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<title>October 2003: New York Law Restricting Emissions Trading Preempted by
Federal Law</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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</center><p align="left"><b><u><br>
October 2003</u><font size="6"><br>
New York Law Restricting Emissions Trading
Preempted by Federal Law<br>
</font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
200</em>3/</font><font size="2">11/01</font></p>
<center>
<p align="left"><span style="font-family:Arial">The U.S. Court of Appeals
for the Second Circuit (the “Court") recently upheld a lower court decision
to permanently enjoin enforcement of </span>
<span style="font-family:
Arial">New York</span><span style="font-family:Arial">’s Air Pollution
Mitigation Law, N.Y. Pub. Serv. L. � 66-k (Section 66-k"). Clean Air Markets
Group v. Pataki, 338 F.3d 82 (2d Cir. 2003) (the "Opinion"). The Court
determined that enforcement of Section 66-k would interfere with the
emissions trading system established under Title IV of the Clean Air Act
Amendments of 1990 ("Title IV"), 42 U.S.C. �� 7651-7651o, and that Section
66-k was therefore preempted by federal law.</span></p>
<p align="left"><span style="font-family:Arial">As explained in the Opinion,
Congress enacted Title IV to reduce acid rain caused by emissions of sulfur
dioxide. To that end, Title IV created a "cap-and-trade" system under which
electric-generating utilities each receive a certain number of sulfur
dioxide emissions "allowances" annually. Each allowance represents one ton
of sulfur dioxide. The aggregate of all allowances issued per year is
reduced in each successive year, and the allowances are transferable. The
intent is for polluters for whom emissions reductions are relatively
expensive to buy allowances from polluters for whom emissions reductions are
relatively cheap, thereby achieving the greatest overall reduction of
emissions at the least overall cost. The cap-and-trade system does not take
into account the geographic location of the buyers and sellers of emissions
allowances.</span></p>
<p align="left"><span style="font-family:Arial">According to the Opinion,
acid rain has been especially problematic in the Adirondack region of New
York. Much of the acid rain that falls in the Adirondacks is caused, not by
sulfur dioxide emissions from New York utilities, but rather by emissions
from fourteen so-called "upwind" states (New Jersey, Pennsylvania, Maryland,
Delaware, Virginia, North Carolina, Tennessee, West Virginia, Ohio,
Michigan, Illinois, Kentucky, Indiana and Wisconsin). From New York’s point
of view, the benefit of emissions reductions achieved in New York may be
offset or negated by any increase in emissions in the upwind states. The New
York legislature enacted Section 66-k with this issue in mind.</span></p>
<p align="left"><span style="font-family:Arial">Section 66-k provides that
any New York utility that sells sulfur dioxide emission allowances to a
utility in any of the fourteen upwind states must pay an assessment equal
to 100% of the amount received for the allowance. The assessment also
applies when a New York utility’s emissions allowances are subsequently
transferred to an upwind state. As the Court explained, the effect of this
restriction is to prevent the transfer of allowances of New York utilities
to utilities in the upwind states. </span></p>
<p align="left"><span style="font-family:Arial">New York argued that Section
66-k would not conflict with Title IV because it advances Title IV’s
ultimate purpose of protecting natural resources. The Court disagreed on the
ground that, even if the ultimate goal of both the state and federal
legislation is the same, Section 66-k is still preempted because it
interferes with the method by which the federal statute sought to achieve
the goal, that is, through a national allowance trading system. In support
of its conclusion, the Court pointed to specific language in the statute,
which permits the transfer of allowances to "any other person who holds such
allowances." The Court also pointed to the legislative history of Title IV,
which indicates that Congress specifically considered and rejected proposed
geographic restrictions.</span></p>
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<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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