UPDATE 2-California Chamber of Commerce seeks to stop cap-and-trade

Tue Nov 13, 2012 10:09pm EST

By Rory Carroll and Dan Levine

SAN FRANCISCO Nov 13 (Reuters) - The California Chamber of Commerce filed a petition that seeks to block the state from auctioning carbon allowances to large emitting businesses, one day before the cap-and-trade program's inaugural permit sale.

The complaint, filed in a Sacramento state court on Tuesday, argues that California's landmark emissions reduction law AB 32 does not authorize the California Air Resources Board (CARB) to raise money beyond what is needed to cover its administrative costs through the sale of carbon allowances.

The state expects to raise between $500 million and $1 billion through the sale of carbon allowances over the next fiscal year, largely through the sale of permits to cover 2015 emissions.

But in the lawsuit, the business group calls those sales an "unconstitutional tax."

"The current CARB proposal is the most costly way to implement AB 32, and it will hurt consumers, the job climate, and the ability of businesses to expand here," the chamber said on its website, where it posted a copy of the complaint. (Complaint filed by California Chamber of Commerce:)

The state on Wednesday is planning to sell 39.5 million allowances to cover emissions in 2015 and put those revenues into a new government account, where the funds are to be used for clean energy and energy efficiency programs to help the state drive down emissions further.

Stanley Young, a spokesman for the resources board, said they are confident the cap-and-trade program will withstand any court challenge.

"We are going forward with tomorrow's auction," Young said.

That money is expected to be used to help the state further reduce its emissions, although the details of its use have still to be hammered out.

California plans to give away 90 percent of the allowances for free at the outset of the program, a percentage that will diminish over time.

California businesses including oil refineries and large manufacturers have complained that having to purchase 10 percent of their compliance obligation at the start of the program will put them at a competitive disadvantage to their out-of-state competitors.

If the challenge succeeds, the state would be required to give all of the program's allowances for free to covered entities, an action that could pad the bottom lines of the very companies the program seeks to regulate, said Erica Morehouse, an attorney with the Environmental Defense Fund.

She said the challenge was more about injecting uncertainty into the market than about raising legitimate legal claims, and said she doesn't expect it to succeed.

California manufacturers voiced their support for the lawsuit on Tuesday, saying that the Air Resources Board was in the wrong in trying to turn the auction into a money raiser.

"There is a distinct difference between a good cap-and-trade program that helps reduce greenhouse gases with minimal costs and an auction that is designed to extract billions from industry," said Jack Stewart, president of the California Manufacturers & Technology Association.

"We support any legal action to ensure that California gets what it was promised - a cost-effective, technologically feasible, and legal regulatory plan to reach our emission goals," he said.

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