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Is the State’s Cap-and-Trade Program a ‘Tax’?—Not According to the California Court of Appeal

Perhaps the longest lingering litigation threat to the California Legislature’s adoption of and the California Air Resources Board (CARB)’s implementation of the precedent-setting Global Warming Solutions Act (AB 32) is the contention of the California Chamber of Commerce and others’ (collectively: Cal Chamber) that the cap-and-trade emissions trading regime—a core component of AB 32 implementation—is a “tax” under California law. If they are correct, approval of the regime requires a two-thirds vote of the Legislature under Proposition 13, which AB 32 has never been able to secure.

The Third District Court of Appeal has spoken. In a sharply divided opinion, the court ruled that the cap-and-trade regime is not a tax and, thus, requires only a majority vote. Further, even though AB 32 never expressly called for or authorized the cap-and-trade regime, the court found establishment and operation of the regime within the discretion of CARB as delegated by the Legislature in AB 32. Acting Presiding Justice Hull dissented, sharply disagreeing with his two majority colleagues as to virtually every pivotal aspect of the ruling upholding cap-and-trade. Whether Cal Chamber will seek review by the California Supreme Court remains to be seen. [California Chamber of Commerce v. State Air Resources Board, ___ Cal.App.4th ____ (3d Dist. Apr. 6, 2017).]

Conclusion and Implications

The stakes at issue remain high, for both the regulated community and CARB. The cap-and-trade regime, including its substantial revenue stream, is not only at the core of the state’s climate change action plan, it is recognized as a model worldwide, especially in light of the demonstrated reluctance of Congress to support efforts to establish cap-and-trade at the federal level. The court’s decision is accessible online at: https://scholar.google.com/scholar_case?case=11730059058283108029&q=California+Chamber+of+Commerce+v.+State+Air+Resources+Board&hl=en&as_sdt=2006&as_vis=1

(David Smith)