Issues and Cases

Cap and trade auction is an unconstitutional tax

The Morning Star Packing Company v. California Air Resources Board

Contact: Anthony Francois

Status: After a loss in the trial court, the plaintiffs appealed to the California Court of Appeal. In a decision on April 7, 2017, the Court of Appeal ruled against plaintiffs, holding that the billions of dollars which the Air Board is collecting are not taxes. PLF is conferring with its clients to determine the next steps in this case, which may include a petition for review to the California Supreme Court.
 
Summary:
Attorneys with Pacific Legal Foundation have challenged California’s “cap and trade” auction regulation. The regulation creates a quarterly auction program requiring many California employers to bid significant amounts of money for the privilege of continuing to emit carbon dioxide — or be faced with closing their doors in California, laying off their employees, and moving their businesses to other states.

 

Filed on behalf of a broad spectrum of California businesses, trade associations, and individuals harmed by the regulation, the lawsuit challenges the auction process as an unconstitutional state tax because it was not enacted by two-thirds majorities in both chambers of the Legislature, as required for new taxes by the California Constitution (Proposition 13 and Proposition 26).

As PLF’s complaint states, the California Air Resources Board (CARB) devised the auction plan as a means of raising billions of dollars in revenue, without any instruction or direction from the Legislature. CARB hatched the auction program purportedly to implement AB 32, the 2006 legislation that requires reductions in the emission of carbon dioxide in California by the year 2020. But nothing in AB 32 authorizes creation of an auction process to sell carbon dioxide emission allowances for billions of dollars. Nor does AB 32 authorize the creation of any kind of new tax.

 

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