Challengers Double Down on Opposition to California’s Carbon Allowance Auctions

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A second lawsuit has been filed challenging one of the centerpieces of California’s innovative cap-and-trade climate change regulatory program: the auction process implemented by the California Air Resources Board (CARB) to distribute carbon emission allowances. The suit, Morning Star Packing Co. et al. v. CARB, filed on April 16, 2013, in Sacramento County Superior Court, mirrors an earlier November 2012 lawsuit by the California Chamber of Commerce in alleging that the auction process imposes an unconstitutional tax on regulated entities.

California’s cap-and-trade program mandates that certain covered entities acquire allowances for each metric ton of greenhouse gas (GHG) they emit during specified compliance periods. The first compliance period began on January 1, 2013. The total number of allowances available will decline until 2020 to achieve the statewide emissions reductions required by AB 32, the “California Global Warming Solutions Act of 2006.” CARB’s regulations provide that approximately half of the allowances, which are tradable, will be initially distributed to covered entities for free. The other half will be distributed through a competitive auction process.

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