California Chamber of Commerce v. California Air Resources Board

In a split opinion, the California Court of Appeal upheld California’s cap-and-trade program for greenhouse gas emissions. The court ruled that the state legislature had given the California Air Resources Board “broad discretion” to design a system for reducing emissions and that the auction of emissions allowances did not exceed the scope of CARB’s delegated authority. The court further found that the legislature’s subsequent specification of how to spend the auction proceeds ratified use of the auction system. The court also held that auction sales of the emissions allowances were not a tax (which would have been barred unless approved by a two-thirds supermajority of the legislature) because purchase of the allowances was voluntary and because the allowances were “valuable, tradable commodities, conferring on the holder the privilege to pollute.” The purchase of allowances therefore did not bear the “hallmarks” of a tax. One justice dissented from the holding that the sale of the allowances did not constitute a tax. The dissenting justice contended that the purchase of allowances was not voluntary, that the allowances did not confer property rights, and that the court should have considered the use of the auction proceeds as relevant to the question of whether the sales were a tax. The dissenting justice further indicated that he was not convinced by the State’s labeling of “wide and varied uses” of the auction proceeds as “uses that address (not necessarily reduce), however tangentially, greenhouse gas emissions.” Counsel for one set of plaintiffs indicated that its clients would appeal to the California Supreme Court.