SACRAMENTO — A state appeals court recently ruled that California’s carbon allowance auctions, which are main aspects of its greenhouse gas emissions cap-and-trade program, are not an illegal tax.
On April 6, the California Third Court of Appeal upheld the Superior Court of Sacramento County’s decision. The appellate court ruled that the California Air Resource Board has the authority to establish auctions to cut down on carbon emissions under the Global Warming Solutions Act of 2006, according to court records.
Since companies have the choice to buy allowances, the court ruled that the auctions are not an illegal tax, according to court records.
The court battle began in 2014 when the California Chamber of Commerce and other business groups sued the California Air Resources Board the day before the state’s first auction. The plaintiffs, which eventually included Morning Star Packing Co., argued that the board not only didn’t have authority to create auctions, but also that the emissions allowances were a tax and needed legislative approval.
According to the court, the auction system was not governed by Proposition 13 because buying allowances is not a decision compelled by government. Proposition 13 requires a two-thirds vote approval by the legislature for any measure enacted to increase state revenues.
“Contrary to plaintiffs’ view, the purchase of allowances is a voluntary decision driven by business judgments as to whether it is more beneficial to the company to make the purchase than to reduce emissions,” the appeals court ruled.
The cap-and-trade program is one of many programs California has implemented to meets its environmental goals. The program was set up to cover entities that emit the largest amount of greenhouse gases, including industrial facilities, electricity generating companies and transportation distributors.
To meet declining annual greenhouse gas emission caps, businesses can choose whether they buy or sell allowances. Any proceeds from auctions fund programs that reduce greenhouse gas emission, according to state law.