On November 13, 2012, the California Chamber of Commerce filed a petition seeking to block the California Air Resources Board (CARB) from auctioning carbon allowances. The complaint, filed in a Sacramento state court, asserts that CARB lacks the authority under AB 32 to raise money beyond what is needed to cover its administrative costs of implementing a state emissions regulatory program.

The Chamber argues that the California Legislature never authorized CARB to raise fees or taxes through an auction mechanism. Therefore, the program constitutes an unauthorized and unconstitutional tax according to the Chamber. The Chamber cites the California Constitution, which requires a two-thirds vote of the Legislature to raise taxes. In prepared statements regarding the suit, the Chamber states the current CARB proposal “is the most costly way to implement AB 32” and that it will “hurt consumers, the job climate, and the ability of business to expand” in California. The Chamber argues other states will decline to follow California’s AB 32 as a model if it is not designed to be the most cost effective way of reducing carbon emissions.

In the suit, the Chamber did not seek a court order blocking the first auction set for November 14, 2012, and state officials indicated the sale would proceed as scheduled. An affiliate of the Chamber indicated that the organization is trying to eliminate future auctions, which are set for regular intervals over the next eight years. Tim O’Conner, director of the Environmental Defense Fund’s California Climate and Energy Initiative noted that the Chamber’s filing of the suit on the eve of the first auction “seems quite unsavory” and could dampen California’s comprehensive program to curb greenhouse gases. The Chamber insisted the suit was not filed in relation to the specific auction scheduled for November 14, 2012.

CARB spokesperson Stanley Young indicated that the agency is confident the cap-and-trade program will withstand any court challenge. CARB believes the market-based approach to cutting greenhouse emissions gives California business flexibility to best decide now to reduce emissions.

The court must decide whether the auction should be viewed as a tax and whether AB 32 granted CARB discretion to design a mechanism, such as cap and trade, to curb the state’s greenhouse gas emissions. Considering that the Legislature passed legislation directing the State’s Department of Finance and CARB to develop a plan to invest auction proceeds and to set up an account for the deposit of auction funds, it seems the Chamber may have a difficult time convincing a court that the Legislature intended to limit CARB’s discretion in a way that would prohibit the auction of allowances for a cap-and-trade program designed under AB 32.