LOS ANGELES — An appeals court has affirmed the legality of carbon dioxide auctions in California’s cap-and-trade program.
In a 2-1 majority decision, the Third District Court of Appeals found in favor of the state’s carbon auction program in a joint ruling on two lawsuits.
The California Chamber of Commerce and Morning Star Packing Company had alleged in separate lawsuits that the California Air Resources Board had exceeded its authority by imposing cap-and-trade and that the program represents an unconstitutional tax.
Cap-and-trade requires companies to buy permits to release gases into the air over a certain threshold. It allows other companies to sell unused capacity to emit carbon dioxide to companies expecting to exceed the threshold during quarterly auctions.
“The court’s decision affirms the basic purpose and structure of the program – to deliver carbon reductions in a cost-effective and flexible manner,” ARB Chair Mary Nichols said in statement.
The program has raised billions of dollars since its inception in 2012 – some of which is going to fund the state’s $64 billion high-speed rail that would run from San Francisco to Los Angeles.
The court found that the Air Resources Board had the authority to impose cap-and-trade based on action the Legislature took when it passed Assembly Bill 32. It also found that the auction is not a tax.
“The twin hallmarks of a tax are that it is compulsory, and that it conveys nothing of a particular value to the payor,” the majority judges said in the
The Air Resources Board devised the cap-and-trade system to meet emissions reduction goals outlined in AB32, which lawmakers approved in 2006. The original legislation wasn’t passed with a two-thirds vote, the legal threshold outlined under Proposition 13 for raising tax revenue.
“The decision helps clear the way for California to continue its ambitious, globally significant climate leadership, and to do so in a way that promotes the best interest of Californians – especially those in pollution-burdened communities that will be hit hardest by climate change impacts,” said Erica Morehouse, an Environmental Defense Fund attorney, which is a party in the lawsuits.
The dissenting judge argued that: “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 auction program, not having been passed by a two-thirds vote in the Legislature, violates Proposition 13.”
Despite the ruling, Gov. Jerry Brown is expected to continue efforts to extend cap-and-trade beyond 2020. He asked in his January budget proposal for the legislature to approve the extension with a two-thirds vote.
