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California faces carbon emissions business litigation

The state of California is being sued by the California Chamber of Commerce stemming from the state’s plan to auction off carbon allowances. That auction marks a crucial part of the state’s intention to reduce greenhouse gas pollution in its jurisdiction. The Chamber of Commerce initiated its business litigation in state court, alleging that the auction would constitute an unconstitutional fee or inappropriate tax.

The state, on the other hand, issued a statement indicating that it had no intention to call off its planned auction. Some industry insiders believe that putting off the state’s first auction could spell further trouble for an already weak market as far as carbon futures go. The rates for 2013 carbon allowances have already fallen substantially just since the start of August because of various issues such as rule changes, legal threats and political opposition.

The state of California has a wider goal of reducing carbon emissions coming from oil refineries, power generators and additional industrial plants by approximately 15 percent. The goal is to achieve this widespread reduction by the year 2020. Over the next few years the state would gradually reduce the set maximum of carbon emissions allowed from these types of companies.

This plan is an important part of the state’s global warming act which was initiated in 2006. Additionally, the budget for the state relies upon $500 million coming from this cap and trade revenue for the current fiscal year. Should the Chamber of Commerce prevail in this business litigation, the state’s governor would somehow have to make up the shortfall by increasing revenue in another area or instituting spending cuts.

This wouldn’t be the first time that the intended carbon emissions option has actually been delayed. The state itself delayed enforcement of the whole cap-and-trade program last year and back in March of this year completely canceled its anticipated August auction. For now, state representatives are confident that the carbon emissions program will hold up to any sort of courtroom scrutiny. Time will tell whether the state or its Chamber of Commerce will actually prevail in this particular lawsuit.

Source: Bloomberg News, “California’s First Carbon Auction Challenged in Lawsuit,” Karen Gullo and Lynn Doan, Nov. 14, 2012