Sacramento, CA…Attorneys with Pacific Legal Foundation filed a lawsuit challenging California’s “cap and trade” auction regulation. The regulation creates a quarterly auction program requiring many California employers to bid significant amounts of money for the privilege of continuing to emit carbon dioxide — or be faced with closing their doors in California, laying off their employees, and moving their businesses to other states.
Ted Hadzi-Antich, PLF Attorney
Ted Hadzi-Antich
Senior Staff Attorney

Filed on behalf of a broad spectrum of California businesses, trade associations, and individuals harmed by the regulation, the lawsuit challenges the auction process as an unconstitutional state tax because it was not enacted by two-thirds majorities in both chambers of the Legislature, as required for new taxes by the California Constitution (Proposition 13 and Proposition 26).

As PLF’s complaint states, the California Air Resources Board (CARB) devised the auction plan as a means of raising billions of dollars in revenue, without any instruction or direction from the Legislature. CARB hatched the auction program purportedly to implement AB 32, the 2006 legislation that requires reductions in the emission of carbon dioxide in California by the year 2020. But nothing in AB 32 authorizes creation of an auction process to sell carbon dioxide emission allowances for billions of dollars. Nor does AB 32 authorize the creation of any kind of new tax.

“PLF’s lawsuit holds CARB’s feet to the fire because CARB cannot be allowed to siphon billions of dollars from California taxpayers in violation of the California Constitution,” said PLF Attorney Ted Hadzi-Antich. “CARB must obey the law, just as the rest of us are required to do.”
Clearing the air: The cap-and-trade auction is a tax — enacted unconstitutionally

“The California Constitution is crystal clear that new state taxes require at least two-thirds approval in both chambers of the Legislature,” said Hadzi-Antich. “The ‘cap and trade’ auction program is a new state tax that will generate billions of dollars of revenues for the state on the backs of California taxpayers. Because it was not passed by at least a two-thirds majority vote of the Legislature, it is unconstitutional. Case closed.

“It is stunning that the tax was imposed by bureaucratic fiat,” Hadzi-Antich continued. “CARB wasn’t implementing any provision of AB 32 with the auction program for massive new revenues. It decided to raise billions of dollars for the state by making up a new tax out of thin air. In a representative democracy, we can’t have unelected bureaucrats grabbing legislative power and concocting burdensome new tax programs that siphon even more money from productive, private hands into an already bloated public sector.

“CARB’s auction program isn’t just unconstitutional, it’s also an assault on economic and environmental common sense,” Hadzi-Antich continued. “California cannot even hope to address global warming issues without widespread participation by other governments. Yet except for the isolated Canadian province of Quebec, no other governments are promulgating similar regulations. As the costs mount and businesses move out of California, other states will welcome them. There’s got to be a better, more rational way to deal with the issues than CARB’s all-too-transparent scheme to generate billions of dollars for the state through an illegal tax.”

The plaintiffs in the case include:

The Morning Star Packing Company, headquartered in Woodland, California. Morning Star’s three tomato processing facilities emit carbon dioxide, and Morning Star participated in both of CARB’s auctions held to date, purchasing 31,000 allowances at a total cost of $379,860, a sum that could have been better used to increase production and hire more employees. Because CARB will collect revenues at carbon emissions auctions quarterly for the foreseeable future, Morning Star will be required to spend even more for the right to emit carbon dioxide.

Merit Oil Company, a third-generation California family business whose operations include storing, transporting, and selling a variety of petroleum products, including gasoline, diesel fuels, solvents, kerosene, and lubricants.

California Construction Trucking Association (CCTA), a nonprofit California trade association representing nearly 1,000 members who own and operate on-road and non-road vehicles, engines, and equipment, primarily in connection with construction projects. Approximately 60 percent of CCTA’s members are sole proprietors of one-truck operations.

Dalton Trucking, Inc., a California corporation in the business of operating and leasing loaders, dozers, blades, and water trucks. In addition, Dalton Trucking performs specialized services in open top bulk transportation, lowbed, general freight on flatbeds and vans, as well as rail and intermodal services.

Loggers Association of Northern California (LANC),a California nonprofit trade associa­tion whose mission is to support, promote, and advocate for the logging industry in Northern California. LANC has 160 members, many of whom are family logging businesses that have been involved in logging operations in California for generations.

Buzz Eades, Executive Director of LANC, issued this statement: “Logging has been an important part of the California economy for many generations, and family logging businesses have provided substantial economic benefits to this state. To strike at loggers now with these ill conceived regulatory taxes, at a time when the recovery is still very, very shaky, is an example of the worst kind of governmental abuse. Our competitors in the Northwest, most notably Oregon and Washington, aren’t being hit with these new taxes, either directly or indirectly. Who benefits from imposing these new costs on businesses in California? Nobody.”

Ron Cinquini Farming, a farming operation in Chico, California, owned and operated by Ron Cinquini. Mr. Cinquini personally owns and farms 30 acres, farms another 125 acres under contract, manages his family’s farm of 400 acres, and performs custom farming work on another 600 acres.

Robinson Enterprises, Inc., a California company headquartered in Nevada City, California. Robinson Enterprises is engaged in several businesses, including logging, petroleum products storage and transportation, construction services, heavy equipment fleet operation and manage­ment, and trucking.

Construction Industry Air Quality Coalition (CIAQC),a California trade association founded in 1989 by four Southern California trade associations: Associated General Contractors, Building Industry Association of Southern California, Engineering Contractors Association, and Southern California Contractors Association. CIAQC provides its members with information concerning environmental regulatory issues and provides regulatory agencies with information regarding the impacts of environmental regulations on the construction industry.

Also among the plaintiffs are three individuals who are challenging the auction process because it increases their own personal utility and fuel costs:

Norman R. “Skip” Brown,of Sacramento, has resided in California his entire life. As a homeowner, he understands that the auction program will increase his utility expenses because his suppliers of natural gas and electricity must participate as bidders for carbon dioxide emis­sions allowances and will pass on the cost of purchasing these allowances to their customers. His fuel costs as a motorist will be affected for the same reasons.

Skip Brown issued this statement: “I’m retired and I supplement my fixed income only by part-time consulting. In other words, I’m like millions of other Californians who have to watch our family budgets carefully. But now state bureaucrats have imposed a burdensome new tax, without authorization, that will raise basic living costs for me and all Californians. I am frankly concerned that the continued government-generated cost increases in this state may require my wife and me to move out of California. We dearly don’t want to do that, because our children and grandchildren live here, but CARB isn’t making life in this state any easier for us and for millions of others like us.”

Joanne L. Brown is married to plaintiff Skip Brown and, like her husband, she understands that the auction program will raise her utility costs, as well as her fuel costs as a motorist. She does not wish to move out of the state because California has been her home for over 50 years, her children and grandchildren reside in the state, and she wishes to remain near them.

Robert Michael McClernon is a California taxpayer who objects to the illegal imposition of new taxes on Californians and whose fuel costs and utility costs will be increased because the suppliers will be hit with new expenses because they must participate in the auction process.

Finally, petitioners include one of the nation’s most prominent taxpayer defense organizations:

The National Tax Limitation Committee (NTLC), headquartered in Roseville, California, is one of the oldest and most strategically oriented pro-taxpayer/entrepreneur organizations in America. Established in 1975, NTLC grew out of the work that Founder and President Lew Uhler, in alliance with California Governor Ronald Reagan, undertook to devise strategies to control the size and growth of government. NTLC’s mission is, “To make structural changes in fiscal and governance practices at all levels of government, and to limit and control taxes and spending, so as to enhance the power and freedom of individuals and their enterprises.”

Filed in Sacramento County Superior Court, the case is Morning Star Packing Company, et. al. v. California Air Resources Board.

About Pacific Legal Foundation

Donor-supported Pacific Legal Foundation (www.pacificlegal.org) is a watchdog organization that litigates for limited government, property rights, individual rights, free enterprise, and a balanced approach to environmental regulations in courts nationwide.