Clean Air Markets Group v. Pataki

Title IV of the Clean Air Act (CAA) implemented a cap-and-trade system to reduce annual emissions of sulfur dioxide (SO2), which was a leading cause of acid rain. Under the Title IV system, electricity-generating utilities were allocated a certain number of SO2 emissions allowances, and each year the total cap on SO2 emissions was reduced and fewer allowances were allocated. Allowances could be transferred and sold, which created a financial incentive for utilities to reduce their SO2 emissions. Congress sought to allow utilities to redistribute emissions reduction obligations among themselves most efficiently and cost-effectively as possible. The Adirondack region of New York State was particularly susceptible to acid rain because of its vulnerable geological composition. SO2 emissions traveled hundreds of miles in the wind, exposing the Adirondacks to SO2 emissions from 14 upwind states. To combat this problem, in 2000 New York passed the Air Pollution Mitigation Law. Section 66 of the Air Pollution Mitigation Law required the New York State Public Service Commission (PSC) to assess an air pollution mitigation offset upon any New York utility whose SO2 allowances were sold or traded to any of the 14 upwind states. The amount assessed was equal to the amount of money the New York utility received in exchange for the allowances. Utilities could avoid the assessment by attaching a restrictive covenant to any allowances they sell that prohibits their subsequent transfer to any of the upwind states. Clean Air Markets Group (CAMG) (plaintiff) brought suit in district court against New York Governor Pataki and the commissioners of the PSC (defendants). The district court held that Section 66 interfered with the accomplishment and execution of the objectives of Title IV and thus Section 66 was preempted by Title IV and its enforcement would violate the Supremacy Clause of the Constitution. Governor Pataki and the commissioners appealed, arguing that Section 66 supported the ultimate purpose of Title IV by protecting natural resources.