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New York state’s end-run effort to prevent utilities from selling pollution credits to so-called “upwind” polluters in other states was stricken on constitutional grounds Tuesday by a Northern District of New York federal judge. U.S. District Judge David N. Hurd said the state’s Air Pollution Mitigation Law violates both the Supremacy and Commerce clauses of the U.S. Constitution and, as such, is unenforceable. Hurd found that the state law impermissibly interfered with the federal Clean Air Act. His ruling allows New York companies to sell their pollution credit allowances on the open market without restriction. “This is good for the environment in New York,” said attorney Allison D. Wood of Hunton & Williams, a Washington, D.C.-based firm representing the plaintiff, an organization called the Clean Air Markets Group. “The free trade of allowances allows sources to determine what the best way is for them to lower their emissions. That is what Congress intended when it passed the Clean Air Act.” The case, Clean Air Markets v. Pataki, 00-CV-1738, evolved from an effort by New York to control the acid rain that pollutes the Catskills, the Hudson Highlands, the Rensselaer Plateau and parts of Long Island, and which is particularly destructive to the Adirondack wilderness. Acid rain results largely from emissions of sulfur dioxide and nitrogen oxides that are the byproducts of fossil fuels. While New York companies emit substantial quantities of the pollutants, the problem is exacerbated by the fact that emissions from out-of-state utilities are wind-blown into New York State. The dispute here involves the interplay between the federal Clean Air Act and New York’s response to that legislation, the Air Pollution Mitigation Law. Under the Clean Air Act, companies are afforded certain allocations of emission allowances and are free to sell or trade the credits they do not need. When Pataki in 1999 issued an executive order requiring New York electric generators to collectively reduce their sulfur dioxide emissions to half what is allowed under the Clean Air Act, firms in New York instantly had more credits available for transfer under the federal law. Concerned that New York firms were selling those extra credits to out-of-state polluters, the state enacted the Air Pollution Mitigation Law in 2000. Since the state could not directly trump federal law and declare an outright ban on the sale of those credits to upwind polluters, it instead imposed a 100 percent financial penalty on any firms that did so. In essence, the state law removed any financial incentive a New York firm may have had to sell its credits to companies in any of 14 other states. PROTECTIONIST AGENDA? Clean Air Markets Group — which identified itself as a coalition of “electricity generators, pollution credit brokers, mining companies and trade associations” — challenged the law with a federal lawsuit. Only after New York Attorney General Eliot Spitzer and lawmakers demanded more information on the Clean Air Group was it revealed that the organization consists largely of out-of-state owners of coal-fired plants in New York State. The suit claimed that New York’s law intruded on the federal statute. Judge Hurd agreed, holding that the New York statute is pre-empted “because it interferes with the Clean Air Act’s method for achieving the goal of air pollution control,” and would have the effect of one state controlling emissions in another state. “Defendants argue that the statute is not protectionist because it burdens in-state units … rather than out-of-state interests,” Hurd wrote. “Defendants contend that the statute cannot be protectionist because it is aimed at protecting natural resources, not protecting in-state businesses. These arguments miss the point. Protectionism is about a state isolating itself from a common problem by restricting the movement of articles of commerce in interstate commerce.” Representing the plaintiff along with Wood were Norman W. Fichthorn of Hunton & Williams, and local counsel Paul A. Feigenbaum of Couch White in Albany, N.Y. The attorney for the state, Robert M. Rosenthal of the attorney general’s environmental protection bureau, said it was unclear Tuesday whether the ruling would be appealed. Assistant Counsel Carl Patka and Diane T. Dean appeared for the state’s Public Service Commission, one of the defendants. Marc Violette, spokesman for the state attorney general, said the legislation shot down Tuesday is part of a multipronged effort to combat acid rain through legal recourse. Violette said the state is also attempting to address the problem though direct litigation against alleged polluters.

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