California Chamber of Commerce v. California Air Resources Board

The California Superior Court issued a ruling denying the two petitions. The court was not persuaded by the petitioners’ argument that the text, structure, and legislative history of AB 32—the statute creating California’s greenhouse gas reduction program—showed that the California Legislature did not intend to authorize the sale of allowances. The court instead found that AB 32 broadly delegated to the California Air Resources Board the authority to design a system for distributing emissions allowances. The court also rejected the contention that the sale of allowances constituted an unconstitutional tax because AB 32 was not passed by a supermajority of the legislature. The court held that “[o]n balance” the charges for emissions allowances “are more like traditional regulatory fees than taxes, but it is a close question.” Having found that the charges were more like a fee than a tax, the court held that the charges were valid fees because their primary purpose was regulation (i.e., GHG emissions reduction), not revenue generation; the total fees would not exceed the costs of the regulatory programs they supported because AB 32 required the proceeds to be spent in furtherance of AB 32’s regulatory purposes; and there was a “reasonable relationship” between the charges for the allowances and the regulated entities’ collective responsibility for the harmful impacts of GHG emissions. The Pacific Legal Foundation, which represented the Morning Star Packing Co. petitioners, announced that it would appeal the ruling.

The court issued a joint tentative decision and order for appearances. The court tentatively held that the auction provisions of the cap-and-trade regulations were within the scope of authority that AB 32 delegated to CARB. The court heard oral argument on August 28, 2013 on the question of whether the sale of allowances constituted a tax requiring approval by a two-thirds supermajority of the California State Legislature under Proposition 13. In its tentative ruling, the court identified six sets of questions to be addressed at oral argument, including whether the auction of allowances regulated greenhouse gas emissions in ways that free distribution of allowances would not, and whether the planned or actual use of the auction proceeds mattered for purposes of determining whether the sale of allowances was a tax.