News Column

Pollution Allowances Get Tentative OK in California

August 29, 2013
los angeles pollution
Los Angeles smog (file photo)

California's cap-and-trade carbon auctions are within the authority of the state Air Resources Board under a 7-year-old law aimed at addressing global warming, a Sacramento judge has tentatively ruled.

Sacramento Superior Court Judge Timothy M. Frawley ruled Assembly Bill 32 gave the Air Resources Board discretion to decide whether to adopt a cap-and-trade program and design the method for distributing pollution allowances.

The program subjects hundreds of large-scale polluters to an annual cap on the amount of carbon they can emit, with the cap declining slightly each year. Companies exceeding the prescribed limit can either reduce their pollution or purchase additional emissions credits -- from the state or other companies. A small percentage of the credits are being auctioned every three months.

"At the time AB 32 was enacted, both auctioning and free distribution were widely recognized methods of distributing allowances," the judge wrote. "In delegating to (the air board) the authority to 'design' the 'distribution of emissions allowances,' the Legislature delegated to (the board) the choice of distribution methods."

Frawley stopped short of deciding whether the estimated multibillion-dollar program constitutes an illegal tax. The judge heard arguments Wednesday from attorneys for the Pacific Legal Foundation and the California Chamber of Commerce, which filed similar lawsuits earlier this year and last fall as the carbon program was kicking into gear.

The lawsuit plaintiffs -- various businesses and trade associations -- acknowledge that the Legislature authorized the air board to adopt a cap-and-trade program, but they contend that lawmakers never intended to allow the board to raise billions of dollars by auctioning off greenhouse gas allowances.

"That was one of the major aspects of our lawsuits -- that CARB did not have the authority," PLF staff attorney Ted Hadzi-Antich said outside the courthouse. "We are hopeful that the final ruling will be different, but it's difficult to guess what it's going to say."

Attorneys for the organizations spent much of the hearing making the case that the current program is unconstitutional because it was not passed by at least two-thirds of the Legislature -- as required by Proposition 13.

Hadzi-Antich, in detailing the case of Woodland-based Morning Star Co., a tomato-processing facility that emits carbon dioxide, said there wasn't a viable trading market last fall.

"The only choice that Morning Star had was to go and bid at the auctions," Hadzi-Antich said.

He questioned what the company received in return. "This is not an asset of substantial value."

Attorneys for the state and environmental groups contended the program doesn't amount to a tax and was not enacted for the purpose of raising money for the state. Auction participants are walking away with some- thing of value, David Clegern, a climate change spokesman for the Air Resources Board, said at the courthouse.

"The people who get them, if they reduce their emissions enough, they have the ability to sell or trade these things," Clegern said. "There is value there."

The auctions also don't call for mandatory participation, he said. Companies that reduce their emissions would not have to buy anything.

"(This gives) them the ability to pace their emission reductions at a marginal cost so over the eight years of the program they could build a business plan that includes this -- like it would any other cost," he said. "That's why these auctions are held."

Officials from the attorney general's office said they expect a final ruling within 90 days.



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