It further contends that states may have to consider the interests of out-of-state producers when issuing regulations because, among other reasons, compliance costs will be partly internalized by in-state consumers and shareholders. Thanks to Rachel Barkow, Barry Friedman, Samuel Issacharoff, and participants in the Furman Aca- demic Scholars program for reading and providing helpful comments on earlier drafts of this Note. It finds that without more careful attention to the potential problem of cost externaliza- tion, such arguments are insufficient. 1499, 1523–24 (2007) (describing Oregon and Washington laws requiring new or modified plants to reduce greenhouse gas (GHG) emissions or obtain offsets, and New Hampshire and Massachusetts laws setting emission caps with offsets for existing plants). When Congress amended the Clean Air Act in 1967 to regulate motor vehicle emis- sions of criteria pollutants23 at the federal level,24 it chose to accom- modate California’s preexisting regulatory scheme and unique need to combat serious local pollution problems like smog. Dist., 498 F.3d 1031, 52 Janet Wilson, EPA Chief Is Said To Have Ignored Staff; The Head of the Agency Rejected Written Findings in Ruling Against a California Emissions Law, Sources Say, L. The third Section categorizes the ways in which state regulations may externalize costs to other states, and the fourth introduces the practical limits of the cost-externalization argument for federal ceiling preemption. Existing Critiques of Preemption in Environmental Law Debates in environmental federalism scholarship historically cen- tered on the propriety of minimum federal standards.69 Many com- mentators argued that the federal government should mandate minimum environmental standards to ensure a basic level of environ- mental quality throughout the country and thereby prevent interstate competition and public choice pressures from producing insufficient environmental protection.70 Now, as the primary locus for environ- 69 See supra note 13 and accompanying text (giving prominent examples of such 70 See, e.g., Engel, supra note 13, at 278 (arguing that state environmental standards would be suboptimal in absence of federal framework due to game-theoretic competition between states); Joshua D. 225, 278–87 (1997) (arguing that environmental interests “attain greater representation at the federal level”); Stewart, supra note 13, at 1211–15 (developing classic arguments sup- porting minimum federal standards including, inter alia, tragedy of commons resulting from competition for mobile industries and disparities of effective organization for envi- ronmental groups at state level).
The Note concludes that the merits of the cost-externalization argument must be carefully weighed against the benefits of decentralized policymaking in order to yield optimal environmental policy. Finally, thanks to members of the New York University Law Review for their editorial assistance, particularly Nick Tompkins, Tracy Chin, Matthew Lawrence, Thomas Clarke, Drew Johnson-Skinner, Mitra Ebadolahi, David Noll, Rebecca Stone, and Jeremy Weinberg. \server05\productn\N\NYU-1\NYU104unknown Seq: 3 20-MAR-09 260 NEW YORK UNIVERSITY LAW REVIEW [Vol. Nash, The Illusion of Devolution in Environ- mental Law, 38 URB. 1003, 1014 (2006) (“[P]ressure to enact uniform federal envi- ronmental standards will continue to increase as national markets continue to expand. 1353, 1355 (2006) (noting that standard arguments for federalism fail when one state’s social and economic “experiments” create risks for rest of country); Gary T. 917, 922 (1996) (“The most obvious justifications for federal law that supersedes state law is that state law produces effects that are felt beyond the territorial limits of the states themselves or that there is some significant need for national uniformity in the content of 11 A. It then introduces the cost- externalization argument in favor of federal ceiling preemption, rec- ognizes several categories of cost externalization, and addresses the limitations of the argument. Among the most recent actions, Massachusetts adopted an ambitious economy- wide GHG emissions cap. California is allowed to petition the Administrator of the EPA for a waiver from preemption in adopting its own standards.25 Under the statute, the \server05\productn\N\NYU-1\NYU104unknown Seq: 7 20-MAR-09 264 NEW YORK UNIVERSITY LAW REVIEW [Vol. Sarnoff, The Continuing Imperative (but Only from a National Perspective) for Federal Environmental Protection, 7 DUKE ENVTL. \server05\productn\N\NYU-1\NYU104unknown Seq: 14 20-MAR-09 April 2009] LIMITING PREEMPTION IN ENVIRONMENTAL LAW 271 mental regulation has moved from the federal government to the states, many environmental law scholars’ attitudes toward federalism Scholars who once contended that states could not be trusted to pro- tect the environment adequately without minimum federal environ- mental standards now criticize the federal government for imposing regulatory ceilings on states via federal preemption.71 This shift requires a more principled explanation than simply favoring the more stringent regulator.
When state legisla- tures or administrative agencies export costs to neighboring states, neither citizens nor industries of those states can hold the legislators and regulators democratically accountable, whether by voting or by leaving the jurisdiction.92 As one commentator colorfully writes, when states can externalize the costs of their laws, “the folks who foot the bill can neither run away nor vote the bums out of office.”93 Fed- eral ceiling preemption is proffered as a solution to this problem, as it ensures that the federal government—which is democratically accountable to the entire nation—considers and balances all the costs and benefits of regulation. Varieties of Cost Externalization This Section advances three categories of cost externalization involving true externalities.94 These categories set the stage for an analysis of the limits of the cost-externalization argument for federal ceiling preemption in the next Section and allow for a more nuanced examination of cost externalization in Part III.95 Interstate cost externalization is commonly associated with state protectionism, but the problem is more general. 1331, 1335 (1997) (claiming that product standards may fail to maxi- mize overall welfare when jurisdiction lacks incentive to consider negative impact of 93 Michael S. This may result in the underprovision of facilities and projects that are nationally beneficial absent federal intervention. 1091, 1118 (1986) (“Part of the point of federalism is to allow states to make their own decisions about such matters as what sort of an environment they value and want to maintain.”). The company need not increase fuel efficiency across its entire vehicle line. At the margin, this may make these low fuel economy cars more expensive to build and thus more expensive outside of the jurisdiction.
Even when environ- mental regulations do not benefit domestic producers, states may pass stringent regulations because they can “pass off the costs of those standards to producers in foreign jurisdictions while reaping locally Environmental Regulation: Lessons for the European Union and the International Commu- nity, 83 VA. Greve, Subprime, but Not Half-Bad: Mortgage Regulation as a Case Study in Preemption, AEI FEDERALIST OUTLOOK, Sept.–Oct. OATES, THE THEORY OF ENVIRONMENTAL POLICY 30 (2d ed. In contrast, pecu- niary externalities describe instances in which one party’s (or one state’s) activities affect another’s financial condition without leading to inefficient resource allocation under condi- tions of pure competition because the externality operates through the price mechanism of 95 These categories are not mutually exclusive. See Merrill, supra note 83, at 175–76 (noting that with regard to NIMBY situation, “everyone has an incentive to export the costs of an activity, but if everyone pursues this strategy, the benefits associated with the 104 See Schwartz, supra note 10, at 925 (arguing that “overwhelming economic logic in favor of mass production and mass distribution” creates need for centralized regulation of products). Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 MICH. \server05\productn\N\NYU-1\NYU104unknown Seq: 22 20-MAR-09 April 2009] LIMITING PREEMPTION IN ENVIRONMENTAL LAW 279 processes to these preferences could theoretically justify the associ- Yet even if some level of disuniformity could be efficient due to the desirability of local tailoring, the nature of uniformity suggests that states may nonetheless produce less of it than they should. Practically, this would involve manufacturers selling more fuel-efficient motor vehi- cles in California and other states that adopt its greenhouse gas emis- sions standards.174 Because this compliance strategy does not require costly per-vehicle customization, it reduces the costs of disuniformity. This point, however, cuts both ways: By creating incentives for manufacturers to produce more high-efficiency, low-emissions automobiles, production of these vehicles will benefit from their own economies of scale.
Preemption under a statute may be either express or implied.47 Express preemption simply requires that a court find that a state’s regulation falls within the scope \server05\productn\N\NYU-1\NYU104unknown Seq: 10 20-MAR-09 April 2009] LIMITING PREEMPTION IN ENVIRONMENTAL LAW 267 of a federal statute’s expressly articulated preemption provision.48 The Clean Air Act’s treatment of state regulation of motor vehicles, as described above, is probably the most conspicuous example of express preemption in environmental law.49 Absent a waiver, the Clean Air Act prohibits any state or subdivision from “adopt[ing] or attempt[ing] to enforce any standard relating to the control of emis- sions from new motor vehicles or . at 1592–99 (discussing risks of regulatory failure that accompany ceiling pre- 76 See, e.g., Engel, supra note 37, at 184–85 (describing federal preemption as “an unpleasant by-product of interest group lobbying” and recognizing that while environ- mental interests favor federal floors, industry groups favor federal ceilings); Glicksman, supra note 2, at 801 (“The existence of overlapping federal and state authority to adopt environmental protection programs allows citizens to have access to multiple forums for seeking government assistance in promoting the protection of health, safety, and the 78 As a matter of theory, there would be no reason to suppose that federal ceilings are necessarily more likely than federal floors to lead to regulatory stasis. California Notice, supra note 159, at 163 See, e.g., Broder & Baker, supra note 55, at A1 (“The Bush Administration denied the waiver in late 2007, saying . Fur- thermore, and regardless of the regulation’s effects on out-of-state product markets, producers and their workers may also be affected if California’s regulations make automobiles more expensive within the state (and in other states that choose to adopt its regulations), as increased automobile prices could decrease sales, reduce profits, and impact employment rates.168 However, at least as applied, many of these cost-externalization claims rest on questionable assumptions that underappreciate the flex- ibility that California’s regulations provide and unreasonably presume that states are entirely politically insulated from the extraterritorial impact of their regulations.Specifically, they have not addressed the risk that states may adopt tough environmental regulations because they can externalize costs to other states, or that a single, large, pro-regulatory state like California could effectively dictate excessively stringent national standards. HEALTH & SAFETY CODE § 43018.5(a) (West 2006 & Supp. \server05\productn\N\NYU-1\NYU104unknown Seq: 4 20-MAR-09 April 2009] LIMITING PREEMPTION IN ENVIRONMENTAL LAW 261 Agency (EPA) during the Bush administration.12 This Note ulti- mately maintains that even when such state environmental regulations have the potential to export costs, the cost-externalization effect may often be exaggerated. 8 II COST EXTERNALIZATION AND FEDERAL PREEMPTION Leading environmental law scholars have criticized the rise of federal ceiling preemption.This Note presents a more principled case against federal ceiling preemption in environmental law and contends that the cost-externalization argument’s practical application is limited. It concludes that in light of the benefits of decentralized environmental policy, more careful attention to the actual form of specific state regulations is necessary before federal This Note proceeds in three parts. They argue that federal ceiling preemp- tion undermines state creativity, frustrates citizen preferences for enhanced environmental protection, and forgoes the benefits of con- current regulatory authority.68 Yet these paeans to federalism and Scholars critical of federal ceiling preemption in environmental law generally do not adequately address the concern that a state may adopt regulatory experiments that allow it to externalize costs to the rest of the nation while obtaining the environmental benefits for its own citizens.\server05\productn\N\NYU-1\NYU104unknown Seq: 1 20-MAR-09 NOTES LIMITING PREEMPTION IN ENVIRONMENTAL LAW: AN ANALYSIS OF THE COST-EXTERNALIZATION ARGUMENT AND CALIFORNIA ASSEMBLY BILL 1493 BRIAN T. 8 In contrast, preemption of state and local environmental regula- tions under implied preemption theories does not necessarily depend on express statutory language.BURGESS* In recent decades, states have exhibited remarkable leadership in environmental policy. President Obama has issued a presi- dential memorandum to the EPA supporting reconsideration, and the agency is expected to reverse course and grant the waiver request after completing a formal review process. Broder & Peter Baker, Obama’s Order Is Likely To Tighten Auto Standards, N. Instead, implied preemption is gener- ally based on an assessment that the regulations “conflict” with fed- eral laws.56 For example, multiple circuit courts have held that various state and local laws, such as those regulating hazardous-waste control and cleanup, were preempted by federal law because of perceived conflicts with federal schemes.57 Likewise, when the Department of Transportation recently proposed rules to increase average fuel economy standards, it persisted in its view that not only are state regu- lations of greenhouse gas emissions from motor vehicles expressly preempted by the Energy Policy and Conservation Act (EPCA)58 because they are “related to” fuel economy standards,59 but also that such state regulations conflict with EPCA and the more recently enacted Energy Independence and Security Act.60 The threat to local regulations from federal ceiling preemption may continue to increase. 681, 706 (2008) (arguing that courts should avoid finding implied preemption of city and state efforts to address climate change).