US president Donald Trump is threatening legal action against state climate and clean energy policies, a move that sent environmental markets sharply lower early Wednesday.
Trump on Tuesday directed the Department of Justice to consider taking action against any states and local laws that hamper the development or use of domestic energy resources, with a specific focus on climate-related policies.
US environmental markets stumbled in response to the president's executive order, with California Carbon Allowances (CCAs) for December 2025 delivery trading as low as $22.51/metric tonne on the Intercontinental Exchange and December 2025 Regional Greenhouse Gas Initiative (RGGI) CO2 allowances as low as $16/short ton, after being assessed Tuesday at $29.31/t and $21.52/st, respectively. California Low Carbon Fuel Standard futures on ICE also traded as low as $48/t, after going as high as $65.50/t Tuesday.
Fears about the Trump order also spilled into the renewable energy certificate (REC) markets. Vintage 2026 PJM Class I traded as low as $28/MWh on the exchange to start the session, but last traded at $33/MWh. Argus assessed the vintage at $34.60/MWh on Tuesday.
Trump's order specifically calls out California's cap-and-trade program, as well as "extortion laws" from New York and Vermont that seek to levy fees against fossil fuel companies for responsibility for historical GHG emissions. Such climate "superfund" laws are also being considered by a number of other states. But he also suggests state permitting decisions and other laws could be targeted as well.
His order suggests that many of these policies run afoul of the US Constitution by imposing "significant barriers" to trade and discriminating against out-of-state energy sources, or though "arbitrary or excessive" fines.
"These state laws and policies weaken our national security and devastate Americans by driving up energy costs for families coast-to-coast, despite some of these families not living for voting in states with these crippling policies," Trump said.
The president directed attorney general Pamela Bondi to report within 60 days on actions she has taken against state laws and to recommend any additional action by the White House or US Congress to stop enforcement of objectionable policies.
Trump unsuccessfully attempted to sever the link between the California and Quebec carbon markets during his first term, on the grounds that it violated federal authority to establish trade and other agreements with foreign entities under the US Constitution.
The office of California attorney general Rob Bonta (D) said it is reviewing Trump's order, and others he issued Tuesday that aim to bolster the use of coal-fired electricity.
"But this much is clear: the Trump Administration continues to attempt to gut federal environmental protections and put the country at risk of falling further behind in our fight against climate change and environmental harm," the office said. "The California Department of Justice remains committed to using the full force of the law and tools of this office to address the climate crisis head on and protect public health and welfare."
California earlier this year bolstered funding for its Department of Justice in anticipation of increased legal fights with the Trump administration.
New York officials also said they are considering their next steps. The state participates in RGGI and has a renewable energy mandate, but it is also developing an economy-wide carbon market.
"We are thoroughly reviewing the [executive order] to determine the potential impact to New Yorkers. The governor is committed to ensuring a clean, affordable and reliable energy grid in New York state," the office of governor Kathy Hochul (D) said.
