Split Appeals Court Decision Upholds Cap-and-Trade Revenues

In a 2-1 ruling, the 3rd District Court of Appeal has upheld the state’s practice of auctioning greenhouse gas (GHG) emission allowances to raise revenues.

The California Chamber of Commerce sued the state Air Resources Board (ARB) in 2012, asserting that AB 32, the GHG emission reduction law adopted in 2006, does not authorize the ARB to impose fees other than those needed to cover ordinary administrative costs of implementing a state emissions regulatory program.

The court majority found in the April 6 decision that “The system [of auctions] is the voluntary purchase of a valuable commodity and not a tax under any test.” The majority opinion was authored by Associate Justice Elena J. Duarte, concurred in by Associate Justice M. Kathleen Butz.

In his dissent, Associate Justice Harry E. Hull Jr. pointed out: “Given that the auction program is, for Morning Star and businesses that are similarly situated, compulsory if they are to remain in business in California and that the auction program creates, in actual effect, general revenue, I can only conclude that the program is a tax in ‘something else’ clothing and that the auction program, not having been passed by a 2/3 vote in the Legislature, violates Proposition 13.”

The CalChamber is reviewing the decision and evaluating whether to appeal.

The lawsuit does not challenge any of the provisions of AB 32, including cap-and-trade authority, nor the merits of climate change science. The only issue addressed in the litigation is the portion of the regulation that seeks to permit the ARB to allocate to itself GHG emission allowances and to profit by selling them to GHG emitters.

The CalChamber, other members of the business community, members of the Legislature, the Legislative Analyst’s Office and ARB have all highlighted the fact that the auction is not needed to achieve the goals of AB 32 or to have an effective cap-and-trade program.