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Court appeal argues California emissions trading plan akin to 'illegal tax'

By Rory Carroll

By Rory Carroll

SAN FRANCISCO (Reuters) - Parties in a four-year-old legal challenge to California's emissions trading program will head to court in Sacramento on Tuesday with a business group arguing the billions the program collected amounts to an "illegal tax" on businesses.

California's cap-and-trade program sets an overall limit on greenhouse gas emissions (GHGs) and either hands out or sells a declining number of state-issued permits, which large manufacturers and oil refineries are required to turn in annually.

The lawsuit by business group CalChamber argues that the state legislature never authorized the California Air Resources Board (ARB) to collect revenue from the program when it passed AB 32, its landmark climate change law.

Revenue from the program funds clean energy programs, especially in poorer communities, and helps finance the state's ambitious high speed rail project.

"The lawsuit does not challenge any of the provisions of AB 32, including cap-and-trade authority, nor the merits of climate change science," said Denise Davis of the CalChamber.

It just argues that the state has no right to sell permits and generate revenue, she said.

The ARB prevailed in Sacramento Superior Court in 2013 after successfully arguing that it was given broad authority to design a program to meet emissions targets, including the sale of permits.

CalChamber's appeal of that ruling has kept the issue alive, casting a shadow over the emissions trading market, which has at times suffered a lack of participation due to uncertainty over its future.

Despite the state's earlier victory, the Third Appellate District Court's request last year for supplemental information indicates they are taking a close look, experts said.

"The Court is taking its full examination of the legal issues in this case very seriously," said Allison Smith, who has written on the case and is a partner with Stoel Rives LLP, which is not involved in the case.

The three-judge panel is expected to render a decision within 90 days.

(Reporting by Rory Carroll; Editing by Christian Schmollinger)

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