In November, 2012, the California Chamber of Commerce filed a lawsuit challenging the legality of the fees charged by the California Air Resources Board (CARB) for the state’s cap-and-trade greenhouse gas program. The NAM moved to intervene in the litigation, focusing not on the legality of the cap-and-trade program itself or the merits of climate change science, but on the extraordinary revenues generated by the auction and reserve sale provisions adopted by CARB.
The effectiveness of the cap-and-trade program comes from the state’s ability to ratchet down greenhouse gas emissions from year to year. CARB may not go beyond this authority to generate a huge income stream for the state. The first quarterly auction of greenhouse gas allowances in November, 2012, raised nearly $289 million for California, substantially more than the $62 million required to implement the law. Moreover, that revenue is projected to increase to as much as $70 billion over the life of the program. In 2015, more than $2 billion is expected to be generated by the program, and most of the funds already collected have been earmarked for housing and transportation projects.
We argued that that income goes far beyond simply paying for the costs of administering the program, and thus exceeded the legal authority of CARB. Alternatively, even if the fees were authorized, they constitute a massive new tax that must have been approved by a 2/3 majority of the California legislature under the state constitution.
On Nov. 12, 2013, the judge ruled that the Air Resources Board was given the discretion to raise revenues by auctioning and selling allowances. The fact that the Board may charge an administrative fee does not prevent it from also auctioning the allowances. The judge also ruled that the revenues were not an unconstitutional tax, although he called that a close question. He analyzed the difference between taxes and government regulatory fees, and found the charges more like traditional regulatory fees. The primary purpose is for regulation, not revenue, the total fees don't exceed the costs of the regulatory activities, and the fees collected are reasonably related to the burden imposed by the greenhouse gas emissions. The court was at a loss to know what the fees will actually be used for, but the law requires that they be used to further the emissions reduction goals of AB 32. It admitted that "since nearly every aspect of life has some impact on GHG emissions, it is difficult to conceive of a regulatory activity that will not have an least some impact on GHG emissions." Thus, the decision gives extremely broad power to the state government to use the funds collected and not have them be considered a tax.
This income scheme will significantly raise energy costs in the state and further harm its competitiveness, without providing any additional environmental benefits, since it will still be affected by GHG emissions from elsewhere around the world.