Cap-and-trade handed momentous victory as appeals court sides with ARB

April 6, 2017 by Billy Hamshaw

(CaliforniaCarbon.info, April 7, 2017)

In a momentous victory for California’s cornerstone climate policy, a state appeals court has today ruled in favour of cap-and-trade, bringing with it a renewed sense of confidence over the program’s longer term perspectives.

The judges ruled in a 2-1 decision that the program’s auctions do not equate to a tax, contrary to the California Chamber of Commerce’s central line of argument. Proving pivotal to the case, the judges determined that the voluntary nature of the auctions and the economic value assigned to the credits discredited the program from being an illegal tax.

‘…the purchase of allowances is a voluntary decision driven by business judgements as to whether it is more beneficial to the company to make the purchase than to reduce emissions’ read the court documents. The judges also stated that ‘no entity has a vested right to pollute.’

In addition, the court acknowledged the allowances as ‘valuable, tradable commodities..’ evident by the presence of speculators in the market.

Reacting quickly to the announcement, CCA prices rose to new heights. The current broker spot prices stood at USD 14.04, up USD 0.43 from the previous day whilst the V17 Dec17 contract climbed to USD 14.23 – a rise of USD 0.44 on yesterday’s close.

The pending case has been a definitive factor in the low participations observed in California’s recent carbon auctions. The decision today however brings with it a new sense of confidence over the program’s future, with market participants responding sharply to the news.

Whilst CCC vow to appeal the case, Governor Jerry Brown will still be looking to secure a supermajority needed to qualify cap-and-trade as a legal tax, ring-fencing the program from future legal contest.

Speaking with CaliforniaCarbon.info, policy expert and founder of Tradesman Advisors, Jon Costantino said ‘without being a tax the money raised from the auctions is restricted to GHG reductions’ adding that securing the two thirds vote will still be important to the Governor, enabling wider flexibilities in how the funds are spent.

California and Quebec’s next joint auction will take place on May 16, 2017.

Billy Hamshaw (billy@californiacarbon.info)

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