2.1. Comparing Federalism: Taxonomy

‘Federalism’ has taken on different meanings on both sides of the Atlantic since the 18^th century.Footnote ¹⁹ While the Swiss Federalists opposed a robust, centralized political authority during the Helvetic Republic, American Federalists favoured strong central governance.Footnote ²⁰ This ambiguity traces back to the Latin word foedus (league) from which the terms ‘federal’, ‘federation’, and ‘federalism’ are derived.Footnote ²¹ These etymological roots allow groups to refer to the same concept (federalism) while emphasizing different aspects of its semantic content in order to pursue opposing political ends – favouring unity over centrifugal tendencies (American Federalists) or stressing the constituent unit's autonomy (Swiss Federalists). Such conceptual ambiguities call for scholarship in comparative law to rest on precise taxonomy. ‘Federation’, ‘federalism’, and ‘federal’ all refer to structures of political governance combining shared rule with self-rule.Footnote ²² Political entities ranging from federal states to confederacies and supranational organizations thus all form ‘federal polities’ (or ‘federal systems’).Footnote ²³ As a more specific subcategory, a ‘federation’ (or ‘federal state’) is a territorial and political entity based on a constitution that allocates political power between a general entity (federal or central government: ‘the Federation’) and a number of regional entities (constituent units such as provinces, cantons or states), with each of these entities fulfilling tasks relating to matters on which they are entitled to take binding and final decisions (‘non-centralization’).Footnote ²⁴ The constituent units and the federal government thus ‘exercise concurrent authority over the people’.Footnote ²⁵ As a result of the dual composition of federations,Footnote ²⁶ it is both the Swiss People and the 26 individual cantons that constitute Switzerland, according to the first provision of the Swiss Federal Constitution.Footnote ²⁷ Finally, ‘federalism’ refers to both the normative theory and the institutional practice of legitimizing and advocating a political and legal order committed to non-centralization.Footnote ²⁸

In some federal states (such as Brazil, Canada, and the United States (US)), both the federation and the constituent units have their own civil service and judiciary to implement and adjudicate on their own laws. Such arrangements are referred to as ‘horizontal’ or ‘dualist’ federalism. Political structures such as Germany or Switzerland, in principle relying on the constituent units to implement federal and subnational laws alike, are labelled ‘integrated’, ‘executive’, or ‘administrative’ federalism.Footnote ²⁹ In this article, such systems are defined as ‘administrative interlocking’.Footnote ³⁰ The term highlights both the vertical (Federation/constituent units) and horizontal (among constituent units) intertwinementFootnote ³¹ within the federal polity. The term ‘horizontal cooperative federalism’ refers to institutionalized cooperation among constituent units.Footnote ³²

2.2. Swiss Federalism: A Constitutional Compromise and an Enduring Legacy

The constitutional framework of Swiss federalism, forming the background of the country's domestic climate change law, can be traced back to the first Federal Constitution. Prior to the enactment of the Federal Constitution on 12 September 1848, escalating tensions between liberal-Protestant and conservative-Catholic cantons had erupted into the brief civil war of 1847–48 (the Sonderbund War), in which an alliance of conservative cantons – the SonderbundFootnote ³³ – suffered a resounding defeat.Footnote ³⁴ This outcome paved the way to converting the Swiss Confederacy into a federal state.Footnote ³⁵ Federalism was tantamount to a pragmatic compromise to peacefully accommodate the defeated cantons of the former Sonderbund in the federal state.Footnote ³⁶ The following constitutional principles, unaltered since 1848, shape Switzerland's characteristic small-scale federalism with regard to climate change mitigation and beyond.

3.1. Switzerland's GHG Footprint and its Commitments under International Law on Climate Change

Small-scale federalism as an enduring legacy of 1848, with its 26 cantons and 2,172 municipalities,Footnote ⁶⁰ bears witness to the truth of the observation made by Denis de Rougemont, a cultural theorist and influential proponent of European unification, that federalism rests ‘upon the fondness for complexity’.Footnote ⁶¹ It also shapes the architecture of domestic climate change law. As foreign relations are a federal power,Footnote ⁶² the federal government represents the Swiss Confederation (Switzerland) – the Federation and the cantons in their entirety – at the international level as a subject of public international law. The Federation is entitled to conclude international treaties on all subject matters.Footnote ⁶³ Norms of international treaties become part of Swiss federal law upon ratification (‘monism’).Footnote ⁶⁴ In the domain of international law on climate change, Switzerland ratified the 1992 United Nations Framework Convention on Climate Change (UNFCCC),Footnote ⁶⁵ the 1997 Kyoto Protocol including the 2012 Doha Amendment,Footnote ⁶⁶ and the 2015 Paris Agreement.Footnote ⁶⁷ With regard to the latter, Switzerland pledged ‘to reduce its greenhouse gas emissions by 50 percent by 2030 compared to 1990 levels’.Footnote ⁶⁸ Between 1990 and 2016, domestic GHG emissions decreased by 10% and stood at 5.6 tonnes of CO₂ equivalents per capita in 2015.Footnote ⁶⁹ Taking into account all consumption-based emissions occurring on Swiss territory and abroad, including imported goods and international air travel, Switzerland's GHG footprint stands at 14 tonnes per capita per year, well above the global average of 6 tonnes.Footnote ⁷⁰

In domestic law, the targets derived from Switzerland's pledges under international law and all measures to reduce those GHG emissions that are attributable to the use of fossil fuels as energy sources are stipulated in the Federal Act on the Reduction of CO₂ Emissions (Federal CO₂ Act).Footnote ⁷¹ The Federal CO₂ Ordinance,Footnote ⁷² issued by the Federal Council, specifies the provisions of the Federal CO₂ Act. The Ordinance sets out interim reduction targets for the transport, industry, and building sectorsFootnote ⁷³ in order to continually assess whether Switzerland is on track to meet its overall targets. While both the industry and building sectors met their interim targets by reducing their GHG emissions by 18% and 26% respectively, the transport sector increased its emissions by 4% compared with its 1990 level.Footnote ⁷⁴ As the main source of GHG emissions, transport was responsible for 32% of all GHG emissions in 2015Footnote ⁷⁵ and 37.7% of Switzerland's total energy consumption in 2019.Footnote ⁷⁶ Road transport (70.1%) and international air travel (27.5%) cause the vast majority of the sector's GHG emissions, while the share attributable to railways stands at less than 0.15%.Footnote ⁷⁷ This is largely as a result of the remarkably light GHG footprint of the Swiss electricity sector, with 56.4% of total electricity production in 2019 derived from hydropower, 35.2% from nuclear power, 4.2% from conventional thermal power and district heating plants, 4.2% from ‘new renewable’ sources (wood, wind, solar, waste), and none from coal.Footnote ⁷⁸ Overall, Switzerland is likely to have missed the target of reducing its GHG emissions by at least 20% by 2020 measured against its 1990 levels, based on the most recent available data.Footnote ⁷⁹

3.2. Broad Federal Powers: Federal CO₂ Act as the Centrepiece of Domestic Climate Change Law

The Federal Constitution confers on the Federation substantial legislative powers regarding mitigating climate change. Regulating the electricity market,Footnote ⁸⁰ the use of energy by installations, vehicles and appliances,Footnote ⁸¹ and nuclear energyFootnote ⁸² are all federal powers. The Federation, furthermore, may enact principles on ‘the use of local and renewable energy sources’ and ‘the economic and efficient use of energy’.Footnote ⁸³ Limiting federal powers to stipulate mere ‘principles’ as opposed to detailed regulation is a technique that the Swiss Federal Constitution often applies in the realm of environmental protection, notably with regard to spatial planning, water conservation, fishing, hunting, and forest conservation.Footnote ⁸⁴ This technique aims to strike a balance between ensuring the same level of protection nationwide on the one hand, and granting the cantons discretion in adjusting the public interests at stake to local circumstances on the other hand. Regulating energy consumption in buildings is an area in which the delimitation of powers between the Federation and the cantons is ‘particularly complex’:Footnote ⁸⁵ the cantons are ‘primarily’ responsible, according to the text of the Federal Constitution.Footnote ⁸⁶ Federal statutory law not only commits the cantons to make use of their powersFootnote ⁸⁷ but also to file a yearly report with the Federal administration on the measures taken.Footnote ⁸⁸

Together with various federal powers on energy policy,Footnote ⁸⁹ the federal power on the protection of the environmentFootnote ⁹⁰ forms the constitutional basis of the Federal CO₂ Act.Footnote ⁹¹ This comprehensive enactment, initially entered into force on 1 May 2000,Footnote ⁹² constitutes the centrepiece of Swiss domestic climate change law. On 25 September 2020, the Federal Parliament adopted a total revision of the Act for the period beyond 2020.Footnote ⁹³ The CO₂ levy provided for by the Federal CO₂ Act forms ‘the backbone of Swiss climate policy’.Footnote ⁹⁴ The levy is collected on the production, extraction and import of ‘thermal fuels’ (heating oil, natural gas, coal, and so on) as opposed to ‘motor fuels‘ (petrol, diesel, kerosene, and so on).Footnote ⁹⁵ The rate of the levy has risen to Swiss francs (CHF) 96 (EUR 90/USD 106) per tonne of CO₂ since 2018Footnote ⁹⁶ and may increase to CHF 120, depending on whether interim reduction targets are met.Footnote ⁹⁷ According to the text of the revised Federal CO₂ Act, this rate may increase to a ceiling of CHF 210 per tonne of CO₂ in 2021,Footnote ⁹⁸ whereas a new levy on motor fuels would increase the price of gasoline by up to CHF 0.12 per litre by 2025.Footnote ⁹⁹ Similarly, a new levy on commercial passenger flights would increase the price of a ticket by between CHF 30 to 120, while certain private flights would be taxed at a rate of between CHF 500 to 3,000.Footnote ¹⁰⁰ Designed as an incentive tax, approximately two thirds of the revenue from the CO₂ levy are redistributed to both the resident population and the companies residing in Switzerland, independent of consumption.Footnote ¹⁰¹ The remaining third of revenues is invested into a climate fund to promote CO₂ reduction measures in the building sector, secure loans for companies to develop and market equipment and processes to reduce GHG emissions, and subsidize measures to prevent damage to persons or property of considerable value that may arise as a consequence of the increased concentration of GHGs in the atmosphere.Footnote ¹⁰² The emissions trading scheme established by the Federal CO₂ Act (Swiss ETS)Footnote ¹⁰³ has been linked to the European Union Emissions Trading System (EU ETS) since 1 January 2020.Footnote ¹⁰⁴

3.3. Administrative Interlocking between the Federation and the Cantons: Implementing Federal Climate Change Law

As a result of the administrative interlocking between the Federation and the cantons as one of the core principles of Swiss federalism, the constitutionally ascribed federal power to legislate on climate change mitigation does not necessarily entail a corresponding power of the Federation to execute such laws by its own administration. Rather, it is for the cantons to implement and execute federal law, subject to an explicit provision by federal constitutional or federal statutory law to the contrary.Footnote ¹⁰⁵ The Federal CO₂ Act, however, provides for exactly such an exception to the rule and entrusts its implementation to the Federal Administration in generalFootnote ¹⁰⁶ and to the Federal Office for the Environment (FOEN) in particular.Footnote ¹⁰⁷ When the Federal CO₂ Act was drafted in its initial form in 1997, the Federal CouncilFootnote ¹⁰⁸ argued that implementation by the Federal Administration would ‘keep enforcement as simple as possible’ and would ‘ensure that companies … operating nationwide’ at various sites ‘in several cantons’ would be in a position to commit themselves to the then only voluntary schemes to reduce GHG emissions.Footnote ¹⁰⁹ The responsibility to ensure that CO₂ emissions from ‘buildings that are heated with fossil fuels’ are reduced in compliance with the targets set out in the Federal CO₂ Ordinance nevertheless rests with the cantons.Footnote ¹¹⁰ The same applies for most areas covered by the Federal Environmental Protection Act (Federal EPA),Footnote ¹¹¹ with the exception of tasks closely related to climate change mitigation law, such as environmental tax incentives and emission limits for thermal and motor fuels.Footnote ¹¹² In matters of environmental law implemented by the cantons the FOEN regularly publishes detailed guidelines specifying the provisions set out by federal environmental law in order to limit the exercise of discretion by the administrative agencies of the cantons.Footnote ¹¹³

3.4. Municipalities: Public Providers of Goods and Services

Municipalities are autonomous yet they implement the laws of the canton to which they belong.Footnote ¹¹⁴ In most cantons it is the municipalities that provide services such as waste management as well as the supply of electricity, water, and natural gas to both private households and industry. Most municipalities established their own public utility companies in the second half of the 19^th century in order to crowd out private monopolies in these industries.Footnote ¹¹⁵ At around the turn of the 20^th century many cantons and urban municipalities established state-owned enterprises to build and operate hydropower plants and, beginning in the 1970s, nuclear power stations.Footnote ¹¹⁶

3.5. Concluding Analysis: Flexible Administrative Interlocking

In contrast to the usual constitutional implementation arrangement, the Federal CO₂ Act is largely implemented by the Federal Administration. In view of Switzerland's small-scale federalism, this solution can be justified not only by the demands of private companies with sites in several cantonsFootnote ¹¹⁷ but also on practical grounds. The administration of financial incentives such as the CO₂ levy or the Swiss ETSFootnote ¹¹⁸ by 26 different administrative agencies would involve extensive effort and require each of these agencies to have specialized expertise at their disposal. The architecture of domestic climate change law therefore indicates that the constitutional framework of federalism in place since 1848 provides for both stability and, with regard to the implementation of laws, a degree of flexibility. Administrative interlocking between the Federation and the cantons thus remains an important feature of climate change law as it is, first and foremost, for the cantons to regulate energy consumption in buildingsFootnote ¹¹⁹ – a sector responsible for 30.3% of all CO₂ emissionsFootnote ¹²⁰ and for 41.6% of all energy consumption.Footnote ¹²¹ At the same time, the revenues from the CO₂ levy, collected by the Federation, are the main source of the subsidies paid out by the cantons to landowners for investments to reduce the GHG emissions of their buildings.Footnote ¹²² This complex intertwining extends all the way to the municipalities. As providers of goods and services, including electricity and natural gas,Footnote ¹²³ municipalities have a major role to play in domestic climate change law, as will be discussed in more detail below.Footnote ¹²⁴

4.1. Economic Approaches to Federalism: ‘One View of the Cathedral’

The intertwining of powers and tasks across three layers of governance invites the question of the rationale for such complex arrangements. Certain strands of literature on federalism, rooted in political and constitutional economics, seek to identify how legal norms and institutions of federalism interact with individual behaviour.Footnote ¹²⁵ Such ‘economic approaches to federalism’Footnote ¹²⁶ centre mainly on the effects of competition between different political entities within a federal polity.Footnote ¹²⁷ While the aim of climate change policies – to reduce GHG emissions – is clearly defined by the commitments made under international law,Footnote ¹²⁸ there are multiple policy options to achieve this goal. The insights provided by economic approaches centring on competition between political entities can therefore enable considerations of whether the architecture of Swiss climate change law is likely to deliver beneficial effects. The underlying concept of public goods economy resembling a marketplace, as sketched below, offers but ‘one view of the cathedral’,Footnote ¹²⁹ and thus conveys, as any other theoretical and analytical approach would, one of several possible perspectives.

4.2. Competition in the Public Provision of Goods and Services

According to economic approaches to federalism, one of the major benefits of federalism is derived from the theoretically plausible assumption that subnational entities can be expected to have accurate knowledge about both the preferences of the citizens and their willingness to pay with regard to goods and services provided by the government.Footnote ¹³⁰ This premise forms the analytical justification for organizing the powers of the various federal units according to the principle of subsidiarity.Footnote ¹³¹ It presumes the ability of local governments to tailor their provision of government goods and services to the preferences of the local population. At the same time, as the transaction costs for an individual to exit a constituent unit are generally thought to be marginal in a federal state, the option of any resident ‘to vote with his or her feet’ and exit the territorial entity in question would compel local governments to provide their services efficiently.Footnote ¹³² The same restrictive incentives would apply for local governments as to taxes, which embody the price for government services. As subnational governments of a federation compete for taxpaying citizens, they can be reasonably expected to have an incentive to cater for the preferences of these citizens and to set the price of their services accordingly.Footnote ¹³³ Empirical studies testing the theoretical expectation that such federal competition would actually induce a moderating effect on public spending, however, have shown mixed evidence.Footnote ¹³⁴

4.3. Regulatory Competition and Policy Innovation

Competition between subnational entities of a federal state not only extends to tax policy but to regulation more broadly. Federalism allows citizens to compare the performance of their own local government with that of another, which in turn may encourage local politicians and civil servants to adopt more efficient and beneficial policies (yardstick competition).Footnote ¹³⁵ This would turn constituent units into ‘laboratories’ experimenting with different public policies, allowing for beneficial policy innovation.Footnote ¹³⁶ Incentives for such ‘laboratory federalism’,Footnote ¹³⁷ however, are weakened by the fact that many policy innovations are not only risky and costly but may be easily copied when proved successful.Footnote ¹³⁸ This invites free riding and may justify subsidies by the central government to support innovating subnational entities.Footnote ¹³⁹ Whether, and to what degree, the theoretical expectation of yardstick competition within federal entities translates into practical results,Footnote ¹⁴⁰ and whether competition would enhance or rather weaken environmental standards, is disputed. The economic appeal of a sizeable internal market within a jurisdiction that is committed to high environmental standards may, under specific circumstances, trigger a federal dynamic leading to more ambitious environmental protection, as it is often inefficient to design products in compliance with multiple regulatory standards.Footnote ¹⁴¹ According to some authors, the 1970 US Clean Air ActFootnote ¹⁴² illustrates the beneficial results of such federal interstate competition.Footnote ¹⁴³ The Act allowed California to enact stricter car emissions standards, which were later adopted by the federal government, only to provoke the next cycle of ‘iterative federalism’ during which the federal government once again aligned itself with the higher Californian standard.Footnote ¹⁴⁴ This ability of the State of California, revoked by the Trump administration in 2019,Footnote ¹⁴⁵ to effectively set the regulatory standards for the whole nation as a result of both its sizeable internal market and its policy of promoting stricter environmental regulation was coined the ‘California effect’.Footnote ¹⁴⁶ In contrast to this dynamic, some scholars argue that federalism would result in lower standards, particularly in the realm of environmental policy. This more sceptical perspective is fuelled by the analytical assumption that any subnational entity, in rationally pursuing its narrow self-interest, would opt against higher environmental protection for fear of capital moving to other entities with lower and less costly standards.Footnote ¹⁴⁷ Regulatory competition in environmental matters would thus create ‘pollution havens’Footnote ¹⁴⁸ situated in entities with the weakest environmental regulation.Footnote ¹⁴⁹ While the empirical evidence on whether regulatory competition spurs such downward spirals within federal polities has so far remained mixed and unsystematic, most studies nonetheless point to a degree of strategic interaction between subnational entities, meaning that politicians tend to discern changes in environmental regulations in other jurisdictions when reviewing their own policies, albeit only as one of several relevant considerations.Footnote ¹⁵⁰

4.4. Concluding Analysis: Broad Federal Powers, Constrained Federal Competition

The economic approach to federalism emphasizes, above all, the beneficial effects of competition between federal units for society and the individual alike. In the context of Swiss federalism, these advantageous consequences are most likely to be relevant for the provision of public goods, as it is mainly the municipalities that supply electricity, drinking water, and natural gas.Footnote ¹⁵¹ Citizens, furthermore, have the right to participate in referenda and to launch popular initiatives (direct democracy) at all three levels of Swiss federalism. Citizens are thus entitled to take part in the decision-making process relating to matters such as the level of taxes or investment in local infrastructure.Footnote ¹⁵² While the public provision of goods and services is an area where one can reasonably expect a degree of competition on the basis of insights provided by economic approaches to federalism, such effects appear less likely in the context of Switzerland's environmental policy. The broad federal powers for environmental protectionFootnote ¹⁵³ can be expected largely to forestall regulatory competition in this realm. This applies even to the regulation of energy consumption in buildings, for which the cantons are in principle responsible, as the Federation not only has spelled out interim targets for the building sector to reduce GHG emissions, but moreover commits the cantons to report on the measures taken to reach these targets.Footnote ¹⁵⁴ Apart from the federal powers and provisions, analytical considerations do not warrant the assumption that a canton would be in a position to project its influence beyond its own borders according to the model of the aforementioned California effect,Footnote ¹⁵⁵ as none of the cantons have an internal market large enough to set regulatory standards for other cantons.Footnote ¹⁵⁶ In contrast to frameworks of dualist federalism,Footnote ¹⁵⁷ the cantons project their influence less through competition than through both their use of discretion when implementing federal lawFootnote ¹⁵⁸ and their individual and collective participation in policy formulation at the federal level.Footnote ¹⁵⁹

5.1. Symmetrical Federalism Despite Asymmetries

Competition between federal entities not only presupposes legal autonomy at the subnational level but requires all layers of federalism to have the governmental and administrative capacity to make effective use of their autonomy. Such administrative expertise plays a pivotal role in highly technical matters such as implementing climate change mitigation law.Footnote ¹⁶⁰ As a result of Switzerland's small-scale federalism, all cantons are accorded similar powers but, on account of their small size, they often lack governmental and administrative capacity.Footnote ¹⁶¹ Disparities among the cantons have substantially increased since 1848 when ‘symmetrical federalism’ was adopted as a constitutional principle.Footnote ¹⁶² In 2020, six of the 26 cantons accounted for 59% of Switzerland's entire population.Footnote ¹⁶³ In the same year, the permanent residential population of the largest canton exceeded the smallest by a factor of 96, whereas this number stood at 43 more than a century ago.Footnote ¹⁶⁴ Twenty of the 26 cantons have a permanent residential population of below half a million people while the population of only two cantons – Zurich and Berne – exceeds one million.Footnote ¹⁶⁵ In 2020 the smallest municipality of Switzerland was inhabited by a dozen citizens; the most populous – the City of Zurich – counted roughly half a million inhabitants.Footnote ¹⁶⁶

5.2. Horizontal Cooperative Federalism: Pooling Administrative Resources while Keeping the Federation at Bay

On account of scarce administrative capacity and in an effort to represent collectively their interests at the federal level, cantons have increasingly pooled their administrative and governmental resources in institutionalized networks.Footnote ¹⁶⁷ The Federal Constitution expressively underscores this right of the cantons to ‘establish common organisations and institutions’.Footnote ¹⁶⁸ Formally, such organizations are often established as associations of federal private law. These intergovernmental networks, which are usually referred to as ‘conferences’, thus transcend the structures of public law that embed Swiss federalism.Footnote ¹⁶⁹ Deliberations within such conferences are reserved for members of the executive branches of the cantons and are closed to the public. The public is rarely consulted regarding documents of legal relevance, and the same goes for members of parliaments. The dominant role of the executive branches at the expense of the legislature, and the lack of transparency, public scrutiny and democratic accountability, have frequently attracted criticism.Footnote ¹⁷⁰ The cantons nevertheless perceive horizontal cooperation as an effective strategy not only to fend off additional federal powers but also to alleviate their strained administrative resources.Footnote ¹⁷¹

In 1979, all 26 cantons established the Swiss Conference of Cantonal Energy Directors (CDEn) as an intergovernmental council to coordinate energy laws and policies.Footnote ¹⁷² In view of the primary responsibility of the cantons to regulate energy consumption in buildingsFootnote ¹⁷³ and the interim target for the reduction of GHG emissions in the building sector set down by federal law,Footnote ¹⁷⁴ the CDEn issued a detailed, non-binding model law on energy efficiency standards in buildings (MoPEC 2014).Footnote ¹⁷⁵ As in other instances of horizontal cooperative federalism, each member of the CDEn has one vote.Footnote ¹⁷⁶ This transforms each of the 26 cantons into a veto playerFootnote ¹⁷⁷ regardless of its size or administrative resources, thereby increasing the likelihood that the cantons will agree only on the lowest common denominator when deciding on guidelines such as MoPEC 2014. The unanimity requirement may consequently lead to various institutional pathologies that are often associated with intertwined decision-making structures of cooperative federalism.Footnote ¹⁷⁸ Organizations of cooperative federalism may thus lose their collective capacity to reach optimal decisions or end in political stalemate altogether. In line with these theoretically and analytically founded expectations, the few empirical studies on the issue provide a rather bleak assessment of horizontal cooperative federalism, fuelling the claim that the significant GHG reductions in the building sector of 26% by 2015, compared with the 1990 level,Footnote ¹⁷⁹ were achieved ‘despite, not because of’ interaction between the cantons.Footnote ¹⁸⁰

5.3. Federal Pre-emption: Vertical Incentives for More Stringent Regulation within Horizontal Cooperative Federalism

When the cantons, organized in institutions of horizontal cooperative federalism such as the CDEn, fail to agree on guidelines in line with the interim targets spelled out in the Federal CO₂ Ordinance, this carries the risk of triggering federal regulation. Federal law takes precedence over the conflicting law of a canton.Footnote ¹⁸¹ The latter is thus void and without effect when it is in contradiction with federal law (‘federal pre-emption’).Footnote ¹⁸² The federal level has broad powers in respect of both environmental protection and energy policy. With regard to energy consumption in buildings, it is the cantons that are, according to the vague wording of the Federal Constitution, ‘primarily’ responsible for enacting laws.Footnote ¹⁸³ The Federation is hence under a constitutional obligation to refrain from unduly exercising its powers. As explained above, such restraint is equally due on political grounds, given the right of eight cantons to launch a referendum against any federal statutory law.Footnote ¹⁸⁴ As a result of this optional referendum, the Federation hardly ever succeeds in overcoming concerted opposition from the cantons on specific policy issues.Footnote ¹⁸⁵ Legally, the Federal Parliament is nonetheless entitled to enact federal laws should it consider the guidelines of the cantons to be insufficient in respect of the interim targets for the building sector.Footnote ¹⁸⁶ The less closed the ranks of the cantons are on the issue, the more likely it is that the Federal Parliament will adopt federal regulations. Since the cantons usually prefer to prevent federal intervention, the shadow of federal pre-emption incentivizes the cantons and the CDEn alike to avoid adopting standards that could be deemed insufficient. In line with analytical assumptions, empirical studies mainly credit formal and informal interventions by the Federation with the substantial reductions of GHG emissions achieved in the building sector.Footnote ¹⁸⁷

This strategic interplay between guidelines drafted within institutions of horizontal federalism and federal pre-emption can be observed in the total revision of the Federal CO₂ Act adopted by the Swiss Federal Parliament on 25 September 2020.Footnote ¹⁸⁸ Regarding the replacement of oil or natural gas heating systems in buildings, the MoPEC 2014 guidelines, drafted by the CDEn on behalf of the cantons, stipulate that 10% of current energy consumption must be compensated for by renewable energies (for example, boiler replacement plus solar panels for hot water).Footnote ¹⁸⁹ As this threshold was widely assessed as insufficient in view of the interim target for the building sector, the Federal Parliament enacted a more stringent nationwide emissions limit for buildings of 20 kilogrammes (kg) of CO₂ per year and square metre of building space as of 2023, declining by 5 kg every five years, effectively banning new oil-fired heating systems altogether.Footnote ¹⁹⁰ From 2023 onwards, new buildings are generally not allowed to emit any CO₂ from fossil fuels through their heating and water heating systems.Footnote ¹⁹¹

5.4. Concluding Analysis: Close Interaction between the Layers of Federalism to Avoid Federal Stalemate

Cooperation between the cantons to draft guidelines and model laws has turned out to be the option preferred by the cantons to meet the challenges of scarce administrative capacity associated with small-scale federalism, while guarding against centralization.Footnote ¹⁹² Such ‘horizontal cooperative federalism’ provides limited incentives for ambitious policies to mitigate climate change.Footnote ¹⁹³ On account of the intertwining of powers and responsibilities regarding energy consumption in buildings, guidelines drafted by the institutions of horizontal cooperative federalism that are manifestly inadequate in view of the interim targets for the building sector defined in the Federal CO₂ Ordinance risk falling prey to federal pre-emption.Footnote ¹⁹⁴ In general, members of a federation involved in intertwined decision making might easily lose their collective capacity to reach optimal decisions (because of the unanimity requirement) and, moreover, may prove to be incapable of overcoming the institutional restrictions of policy entanglement through reform.Footnote ¹⁹⁵ The closely interwoven powers of the Federation and the cantons with regard to energy consumption in buildings suggest that such a federal stalemateFootnote ¹⁹⁶ is avoidable as long as one actor – in the Swiss case, the Federation – is constitutionally entitled ultimately to break the deadlock. The Federal Constitution, the Federal CO₂ Act, and the Federal EPA all confer this option on the Federation for the regulation of energy consumption in buildings.Footnote ¹⁹⁷ The Federal Parliament, however, can be expected to exercise restraint, given not only the respective constitutional obligation but the right of the cantons to put such a federal statutory law to a popular vote by launching an optional referendum.Footnote ¹⁹⁸

Against this backdrop, the main finding of the analysis of the interaction between the cantons and the Federation with regard to the building sector might be that administrative interlocking, in contrast to dualist federalism, provides the constituent units with an influential position in a wide array of policy matters, regardless of whether there exists a federal power in respect of specific policies. In order to countervail the associated potential for suboptimal decisions or obstruction in institutions of horizontal cooperative federalism owing to the unanimity requirement, constitutional flexibility regarding the procedures of federalism proves to be crucial. The Swiss Federal Constitution thus grants the Federation the option to retain the implementation of its own laws for the Federal Administration based on statutory law.Footnote ¹⁹⁹ On this basis, most climate change law is implemented by the Federal Administration, most notably by the FOEN, rather than by the cantons.Footnote ²⁰⁰

6.1. Policy Innovation in Climate Change Law

Federalism is routinely credited with promoting regulatory innovation.Footnote ²⁰¹ Switzerland's small-scale federalism, however, ostensibly offers limited incentives for policy innovation in climate change law. This is mainly a result of the broad federal powers in environmental and energy policy, scarce administrative resources and the limited expertise of many small cantons, and because the decision-making processes within institutions of horizontal federalism are prone to dampening ambitious environmental policies.Footnote ²⁰² As explained in more detail below, as a result of both the specific structure of the Swiss electricity industryFootnote ²⁰³ and the considerable administrative capacity of urban municipalities, the latter are better positioned than cantons to act as regulatory laboratories for climate change mitigation policies within Swiss federalism.Footnote ²⁰⁴

6.2. The Swiss Electricity Industry: State Capitalism Embedded in a Market Economy

General government expenditure is an indicator of the size of government.Footnote ²⁰⁵ Switzerland's government spending amounts to 34.2% of its gross domestic product.Footnote ²⁰⁶ Apart from Lithuania and Ireland, this constitutes the lowest rate among the European members of the Organisation for Economic Co-operation and Development (OECD) and it is considerably below the corresponding figures for the US (38%), the United Kingdom (41%), and Austria (49.2%).Footnote ²⁰⁷ In the light of this, Switzerland appears to be an archetype of a free-market economy. The country's electricity industry, however, is a far cry from this archetype. As a result of aggressive public investment instigated in the second half of the 19^th century,Footnote ²⁰⁸ the sector resembles a particular form of state capitalism. As little as 8.1% of the industry's nominal capital lies in private hands, while the lion's share is held by cantons (61.7%) and municipalities (26.6%).Footnote ²⁰⁹ Liberalization of the sector since the 1990s ‘in the shadow of EU-regulation’Footnote ²¹⁰ has remained half-hearted. Whereas electricity utility companies are under an obligation to ensure the independence of network operation (‘unbundling’), only end users with a consumption of more than 100 megawatt hours (Mwh) per year – which is around 1% – are currently entitled to choose their electricity supplier.Footnote ²¹¹

6.3. Urban Municipalities: Bundling Policy Formulation, Policy Implementation, and Administrative Capacities

6.4. ‘Alpine OPEC’: Diverging Interests of Mountainous Regions

The wide degree of autonomy that federalism entails for cantons and municipalities with regard to energy policy may be harnessed in various and sometimes conflicting ways, potentially undermining climate change mitigation policies of other, subnational actors. A levy charged on the use of water resources highlights this feature of federalism. Managing water resources is a power of the cantons.Footnote ²²⁶ The cantons are therefore entitled to levy fees on the use of water by hydroelectric power stations,Footnote ²²⁷ the source of more than half of the electricity produced in Switzerland.Footnote ²²⁸ Five of the 26 cantons, all located in the Alpine regions of Switzerland, levy 73.2% of all such fees.Footnote ²²⁹ The charges represent between 13 and 23% of all fiscal income of these Alpine cantonsFootnote ²³⁰ but amount to about one fifth of the production costs of electricity from hydropower.Footnote ²³¹ In 1981, some of the cantons that rely considerably on these fees on the use of water for budgeting reasons, established their own forum of horizontal cooperative federalism – the Government Conference of Alpine Cantons (RKGK).Footnote ²³² Because the RKGK represents the interests of its members in connection with natural resources rather robustly, it is sometimes ironically dubbed the ‘Alpine OPEC’ in allusion to the Organization of the Petroleum Exporting Countries (OPEC).Footnote ²³³ The vigorous representation of interests by cantons in the RKGK, in striving to raise the levy charged on the use of water, sheds light on the divergent interests at the subnational level: whereas the sparsely populated cantons of the Alpine regions largely favour a high levy on water used for electricity production, the urban and densely populated cantons and municipalities of the lowlands, such as the City of Zurich, tend to prefer lower rates in order to promote electricity from renewable sources. These urban cantons are also often those reaping the fiscal benefits of trade in electricity, as this trade is administered mostly through premises in urban regions of Switzerland while production predominately takes place in the mountains.Footnote ²³⁴ As with other aspects of Swiss federalism,Footnote ²³⁵ federal law entrusts the federal government with the task of avoiding a possible stalemate amidst conflicting interests: it is the Federal Parliament that determines the rate ceiling of fees on the use of water.Footnote ²³⁶ To avoid distorting competition, the cantons are prohibited from levying lower charges on electricity being not only produced but used on their territory.Footnote ²³⁷

6.5. Concluding Analysis: Experimentalism, Dissonance, and Resolution

Economic approaches to federalism routinely credit federalism with enhancing the potential for policy innovation.Footnote ²³⁸ Such theories often tend to refer to concepts of ‘dualistic federalism’Footnote ²³⁹ in which the spheres of the Federation and the constituent states are, by and large, clearly separated.Footnote ²⁴⁰ Administrative interlocking, in contrast, presupposes both cooperation and burden sharing (transfer payments), and allows for the participation of the constituent units in the decision-making process of the Federation.Footnote ²⁴¹ As opposed to constitutional frameworks of dualistic federalism, the three layers of Swiss federalism are thus not neatly separated but closely intertwined. Energy policies of urban municipalities such as the City of Zurich attest that such close intertwining across the layers of federalism still provides room for policy experimentation in line with the preferences of the local citizens.Footnote ²⁴² Owing to both small-scale federalism and its political and legal intertwinement, different preferences regarding energy and environmental policies within the various subnational entities may interfere with each other and thus create dissonance. The levy charged on the use of water illustrates this phenomenon.Footnote ²⁴³ On the one hand, the levy significantly raises the production costs of electricity from hydropower and thus undermines the energy policies of entities like the City of Zurich, which is committed to supplying its customers with electricity produced exclusively from renewable sources. Higher production costs as a result of levies entail the risk that lower-priced electricity produced from coal will be imported more often, while electricity from hydropower may be crowded out of the market.Footnote ²⁴⁴ On the other hand, the levy on the use of water reflects the cantons’ right to dispose of their own resources, and also demonstrates that the resource ‘water’ tends to become more valuable in the light of both the transition to more sustainable energy production and climate change. To the extent that such conflicting interests require an authoritative resolution, federal law again provides a way out of possible federal stalemate by granting the Federal Parliament the power to determine the rate ceiling of the levy charged on the use of water.Footnote ²⁴⁵

The diverging priorities within the various subnational entities may thus interfere with each other and create dissonance. Against the backdrop of broad federal powers, it is ultimately for the Federation to determine which energy and environmental policies are given preference based on the experience of the different subnational units, should the conflict between the different regulatory approaches call for a resolution.Footnote ²⁴⁶ As a consequence of the right of eight cantons to launch an optional referendum against any such federal statutory law, however, any decision by the Federation on the direction of energy and environmental policy constitutes the result of a prolonged procedure, which includes close consultation and bargaining between the Federation and the cantons.Footnote ²⁴⁷