The Second Circuit Court of Appeals affirmed the dismissal of a lawsuit challenging New York State’s Zero Emissions Credit (ZEC) program, which subsidizes qualifying nuclear power facilities. The price of ZECs is based on the social cost of carbon. The Second Circuit concluded that the Federal Power Act did not preempt the ZEC program because the plaintiffs failed to allege “an impermissible ‘tether’” between the ZEC program and wholesale market participation. The Second Circuit found that the ZEC program did not set wholesale prices, but instead “regulates the environmental attributes of energy generation and in the process considers forecasts of wholesale pricing.” The Second Circuit also concluded that ZECs did not compel generators to make wholesale sales. In addition, the court rejected the argument that the “practical effect” of the ZEC program was to regulate wholesale prices, stating: “even though the ZEC program exerts downward pressure on wholesale electricity rates, that incidental effect is insufficient to state a claim for field preemption under the [Federal Power Act].” The court also rejected the plaintiffs’ attempts to distinguish ZECs from renewable energy credits, which the Federal Energy Regulatory Commission (FERC) previously confirmed were within states’ jurisdiction. The Second Circuit also found that the plaintiffs failed to identify “clear damage to federal goals,” foreclosing their claim of conflict preemption. While the plaintiffs argued that the ZEC program was at odds with FERC’s goal of promoting competition in the wholesale market from more efficient generators, the court said FERC acted “with the background assumption that the [Federal Power Act] establishes a dual regulatory system between the states and federal government and that the states engage in public policies that affect the wholesale markets.” Finally, the Second Circuit held that the plaintiffs lacked Article III standing for a dormant Commerce Clause claim. The court said the plaintiffs’ alleged injuries arose not from alleged discrimination against out-of-state entities, but from the plaintiffs’ use of fuels disfavored by New York.

Challenge to component of New York Clean Energy Standard that provided payments to certain nuclear facilities providing "zero-emission" power.

Coalition for Competitive Electricity v. Zibelman

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Second Circuit Upheld New York Subsidies for Nuclear Generation

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Second Circuit Upheld New York Subsidies for Nuclear Generation

Target

Policy instrument

Impacted group

Renewable energy

Fossil fuel

Greenhouse gas

Economic sector

Finance