Balancing a State's Right to Regulate Energy Policy in the Face of Federal Preemption Laws

Oct. 31st, 2023 10:00 am

In a landmark decision, the Ninth Circuit recently struck down Berkeley, California’s ambitious natural gas ban. The ruling sent shockwaves through the nation as it rekindled the debate over the role of natural gas in our country’s energy future. This decision has far-reaching implications for both environmentalists and the energy industry, shedding light on the complexities of balancing climate goals with practical energy needs.

The Berkeley, California Natural Gas Ban:

The Berkeley natural gas ban sought to phase out the use of natural gas by banning natural gas piping in new construction. Standing at odds with this ban was a federal law called the Energy Policy and Conservation Act (EPCA). Opponents of the ban pointed to a preemption clause within the EPCA, which stated that the EPCA preempts state and local regulations concerning energy use of covered products, i.e., refrigerators, stoves, and other appliances.[1] The City of Berkeley argued that its ban did not regulate energy use since “zero” natural gas coming into a building is not a quantity, and that the ban does not concern the efficiency standards of the individual covered products.

The City further argued that the EPCA preemption clause only concerns state and local regulations on the design and manufacture of the covered products. In the federal government’s amicus brief, it noted that the EPCA only preempts energy conservation standards. The Ninth Circuit was unconvinced by the City and federal government’s positions, holding that regulations on a non-covered product like piping which, in effect, ban the use of a natural gas-powered covered products, is a ban on the covered products themselves.[2]

NYS Natural Gas Ban:

A similar case is making its way through federal courts in New York. Earlier this year, New York State banned natural gas equipment and infrastructure in new buildings set to roll out over the next few years. A coalition of builders, gas companies, and unions recently filed suit challenging the ban, arguing that not only is the ban preempted by the EPCA, but that the ban is counter to the national energy policy, jeopardizes the need for reliable, resilient, and affordable energy, and shifts energy demands onto the State’s already overburdened electric grids.[3] Similar to the Berkeley ban, the New York State ban prohibits installing natural gas lines and building systems in most new buildings, which indirectly prevents installation of gas appliances and equipment moving forward. Unlike the Berkeley ban, the New York State gas ban was passed by a state, not a municipality. So, what does the future of the New York ban look like?

Questions Facing the Northern District of New York (and presumably the Second Circuit):

Several unresolved questions should be resolved in the New York case:

1. The EPCA defines “covered products” as those that consume or are designed to consume energy. A refrigerator or stove are products that are designed to consume energy, but could the NDNY distinguish gas piping as something completely different and outside the purview of the EPCA?

2. Energy use, as defined by the EPCA, is the quantity of energy consumed. Is there any way to distinguish the ban as a ban on an energy type instead, which would render the regulation outside of the purview of the EPCA?

3. How does the fact the ban was imposed by a state [the fourth largest by population] impact the legitimacy of the ban? Whereas a city the size of Berkeley impacts about 120,000 people, the NYS natural gas ban impacts nearly 20 million people. Is there space for the federal district court in the Northern District of New York (where the case was filed) to find that such a ban falls within the purview of a state’s right to regulate the health, safety, and wellness of its people, or to set their own energy policies for the energy grids they control, or perhaps something else?

4. The Ninth Circuit’s decision suggests that net-zero emission laws may contradict the preemption clause of the EPCA. Is the NDNY prepared to resolve that potential pitfall, too? And how might a federal appeals court — the Second Circuit — resolve the issue if it is appealed?

5. The Ninth Circuit made sure to mention that their decision only addresses the fact that the City of Berkeley must extend fuel piping to new buildings, but the decision does not decide whether the City must maintain or expand availability of a utility’s delivery of gas to meters. How will the NDNY balance this same issue?

Paths Forward for State and Local Governments:

If the NDNY and/or the Second Circuit decide similarly to the Ninth Circuit, states and local governments are not left without (some) recourse. First, the Ninth Circuit suggests that the EPCA does not regulate where energy ‘rolls off’ factory floors, but rather where consumers ‘plug-in’ to use energy. [4] Regulatory measures at a different point on the energy path may not be covered by the preemption clause of the EPCA.

Second, the EPCA carves out a waiver process for state regulators to bypass the preemption clause if the State can show by a preponderance of the evidence that the regulation is needed to meet an unusual and compelling State or local energy interest. More information on how to satisfy that requirement can be found in 42 U.S.C. § 6297(d).

Third, the EPCA sets a narrow exception for certain building code requirements to avoid federal preemption. To qualify for the exception, a regulation must meet seven elements, which ultimately ensure builders are not forced to choose one type of appliance and energy source over another. More information on these elements can be found in 42 U.S.C. § 6297(f)(3).

Takeaway:

At least for one federal circuit, a natural gas ban on new construction stepped on the toes of federal regulation under EPCA. This does not necessarily mean that other federal circuits will be convinced of the same. Even if they agree, options remain on the table for state-level regulation, although perhaps less effective. It will be interesting to see how the New York ban holds up, particularly considering it is a state law, not a municipal law like the Berkeley ban. Many states have passed their own preemption laws that prohibit cities from banning natural gas.[5] These laws could be seen as regulations of energy use pursuant to the Ninth Circuit’s logic, and thus preempted by federal law, or perhaps not. Is it right for a state to be able to regulate one direction of a street but not the other? States have much broader rights than municipalities do, and a state the size of New York tends to have broad influence on national policy. How the federal district court in New York addresses these issues will be important. In 2019, New York passed the Climate Leadership and Community Protection Act (CLCPA) to address climate change and to reach net-zero emissions in the state. The goals are to reduce emissions to 40% below 1990 levels by 2030, and to 85% below 1990 levels by 2050.[6]

It is difficult to imagine that with the EPCA, the intent of Congress was to prohibit states from implementing their own energy policies, especially considering that states have broad oversight of their own energy grids. Net-zero emission laws, like the CLCPA, could be in jeopardy given the logic employed in the Ninth Circuit, unless that same logic can be distinguished. The Ninth Circuit decision does not address how the rights of states to set their own energy policies are affected by the federal preemption clause in the ECPA. The NDNY will be tasked with figuring that out, which may open the door to an aggressive green energy future in New York, or perhaps require lawmakers to go back to the drawing board to implement a renewable energy policy that works in tandem with the guidelines of the EPCA.

The Zoghlin Group, PLLC has experience representing individuals, municipalities, developers, contractors, neighborhood groups, and property owners. If have questions or are seeking assistance with legal issues related to New York State energy laws, contact an experienced attorney at The Zoghlin Group, PLLC for help. For questions or inquiries related to Environmental and Energy Law, please contact Jacob H. Zoghlin, Esq. or Mindy L. Zoghlin, Esq. at The Zoghlin Group, PLLC.

Endnotes:

[1] 42 U.S.C. 6297(a).

[2] California Restaurant Ass’n v. City of Berkeley, 65 F.4th 1045 (2d Cir. 2023).

[3] Complaint for Declaratory and Injunctive Relief, ¶ 2, Mulhern Gas Co., Inc., et al. v. Robert J. Rodriguez, 1:23-cv-01267, Oct. 12, 2023 (NDNY).

[4] Supra note 2, at 1052.

[5] An Overview of Natural Gas Bans in the U.S., Institute for Energy Research (June 2021), available at https://www.instituteforenergyresearch.org/wp-content/uploads/2021/07/NaturalGasBanReport.pdf.

 

[6] E.C.L. § 75-0107 (2019).

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