The Limits of Administrative Law as Regulatory Oversight in Linked Carbon Markets

The Limits of Administrative Law as Regulatory Oversight in Linked Carbon Markets
UCLA Journal of Environmental Law & Policy 33(1): 1–41 (2015)

Many commentators have celebrated the link between carbon markets in California and Québec as an example of effective coordination of subnational climate policy instruments. Here, I argue that this enthusiasm is misplaced. California recently amended its carbon market regulations to enable significant leakage of emissions to neighboring states. These reforms reduce the environmental effectiveness of the market, contradict clear statutory guidelines, and dilute the integrity of the state’s compliance instruments. Moreover, the reforms took place in an administrative process that never recognized the leakage implications, raising questions as to whether California alerted its Canadian counterparts of the consequences of its internal reforms. I review this transition from three perspectives: the relevant administrative proceedings in California, the mutual obligations both governments accepted under a bilateral agreement, and the standards California law imposes on prospective linked markets. Each perspective reveals major shortcomings. Rather than demonstrating a successful model for harmonizing carbon market systems across different legal jurisdictions, the link between California and Québec exemplifies a major institutional weakness: in a linked carbon market, participating governments must continuously monitor the administrative processes of each jurisdiction in order to maintain market integrity. But as the California experience demonstrates, administrative law may not be up to the task of ensuring that practical market operation follows the rule of law.