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California’s first carbon auction challenged in lawsuit

California’s first auction of carbon allowances, a key element of the state’s cap-and-trade program aimed at reducing greenhouse gas pollution, should be blocked, the state’s Chamber of Commerce said in a lawsuit.

The business group said it filed a complaint in state court in Sacramento to stop the auction, scheduled to be held Wednesday. The California Air Resources Board plans to auction 23.1 million allowances to be used during the first compliance phase of the program. The complaint couldn’t be immediately confirmed in electronic court records.

The chamber alleges that the state exceeded its authority in establishing the “revenue-raising program” and seeks to nullify the sale of carbon permits, according to an emailed statement from the group.

A delay in the first auction may depress an already-weak market for California carbon futures. Prices based on allowances for 2013 have tumbled more than $6 a metric ton since the beginning of August as legal threats, political opposition and rule changes plague the days leading up to the first sale of permits.

Under California’s first-in-the-nation economy-wide cap- and-trade program, the state will set a maximum for carbon emissions from power generators, oil refineries and other industrial plants and cut that limit gradually to achieve a reduction of about 15 percent by 2020.

Required reductions

If a business can’t make the required reductions, it can buy emissions permits, called allowances, or offset credits -- investments in off-site forest or urban projects and other programs that reduce emissions.

California’s budget counts on $500 million in the current fiscal year from cap-and-trade revenue. A successful lawsuit would mean Gov. Jerry Brown would need to make up that difference, either by spending cuts or revenue from somewhere else.

The program, developed as part of the state’s 2006 global warming act, known as AB 32, has been criticized by the California Chamber of Commerce, which has said that selling allowances will add billions of dollars in new taxes on electricity and gasoline.

“Businesses have long maintained that ARB’s proposal to raise funds via an auction for reasons outside administrative fee purposes is beyond the ARB’s regulatory authority and may in fact constitute a tax,” the chamber said in a policy paper this year.

The first auction already has been delayed twice, once last year when the state decided to put off enforcement of the entire cap-and-trade program by a year, and a second time in March when it canceled an August sale.

The case is California Chamber of Commerce v. Air Resources Board, California Superior Court (Sacramento).

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