Deep Dive Episode 128 – Can States Trump Interstate Commerce?

A Regulatory Transparency Project Teleforum

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Asserting their sovereign interests or “states' rights,” many states are increasingly attempting to inject state officials’ policy preferences on national and global issues through state legislation or regulation on myriad subjects including energy, the environment, immigration, drugs, labor, health, food, and transportation.  In what ways does the Interstate Commerce Clause, or the so-called Dormant Commerce Clause, limit the scope of the constitutionally legitimate spheres of these kinds of state legislation or regulation?  In other words, what is the meaning of federalism in a constitutional system designed to facilitate interstate commerce?  And, what is the proper judicial role, if any, in policing state laws that seek to interfere or have the effect of interfering with the free flow of commerce among the several states?

These questions are subject to considerable debate, with significant disagreement even within normally like-minded camps.  Some conservatives and liberals alike think there is no such thing as an enforceable Dormant Commerce Clause.  Others with various ideological priors view the Dormant Commerce Clause as invalidating only state laws that discriminate in favor of in-state activity over activities in other states.  Another view posits that the Dormant Commerce Clause is broader than a non-discrimination principle and should be used to invalidate state laws that unduly burden or interfere with the flow of interstate commerce.   And still others take views in between or beyond these positions.

Responding to Professor Donald Kochan’s recent essay in the Notre Dame Law Review Reflection, “The Meaning of Federalism in a System of Interstate Commerce: Free Trade Among the Several States”—an essay that emphasizes that commerce facilitation was a primary driver of the move from the Articles of Confederation to the Constitution—the panelists explore examples of current state laws and regulations that expand a state’s reach into national and international affairs, and they analyze and debate the different interpretations of the Constitution regarding the proper role of the judiciary in evaluating these laws.

Featuring:

  • Jonathan Adler, Johan Verheij Memorial Professor of Law, Director of the Center for Business Law & Regulation, Case Western Reserve University School of Law
  • James Coleman, Associate Professor of Law, Southern Methodist University Dedman School of Law
  • Donald Kochan, Professor of Law and Deputy Executive Director, Law and Economics Center, Antonin Scalia Law School, George Mason University

Visit our website – www.RegProject.org – to learn more, view all of our content, and connect with us on social media.

Event Transcript

Micah Wallen:  Good afternoon, and welcome to The Federalist Society's Fourth Branch podcast for the Regulatory Transparency Project. My name is Micah Wallen, and I am the Assistant Director of Practice Groups and the Regulatory Transparency Project at The Federalist Society.

As always, please note that all expressions of opinion are those of the guest speakers on today's call.

Today, we are happy to bring you a discussion entitled, "Can States Trump Interstate Commerce?" For our panelists today, we are pleased to have Jonathan Adler, who is a Johan Verheij Memorial Professor of Law and Director of the Coleman P. Burke Center for Environmental Law at the School of Law for Case Western Reserve University.

We also have James Coleman, who is an Associate Professor of Law at the Southern Methodist University Dedman School of Law.

We also have Donald Kochan, who is a Professor of Law and Deputy Executive Director of the Law and Economics Center for the Antonin Scalia Law School at George Mason University.

If our audience would like to learn more about all of our speakers and their important work, you can visit RegProject.org where we have listed all of their bios and further information.

In a moment, I will turn it over to Donald to get us started and moderate the conversation. After opening remarks and discussion, we will then go to an audience Q&A, so please be thinking of the questions you'd like to ask our speakers.

Thank you all for joining us, and Donald, the floor is yours.

Donald Kochan:  Thank you, Micah. And thank you to The Federalist Society, to the Regulatory Transparency Project, and to my fellow panelists for being on this call.

Today, as noted, we're going to be talking about "Can states trump interstate commerce?" My remarks will be focused on a variety of areas of concern related to that question. I'm going to start out talking a little bit about terminology—why our linguistic choices matter, why federalism itself is complex and is more sophisticated and nuanced than states' rights, and why the choice in language really helps to inform the content of the constitutional provisions at issue.

Then, I'm going to talk a little bit about the historical background and the idea that our move from the Articles of Confederation to the Constitution of the United States really was meant to facilitate the free flow of commerce between the several states.

Then, operationally, how do we actually look at current controversies and current debates? How do we look at state authority based on this understanding of the constitutional system? In part, operationally, then, what I'd like to look at is the concepts in a system of federalism based on a system of interstate commerce, and why those concepts themselves matter and help to inform the public policy debates associated with this.

I'm going to move, then, to talk a little bit about why those concepts are most often mobilized constitutionally what might be called the Dormant Commerce Clause. And then, talk about some of the divisions between even Federalist Society members or conservatives and libertarians as to what the Dormant Commerce Clause means, what it entails, what it encompasses, and how it can be enforced, if at all.

There will be a number of schools that we will discuss there. One is that no Dormant Commerce Clause exists at all. One is that there might be a nondiscrimination norm that is [inaudible 00:03:42] extent of the Dormant Commerce Clause. Others think that it's even broader than that—a nondiscrimination norm plus a prohibition on undue burdens on interstate commerce. And then, there are some other nuanced views as well, and we'll get to those in this call.

Finally, we need to consider even if there is a constitutional grounding for the protection of commerce within our system of federalism, what's the role of the judiciary? It's not necessarily true that the judiciary has the ability to actually enforce these provisions of the Constitution even if we can see that they exist, so there does need to be a question of what's the appropriate judicial role involved in all of this?

Let me start with the question of what is federalism? Or, what is federalism in a federal system? It really is that. It is a system. It is a system in which powers divided between a federal/national government and other subunits having substantial independent authority. It involves a division of separate, overlapping, or coordinating spheres of sovereignty—sovereign jurisdiction and authority developed across different kinds of governmental units.

Then, the question becomes what is the balance between those units? What is the allocation of authority between the units? And does the Constitution answer some of those questions?

Federalism also is a unity of several states under a national umbrella but with a separate national government that has certain jurisdictional authority, has necessary functions. It is necessary to have the national government to accomplish certain goals even though you have the several states involved within it. The Constitution recognizes that the facilitation of commerce is one of those goals for which the national government was necessary.

Federalism also involves respect. Respect for different spheres of authority. So we do need to identify which spheres of authority properly are placed in the national government and which spheres of authority are better placed in the states. And what are the limitations upon the spheres of authority in the states in order to accomplish truly national goals such as the facilitation of commerce?

Federalism is also about shared and complementary purposes. Shared purposes that inure to the benefit of everyone involved in the system. That is, every state, in fact, benefits from the national government's facilitation of markets between the states through the Interstate Commerce Clause.

The shared and complementary purpose in the United States Constitution is to create this kind of open market between states.

In a moment, I will also describe federalism as distinct from a confederation. One of the reasons we know that is that one of the principal faults of the Articles of Confederation was seen by the framers as the inability to facilitate commerce between the states, the protectionist measures that certain states would adopt against other states, and how that [inaudible 00:06:30] the development of the nation.

While some areas of jurisdiction in a system of federalism are truly reserved exclusively to the states, and while some things are better done by the states even if it could be done constitutionally by either the national government or the state governments, federalism is not the same as "states' rights."

I'll just start off my remarks with a little bit about why these rhetorical decisions matter. Why choosing to use our words accurately matter.

Federalism is not the same as states' rights. In fact, some things cannot be done by the states specifically to facilitate other values and to hold together the union. I think, in many ways, commerce is an area that is the glue which holds together the union. Interstate commerce, or commerce among the several states, serves a number of purposes that allow for the union to be preserved and to create a market within it.

We see Article I, Section 8, Clause 3 of the U.S. Constitution stating that "Congress shall have the power to regulate commerce with foreign nations, and among the several states, and with the Indian tribes." This most commonly is referred to as the Interstate Commerce Clause, although it might more appropriately be called the Commerce Among the Several States Clause, as well as we have independent and there are other things about foreign commerce and Indian tribes as well as separate Commerce Clause provisions.

The terminology matters because an overemphasis on the absolutist idea of states' rights becomes the vehicle for states to pass legislation, or otherwise make decisions, that risks interfering with commerce. So we take too loose a terminology and start to say that states have this really strong, robust, independent sphere of authority unfettered and uncontrolled by federalism and its interstate commerce principles, then we risk authorizing states—or at least encouraging states—to take a very active role in interfering with other states.

Much of what we'll be talking about today is when does that happen? And how, in fact, is it a hindrance to some of the values inherent in the Constitution? So, we take federalism plus interstate commerce. That means that states, in fact, are restricted. They have restricted authority in some fields that makes the facilitation of open markets more effective.

So, as we go through -- I will return to the history of the Interstate Commerce Clause in just a moment, but one of the reasons why we're talking about this today is because increasingly, efforts are being made by states to stake positions on issues of national or international importance. They're testing the limits of state autonomy within the system of federalism in part because they are trying to advance preferences within the states to the detriment of national policy, or sometimes international policy.

Many states are seeking to shift national policy by doing things themselves that they perceive the federal government not doing or not doing well. Sometimes, in areas such as immigration, they're seeking to find ways to do things which directly frustrate national policy.

There should be no doubt the states will use these techniques with increasing frequency if they are legitimized. There already seems to be an upward trend, and a few examples will be provided across the call.

One of these is in Washington State, for example. Governor Inslee and his administration have pushed for strong alternative energy policies, protections against climate change. In doing so, tried to prevent coal exports from being effective at a terminal near the state, frustrating interstate and foreign commerce in coal.

Market interference is often about protecting preferred industries, including so-called clean energy or green energy industries in Washington State and elsewhere, giving them a competitive advantage over disfavored resources like coal from out of state.

Food or agricultural standards in states like California necessarily result in controls on behaviors of other states. Consider how goose feeding is constrained by foie gras regulations and cage sizes for chickens are impacted in other states when California banned the sale of eggs not produced in what it believes are minimally humane conditions.

The very recent examples of states pushing the envelope include New York State's 2017 cyber security regulations which controlled information sharing policies across state lines, Tennessee's residency requirements for liquor licenses, or Maryland's price control laws on pharmaceutical drug sales. States are increasingly finding ways to protectorally advance an in-state hook to control out-of-state behavior that that state finds, in some ways, frustrating its own policy, moral, or other preferences.

Why is this problematic? To understand why it is, the first thing to do is to look at the history of the Interstate Commerce Clause and think about its evolution from the Articles of Confederation.

Joseph Story explains in his familiar exposition on the Constitution that the situation for the free flow of commerce under the Articles of Confederation was quite wonting. He explains, "The wonts of this power to regulate commerce was a leading defect of the Confederation. In the different states, the most opposite and conflicting regulations existing, each pursued its own real or supposed local interests, each was jealous of the rivalry of its neighbors, and each was successively driven to retaliatory measures in order to satisfy public clamor or to alleviate private distress. In the end, however, all their measures became utterly nugatory or mischievous, engendering mutual hostilities, and prostrating all their commerce at the feet of foreign nations. It is hardly possible to exaggerate the oppressed and degraded states of domestic commerce, manufacture, and agriculture at the time of the adoption of the Constitution."

Indeed, "One of the major defects of the Articles of Confederation, and a compelling reason for the calling of the Constitutional Convention of 1787, was the fact that the articles essentially left the individual states free to burden commerce both among themselves and with foreign countries very much as they pleased."

Story here, in those quotes, is explaining that the move away from the Articles of Confederation into the United States Constitution was driven primarily, or at least in substantial effect, by the need for interstate commerce and the free flow of commerce between the states and the need to have some kind of national power that would indeed control much of this.

This history is laid out in greater detail in the essay that the invitation includes here, and I point you to that if you'd like to see more about this from the Federalist and others who talk about this deficiency and the reason why states could, in fact, frustrate the union if they had too high a control of commerce and the ability to erect barriers to commerce between the states.

That leads to a question as to how, in fact, do we now operationalize the constitutional provisions for commerce within a federalist system? And what should the role of the courts be in relation to protecting against robust state action that in fact harms or impedes the free flow of commerce among the states?

Concepts like this free flow of commerce idea have value in and of themselves no matter what label we give them. The idea that the Constitution embraces this free flow of commerce as a primary value is one which we should be cognizant of when setting policy regardless of whether or not we can find a constitutional grounding for enforceable rights or enforceable claims within the Constitution. So that's point one.

Point two is that when individuals do decide that there may, in fact, be a constitutional defect to states actually acting this way—one which is enforceable through the courts or otherwise—it is often under the terminology of the Dormant Commerce Clause.

The Dormant Commerce Clause is, as stated, not something which is specifically expressed in the Constitution. It is something implied from the existence of the Commerce Clause—that if, indeed, Congress has the power to regulate commerce, then states may not interfere with that free flow of commerce. So those who advocate for a Dormant Commerce Clause reading in the Constitution claim that there are ways in which you can test whether states, in fact, are unduly interfering or discriminating in violation of the Constitution.

This is a controversial topic. It's one, even among panelists on this call, there is disagreement as to its scope and extent among both conservatives, libertarians, liberals, and more. You can find differing views across and within each part of that spectrum. Some believe that there is no such thing as Dormant Commerce Clause. It's not in the Constitution; it's not explicitly stated. Therefore, while it may be a value, it is not one which is enforceable by constitutional principles.

Others believe that there is some role for the Dormant Commerce Clause, including, perhaps, as an enforceable constitutional provision, but it may take different forms. I think you'll hear about each of these as we go forward. One is a nondiscrimination concept, and I'll leave that primarily to Professor Adler to describe at the end of this call.

But the basic idea is that if a state is, by its own actions, its own legislation or other regulatory policy, discriminating against out-of-state interests in favor of in-state interests, then it is violating this principle of nondiscrimination inherent in the Commerce Clause. It is, therefore, transcending the boundaries of the Constitution as well as interfering with the free flow of commerce between the states by doing so.

This, indeed, was one of the things that the Founders were critically concerned about—was that states would enact these retaliatory measures, states would try to favor their own in-state interests at the expense of others, and it would lead to basically a race to a war of all against all.

Another view is that if the states, in fact, impose an undue burden on commerce, then that is violative of the Commerce Clause. This is the fact that by simply regulating in a space, or legislating in a space, that the state has now burdened the free flow of commerce even if it is not discriminating in favor of in-state interests. The states are nonetheless constitutionally prohibited from interfering with interstate commerce. That is, they are not allowing for commerce among the several states to flow directly, and they are transcending their boundaries as states.

This is a view in which the states are constrained and perhaps can be found as there could be federal invalidation of these state laws by, perhaps, the federal judiciary.

That leads to our final point which I'll use in this point of introduction, and then we'll turn to the next panelists. That is, what is the role of the judiciary in relation to enforcing the Commerce Clause or the Dormant Commerce Clause?

A question can be posed as to whether or not the judiciary should have any role. Some constitutional violations, if we decide there is a Dormant Commerce Clause and there is a violation of the Constitution, have no real judicial remedy. We leave this to the coordination of the national government with the state governments; we leave it to Congress to, in fact, reign in the states. Congress has the authority to use preemption and other means to prevent states from acting in certain areas, and perhaps it should be left to the political branches, and the judiciary has no role.

But if the judiciary does have a role, then we need to ask what role would that be and who gets to enforce it? Standing is often going to be a problem in these cases. Who has standing to enforce a Dormant Commerce Clause violation even if the judiciary were otherwise allowed to hear it?

But if the judiciary is able to hear cases, then there's a question of which type of standards should apply. Should it be a nondiscrimination standard or an undue burden standard or perhaps both? I think, in fact, most who adopt an undue burden standard would find that nondiscrimination falls into that category as well.

The idea, then, is to ask ourselves what role should the states have in legislating about supposed in-state interests that nonetheless have significant impacts on the marketplace that is facilitated by the Interstate Commerce Clause. The states certainly are beginning to feel emboldened to, in fact, push their policy preferences, perhaps to the detriment of commerce among the several states, and certainly will continue to do so if there is not some intervention.

If they do, then we will have more and more state-by-state definition of policies—commerce policies, commercial policies—that could have impacts on the economy. In addition, they will be empowered to do so if there is a strong states' rights rhetoric upon which they can rely.

For that reason, I do think that we need to think about what is our definition of federalism? How do we be careful about the terminological choices we make in talking about federalism? And perhaps we should be more nuanced and sophisticated in our explanation of what exactly is the states' power in a system that has this condition on it? That is, the facilitation of interstate commerce as embraced by the Commerce Clause in the U.S. Constitution.

I hope that sets up the further discussion. We'll turn to our next two panelists, and then, we'll have some inter-panel discussion after that before we open it up to Q&A.

I turn it over to James, Professor Coleman.

James Coleman:  Thank you so much, Professor Kochan. I'm just so happy to be here today discussing this topic because, as I'll try to explain, I think this is the single most important, interesting, and urgent question of constitutional law at the moment. I'll explain why it is each of those things.

To start with why this is the most important question in constitutional law. I think, if you haven't read Professor Kochan's Notre Dame Law Review article that was sent with this, go read it now. I'm on Twitter @energylawprof. I just tweeted it. You can go check it out there.

The reason it's important is because looking at those Founding-era sources, Professor Kochan shows how for the people who developed the Constitution and did its initial interpretation, the whole point of the U.S. Constitution was to have free trade between the U.S. states; that states could have their policy, but there would be free trade between them. That was one of the problems that as perceived with the Articles of Confederation, and that's what the Constitution was supposed to provide.

Professor Kochan looks at the writings of Alexander Hamilton, of James Madison, of Justice Story, and shows how each of them saw the Constitution. They thought the whole point of the Constitution was to provide free trade between the states. The reason that's so important is because it's not really possible -- the problem if you had a very simplistic states' rights rhetoric is it's not actually possible for states to choose their own policies unless they have free trade between them.

To give a simple example, California -- imagine you said, "Okay, let's just let states adopt their own policies. This whole idea of a Dormant Commerce Clause is a problem." Well, what happens when California adopts a law that says, "You cannot purchase a product in California unless it was produced in a state that had the same minimum wage or was produced by workers operating with the protection of California labor laws."

That regulation, although it's just a state regulation of California and it's a nondiscriminatory regulation because it just says if you're going to sell any product in our state, it has to have been produced in the same way that we would require somebody to produce it within California, that law would immediately set a minimum wage for every other state in the U.S. 

So it's a nondiscriminatory regulation but because it applies to transactions that happen outside of California's borders—making it extraterritorial—it constrains what other states can do. And this is not just a hypothetical. For many, many years, that was the example that people gave. They said, "Well, surely no state -- we can't have something like that happen because that would be the end of free trade between the states."

But California has actually done something very similar, which is if you go to the grocery store right now anywhere across the country, and if you look at the eggs that you get, on it will be printed "CASEFS." What that means is that it is compliant with California's laws for how you treat chickens when you are laying eggs. Those eggs are not laid in California. That is California regulating how every other state treats its egg-laying hens.

You might agree with the animal rights perspective that California has. It's not to say that the law is bad, but the reason that is necessary is because California said, "You can't sell eggs in our state unless you treat your chickens in this way." So it's almost like they're setting a nationwide minimum wage for chickens, and basically what's happened is all those other states—because they have to sell in this national market—have, as a result, been forced to follow California's laws.

So it no longer matters what the big states that produce a lot of eggs, places like Missouri and Iowa. It no longer matters what kind of regulation Missouri or Iowa has for treating animals. The only thing that matters is what's the most strict law that's adopted by a major market state? In this case, California. If you don't have some limits on what kind of laws that states can make to break up interstate commerce, the end result is that the states themselves are not allowed to choose their own level of regulation.

The laboratories of democracy that we count on don't work. And this is exactly, as Professor Kochan shows, what the Founders were worried about—this kind of states interfering with each others' regulatory systems and schemes—so this was the entire point of the Constitution. So it's extremely important to see that the Constitution actually provides it.

Now, why I say it's the most interesting question in constitutional law—that's because, although, as Professor Kochan shows, this is the whole point of the Constitution, it's a real puzzle because there has been extreme disagreement among judges, justices, and legal scholars about what part of the Constitution provides free trade between the states.

Historically, this was done under the Dormant Commerce Clause, and Professor Kochan explained how Justice Story basically sees this accomplished through the Dormant Commerce Clause.

However, recently, conservative scholars on the Supreme Court have started to say, "We don't really think the Dormant Commerce Clause does that because the Dormant Commerce Clause, of course, is just an implication from silence." So, the Constitution doesn't have a Dormant Commerce Clause; that's just the implication. Well, if Congress didn't regulate this, maybe, then, we don't want the states to regulate this as well.

Justice Thomas, initially, then Justice Scalia, now Justice Gorsuch, have all expressed more and more skepticism with applying any kind of review under the Dormant Commerce Clause. For a while, Justice Scalia and Justice Thomas said, "Well, maybe we'll at least strike down discriminatory regulations." Since that time, Justice Thomas has moved away from that, and he basically says, "I don't want to apply the Dormant Commerce Clause at all."

Now, when Justice Thomas initially took a stand against the Dormant Commerce Clause, he, at that time, suggested maybe there was another part of the Constitution—he said the Import/Export Clause, that's Article I, Section 10—that might operate to stop some discrimination and border controls between the states. Since that time, he has not said very much more about that, so we don't know if that's a real viable cause.

Other legal scholars have said that, "Well, maybe, actually, the Privileges and Immunities Clause in Article IV, Section 2. Maybe that provides some protection from states; that if you're okay under one state law, you should be able to trade -- if you have eggs that are okay under Iowa or Missouri law, you should be able to trade with California."

Similarly, some people have said the Full Faith in Credit Clause, Article IV, Section 1. Maybe that somehow creates free trade between the states. Others have said, "Well, maybe it's actually the Due Process Clause. You shouldn't be trying to regulate how chickens are treated in other states because you don't have sufficient contact, basically, with that." And others have said that there's general principle of horizontal federalism that creates free trade between the states.

If you're counting, that's six different theories of where this is in the Constitution. The reason that scholars are struggling with this so much is that it's clear that we do need some limits on state regulations to provide free trade between the states. One way we can tell that is that every federalist system that exists anywhere in the world has limits on state regulation that allow for free trade.

If you look at Canada, there are limits on province by province regulation. If you look in Switzerland, there are limits on canton by canton regulation. If you look at the E.U. even, there are limits, and they're the same limits that Professor Kochan described:  You can't discriminate, you can't regulate extraterritorially, and you can't adopt certain regulations that would so mess up things that they would create an undue burden.

So, it must be the case that the Constitution somehow provides what it was intended to provide, but the challenge is that we don't know, and there's a lot of disagreement about, which specific part of the Constitution does that.

As a practice pointer for all of you, if you are filing a Dormant Commerce Clause lawsuit, prepare for the day that you might have to explain it to an appellate court or even the Supreme Court with a different view of what accomplishes free trade between the states, and use all those six theories.

You have to plead them because otherwise, when you write your cert petition, Justice Thomas will say, "Well, I don't believe in a Dormant Commerce Clause. That's gone. Maybe if you had said something about the Import-Export Clause." Maybe some of the other justices would be okay with the Privileges and Immunities argument, but you're going to need to cobble together enough of these different theories to count to five on that, and that's a very difficult task right now with the U.S. Supreme Court.

Lastly, let me just say something about why I believe this is also the most urgent question in constitutional law. That's from my perspective as an energy scholar. Again, I just posted one of my articles on exactly this topic @energylawprof on Twitter, and you can see. Basically, the problem is that in the U.S. today, we have largely solved the problem of producing energy affordably. We have had the biggest oil boom that's ever happened in the history of the world, and we're doing it even at very, very low prices.

So, we have extremely low prices. They're about $40 a barrel today. But if you look at some of our cleaner, newer sources of energy, it's even cheaper. If I look at natural gas, where that natural gas is produced -- often the price is $0 for that natural gas. Sometimes that price is negative. More and more frequently, that price is going negative.

The same thing is true of wind power. Rock bottom prices for wind power. Sometimes the price is negative. People will pay you to take away wind power at the wind turbine. So, then, what's the problem with energy? Why are we having incredibly high energy prices in some places, like the U.S. northeast, in California? Why are we even having outages in California?

Well, the reason is because we can't transport those cheap, cleaner energy sources to the places where they're needed. Why can't we transport them? Because you need state-by-state approval to build an oil pipeline or a powerline, and actually, increasingly, even to build a natural gas pipeline. Natural gas pipelines are regulated by the federal government, but the states have found ways to exercise veto authority over those.

They do that under Clean Water Act Section 401, which requires a water quality certification for a pipeline, and they've also been able to do that using eminent domain where they've said, "You cannot exercise eminent domain against those natural gas company even though you have federal approval because of our sovereign immunity."

So, there are a number of obstacles that are emerging to that interstate transport. States have also gotten very aggressive in terms of adopting laws designed to stop energy sources that they don't like. For instance, Missouri was unhappy about a powerline that was going to cross it to bring wind power to the Midwest, to Chicago from the windy prairies, so it tried to pass laws that were basically to stop eminent domain to get that wind power where it needed to go.

Similarly, if you look at California, California has passed a law to block any new oil pipelines across state land. You've had coal terminals, you've had regulations and laws passed against new coal terminals or oil terminals for export—an attempt to blockade the sources of coal, which are mostly in Wyoming and Montana, as well as sources of oil, trying to prevent that oil from North Dakota from leaving the west coast. There's also been regulations against oil export in Portland, Maine. So, on both sides of the country, this is happening.

There's an increased effort to blockade both your traditional oil and gas sources as well as some of those new renewable sources. Regardless of what your goal is for the United States energy policy, if you believe in American energy dominance and you want to have more oil and gas production and export—right now, the U.S. is still projected to be the world-leading liquefied natural gas exporter in five years—well, you need to have interstate transport of natural gas.

Similarly, if you believe that we need to transition away from fossil fuels and we need cleaner energy sources, we need those renewables that are mostly located in our deserts and prairies to get to the markets where they're needed—the urban centers on the west coast, east coast, Midwest, and southeast—you also need to have interstate energy transport.

This trend towards states blocking interstate transport of sources they don't like is a huge and pressing problem for the United States.

Finally, let me just end by again highlighting something from Professor Kochan's article, which is he points out that for Madison and Hamilton and Story, free interstate trade was not just about the economic benefits. Of course, it was about those economic benefits, but it was also about creating a more perfect union. That's why every place—even somewhat imperfect unions like the E.U.—has these free trade rules.

The reality is, if you're concerned about the individual states growing apart and having less to do with each other and wanting to have less to do with each other, then one of the most important things, as Alexander Hamilton and James Madison showed during a time that also included a lot of division, is that increased trade between the states. Because that increased trade between the states binds the United States together, and I think there couldn't be a more important time for that.

With that, I'll turn it over to Jonathan. Thank you so much.

Jonathan Adler:  It's a pleasure to be here with my friends, Professor Kochan and Professor Coleman, even if I have to disagree with them both as a matter of how we understand the Constitution but also in terms of how we think about some of the policy choices that face us.

To start, I should say I agree with the general point that broad interstate commerce is beneficial; that this is no less true in the context of energy and environmental concerns than other areas. In fact, insofar as interstate commerce increases economic efficiency, that is generally good for environmental protection and conservation. It allows us to use resources more efficiently and can reduce pressures on resources.

There are all sorts of ways in which expanded markets have and can continue to help push a transition to a cleaner energy sector, improve environmental performance, as well as produce significant economic benefits.

My caution or my sense of disagreement with Professors Kochan and Coleman is on the question of whether courts should be understood as the branch of our government that are primarily responsible for ensuring that we have the degree of unfettered interstate commerce that I think the three of us would all like to see.

I doubt that that is the best way to understand the Constitution as it was understood at the time it was ratified. I don't think that the public meaning of the Constitution at the time it was adopted supports that role for the courts or that aggressive a default rule.

I don't think the precedents, as a general matter, do either. And I think that, insofar as the Supreme Court has signaled that it might back away from some of the more aggressive understandings of the Dormant Commerce Clause, that it's moving toward a more proper understanding of the Constitution, and it's something that we should be perfectly fine with as a matter of federalism. Insofar as that allows states to do some things that we may think are unwise, it is ultimately a job of Congress—and not the courts—to provide the corrective.

Let's talk a little bit about the original understanding of the Constitution. It's certainly true that the Founders were very concerned about the rampant interstate protectionism that existed under the Articles of Confederation, and they were particularly concerned that the federal government lacked the ability to do anything about it.

The reason we have a Commerce Clause is so that Congress would have the ability to remove obstructions to interstate commerce. But it was not understood as creating a default rule that prevented states from exercising their traditional police powers in ways that might impede or obstruct interstate commerce, and that state laws, properly within their police power, could have the effect of limiting interstate commerce, interfering with interstate commerce, but still be perfectly constitutional.

No less than Chief Justice Marshall affirmed this point in a case called Wilson v. Black Bird Creek Marsh in 1829. The case there was a state had licensed the construction of a dam that obstructed a navigable waterway, and, like a lot of cases at the time, this actually begins as a tort suit because somebody's boat crashes into the dam and then they say it's their fault because the dam was not lawful because of the Commerce Clause.

The court said no; the dam was authorized by the state not out of the purpose of preventing commerce or navigation on this waterway but to serve local purposes and to provide the local benefits that dams could provide. The fact that it also obstructed interstate commerce did not make the licensing of the dam by the state unconstitutional.

Gibbons v. Ogden reaffirms this point. Chief Justice Marshall notes in some detail that all sorts of traditional health laws, quarantine laws, licensing laws and the like can have the effect of obstructing interstate commerce; that a state may impose more stringent quarantine rules, more stringent licensing rules, more stringent health rules than its neighbors. That may disadvantage producers or merchants from other jurisdictions. It may slow down the speed of interstate commerce but that that's okay because those sorts of laws remain within the province of states, that those are powers retained by the states and the people, and that the Constitution does not deprive states of that authority.

Now, today, in the energy sector, we certainly see lots of states adopting laws that, on the margin, may result in less commerce than we would see otherwise. But the question we have to ask is not "Are these laws consistent with our policy preferences? Are these laws the least commerce-destroying ways of advancing certain environmental or other goals?" The question is whether or not states are acting within the powers that were reserved to them and their citizens by the Constitution.

All sorts of rules that relate to safety standards, that relate to land use, that relate to how a state's facilities will operate, how markets will operate within the states, are certainly within the reserved powers of the states. And that’s true in all sorts of ways, that can affect commerce. That's true when states impose safety standards for all sorts of transportation.

It's true when states do things like—as Virginia did in a case that the Supreme Court recently addressed. Virginia prohibited uranium mining within the state, and the argument had been made, "Well, that's going to result in less uranium production. That's going to result in less nuclear power." Virginia might've been motivated by that. The Supreme Court not only didn't even address the constitutional question but said it wasn't even preempted.

Congress certainly has very broad authority to sweep away state laws that may inhibit or obstruct the flow of commerce. Congress also, I should note, has the authority to balkanize commerce, as it does in certain industries, health insurance being a very good example where Congress prohibits interstate commerce.

But Congress is the actor here. Congress can, as it has, say, with motor vehicles, say that states cannot adopt their own motor vehicle standards, barring a few exceptions for California with regard to vehicle emissions. Congress certainly has that power, and when it comes to certain sorts of products, we may think that's a good choice for Congress to make.

But I think that the idea that merely because we're talking about cars we're talking about the flow of commerce, or we're talking about what would maximize commerce in exchange, in certain markets, that therefore there's a constitutional rule prohibiting state regulation—I don't think that that is something that can be grounded in the text or understanding of the Constitution nor do I think that's a position we want to put courts in.

I think when we talk about interstate commerce, there are certain ideas that we're used to. Certainly, when we look at international trade. For example, the distinction between regulating a process and regulating a product. International trade rules generally say it's fine to regulate the product; it's not okay to regulate the process.

As a policy matter, again, I think that's a pretty good distinction. I think it's one thing to say to states, "Regulate what's occurring in your state, and insofar as you want to regulate product characteristics of a product sold in your state, that's fine, but you shouldn't be regulating the process through which that product was produced." Good policy rule. I don't see where we tie that into the Constitution unless we see the state engaging in what is a form of protectionism or discrimination against other jurisdictions.

Professor Coleman, I think, uses a little bit of sleight of hand when he suggests that well, if California adopts a standard, it is requiring other states to adopt a standard too. No. If California adopts a standard, it is putting producers in other states in the position of choosing do they prefer access to more markets or fewer? More precisely, they're saying to those producers, do they want to produce different products for different markets, or would they rather sell a less expensive product everywhere? Because, presumably, there are economies of scale making it cheaper to sell one undifferentiated product everywhere as opposed to differing products for different markets.

But that's a choice that producers face, and on the margin, I don't think we should be upset about producers facing that choice, particularly since it leaves open opportunities for smaller producers to gain market share by not complying with, say, the California standard and merely producing products for sale in other markets.

As a policy matter, it's not clear why we want to foreclose those opportunities. Certainly, as a constitutional matter, I see nothing that would require courts to foreclose those opportunities. 

Similarly, when we talk about extraterritoriality -- we talk about this a lot, but there's only been three cases where the Supreme Court has ever struck down laws for their extraterritorial effect. They all related to price regulation. They arguably were all just applications of the nondiscrimination rule—which I think we can derive from other constitutional provisions—not some far-reaching rule that states cannot enact laws that might have the effect of creating pressure for other jurisdictions to reconsider their laws.

I think Justice Gorsuch largely got it right when, as a judge on the Tenth Circuit, he pointed out that the dicta in one Supreme Court decision suggesting a broader extraterritoriality rule is over broad, sweeping, and lacks any limiting principle and should not be understood to be what existing doctrine requires.

What should we do at present? Well, I think a nondiscrimination rule is the sort of rule that is not only judicially administrable but is also something that we can derive not only from the Export-Import Clause but also from the Privileges and Immunities Clause of Article IV.

It does not result in the elimination of all state laws that restrict the flow of interstate commerce. It does not require all states to adopt the energy policies that Professor Coleman or Professor Kochan or I might prefer. It does not require all states to make the same tradeoffs about energy production or energy availability and conservation that some of us might make. But it is one that is, I think, the constitutionally proper role and one that we should be willing to accept as a legal matter in the energy and environmental context, as in other areas.

Insofar as that allows states to adopt certain sorts of rules that we think impose costs on interstate commerce that are disproportionate to whatever local benefits they provide, then Congress remains able, as it has, to sweep those laws away by enacting legislation. But just because Congress has failed to do so, doesn't mean we should rush to the courts to solve that problem for us.

I will stop there and look forward to hearing what Professors Kochan and Coleman have to say in response as well as to any questions and comments from those on the call. Thank you.

Micah Wallen:  Professor Kochan, did you have any response?

Donald Kochan:  Yes, I think we've aired a lot of issues here, so I want to throw out one other issue for our listeners to think about. Not as much in response but just the difficulties of these questions and what concerns some of them raise.

Just as there's a risk that states' rights rhetoric can be used to justify interference with commerce and/or to allow any one state to dictate truly national policy, we do need to be careful that the rhetoric of the Dormant Commerce Clause could be used to justify a growth of the federal government.

I agree that there is a role for Congress to play. Whether it's an exclusive role is a different matter, but there is a role for Congress to play in helping to facilitate commerce, as Professor Adler just pointed out.

The one thing that we need to be ever cognizant of is that scope expansions under the Commerce Clause of federal authority are different than the federal authority to act to facilitate commerce. While these things can be distinguished, there's always the risk that they will become blurred, and so we just need to remain ever vigilant even when we are calling for greater roles for either Congress or the courts to examine state laws that may interfere with commerce that there is also a corresponding limit on how far the federal government can go into using Commerce Clause as a shield for all kinds of non-commerce facilitation related activities.

I'll stop with just that additional comment to add to our conversation so that we can get to questions eventually and turn it over to Professor Coleman for any of his thoughts.

Micah Wallen:  Professor Coleman, did you have any additional thoughts or responses?

James Coleman:  Yes, absolutely. Thank you so much. I got kicked out briefly. You can hear me now?

Micah Wallen:  Yes, yes. Loud and clear.

James Coleman:  Okay, perfect. Let me respond to two things that Professor Adler said. One, I believe, is just a red herring but you hear it all the time, and I think it's probably because those of us who believe in Dormant Commerce Clause are not clear enough about what we mean.

The first suggestion is well, there are lots of perfectly valid state regulations that impact interstate commerce, and so we would never want to get rid of all of those regulations, so what does the Dormant Commerce Clause really mean?

That's something that Justice Gorsuch relied on in an opinion that, I think, is a far too simplistic take on the issue, which is that Epel case that Professor Adler discussed.

But let's just keep in mind there are two completely different kinds of regulations that we're looking at. One, imagine California just chose to ban eggs. Undoubtedly, that would have a huge impact on egg markets across the United States, but California has the right to do that. 

Maybe they think eggs are unhealthy and they think that eggs have an unhealthy impact on everybody who eats them. They are free to make that choice. But it's an entirely different thing to say, "Wherever in the world that eggs are created, the chickens have to be treated in a different manner," because that is explicitly regulating how something is produced in another state, and that's entirely different.

Another example: California can absolutely say, "You can't have toys with lead paint in California." That's fine. But California cannot say, "Whoever produces this toy in whatever state or whatever country is required to pay California's higher minimum wage." There's a huge difference between directly regulating how something is produced in other states versus just adopting your own regulation that has some indirect effect.

Nobody is suggesting, and no one could suggest, that all regulations are invalid that somehow indirectly affect interstate commence because in a "butterfly beats its wings" sense, surely every regulation does that. The question is about either discriminatory regulations or regulations that directly target action that's taking place out of state. So that's the first point.

The second point—and this is, I think, the much better response to the case for the Dormant Commerce Clause—is the suggestion, "Well, if this was such a big issue, Congress should address it." In fact, potentially, that's an answer to all of the work that Professor Kochan did where he said this was the understanding. This is what everybody thought they were getting with the U.S. Constitution was a free trade zone.

Professor Adler can well respond to that, "Well, you have the possibility for a free trade zone with the Constitution because Congress could pass tomorrow a bill that preempted discriminatory regulations or regulations that are extraterritorial, etc., etc." That's a very reasonable objection. Let me say the two reasons that it doesn't convince me.

The first reason it doesn't convince me is if you go back and just read Professor Kochan's article, look at how clear that all the Founders were that this was to provide free trade between the states. It seems very odd that the entire point of the Constitution was free trade between the states, and it just was going to take a bill from Congress, and Congress forgot to pass that bill from then until now. That seems odd.

The second reason that I'm just not happy with it as a practical matter is we all know there are millions of areas where you could say, "Oh, well, Congress could solve this tomorrow," but I don't think that justifies the courts creating a problem that Congress could have to solve.

And, secondly, if you're waiting for a congressional solution, you may be waiting a long time just from a mere pragmatic perspective. That, I think, is the best objection to a robust Dormant Commerce Clause or use of these other parts of the Constitution to promote free trade between the states. But it ultimately doesn't convince me both for reasons of interpretation of the Constitution and as a pragmatic matter.

But, I should say, I'm currently writing an article advocating that Congress do just that, which is do what every other place has done. Set out clearly what the rules are for preempting rules that discriminate against interstate commerce or regulate extraterritorially.

I think it's a good objection, but ultimately, it doesn't convince me.

Micah Wallen:  All right. With that, I'll go ahead and open up the floor for questions. And, Jonathan, I'll give it back to you for any responses to what you heard from your fellow panelists just now.

Jonathan Adler:  Super quick. One is I think there's a distinction between discriminatory legislation—the sort of measures that clearly were targeted by the Founders; the sorts of tariffs and other restrictions on interstate commerce that targeted commerce and that were protectionist in nature—from rules that may create economic choices for folks in other parts of the country.

I think there's a distinction between the sorts of regulations and state laws that the Founders were concerned about and the egg hypothetical. If California, in a nondiscriminatory way, says that the eggs that are sold in California must meet this standard, well, that is nondiscriminatory. And the fact that somebody elsewhere that wants access to California's market has to make a choice about what they're willing to do for access to California's market does not infringe upon what the Constitution itself prohibits.

If we think about the energy context when this comes up, I think that's particularly important because the out-of-state energy production is not wholly independent of the in-state electricity demand. So, when a state imposes a limit on, say, the emissions or what the energy source is for the electricity sold in that state, yes, it affects interstate markets.

But it does, in part, because the real-time choices of energy consumers in that state are going to affect the mix of pollutants and other things that result from that energy, and there's a tradeoff there. That's a tradeoff that the Constitution does not resolve. It's a tradeoff that Congress, ultimately, must resolve.

So, I think we need to distinguish between things that are supposedly extraterritorial and those that are discriminatory, and the Supreme Court, historically, has made that distinction in practice. Again, only three times have there been laws struck down for extraterritorial reasons, and all because they were effectively forms of price controls that could be understood as discriminatory.

Finally, I should just note, neither Professor Kochan or Coleman addressed the sorts of things that really come up in the energy and environmental context which is state choices about things like land use which necessarily get in the way of interstate commerce.

If a state doesn't want its land to be crisscrossed by pipeline because it is concerned about habitat segmentation or is concerned about other effects on the landscape or other environmental concerns, I think it's very hard to read the Constitution as saying that's not a choice they can make.

The Constitution gives Congress some ability to facilitate interstate commerce and energy by creating rights of way and the like, but the Constitution does not impose upon states a requirement that they facilitate interstate commerce and energy in that way. If we want more interstate commerce of that sort, that's something that we have to ask Congress to provide for.

Micah Wallen:  We do have a question in the queue, so we'll try and fit that in before we close today. Caller, please proceed with your question.

Tyler:  Hi. My name's Tyler. I'm calling from the D.C. area. I was just curious—Professor Coleman, when you were talking about the two tiers of regulation, or the two different types of regulation, it made me wonder:  Do you think there could be any space for the idea of pretext from Chief Justice Roberts' DACA incentive opinion maybe entering this space? 

Could a way to maybe think of it be if, on the one hand, it seems like a state's genuinely trying to promote or protect the interests of its citizens, that's one thing. But if it seems like a state, what they're really thing to do is just throw their weight around and dictate on a national scale, that might create this sort of pretextual principle that could be a way of thinking about it? Thank you very much.

James Coleman:  There are problems, obviously, with a pretextual analysis that I think that everybody recognizes, which is that it requires the court to assess the motives of legislators and regulators that may be very difficult to do. But I should say, I don't think that's a very big problem in this specific area because these aren't pretextual regulations.

To take one of the examples that Professor Adler gave, it is the case that California regulates electricity and gasoline and fuels that enter the state, and they basically dictate how those gasoline or fuels can be created wherever they're created. Similarly, they dictate how that electricity can be produced, whether it's produced in Arizona or elsewhere.

When California does that, it doesn't say, "Oh, well this is really for our citizens. Or somehow this fuel is less safe. It was [inaudible 01:01:58] by different methods." It's obviously the electricity and fuel is identical no matter how it was created. What they say is, "We are taking responsibility for the greenhouse gas emissions that are emitted in every state and across the world." So, California doesn't really bother with the pretext a lot.

It's the same reason that they say, "Well, we want to have foreign policy just like any nation," and so they're not really -- sometimes, in the past, there have been games where, to avoid court review, you'd see states trying to pretend like they were doing something that they weren't. But here, the states have largely dropped the pretense and are very clear that they're intending to regulate how items are produced in other states.

Micah Wallen:  All right. Did any other speaker have a -- we have one more question in the queue. Should we squeeze that in before we're done today? Caller, proceed with your question.

Donald Kochan:  Sure. Sounds good.

Micah Wallen:  All right. Caller, proceed with your question.

Caller 2:  Yes. Good afternoon. Great topic. Just curious, real quick. I want to know to what extent the panelists would think of an antitrust as an appropriate remedy for perceived state misbehavior in these contexts?

Jonathan Adler:  That's really a whole nother call. As a general matter, I think courts have been too quick to assume that actions by states that have cartelizing effects are necessarily immune from antitrust scrutiny. It's an area that courts have not shown a huge interest in revisiting, although, there was some effort under the Bush administration to at least reconsider aspects of the State Action Doctrine.

I would say that one thing that is worth remembering is that when it comes to states working together to cartelize—and we have seen some of this in the energy and environmental context in some of the various climate policies, RGGI and the western states one—we do have a Compact Clause which says that if states enter into compacts, for those to be binding, Congress has to approve them. And I think that's important because it does place a check on the ability for states acting in concert to cartelize markets in a way that could be advantageous either to themselves or to particularly favored industries.

I think it's one thing to say to even California, "If you want to make a choice that increases costs for your citizens, fine, because they can vote you out if they don't like it." It's problematic if California can then rope other states into that without getting congressional approval as a way of cartelizing intersecting policy choice. So that's something the Constitution does to address the concern about collusion by state actors.

Donald Kochan:  I agree with everything Jonathan just said, and let me just add one other thing. Jonathan did not go into great detail in his remarks about the concern of empowering the judiciary to be making these choices. Although, I suspect if he'd had more time, one of the concerns is how much do we want judges to be able to inject policy choices into this and just sort of find a way to limit states' activity?

I fear that searching for creative alternatives, like antitrust, is simply asking the courts to invent ways to address a policy problem that they otherwise could not address.

It's one of those risks of empowering the judiciary in the first place is that the judiciary will go beyond its bounds, and I think that is a legitimate concern of those who feel that the Dormant Commerce Clause needs to have firm constitutional grounding. And I think we're treading into even more dangerous territory if we try to empower the courts to police it on non-constitutional grounds.

Micah Wallen:  All right. With that, I'll give one last chance to our speakers. Is there any closing remarks anybody wanted to have before I close this out today? Was somebody going to say something?

James Coleman:  I was only going to say thank you so much. This has been a fascinating conversation, so thanks so much to Jonathan and Donald.

Jonathan Adler:  Yes, thank you everyone. And thank you to the audience as well.

Micah Wallen:  Wonderful. We are very grateful to all of our speakers for their time and expertise today. We welcome listener feedback from listeners by email at rtp@regproject.org.

Thank you all for joining us. We are adjourned.