California launched its climate programs in 2006. In that year, the Legislature passed, by simple majority vote, a law directing the California Air Resources Board (CARB) to develop regulations to reduce the state’s GHG emissions to 1990 levels by the year 2020. The state law – known as A.B. 32 – authorized CARB to establish market-based policies to achieve the emission target.
In 2012, CARB launched an economy-wide cap-and-trade program as one of a suite of policies aimed at meeting the A.B. 32 emission limit. The cap-and-trade program requires regulated businesses to reduce emissions; offset emissions through offset projects or by purchasing offset credits; or surrender allowances. Under the program, CARB has distributed a set amount of allowances each year – partially through direct allocation and partially through a state-run auction. In 2012, the California legislature passed bills directing how auction revenues could be spent by the state. Allowance purchases in the auction have yielded over $4 billion in revenues, which the state has used to support a high-speed rail project and other authorized activities.
Shortly after the launch of the cap-and-trade program, a group of businesses and trade associations challenged the legality of the auction. The plaintiffs argued that the auction exceeds CARB’s mandate under A.B. 32. They also argued that the auction amounts to a tax and, as such, violates requirements of the state constitution. In particular, the plaintiffs cited Proposition 13, a 1978 constitutional amendment requiring a two-thirds supermajority vote in the Legislature to enact any tax. They also cited Proposition 26, a 2012 amendment that expanded the definition of “tax” to include regulatory fees.
In a 2-1 decision, the appellate court rejected these arguments.
It’s not and it never has been. And people who argue against it don’t really understand it. It’s actually a highly capitalistic view of the matter – monetizing pollution. After all capitalists love to monetize everything, right? Well, the things that help businesses anyway.