Capitol Alert

Appeals court upholds California’s cap-and-trade system

A state appeals court handed a major victory to California’s signature climate-change program on Thursday in a lawsuit challenging the state’s ability to collect revenue from auctions its sponsored over the last five years.

The 3rd District Court of Appeal upheld the California Air Resources Board’s program in a 2-1 decision, ruling that its auction sales do not equate to an illegal tax because the purchase of pollution credits by businesses is voluntary and the credits they buy are “a thing of value.” The program was approved with a majority vote, and opponents believe a two-thirds vote was required to authorize a tax.

“These twin aspects of the auction system, voluntary participation and purchase of a specific thing of value, preclude a finding that the auction system has the hallmarks of a tax,” Justice Elena J. Duarte wrote for the majority.

Justice Harry E. Hull, Jr., in his dissent, concluded that the program does amount to a tax, siding with the California Chamber of Commerce and Morning Star, a a Woodland-based tomato processor.

“Given that the auction program is, for Morning Star and businesses that are similarly situated, compulsory if they are to remain in business in California and that the auction program creates, in actual effect, general revenue, I can only conclude that the program is a tax in ‘something else’ clothing and that the auction program, not having been passed by a 2/3 vote in the Legislature, violates Proposition 13,” Hull wrote.

Denise Davis, a spokeswoman for the California Chamber of Commerce, said the organization is deciding whether to appeal.

“We are disappointed in the 2-1 decision,” Davis said. “We are reviewing the decision and evaluating our options.”

Tony Francois, representing Morning Star, issued a statement saying he is “profoundly disappointed” with the decision.

“We are consulting with our clients to determine the next step in this case, which obviously includes consideration of filing a petition for review with the California Supreme Court,” Francois said.

The decision is a victory for Gov. Jerry Brown and legislative Democrats who are working on a package that would extend the life of the program beyond 2020.

“The court’s decision affirms the basic purpose and structure of the program – to deliver carbon reductions in a cost-effective and flexible manner, said Mary Nichols, chairwoman of the Air Resources Board. “The decision provides additional certainty for this keystone program, which supports all the other approaches California has underway to fight climate change.”

Christopher Cadelago: 916-326-5538, @ccadelago

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