Court Rejects Challenge to California's Cap-and-Trade System

California's year-old cap-and-trade system lives on.

A Superior Court judge has dismissed two lawsuits that challenged cap-and-trade — the state's sale of "allowances," or permits that allow companies to emit carbon dioxide and other greenhouse gases. The decision was dated Tuesday but made public Thursday.

The ruling means that California maintains its authority to limit greenhouse gases from power plants, factories and other businesses.

The California Chamber of Commerce and the Pacific Legal Foundation filed the lawsuits, arguing that California’s global warming law, AB32, didn’t give state officials the authority to sell the allowances. They also said the allowances were an illegal new tax, since the state legislature approved AB32 by a simple majority vote. (Under California law, new taxes require the approval of two thirds of state legislators.)

But in his written opinion, Judge Timothy Frawley of the Superior Court of California rejected both arguments. As the San Francisco Chronicle noted, "The California Air Resources Board, which organized the cap and trade system, was well within its rights to sell the allowances, he wrote in his decision. And while he agreed that the allowances had similarities to a tax, he decided they were more comparable to regulatory fees, which don’t require a supermajority vote."

Sacramento County Superior Court Judge Timothy Frawley rejected arguments by the California Chamber of Commerce and Pacific Legal Foundation that the system amounted to an illegal tax. As a tax, cap and trade would require a two-thirds vote in the Legislature.

The groups also argued that the California Air Resources Board lacked the proper authority to sell carbon permits to the regulated businesses.

The cap-and-trade program places a limit, or cap, on emissions from individual polluters. Businesses are required to cut emissions to cap levels or buy extra pollution allowances from other companies to make up for their overages.

The cap, or number of allowances, will decline over time in an effort to drastically reduce greenhouse gas emissions by 2050.

The judge rejected both groups' arguments and ruled that money collected by cap and trade allowance sales fluctuates with the market, and resembles regulatory fees more than a tax. Plus, he said, the price put on carbon is meant to reduce emissions, not increase revenue for the state.

``The charges have some traditional attributes of a tax and some traditional attributes of a regulatory fee but, on balance, the court finds the charges to be more like a regulatory fee ... than a traditional tax,'' the judge wrote.

Attorney Ted Hadzi-Antich of the Pacific Legal Foundation said the group ardently disagrees and plans to appeal.

``Not only are the billions of dollars to be generated at CARB's auctions unconstitutional taxes, but the revenue-raising auctions themselves were not authorized by the California Legislature,'' Hadzi-Antich said in a statement.