Court Upholds Auction of Allowances Under California Cap-and-Trade Program

The decision, which will almost certainly be appealed, allows the Air Resources Board tocontinue to auction emission allowances.

On November 12, 2013, a California trial court decided that the California Air Resources Board (ARB) has the power to auction emission allowances and that such auctions do not constitute an illegal tax that violates Proposition 13. As a result, the ARB may continue to hold allowance auctions. The petitioners already have announced their intention to appeal the trial court’s decision to the California Court of Appeal.

Background -

On November 13, 2012, the California Chamber of Commerce (Chamber) commenced litigation against ARB in Sacramento County Superior Court seeking a writ of mandate and declaratory judgment to invalidate ARB’s auction regulations promulgated under the Global Warming Solutions Act of 2006 (AB 32). On April 16, 2013, the Pacific Legal Foundation filed a similar action against ARB on behalf of a group of businesses, trade associations and individuals (collectively with the Chamber, the Petitioners). The court subsequently consolidated the Chamber and Pacific Legal Foundation cases. The combined litigation focused solely on ARB’s authority to auction emission allowances, and does not challenge other aspects of the program, including ARB’s decision to implement a cap-­and-­trade program. An “emission allowance” is the limited authorization to emit one metric tonne of carbon dioxide equivalent under California’s cap-­and-­trade program.

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