent and a goal of forty percent of auction revenue, funds air monitoring networks and developments to reduce health disparities in overburdened communities highly impacted by air pollution.
The CCA provides a strong framework to help industries transition to cleaner energy technology. At the same time, the act ensures that customers, overburdened communities, and others are not left behind in the green transition.
Washington’s Voter Resistance to the CCA
Resistance to comprehensive statewide carbon solutions is a common story. In 2016, Washington failed to enact a carbon tax, Initiative-732, that would have charged $25 per metric ton of CO2 and would have reduced Washington’s sales tax as well as certain manufacturing taxes. In 2018, Washingtonians similarly rejected Initiative-1631, which would have charged $15 per metric ton of CO2 and would have reinvested in pollution abatement related to transportation, energy efficiency, and carbon sequestration.
Similarly to the pushback to the two initiatives in 2016 and 2018 respectively, Initiative 2117 sought to roll back the CCA. The initiative’s proponents asserted the CCA raises the price of gas that is used to fuel cars and heat homes and businesses. Moreover, the proponents of the initiative claimed that there was insufficient oversight to ensure that the CCA’s money was being spent on the appropriate projects listed above.
Dormant Commerce Clause
Washington’s CETA and CCA statutes may collide with a centuries-old legal doctrine, the Dormant Commerce Clause, which prevents states from discriminating against interstate commerce. Though not explicitly grounded in the United States Constitution, the United States Supreme Court derived the Dormant Commerce Clause from the Commerce Clause, Article I, Section 8, Clause 3 of the Constitution, which states that “[t]he Congress shall have Power…to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” The Commerce Clause is an affirmative grant of power that expressly vests power in Congress to enact laws regulating interstate commerce. The inverse of the Commerce Clause, the Dormant Commerce Clause, is a negative grant of grant of power that prohibits states from disturbing Congress’s affirmative power.
In adhering to this prohibition, the Dormant Commerce Clause imposes certain requirements upon defenders, which in the case of Washington State’s green energy statutes would be Ecology or its administrator. The Dormant Commerce Clause disallows (1) a state or local law from facially discriminating against out-of-state commerce in favor of local businesses, and (2) a state or local law that is not facially discriminatory but has a discriminatory effect on out-of-state commerce. A law, which violates either of these tests, invokes strict scrutiny, and the law will be struck down, unless the defendant or regulatory entity can evince that the law is narrowly tailored to advance a legitimate local purpose and that there is no reasonable, nondiscriminatory regulatory alternative.
A threshold question to a Dormant Commerce Clause analysis is the “substantially similar entities” comparison, which derives from the U.S. Supreme Court case, General Motors Corp. v. Tracy. The test is vitally important when discussing energy markets. When courts weigh an alleged claim under the Dormant Commerce Clause, they must determine whether entities are “similarly situated for constitutional purposes.” If the different entities serve different markets, then eliminating the supposedly violative state action would not affect national interstate markets.
Ninth Circuit precedent in Rocky Mountain Farmers Union v. Corey added color to the “substantially similar entities” test and applies to the court’s later findings in the Washington challenges detailed below. The Rocky Mountain case concerned California’s previously discussed CARB because it created a Low Carbon Fuel Standard (LCFS), which set a carbon intensity cap for transportation fuels used within the state by measuring emissions from production to point-of-use. Ultimately, the LCFS incentivized producers to utilize lower carbon-intensive transportation fuel or buy and sell credits to offset highly emitting fuels. Entities in the ethanol, gasoline, and petrochemical industries sued California officials challenging the LCFS on Dormant Commerce Clause grounds, but the Ninth Circuit rejected the argument. The case specified that California did not facially discriminate against out-of-state fuel providers because it did not attempt to protect California ethanol producers to the detriment of out-of-state ethanol producers especially when measuring and calculating carbon intensity scores and grouping fuel sources into categories. In other words, the out-of-state ethanol producers and providers served different markets than local fuel interests given how the LCFS measured emissions calculation scores.
Next, if a state law does not impose a burden on interstate commerce, either facially or through purpose and impact, the court must utilize the Pike balancing test, established in Pike v. Bruce Church, Inc.. The test calls for the Court to balance “[w]here the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” In other words, the state statute is presumptively valid so long as the burdens are not excessive in relation to the statute’s protectionist value. The balance of burdens and benefits have touched on the local benefits of climate change policies as well. In Rocky Mountain, the Ninth Circuit determined that California’s laws that attempt to lower GHG emissions in light of climate change provide a significant local benefit that offsets some protectionist impacts from the LCFS. Similarly, Washington’s green energy laws could serve a significant local benefit in light of climate change. Broadly, in a Pike balancing context, a challenger will likely win if the law is shown to have no benefits but high burdens. However, courts have shied away from making such grandiose claims.
In 2023, the U.S. Supreme Court ruled in the case of National Pork Producers v. Ross, which illustrated the Court’s reticence when applying the Pike test to dispose of a California regulation. California’s Proposition 12 amended the California Health and Safety Code to protect pig welfare. The proposition prohibited pork sales from breeding pigs “confined in a cruel manner” or from pigs that were the immediate offspring of cruelly confined sows. The Petitioners challenging the regulation were pork importers that asserted the regulation hampered a $26 billion interstate pork industry. The Proposition created an extraterritorial effect in violation of the Dormant Commerce Clause because non-Californian pig farmers had to effectively comply with the California law. The two lower courts declined to rule that the California law was impermissible under the Dormant Commerce Clause, and the Supreme Court came to a similar, though fractured conclusion. After concluding that Proposition 12 was not facially discriminatory, Justice Gorsuch determined that even state laws that have a practical effect of controlling interstate commerce were not per se violations of the Dormant Commerce Clause. Within the fractured opinion, the US Supreme Court Justices refused to strike down the proposition under Pike. Justices Gorsuch, Sotomayor, and Kagan stated that the petitioners did not allege a sufficient burden on interstate commerce. The Court cautioned against interfering in commerce, especially because of the modern era’s interconnected national marketplace where state laws practically effect extraterritorial behavior. In other words, the U.S. Supreme Court Justices did not have “a roving license” to disallow state statutes. The Court’s discomfort with overextending the Pike balancing test suggest that possible challengers to State statutes have high hurdles to overcome, especially with a monopolized, highly regulated area like state utilities regulation.
Two Washington cases, Invenergy Thermal LLC v. Watson and Pacificorp v. Watson exhibit a similar reticence with striking down the CCA under the Dormant Commerce Clause.
The Invenergy plaintiffs claimed that the CCA violated the Dormant Commerce Clause because the act required that the Illinois-based corporation, which owned Washington-based electricity-generating natural gas plants through other subsidiaries, purchase carbon allowances rather than receive no-cost allowances. The fact that electric utilities rather than electricity-generating facilities receive no-cost allowances violates the Dormant Commerce Clause because it “in effect” discriminates against out-of-state interests to the benefit of in-state interests.
The district court disposed of the plaintiffs’ claims for lack of standing. However, as the Ninth Circuit later held, even if the plaintiffs had standing, the entitlement of no-cost allowances does not “in effect” discriminate against the Invenergy plaintiffs because electricity generating plants and electric utilities are not “substantially similar” under the Dormant Commerce Clause. The CCA explicitly provides no-cost allowances to electric utilities through CETA but not to electricity generating facilities.
On appeal, the Ninth Circuit affirmed the district court on the merits, finding that though the lower court erred by prematurely addressing standing, independent electricity owners were not impermissibly discriminated against because electric utilities and independent power producers are not similarly situated or substantially similar entities. The CCA and by extension CETA, through its GHG mandate for utilities, did not violate the Dormant Commerce Clause by allocating no-cost allowances to electric utilities rather than independent power producers.
Pacificorp featured a gas-fired electric power plant in Washington that was considered a “covered entity” under the CCA. Pacificorp’s Chehalis, Washington power plant produced approximately seventy-seven percent of its energy to serve customers in five non-Washington states. As a result of being a “covered entity” and utility serving Washington customers, Pacificorp receives “no-cost” allowances for electricity sold to Washingtonians but must buy allowances at auction for out-of-state customers. Pacificorp sought a preliminary injunction against Ecology to issue no-cost allowances to the electricity generator for export or exempt the generator from purchasing allowances outright. The district court struck down the challenge to the CAA under the Dormant Commerce Clause because similarly to the Invenergy Thermal holding, in-state and exported electricity generators are not similarly situated under the statute. As a power generator that exported energy, Pacificorp was not entitled to no-cost allowances even for energy that was produced in Washington but served out-of-state residents.
As the two cases detail above, challenges to the CCA likely fail when out-of-state utilities and power generators allege Dormant Commerce Clause violations. Neither CETA nor the CCA discriminate on its face against out-of-state energy producers, utilities, or fuel suppliers. The CCA as well as CETA provide clear pathways for regulation that do not similarly situate in-state and out-of-state electricity generators and utilities. Moreover, the Supreme Court appears reticent with enforcing constraints on states as shown in Pork Producers, and this could protect both CETA and the CCA from challenges under the doctrine. Other state energy provisions that constitute impermissible extraterritorial regulation, like barring importing energy from out-of-state energy facilities as occurred in Minnesota’s Low-Carbon Power law, would not apply to the CCA and CETA because the statutes are carefully crafted as shown from the cases above.
Conclusion
Having laid the foundation for understanding CETA and the CCA, this Blog provides a framework for analyzing challenges to the statutes under the Dormant Commerce Clause, which so far, have been unsuccessful. Washington’s clean energy mandates under CETA and the CCA seem to be strongly protected given their careful crafting and given the current challenges before the courts. Outside of the Dormant Commerce Clause, states have broad powers to plan resource decisions for utilities in their jurisdiction, as the Federal Energy Regulatory Commission noted. Though the future of CETA and the CCA could change, the Dormant Commerce Clause appears to be one avenue that could be foreclosed, given current case law.
