Tag: Assembly Bill 32

California Chamber of Commerce Sues to Invalidate AB 32 Cap-and-Trade Program

On November 13, 2012, the California Chamber of Commerce filed a petition seeking to block the California Air Resources Board (CARB) from auctioning carbon allowances. The complaint, filed in a Sacramento state court, asserts that CARB lacks the authority under AB 32 to raise money beyond what is needed to cover its administrative costs of implementing a state emissions regulatory program.

The Chamber argues that the California Legislature never authorized CARB to raise fees or taxes through an auction mechanism. Therefore, the program constitutes an unauthorized and unconstitutional tax according to the Chamber. The Chamber cites the California Constitution, which requires a two-thirds vote of the Legislature to raise taxes. In prepared statements regarding the suit, the Chamber states the current CARB proposal “is the most costly way to implement AB 32” and that it will “hurt consumers, the job climate, and the ability of business to expand” in California. The Chamber argues other states will decline to follow California’s AB 32 as a model if it is not designed to be the most cost effective way of reducing carbon emissions.

In the suit, the Chamber did not seek a court order blocking the first auction set for November 14, 2012, and state officials indicated the sale would proceed as scheduled. An affiliate of the Chamber indicated that the organization is trying to eliminate future auctions, which are set for regular intervals over the next eight years. Tim O’Conner, director of the Environmental Defense Fund’s California Climate and Energy Initiative noted that the Chamber’s filing of the suit on the eve of the first auction “seems quite unsavory” and could dampen California’s comprehensive program to curb greenhouse gases. The Chamber insisted the suit was not filed in relation to the specific auction scheduled for November 14, 2012.

CARB spokesperson Stanley Young indicated that the agency is confident the cap-and-trade program will withstand any court challenge. CARB believes the market-based approach to cutting greenhouse emissions gives California business flexibility to best decide now to reduce emissions.

The court must decide whether the auction should be viewed as a tax and whether AB 32 granted CARB discretion to design a mechanism, such as cap and trade, to curb the state’s greenhouse gas emissions. Considering that the Legislature passed legislation directing the State’s Department of Finance and CARB to develop a plan to invest auction proceeds and to set up an account for the deposit of auction funds, it seems the Chamber may have a difficult time convincing a court that the Legislature intended to limit CARB’s discretion in a way that would prohibit the auction of allowances for a cap-and-trade program designed under AB 32.

California Air Resources Board Conducts Auction for Cap-And-Trade Program

On November 14, 2012, the California Air Resources Board will conduct its first quarterly auction for greenhouse gas allowances under the cap-and-trade program, which is identified in the Assembly Bill 32 Scoping Plan as one of the strategies California will employ to reduce the greenhouse gas emissions that cause climate change.

In 2006, the Legislature passed and Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which requires California to reduce greenhouse gas emissions to 1990 levels by 2020. In complying with AB 32, CARB prepared a Scoping Plan identifying a cap-and-trade program as one of the strategies California will use to reduce the GHG emissions that cause climate change. The cap-and-trade program places a limit on the GHG emissions allowed from pollution producers like refineries and cement manufacturers, and directs all entities subject to the cap (covered entities) to surrender “compliance instruments” equivalent to their GHG emissions to CARB. Compliance instruments include both allowances, which are allocated by CARB or obtained from auctions or secondary markets, and offset credits, which represent GHG emissions reductions achieved in sectors that are not subject to the cap.

This year, the cap-and-trade program covers about 350 industrial businesses operating a total of 600 facilities throughout the state. They include cement plants, steel mills, food processors, electric utilities, and refineries. Starting in 2015, the program will also cover distributors of natural gas and other fuels. For the first two years of the cap-and-trade program, covered entities will receive 90 percent of their allowances for free, with the free amount and the cap declining over time. Covered entities must either cut their GHG production to that level or buy credits to make up the difference. Companies that have more credits than they need can sell them at the auction, and CARB will sell additional credits as well. The proceeds from CARB’s sale of allowances sold at auction will be deposited in CARB’s Air Pollution Control Fund, awaiting appropriation by the Legislature.

The November 14, 2012, auction is the first, major step for CARB in implementing the cap-and-trade program. Though there remains strong opposition to the program from those businesses required to participate in it, CARB’s completion of this first auction signifies its commitment and readiness to enforce compliance with the cap-and-trade program when it comes online in January 2013.