## Facts

- Congress enacted Title IV of the Clean Air Act Amendments of 1990 to reduce sulfur dioxide (SO₂) emissions through a nationwide allowance allocation and transfer (cap-and-trade) system.
- Under Title IV, each allowance authorizes emission of one ton of SO₂; allowances are tradable in an interstate market and the overall cap declines over time.
- New York enacted the Air Pollution Mitigation Law, N.Y. Pub. Serv. Law § 66-k, directing the New York Public Service Commission to impose a “mitigation fee” on certain transfers of federal SO₂ allowances by New York utilities when the allowances would be used for emissions outside New York or not used to offset the seller’s own emissions.
- The fee proceeds were deposited into a state fund for environmental and public health programs.
- Clean Air Markets Group, a trade association of participants in the federal SO₂ allowance market, sued state officials, arguing § 66-k was preempted by Title IV and also violated the Commerce Clause.
- The district court granted summary judgment to the plaintiff on both preemption and Commerce Clause grounds; the state defendants appealed.

## Issues

1. Whether Title IV of the Clean Air Act preempts N.Y. Pub. Serv. Law § 66-k because the state fee obstructs Congress’s objectives for a uniform, interstate SO₂ allowance trading system.
2. Whether § 66-k independently violates the Commerce Clause by targeting out-of-state use of allowances and burdening interstate commerce.

## Decision

- The Second Circuit affirmed summary judgment for the plaintiff.
- The court held Title IV preempted § 66-k under implied “obstacle preemption” principles because the state law interfered with Congress’s chosen mechanism: a national, freely tradable SO₂ allowance market.
- Having found preemption, the court declined to reach the Commerce Clause issue.

## Legal Principles

- State law is preempted where it stands as an obstacle to accomplishing Congress’s purposes and objectives as expressed in the federal statute’s text, structure, and design.
- A comprehensive federal cap-and-trade program that relies on unrestricted interstate trading can preempt state measures that re-price, penalize, or deter allowance transfers based on where emissions will occur.
- Even absent express preemption, a detailed federal regulatory scheme may leave no room for state laws that alter the operation of the federal market mechanism.

## Conclusion

New York’s mitigation fee on certain SO₂ allowance transfers was invalid because it obstructed Title IV’s goal of achieving emissions reductions through a uniform national trading market, so the statute was preempted under the Supremacy Clause.


Clean Air Mkts. Grp. v. Pataki, 338 F.3d 82 (2d Cir. 2003)