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Chamber of Commerce loses appeal of Calif. carbon cap and trade challenge

The California Third District Court of Appeal on April 6 ruled against the California Chamber of Commerce's appeal of the state Air Resources Board's carbon cap-and-trade program.

The court affirmed a lower court ruling in a lawsuit challenging the program, brought by the Chamber and Morning Star Packing Co., a food processor. The Sacramento Superior court ruled in favor of the Air Resources Board, or CARB, in late 2013. The petitioners appealed.

The industry parties, supported by amicus briefs filed by the National Federation of Independent Business, California Taxpayers Association and California Manufacturers and Technology Association, claimed the program was not authorized by Assembly Bill 32, which set the greenhouse gas emissions standard in California. Opponents of the cap-and-trade program argued that the program constitutes an illegal tax because it was never approved by a two-thirds vote as required by the 1978 voter initiative known as Proposition 13.

The appellants also asserted that A.B. 32 did not explicitly allow the sale of emission allowances for controlling carbon emissions.

The suit was worrisome to those supporting the cornerstone of California's efforts to limit greenhouse gas emissions. In January Gov. Jerry Brown called upon the state legislature to pass legislation by a two-thirds vote to confirm CARB's authority to administer the state's greenhouse gas emissions cap-and-trade auction program beyond 2020. Brown said the legislation was needed to remove uncertainty that has contributed to price volatility in cap-and-trade auctions. Without the program, the state stood to lose billions of dollars in auction proceeds to help reduce emissions through various programs.

The appellate court ruling makes passage of the legislation less urgent, though the challengers could still take their case to the California Supreme Court. The appellate court issued a notice via e-mail that the judgments of the lower court are affirmed and that in each case the appellants must pay all the appellate costs of the respondents.

The Environmental Defense Fund and Natural Resources Defense Council intervened on behalf of CARB, and amicus briefs in support were submitted by environmental economists, business interests, including major California utilities, and other parties.

"Plaintiffs have option to appeal this decision to the CA Supreme Court but the [court] has discretion on whether to hear the case or not," EDF Senior Attorney Erica Morehouse said by email. "We remain confident in the legal arguments we are making."