In addition to growing federal efforts to dismantle state-level climate programs, Washington State's cap-and-invest initiative faces a new constitutional challenge. This legal challenge, led by Invenergy Thermal LLC, has reached the U.S. Supreme Court and comes just months after Washington voters rejected Initiative 2117 in November 2024, a ballot measure aimed at repealing the Climate Commitment Act (CCA), and follows a recent Executive Order issued that directly risks state-led carbon markets.
The federal landscape shifted on April 8, when former President Trump issued the Executive Order (EO) “Protecting American Energy from State Overreach.” The EO directs the U.S. Attorney General to evaluate state-led climate programs, alleging that they impose barriers to interstate commerce, jeopardize energy security, and unfairly penalize energy producers. While the EO is vague on specifics, its broader implications cast uncertainty on carbon markets nationwide. Against this backdrop, the Invenergy Thermal case represents another point of contention over Washington's climate policy.
Invenergy Thermal (Invenergy), an Illinois-based energy company operating the Grays Harbor Energy Center in Washington, claims that while local utilities receive no-cost allowances from the program to help mitigate costs, Invenergy does not receive the same benefit as they are an out-of-state operator. Invenergy states that this puts them at a competitive disadvantage and violates the dormant Commerce Clause in the US Constitution.
This issue has withstood legal scrutiny in previous cases. Both a district court in 2023 and the Ninth Circuit Court of Appeals in 2024 ruled that the cap-and-invest program did not impose significant burdens on interstate commerce. The courts also upheld the validity of allocating free allowances to in-state utilities to mitigate consumer costs.
The Washington program is pursuing linkage with Quebec and California’s linked programs, with a proposal for program rule changes to facilitate linkage being released on 25 April. The proposed changes include aligning compliance period lengths with WCI, specifying power imports threshold, biofuels inclusion, allowance purchase limits, among others. The Cap-and-Invest program continues to operate as intended, as the outcome of this threat is still to be decided on 15 May when the justices decide whether to hear the appeal. However, it may introduce a layer of caution and uncertainty amidst ongoing tensions between state and federal authority over climate programs. The Washington program had a minimal reaction to the 8 April Executive Order despite being more vulnerable to potential threats, as Washington’s electricity grid operates in a shared Independent System Operator (ISO), compared to states such as California, where the grid is operated exclusively within that state.
As states like Washington pioneer bold strategies to combat climate change, their programs increasingly serve as battlegrounds for defining the limits of state authority and the role of federalism in addressing the climate crisis.
ClearBlue will continue to monitor these developments and will update clients as needed.