Consensus: cap-and-trade extension requires a two-thirds legislative vote

Loren Kaye
President of the California Foundation for Commerce and Education

The California Supreme Court recently declined to review the 2-1 split decisionby the Appellate Court, which ruled that California’s current cap-and-trade auction is not a tax requiring a two-thirds vote of the Legislature. The legislative authorization for the current cap-and-trade auction was adopted in 2006 with the passage of AB 32, which authorized the cap-and-trade program through 2020.

In 2010, however, voters enacted Proposition 26, sponsored by CalChamber and others, which more stringently defined what is a “tax.”

Prop 26 will now govern the updated greenhouse gas reduction law passed last year, SB 32. This new constitutional reality has been recognized by the Air Resources Board and its allied intervenors, Natural Resources Defense Council and Environmental Defense Fund, dismissing the need for the Supreme Court to review the lower court’s decision.

In a brief filed with the Supreme Court, the Air Resources Board argued that, “going forward, litigation is much more likely to center on interpretation of Proposition 26 and its new definition of ‘tax.’”

Indeed, the ARB’s allies in the litigation, NRDC and EDF, were even more explicit:

(Proposition 13) was superseded in 2010 when the voters adopted Proposition 26, which included an express definition of “tax.” And the (Court of Appeal) Opinion applies that former law to a unique regulatory mechanism that is unlikely to be duplicated. With that express definition now in place, the Opinion cannot be binding precedent for the application of Proposition 26.

This post-Prop 26 legal framework will influence how to enact the post-2020 cap-and-trade program. According to Governor Brown’s executive secretary, “the Governor will only sign a 2/3 vote cap and trade bill.” This statement has effectively popped some trial balloons launched by the Assembly to bootstrap the Appellate Court’s approval of a pre-Prop 26 statute into the new age.

Whatever deal on cap-and-trade eventually emerges to engage legislative scrutiny, it will need supermajority approval to reach the Governor’s desk.

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