Hearings begin on constitutionality of California cap and trade

In an uncertain political landscape, cap and trade in California faced a fresh hurdle as hearings began before an appeals court over the constitutional legitimacy of the regime. 

“A long-running lawsuit filed by the California Chamber of Commerce seeks to have the system declared an illegal business tax that should have required a two-thirds vote of the legislature to take effect,” the San Francisco Chronicle reported. “Oral arguments in the case, first filed in 2012, are scheduled to begin in January.”

“Gov. Jerry Brown, who has made addressing climate change a central part of his legacy, spent much of the summer trying to convince legislators to explicitly extend the system past 2020. But he set a high bar, trying to line up the support of two thirds of legislators, in case the Chamber of Commerce won its suit. Republicans and business-friendly Democrats balked.”

That set the stage for the state Chamber of Commerce to bring a challenge. Rather than making a direct frontal attack on the provisions of California’s landmark emissions legislation, its lawsuit claims that California lacks an adequate legal ground to perform one of its central tasks, arguing “the state has no right to sell permits and generate revenue,” Reuters noted. 

A long road

The Chamber’s suit was accepted for hearings along with a separate filing, which could result in joint appeals if the court ends up siding with the California Air Resources Board. The plaintiff in the second lawsuit is Morning Star Packing Company, “the world’s largest tomato processor and a company that is required to buy carbon-emissions permits through the program,” as the Christian Science Monitor observed. “The case is expected to reach the state Supreme Court, as both sides have said they will appeal if they lose.”

Although, four years ago, the Sacramento Superior Court ruled that CARB “was given broad authority to design a program to meet emissions targets, including the sale of permits,” Reuters added, “CalChamber’s appeal of that ruling has kept the issue alive, casting a shadow over the emissions trading market, which has at times suffered a lack of participation due to uncertainty over its future. Despite the state’s earlier victory, the Third Appellate District Court’s request last year for supplemental information indicates they are taking a close look[.]”

The money factor

Still, this year, the market for carbon bounced back to a degree from previous lows. “For much of 2016, many companies appeared to be boycotting the state’s emissions-trading system,” the Chronicle noted, with buyers hesitant to commit if the system’s end might be in sight. “In May, when the state held its quarterly auction of greenhouse gas permits, only 11 percent sold.” This week, however, “state officials reported the results of the year’s last quarterly auction, held Nov. 15 — and they showed a dramatic rebound,” the paper reported. “This time, companies snapped up more than 88 percent of the current-year permits offered, the best performance of any quarterly auction since February.”

Critics of the lawsuit, including CARB, have warned that a defeat in court could wipe out a myriad of projects reliant on cap-and-trade revenues for funding. “Auction revenue is a key funding source for a high-speed rail project seeking to link Los Angeles and San Francisco by train,” the Associated Press recalled. “It also generates billions for transit construction, housing and energy conservation efforts.” But the state Chamber has countered that even a clear victory would leave a broad array of options open for the air authority. “If the auction is allowed to stand, there’s nothing to prevent the California Air Resources Board from inventing new ways to raise revenue, James Parrinello, a lawyer representing the Chamber of Commerce, told the judges.”