Court Upholds California’s Landmark Cap-and-Trade Program

Carbon auctions are not an illegal tax, state appeals court rules

SACRAMENTO, CA, April 6, 2017- In a major victory for California’s fight against climate change, the state’s Third District Court of Appeal today forcefully rejected a challenge to the carbon auctions in California’s ambitious cap-and-trade program, a key feature of the landmark program.

The 2-1 majority decision in favor of the California Air Resources Board, Environmental Defense Fund (EDF) and Natural Resources Defense Council (NRDC) holds that the carbon auctions are within the Board’s statutory authority, and rejects the argument from the California Chamber of Commerce that auctioning carbon allowances constitutes an unlawful tax. Cap-and-trade places a firm limit on emissions, and – by creating a market for companies to buy and sell emission allowances – provides flexibility to businesses on how to comply cost-effectively.

EDF senior attorney Erica Morehouse said: “The court has thoroughly affirmed California’s innovative climate program, including its carbon auctions that serve as vital safeguards to ensure polluters are held accountable for their pollution. Today’s decision helps clear the way for California to continue its ambitious, globally significant climate leadership, and to do so in a way that promotes the best interest of Californians – especially those in pollution-burdened communities that will be hit hardest by climate change impacts.”

Alex Jackson, legal director of NRDC’s California Climate Project, said: “The world is looking to California to lead on climate. Making polluters pay for their harmful emissions and investing the proceeds in clean energy is critical to winning that fight and protecting the most vulnerable Californians.”

EDF and NRDC are parties to the consolidated cases in the Third District Court of Appeal, California Chamber of Commerce et al. v. California Air Resources Board, et al., and Morning Star Packing Co. et al. v. California Air Resources Board et al.

The court stated in its decision: “The purchase of allowances is a voluntary decision driven by business judgments as to whether it is more beneficial to the company to make the purchase than to reduce emissions. Reducing emissions reduces air pollution, and no entity has a vested right to pollute.”

The decision is posted at:  //drive.google.com/open?id=0B401IQwbFScSdzJiMnZ6ZXNYRDQ

California’s allowance trading market and the use of auctions promote equity, provide useful information to the carbon market, and prevent windfall profits to polluters. Auctions are a key component of how California expects to meet its carbon pollution targets of reducing emissions to 1990 levels by 2020, and 40 percent below 1990 levels by 2030. California included auctions in its cap-and-trade program after considering the experience of other cap-and-trade programs and heeding the advice of experts in designing the program. Economists, environmental groups, and regulated parties – including some of California’s major utilities such as PG&E – have all voiced support for California’s landmark program.

California has committed to using the proceeds from the cap-and-trade auction – more than $4.4 billion to date – for investments that reduce climate pollution while also benefiting the state’s overall health and economy. A significant portion of these investments are targeted at disadvantaged communities.

www.nrdc.org

www.edf.org