Chamber Challenges Today’s GHG Emissions Auction in California

by Davis Wright Tremaine LLP
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[author: Allison Davis]

California’s largest business lobby filed a lawsuit yesterday seeking to invalidate California’s first greenhouse gas (GHG) emissions allowance auction scheduled for today. The California Chamber of Commerce asserts that AB 32, California’s global warming law, did not authorize the state to raise funds by allocating GHG emissions allowances to itself and to auction them off to raise revenues for the state to use. The chamber characterizes the auction as an unconstitutional tax as well as a violation of AB 32.

The chamber filed the lawsuit in Sacramento Superior Court but did not seek an injunction to stop today’s auction. Rather the lawsuit seeks to enjoin the California Air Resources Board (CARB) from allocating to itself GHG emission allowances and then selling them through an auction process. The complaint and petition for writ of mandate can be found here. It is unclear what result might be achieved if today’s auction is successful and the chamber prevails on its complaint. Subsequent auctions are scheduled quarterly.

Approximately 10 percent of the GHG emission allowances are reserved to CARB to be sold. The chamber asserts in its complaint that all of the GHG emission allowances should be allocated to business for free and to allow companies that exceed their allowance to purchase GHG emission allowances from other companies.  The chamber concludes that its interpretation of AB 32 will fulfill the state’s goal of reducing emission while keeping costs low for business and consumers.

The chamber argues that AB 32 only authorized CARB to impose a “minor administrative fee” and did not expressly authorize CARB to raise revenue by selling GHG emission allowances. Additionally, because two-thirds vote is required to raise taxes, requiring businesses to purchase GHG emission allowances is an unconstitutional tax imposed on some businesses. A copy of the Memorandum of Points and Authorities in Support of Verified Petition for Writ of Mandate and Complaint for Declaratory Relief can be found here.

CARB estimates that about $1 billion may be raised from the sale of allowances in fiscal year 2012-2013. California law dictates that CARB must place any money it raises to a special GHG reduction account and any programs that use the funds must be consistent with AB 32’s GHG reduction goals. The complaint states that the Governor’s 2012-2013 budget assumes that $500 million from CARB’s auction can be used to offset General Fund costs. The chamber estimates that over the span of the program, through the year 2020, auction revenues could range from $12 billion to more than $70 billion.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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