Extraterritorial state laws are unconstitutional

This morning, a divided panel of the Eighth Circuit held that a Minnesota law regulating greenhouse gas emissions beyond the state’s borders is invalid. This is a welcome result. PLF, joined by NFIB, filed an amicus brief in the case, supporting the challenge, arguing that the Constitution’s Dormant Commerce Clause forbids extraterritorial state laws.

In 2007, Minnesota passed a law regulating emissions from power plants. However, the law did not only apply to Minnesota power plants. Rather, the state decided to extend its hand beyond its borders by regulating emissions from power plants that import electricity into the regional grid. Judge Loken rightly recognized that this isn’t kosher. He explained:

The State argues that “[the statute] merely regulates in an area of traditional state authority.” Without question, Minnesota and other States have long regulated the siting, construction, and operation of electric generating facilities located within their borders. Minnesota “retains broad regulatory authority to protect the health and safety of its citizens and the integrity of its natural resources.” Consistent with that authority, plaintiffs did not challenge, and the
district court did not enjoin, enforcement of [one provision], which prohibits
constructing within Minnesota a new large energy facility that would contribute to statewide carbon dioxide emissions.

But [other provisions] seek to reduce emissions that occur outside Minnesota by prohibiting transactions that originate outside Minnesota. And their practical effect is to control activities taking place wholly outside Minnesota. In determining whether a law has extraterritorial reach, the Supreme Court has instructed us to consider “how the challenged statute may interact with the legitimate regulatory regimes of other States.” Other States in the MISO region have not adopted Minnesota’s policy of increasing the cost of electricity by restricting use of the currently most cost-efficient sources of generating capacity. Yet the challenged statute will impose that policy on neighboring States by preventing MISO members from adding capacity from prohibited sources anywhere in the grid, absent Minnesota regulatory approval or the dismantling of the federally encouraged and approved MISO transmission system.This Minnesota may not do without the approval of Congress.

The opinion gets to the heart of the problem of extraterritorial regulations. If all states can regulate beyond their borders, they could impose overlapping regulatory burdens on out-of-state individuals to whom they are in no way accountable. And they could shield their unpopular and overly burdensome regimes from interstate competition.

Our amicus brief highlighted the numerous ways a contrary ruling would have resulted in abuse:

Unless courts continue to strike down laws that attempt to frustrate intergovernmental competition, states could substantially interfere with the free flow of goods across state boundaries. Suppose, for example, New York—which has a minimum wage higher than the federal standard—became concerned that higher labor costs would cause its citizens and businesses to leave the state. It might pass a law forbidding importation of goods produced elsewhere using labor that is paid less than New York’s minimum wage.

Or suppose that a state legislature that favored a large labor union became concerned that “right to work” states threatened its economy by offering lower costs to industry and consumers. To prevent this competition, could the state ban importation of goods produced in states that do not allow “closed” shop agreements or from businesses that do not have such agreements? …

In each of these hypotheticals, a state’s policy choices might be expected to cause adverse consequences on the state’s own industries and economy. So be it. A state may not address this competitive disadvantage by extending its regulation to commerce occurring beyond its borders. Although states are free to adopt innovative solutions to contested public policy issues, they cannot frustrate their sister-states’ equal ability to experiment nor can they avoid intergovernmental competition. The Dormant Commerce Clause forbids it.

The Eighth Circuit decision potentially sets up a circuit split on the constitutionality of extraterritorial state laws. As regular readers may recall, PLF has asked the Supreme Court of the United States to review contrary decisions in cases challenging California and Colorado‘s emissions regulations. The split makes it far more likely that the Supreme Court will finally take up this issue.