Environmental -- 2017

California Chamber of Commerce v. California Air Resources Board   (Cal. Ct. App.)

Challenging CARB cap-and-trade auction allowance revenues

In November, 2013, a California judge ruled that the California Air Resources Board (CARB) has the discretion to raise revenues by auctioning and selling allowances under the state's greenhouse gas cap-and-trade program. The NAM had intervened in this suit to bring to the court's attention the extraordinary revenues generated by the auction and reserve sale provisions adopted by the CARB, which we said were far beyond what the law required for administering the program. We also argued that the fees constituted a new tax that must be approved by the legislature, an issue that the judge considered a close call.

On March 7, 2014, the NAM appealed the case to an intermediate California appeals court. Our opening brief was filed Oct. 20, 2014, and our reply brief on May 4, 2015, making these same arguments.

We argued that AB 32 does not authorize the Board to generate billions of dollars in revenues over and above the regulatory fees separately authorized to implement and enforce the law. These revenues are the largest of any environmental program in the United States. Moreover, the revenues vastly exceed the amount necessary to implement AB 32, which is already full funded through a separate statutory provision expressly authorizing the collection of regulatory fees. There has been no showing that those revenues have a reasonable relationship to the regulatory burden imposed on manufacturers, and the funds have been set aside to fund programs that have not yet been identified.

Moreover, if raising such large sums through auctions and reserve sales is authorized, then that revenue-raising authority is a tax that violates the California Constitution because the law was not adopted by a two-thirds majority of the legislature.

On its own initiative, the appellate court issued a set of questions to the parties in preparation for upcoming oral arguments. The NAM filed a supplemental brief in May arguing that (1) allowances are taxes, not property rights, (2) there is no relationship between environmental impacts and the billions of dollars in excess revenue generated by the auctions and reserve sales, (3)allowance charges are not development fees, (4) they cannot be upheld on the ground that they confer the "privilege to pollute," (5) fees generated in excess of the amount needed to run the program are taxes, (6) the purchase of allowances is not in any practical sense voluntary, and (7) the relief that should be granted is elimination of the tax. Oral arguments in the case were held on Jan. 24, 2017.

On April 6, 2017, the Court decided 2 to 1 to uphold the allowance auction system. The majority felt that AB32 authorized the State Air Resources Board to adopt the cap-and-trade system, and left the development of the details to the Board. It also found that the money paid by companies that buy allowances in the auction do not constitute a tax because, unlike a tax, (1) they are not compulsory, and (2) purchasers receive something of value in return. Click here for a summary of the trial court proceedings.

Related Documents:
NAM supplemental brief  (May 23, 2016)
NAM reply brief  (May 4, 2015)
NAM's opening brief  (October 20, 2014)


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