The California Air Resources Board (CARB) is facing another legal challenge to its cap and trade program – Morning Star Packing Co. v. California Air Resources Board (Sacramento Superior Court case no. 34-2013-80001464, filed April 16, 2013).  A coalition of twelve companies, trade associations, and individuals filed the new lawsuit on Tuesday, challenging the legality of the cap and trade auctions.  The plaintiffs allege that revenues generated by cap and trade that go to the state constitute illegal taxes, unauthorized by AB 32, and in violation of article XIII A, section 3 of the California Constitution.  Article XIII A requires that any new tax be adopted by a two-thirds vote of the California Legislature; AB 32 was passed with a simple majority.  The lawsuit seeks to rescind the cap and trade regulations related to allowance auctions and force CARB to refrain from enforcing or implementing the cap and trade regulation, conducting further auctions, or collecting revenues from those auctions.  The complaint also alleges that the suite of legislation passed in 2012 – SB 535, SB 1018, AB 1464, and AB 1532 – to allocate the use of revenues generated by cap and trade auctions is unconstitutional, as these laws were also not passed by a two-thirds majority of the Legislature.  The Plaintiffs ask the court to enjoin CARB from implementing the new laws.

Morning Star Packing Co. is the second lawsuit challenging the cap and trade auction system as an unlawful tax.  The California Chamber of Commerce sued CARB two days before the first cap and trade auction took place, in November 2012, raising claims similar to several of those advanced in Morning Star Packing Co.  The Chamber of Commerce suit argues that CARB’s retaining the proceeds from its auction of cap and trade allowances amounts to a fee, unauthorized by AB 32.  The Chamber also alleges that the cap and trade regulations violate article XIII A, section 3 of the California Constitution, as a tax passed with less than a two-thirds majority of the Legislature.  The Chamber of Commerce asks that the court prohibit CARB from allocating cap and trade allowances to itself, conducting the auctions or selling off the allowances, and enforcing or imposing the regulation’s cap and trade auction provisions, but does not go as far as seeking a rescission of the cap and trade auction regulations.  The Environmental Defense Fund, Natural Resources Defense Council, and the National Association of Manufacturers have intervened in the California Chamber of Commerce case and a hearing on the merits of the case is scheduled for August 28, 2013.  Attorneys for Morning Star Packing Co. have filed a notice of related case with the California Chamber of Commerce v. CARB court.