Debra Kahn at E&E's ClimateWire quotes me in today's lead story on the appellate court decision that came down yesterday in California Chamber of Commerce v. CARB, a case in which carbon market opponents challenged the legality of the state's quarterly allowance auctions:
"It's great for the state," said Danny Cullenward, a research associate at the Carnegie Institution for Science who has been analyzing the market since its inception. "It's an unambiguous win."
Observers disagreed on whether that part of the ruling would affect future legal challenges to the program. While [UCLA Emmett Institute Co-Director Cara] Horowitz said the court's "rationale makes the auction look less like a tax under any analytical approach," Cullenward said a supermajority vote is still needed. "This case does not change the question or the need for ARB or any other advocate of carbon pricing to obtain legislative authority and confront Prop 26," he said.
Cara Horowitz's comments build on a post she made over at Legal Planet. We appear to disagree because I don't think the dicta in yesterday's decision provides a firm basis for pursuing an exemption to Proposition 26, whereas Cara is more optimistic about the opinion's meaning—but in any case it is extremely important to be clear about the fact that Propositions 13 and 26 are entirely distinct in legal terms.
Yesterday's decision concerned Proposition 13. The court defined the word "tax" using an 1850 California Supreme Court case, People v. Naglee, and evaluated the cap-and-trade auctions using a two-part test drawn from that case. Ultimately the court concluded that the auctions did not meet the two Naglee criteria and therefore that the auctions are not a "tax" under Proposition 13.
As all three justices acknowledged, Proposition 26 wasn't implicated by this case because Proposition 26, which strengthened the older Proposition 13 standard, applies only to statutory changes made after 2010. Since AB 32 (the statute that authorized cap-and-trade) passed in 2006, the California Chamber of Commerce challenge operated under the older Proposition 13 standard. But any new legislation to extend California's carbon pricing policy beyond its expiration in 2020 would trigger review under Proposition 26 as a post-2010 change in statute.
The difference between Propositions 13 and 26 is enormous in legal terms. Because Proposition 13 doesn't define the key term "tax", courts can and do develop their own relatively permissive tests for asking whether or not a policy constitutes a tax. In contrast, Proposition 26 included a broad and strict definition: "any levy, charge, or exaction of any kind imposed by the State" (Cal. Constitution Art. XIII A § 3(b)). There are five narrow exemptions to this definition, none of which obviously map to the situation at hand (as I have written about concisely in a comment letter to ARB and at great length in the Energy Law Journal).
Proponents of carbon pricing—a group I am definitely in—need to confront Proposition 26 and not send the message to lawmakers that perhaps a tough vote isn't needed on the basis of a case that no courts are bound to apply in a challenge made under Proposition 26.
If someone has an argument about why yesterday's decision relieves the Legislature of the need to secure a supermajority vote to extend carbon pricing, he or she should make it in clear, transparent, and fully developed terms—something Cara suggests she will do in a follow-up post. I did my best at that exercise and came up short in the Energy Law Journal article linked to above precisely because I wanted the climate policy community to take seriously the enormous challenge that Proposition 26 presents.
My view is that is going to take a major effort to secure a 2/3 supermajority vote, and that is something that is absolutely worth pursuing. Meanwhile, there is nothing wrong with thinking through backup plans if a 2/3 vote proves elusive, but advocates should remember that policymakers are unlikely to understand the detailed nuances of a tentative legal theory that is deep in the weeds of California's forty-plus year history of convoluted anti-tax ballot initiatives. How confident can anyone be that yesterday's good news on Proposition 13 makes the Proposition 26 voting hurdle unnecessary?
After well more than a year working on this specific issue—including writing a 25,000 word law review article that was peer reviewed by a prominent lawyer who disagreed with my argument and helpfully negotiated every critical footnote—I would not express any such confidence. But I welcome the chance to continue the discussion with Cara and others as this important issue unfolds with the goal of advancing California's critical leadership role in climate policy.