Legislature Passes Job Killer Bills; Illegal Tax Will Increase Energy and Fuel Costs

​(April 24, 2012) Three California Chamber of Commerce-opposed bills that will increase energy costs, including fuel prices, on consumers and businesses, passed their first policy committees yesterday.

AB 1532 (John A. Pérez; D-Los Angeles)/ AB 2404 (Fuentes; D-Los Angeles)/ SB 1572 (Pavley; D-Agoura Hills) are “job killers,” that allocate funds from an illegal tax to various programs that are not necessary to cost-effectively implement the market-based trading mechanism under AB 32.

Increased Costs

In opposing the bills, the CalChamber has pointed out that the California Air Resources Board (CARB) lacks authority and has been unable to justify the need to raise billions of dollars in revenue for purposes anticipated in these bills.

CARB’s plan to impose a “cap-and-tax” will hurt jobs, and increase costs to the state and consumers. AB 32 was not intended to be a revenue source. The decision to move forward with a billion-dollar auction will have devastating impacts on the state’s economy.

Entities subject to the illegal tax include manufacturers, public agencies, universities, refineries, food processors and others. The impact on these entities will be severe and will be on top of the higher fuel and energy costs due to other climate change regulations.

No Authority

Raising “upward of $3 billion” in 2012–2013 alone as estimated by the Legislative Analyst for purposes of funding various state programs is well beyond CARB’s authority and runs contrary to the requirements expressly stated in AB 32, which is that of maximizing benefits and minimizing leakage risks and costs.

Nothing in AB 32 expressly grants CARB authority to raise and distribute revenue in the cap-and-trade program. In fact, AB 32 explicitly provides CARB with the authority to raise revenue only for direct costs incurred in administration of the program. In a letter to the journal, then-Speaker Fabián Núñez clarified that the fee authority in AB 32 is “solely” for the purpose of administrative costs.

The inclusion of a “market mechanism” in AB 32 was intended to allow consideration of market dynamics to find the most cost-effective emission reductions. The definition of “market mechanism” alone does not grant revenue-raising authority and without such authority, imposing an auction is legally questionable.


An auction is not necessary for a successful cap-and-trade program. The cap-and-trade program will achieve targeted emission reductions without the revenue-raising of a state-run auction.

Historically, successful emission trading programs such as the Clean Air Acid Rain Program and the Lead Phasedown programs have relied on the free distribution of allowances. A system of free allocation has proven to promote cost-effective emission reduction while enabling entities to buy and sell credits (i.e., allowances) amongst themselves in the secondary market. A system of free allocation is economically beneficial, promotes market liquidity and diversity and decreases the risk of market speculation.

Illegal Tax

These bills presume that expenditures of revenue from the proposed cap-and-trade program would be legal so long as they are made in compliance with the California Supreme Court decision in Sinclair Paint v. State Board of Equalization, 15 Cal. 4th 866 (1997).

But the applicability of the Sinclair decision to the planned collection and distribution of auction revenue raises legal uncertainties. This assessment assumes that the facts and background underlying the Sinclair decision are analogous to those underlying AB 32, which is not the case. Unlike AB 32, the statute at issue in Sinclair [AB 2038: Connelly, 1991], expressly granted the relevant state agency the power to impose a mitigation fee. In addition, the legislation stated specifics about how those fees were to be used, and described the entities that would be required to pay the fee and the amount to be collected.

Moreover, the Sinclair court decision held that the fees must bear a proportional relationship to the adverse impacts—in that case the lead contamination—caused by the source. In comparison, nothing in AB 32 expressly granted CARB the legal authority to impose a mitigation fee, significantly undermining the argument that a court would treat the proposed cap-and-trade auction similarly to the fee authorized by AB 2038.

If AB 32 does not, in fact, authorize the auction, expenditures of proceeds from that auction would require new legislative approval that would be governed by the provisions of Proposition 26. Passed by voters in 2010, Proposition 26 clarified the definition of a ‘’tax,” making it clear that any assessment providing public benefits extending beyond the regulated industry would require a two-thirds vote.

These bills provide for the unjustified use of revenue and go beyond the economic and environmental harm that will arise from CARB's imposition of a cap-and-tax on California employers.

Key Votes

AB 1532 passed the Assembly Natural Resources Committee on April 23 on a vote of 5-3:

Ayes: Chesbro (D-North Coast), Dickinson (D-Sacramento), Huffman (D-San Rafael), Monning (D-Carmel), Skinner (D-Berkeley).

Noes: Grove (R-Bakersfield), Halderman (R-Fresno), Knight (R-Antelope Valley).

Absent, Abstaining, or Not Voting: Brownley (D-Santa Monica).

AB 2404 passed the Assembly Natural Resources Committee on April 23 on a vote of 5-3:

Ayes: Chesbro (D-North Coast), Dickinson (D-Sacramento), Huffman (D-San Rafael), Monning (D-Carmel), Skinner (D-Berkeley).

Noes: Grove (R-Bakersfield), Halderman (R-Fresno), Knight (R-Antelope Valley).

Absent, Abstaining, or Not Voting: Brownley (D-Santa Monica).

SB 1572 passed the Senate Environmental Quality Committee on April 23 on a vote of 5-2:

Ayes: Hancock (D-Berkeley), Kehoe (D-San Diego), Lowenthal (D-Long Beach), Pavley (D-Agoura Hills), Simitian (D-Palo Alto).

Noes: Blakeslee (R-San Luis Obispo), Strickland (R-Thousand Oaks).

Staff Contact: Brenda M. Coleman