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Court rejects challenge to California’s carbon auctions

Carbon Tax Contested
Carbon Tax Contested

A Sacramento Superior Court judge upheld the legality of the California’s Cap and Trade Carbon Auction the case will be appealed

Sacramento Bee – 11/14/013 –

California’s year-old system of auctioning off the right to emit greenhouse gases has withstood a pair of lawsuits challenging the program’s constitutionality.
A Sacramento Superior Court judge this week rejected lawsuits filed by the California Chamber of Commerce and the conservative Pacific Legal Foundation.

In lawsuits filed five months apart, the two groups sought to derail the state’s quarterly auctions of carbon-emissions permits – a centerpiece of California’s landmark global warming law, AB 32. They argued that the auctions amount to an unconstitutional tax on California’s largest industries because AB 32 didn’t receive two-thirds supermajority votes when the Legislature enacted the law in 2006. The two groups also said AB 32 didn’t explicitly authorize the state to auction the carbon credits in the first place.

Groups like the California chamber have complained that the auctions contribute to the already high cost of doing business for the 400-plus companies covered by the greenhouse-gas law. The state has sold nearly $1.1 billion worth of carbon credits since the program debuted one year ago Thursday, and the annual cost is expected to grow significantly.

Sacramento Superior Court Judge Timothy Frawley rejected the challenge. In his written opinion, he said the dollars spent at the carbon auction “are more like traditional regulatory fees than taxes, but it is a close question.” He compared the auctions to a hunting or fishing license. A two-thirds vote isn’t required to impose fees.

Ted Hadzi-Antich, a lawyer for the Pacific Legal Foundation, said the group isn’t discouraged by the ruling and will file an appeal.

“It’s the trial court’s determination, and we have 60 days to appeal and that’s what we’re going to do,” he said. The foundation sued on behalf of a group of businesses affected by the law, including Woodland agribusiness company Morning Star Packing Co.

Allan Zaremberg, president of the California chamber, also vowed to appeal.

The state’s effort to control greenhouse gases is centered around a system known as “cap-and-trade,” in which the state sets a statewide ceiling on carbon emissions and reduces the cap slightly each year. The affected companies are allotted a certain number of carbon-emissions allowances. Most are given out for free, but some must be bought – either at the state-run auctions, or on the open market from other participants.

In defending the system, lawyers for the Air Resources Board said the auctions don’t constitute a tax because buying carbon is optional. A company can satisfy its legal requirements by reducing its carbon emissions, they said.

“We are pleased that this ruling affirms ARB’s authority to design and implement the cap-and-trade auction,” said agency spokesman David Clegern in an emailed statement. “This allows California to continue with the effective implementation of cap-and-trade and make investments in clean energy and greenhouse gas reductions.”

Environmentalists also welcomed the ruling.

“Today’s decision marks another win for the Golden State’s clean-energy economy and the communities across California hit hardest by climate pollution,” said Erica Morehouse, an attorney with the Environmental Defense Fund, in a prepared statement.

Carbon credits are bought and sold in one-ton increments, with the going rate about $12. The next state auction is next Tuesday.

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