Appeals hearings began this week in the long-running lawsuit against the State’s carbon Cap-and-Trade auction, which has been under challenge from the California Chamber of Commerce as an illegal tax on industries captured under the program.  The program, which requires certain large industries to either purchase carbon credits to cover their greenhouse gas emissions or eliminate any emissions for which they aren’t able to purchase credits, has been controversial since its creation as industry groups continue to question the constitutionality of forced participation in the auction.  

More recently, the program has come under fire as questions swirl about how proceeds from the auction are being allocated, and whether they are being fairly distributed throughout the state.  While the program has generated billions of dollars in revenue each year since its inception, the majority of the funds continue to be spent on programs that are among the least cost efficient, primarily in urban areas and the Central Valley.  RCRC and other advocates for the north and eastern parts of the state also continue to question the methodology used to identify disadvantaged communities for funding allocations from the proceeds, since the Legislature has mandated that at least 25 percent of the funds be spent in those communities, and most of RCRC member counties are fully shut out by the State’s current definition.

The initial ruling on the program in Sacramento Superior Court favored the State and the California Air Resources Board, stating that the Agency had the broad authority through Assembly Bill 32 (Núñez; 2006) to create the program and collect revenue through the auction.  The Third Appellate District Court, which is currently hearing the appeal of the initial ruling, requested supplemental information last year and has indicated it will issue a ruling within ninety days of the current hearings.  Regardless of the ruling, the losing side is expected to appeal the case to the Supreme Court unless the Governor’s request for a two-thirds ratification of the program occurs before then.