State-Level Carbon Taxes and the Dormant Commerce Clause: Can Formulary Apportionment Save the World?
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State-Level Carbon Taxes and the Dormant
Commerce Clause: Can Formulary
Apportionment Save the World?
Darien Shanske*
INTRODUCTION
A carbon price is coming, or so it would seem. Even though
in the United States there have only been a handful of successful
state-level efforts,1 large firms are assuming that a price will be
placed on their greenhouse gas emissions.2 Yet until recently, it
was unclear as a practical matter how a national price for carbon
was going to get established.3 Indeed, it is still unclear, but one
possible avenue has opened up. This is because in June 2014, the
Environment Protection Agency (EPA) released draft rules
mandating significant reduction in the release of carbon, a
greenhouse gas. Specifically, by 2030 these rules aim to achieve
C02 emission reductions from the power sector of approximately
30 percent from C02 emission levels in 2005.' These rules give
states great flexibility in achieving the required reductions.5
* I would like to thank all the participants in the 2014 Chapman Law Review
Symposium on Business Tax Reform. I would also like to thank Ash Bhagwat, Dan
Farber, David Gamage, Carlton Larson, John Swain, and Michael Wara. I was largely
inspired to write this piece after reading the analysis of related issues by Mark Gergen
and discussing them with him and the NorCal Tax Roundtable. Mark P. Gergen, The
Case in Economic Theory for Wrapping a Carbon Tax Around Cap and Trade 6 (Aug. 27,
2013) (unpublished paper), available at http://www.law.berkeley.edu/files/Gergen 09
092013.pdf. I am grateful to thank Mike Parnes for excellent research support. All
mistakes are my own.
1 For instance, there is California's AB 32. CAL. HEALTH & SAFETY CODE § 38500
(West 2014).
2 Coral Davenport, Large Companies Prepared to Pay Price on Carbon, N.Y. TIMES,
Dec. 5, 2013, at Al, available at http://www.nytimes.com/2013/12/05/business/energy-
environment/large-companies-prepared-to-pay-price-on-carbon.html?-r=&pagewanted=p
rint; Carbon Copy, ECONOMIST, Dec. 14, 2013, http://www.economist.com/news/business/
2159160 1-some-firms -are-preparing-carbon-price-would -make-big-difference-carbon-copy.
3 Much less an international price, especially since so much attention has been
focused on what the United States has done-or not done. See, e.g., Coral Davenport,
Governments Await Obama's Move on Carbon to Gauge U.S. Climate Efforts, N.Y. TIMES,
May 27, 2014, at All.
4 Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric
Utility Generating Units, 79 Fed. Reg. 34,830, 34,832 (proposed June 18, 2014) (to be
codified at 40 C.F.R. 60.5700), available at http://www.gpo.gov/fdsys/pkg/FR-2014-06-
18/pdf]2014-13726.pdf.
5 Id. at 34,834-35.](ViewImageLocal?handle=hein.journals/chlr18&div=15&collection=&method=preview&ext=.png&size=3)
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State-Level Carbon Taxes and the Dormant Commerce Clause: Can Formulary Apportionment Save the World?
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