California Debuts Cap-and-Trade Program Amid Legal Challenge

Despite a last-minute lawsuit filed by California’s Chamber of Commerce, the state on Wednesday held its first auction of carbon emissions permits, kicking off the nation’s first state-implemented cap-and-trade program that limits the amount of greenhouse gases (GHGs) emitted by power plants, oil refineries, and other entities.

The prime feature of AB 32, California’s 2006-passed climate change law, the cap-and-trade plan seeks to help the state reduce GHG emissions to 1990 levels by the year 2020. The program limits overall GHG emissions from capped sectors, and facilities subject to the cap will be able to trade permits (or allowances) to emit GHGs. Emitters initially get 90% of their needed credits free but will be required to buy more at a minimum price of $10/metric ton of GHGs if emissions exceed allotted levels. The quarterly auctions are expected to generate about $1 billion in their first year.

The California Chamber of Commerce filed its lawsuit of Tuesday in Sacramento Superior Court, seeking an injunction to halt the program. The Chamber argued that the California Air Resources Board (CARB) does not have the authority to sell allowances to generate revenue for the state, and it claims that the tax is illegal because it did not receive a two-thirds vote by the Legislature, as required of all taxes.

"What was not authorized by AB 32 is the Board’s decision to withhold for itself a percentage of the annual statewide greenhouse gas (GHG) emissions allowances and to auction them off to the highest bidders, thus raising from taxpayers up to $70 billion or more of revenue for the state to use,” according to the complaint.

CARB said it was "confident that the cap-and-trade program will withstand any court challenge."

Sources: POWERnews, Calif. Chamber of Commerce, CARB

—Sonal Patel, Senior Writer (@POWERmagazine)

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