In a 2-1 decision, the Court of Appeal upheld the California Air Resources Board’s cap-and-trade program for greenhouse gas allowances. California Chamber of Commerce v. State Air Resources Board,  No. C075954 (3rd Dist., April 6, 2017). In upholding the validity of the auction used by the California Air Resources Board to distribute a portion of the greenhouse gas allowances auction, the opinion created an important new test for assessing whether the auction should be considered a tax. The majority found that the allowance auction was not compulsory and provided a valuable commodity to the purchaser, and thus was not a tax requiring supermajority approval under Proposition 13.

Background on CARB’s GHG Cap-and-Trade Program

In 2006, California enacted AB 32 with the goal of reducing greenhouse gas (GHG) emissions to 1990 levels by the year 2020. The California Air Resources Board (CARB) is the designated state agency charged with regulating sources of GHG emissions under AB 32. AB 32 directed CARB to adopt rules and regulations to achieve the maximum technologically feasible and cost-effective reductions in GHG emissions.

Smoking power plantPursuant to AB 32’s directives, CARB promulgated regulations that created a cap-and-trade-program. The program sets an aggregate emissions “cap” on covered entities and enforces the cap by issuing a limited number of allowances, the total value of which is equal to the cap. Covered entities must demonstrate compliance with the program by surrendering allowances that correspond to that entity’s emissions requirements.

Emissions allowances can be obtained in three ways: 1) Some allowances are distributed by CARB for free; 2) allowances are distributed by CARB through an auction; and 3) allowances can be obtained by trading on the secondary market.

CARB’s allowance auction takes place through a single round of sealed bidding, and winners pay the market clearing price. In 2012, the state legislature passed four bills specifying how the auction proceeds would be used to support the regulatory purposes of AB 32.

Several corporations and industry groups challenged the auction mechanism as exceeding CARB’s statutory authority under AB 32 and as an unconstitutional tax that violated the supermajority requirements of Proposition 13.
Continue Reading Court of Appeal, in split decision, upholds CARB cap-and-trade program

The court of appeal in San Francisco has upheld the Climate Change Scoping Plan adopted by the Air Resources Board in December 2008.  In its June 19th decision in Association of Irritated Residents v. California Air Resources Board, the court rejected claims by environmental groups that the Plan violated the Global Warming Solutions Act of 2006, commonly known as AB 32.

AB 32 requires California to reduce its greenhouse gas emissions to 1990 levels by 2020.  To that end, AB 32 directs the Air Board, the agency responsible for implementing the law, to establish a statewide GHG emissions limit for 2020 and adopt a “scoping plan” that identifies ways to reduce emissions from stationary and mobile sources in order to meet that limit.

The Scoping Plan.

After more than 250 public workshops and 350 community meetings, as well as input from various specialized committees, the Air Board approved a Scoping Plan outlining the following key strategies for reducing GHG emissions in California:

  • Expand and strengthen existing energy efficiency programs and building and appliance standards;
  • Achieve a statewide renewables energy mix of 33 percent;
  • Develop a California cap-and-trade program that links with similar programs in otherU.S.states and Canadian provinces as part of the Western Climate Initiative in order to create a regional market-based emissions trading system;
  • Establish targets for transportation-related GHG emissions in the state and pursue policies and incentives to achieve those targets;
  • Adopt and implement emissions-reduction measures under existing California laws and policies, such asCalifornia’s Clean Cars standards and Low Carbon Fuel Standard.
  • Create targeted fee programs, such as a public goods charge on water usage that can be used to fund water efficiency programs and improvements and fees to fund the administrative costs of implementing AB 32.

Continue Reading California Court of Appeal Upholds Statewide Climate Change Scoping Plan