Overview
The US Supreme Court is set to hear Suncor Energy v. Boulder County on October 5, 2026, the first argument of the new term. The question in this particular case is whether federal law bars state-law claims for injuries tied to interstate and international greenhouse gas emissions. While the case concerns tort liability, the preemption theory before the Court is the one DOJ has used against the state superfund laws.
Eighteen months after Executive Order (EO) 14260, Protecting American Energy From State Overreach, named California's cap-and-trade program as a potential target, US compliance carbon markets have yet to face a direct federal challenge. To date, the US federal DOJ has used the EO against climate superfund laws and state climate suits. However, there has yet to be a federal suit filed against the California Cap-and-Invest, Washington's Climate Commitment Act (CCA), RGGI or the fuel standards/other markets.
Prices for WCI, the linked California Cap-and-Invest and Quebec Cap-and-Trade market, lost ~ 5% in September despite bullish fundamental drivers, such as progress on linkage with Washington state's Cap-and-Invest and the final updated California and Quebec regulations. In our September 28 weekly report, ClearBlue noted that renewed concern over federal attention to the program may be one factor contributing to the soft pricing, after the administration used the Defense Production Act (DPA) to pre-empt California law and restart the Sable pipeline. Washington's linkage with the California-Quebec market under WCI, planned to become operational for 2027, could also be a catalyst for federal action, giving DOJ a cross-state agreement to consider in the context of state overreach.
Suncor v. Boulder
Boulder County and the City of Boulder sued Suncor and ExxonMobil in 2018, alleging the companies contributed to climate change and misled the public about its risks. The claims include public nuisance, deceptive practices and unjust enrichment. The Colorado Supreme Court allowed the case to proceed in a 5-2 decision in May 2025, finding no federal preemption. DOJ filed an amicus brief in support of the companies. Justice Alito recused on September 28, citing holdings in ConocoPhillips and Phillips 66. That leaves eight justices. A 4-4 split would leave the Colorado ruling in place. A finding that federal law preempts state claims over interstate emissions would carry into litigation on state climate programs. A decision is expected by June 2027.
Climate superfund rulings
Two federal courts have struck down New York's Climate Change Superfund Act, which would have collected $75 billion from fossil fuel producers over 25 years. DOJ has had less success in cases brought before a state suit was filed.
Defense Production Act
The administration has used the DPA to override state energy law at specific facilities.
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March 3, 2026: DOJ's Office of Legal Counsel (OLC) concluded that a DPA order "will preempt contrary state law" and that the federal government "may direct an energy company to operate notwithstanding state permitting, environmental, or similar compliance requirements".
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March 13, 2026: Energy Secretary Chris Wright ordered Sable Offshore to restart the Santa Ynez Unit and pipeline off Santa Barbara over California's objections.
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April 20, 2026: Five presidential determinations directed DOE to expand petroleum, coal, gas and LNG, energy infrastructure and grid supply chains.
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August 19, 2026: Judge Stephen Wilson (C.D. Cal.) held that the order bars California from suing to stop Sable from complying. California has appealed to the Ninth Circuit.
DPA orders to date target facilities, not carbon pricing programs and it is not clear how it would apply in that context. No court has considered whether an allowance surrender requirement could be displaced this way.
EO 14260 and state carbon markets
EO 14260 directs the Attorney General to consider taking action against state laws on climate change, greenhouse gas emissions and carbon penalties or taxes. Alongside California's program, it specifically names the New York and Vermont superfund laws.
DOJ has since sued New York, Vermont, Hawaii, Michigan, Minnesota in May 2026, and California over its SB 1137 oil well setback law in January 2026.
Recall the first Trump DOJ challenged the California-Quebec linkage in 2019 under the Treaty and Compact Clauses and lost in district court. As ClearBlue has communicated previously, a similar case could be revived. Most recently, California signed a linkage agreement with Washington and Quebec in June 2026. Governor Newsom then made the required formal linkage findings on September 21. An expansion of the linked WCI market with Quebec as a foreign partner gives DOJ more to work with on foreign affairs grounds.
Washington state's climate law has prevailed in each court challenge to date. The US Supreme Court declined to hear Invenergy's challenge to free allocation for public utilities in October 2025. The Ninth Circuit rejected PacifiCorp's dormant Commerce Clause claim in August 2026. The Washington Supreme Court upheld the farm fuel exemption rules in June 2026. Note, however, these were industry suits; none tested federal preemption or a DOJ challenge to linkage.
