California Chamber of Commerce sues ARB

8/18/2019 California Chamber of Commerce sues ARB

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NIELSEN MERKSAMER PARRINELLO‘ GROSS LEONI, LLP

STEVEN A. MERKSAMER SBN 668382 RICHARD D. MARTLAND SBN 33162

KURT R. ONETO SBN 2483 11415 L Street, Suite 12Sacramento, CA 95814TELEPHONE: 916 446-6752FAX 916 446-6106

6 NIELSEN MERKSAMER PARRINELLOGROSS LEONI, LL P

JAMES R. PARRINELLO SBN 63415235 Kerner Blvd., Suite 25

8 San Rafael, CA 949 1TELEPHONE: 415 389-6800

9 FAX 415 388-6874

10

Email: srnerksarnernrngovlaw.comEmail: rmartlandnrn ovlaw cornEmail: konetonrngoJaw.corn

12Email: jparrinello nmgovlaw. corn

Attorneys fo r Petitioners/Plaintiffs13 CALIFORNIA CHAMBER OF COMMERCE,

a nonprofit business association, and LARRY DICKE14a State of California Taxpayer

15SUPERIOR COURT OF THE STATE OF CALIFORNIA

16COUNTY OF SACRAMENTO

17 CALIFORNIA CHAMBER OF COMMERCE, a Case No.:18 nonorofit business association, and LARRY

DICIKE a State of California Taxpayer,19 Petitioners/Plaintiffs,20 vs . MEMORANDUM OF

21 CALIFORNIAAIR RESOURCES BOARDPOINTS AND

MARCY NICHOLS, in her official caoacity as AUTHORITIES IN22 Chair of the Air Resources Board, JOHN SUPPORT OF

BALMES M.D., SANDRA B ERG DORENE VERIFIED PETITION23 D’ADAMO HECTOR DE LA TORRE, RON LD FOR WRIT OF0. LOVERIDGE, BARBARA RIORDAN, RON24 ROBERTS, ALEXANDER SHERIFFS, M.D:, MANDATE AND

DANIEL SPERLING, ND KEN YEAGER in COMPLAINT FOR25 their official capacities as members of the Air DECLARATORY

Resources Board, JAMES GOLDSTENE in his RELIEF26 official capacity as Executive Officer of tfie

California Air Resources Board, and DOES 127 THROUGH 10, inclusive

28 Respondents/Defendants.

MEMORANDUM OF POINTS ND AUTHORITIES IN SUPPORT OF VERIFIED PETITION FOR WRIT OF MANDATE AN D

COMPLAINT FOR DECL R TORY RELIEFCASE NO


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TABLE OF CONTENTS

2 Pa

3 I INTRODUCTION

II BACKGROUND

A The Statute

6 B The ARB’s Regulations

III. STANDARD OF REVIEW

8 A Statutory Interpretation

B Mandate

10 C Declaratory Relief

11 IV ARGUMENT

12 A AB 3 Did Not Confer Upon The ARB The Authority To Raise 7o Billion In Fees/Taxes Through Self-Allocation And Sale O f

13 GHG Emissions Allowances14 AB 3 does not impose a tax, and does not authorize the15 imposition of any fee except one to cover ordinary

administrative costs16

2. AB 3 does not authorize an unelected board to impose up17 to 7o billion in new fees/taxes18 a In adopting AB 3 the intent of the Legislature

was to reduce GHG emissions, not to permit an19 unelected board to raise up to 7o billion in20 new fees/taxes

21 b AB 32’s legislative history makes no mention ofany intent to grant an unelected board

22 authority to impose billions of dollars in new

23fees/taxes; indeed, it contains statements thatcontradict the ARB’s position

24c That the language of AB 3 does not explicitly

25 forbid the AR B from raising up to 70 billionin new fees/taxes by allocating to itself and

26selling GHG allowances does mean the

27 ARB possesses such authority

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d To find AB 32 authorizes an unelected board to

impose up to 7 0 billion in new fees/taxes on2 California would violate multiple canons of

statutory construction

4 e Construing a global warming statute asallowing an unelected board to raise up to 7 0 billion in new fees/taxes would be an

6 absurd result that Courts are bound to avoid

B To Find That AB 3 2 Authorized The ARB To Raise Billions InNew Fees/Taxes By Allocating To Itself And Selling Off GHG

8 Allowances To The Highest Bidder Would Render AB 3 2

9Unconstitutional Or Raise Serious Constitutional Doubt 2

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C Because TheGoal Of

AB32 Can

Be Achieved Without The ARB11

Allocating To Itself And Selling Off GHG Allowances ForBillions Of Dollars, It Cannot Be Implied That AB 3 2 Granted

12 Such Power

D In The Alternative, If AB 32 Does Authorize An Unelected Board14 to Impose Up To 7o Billion In New Fees/Taxes Through the

Self-Allocation And Sale of GHG Allowances, Then The ARB’s15 Regulations Are An Unconstitutional Tax 216

V CONCLUSION 218

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1

TABLE OF AUTHORITIES

Page sCASES

5 ActionApartmentAssoc., Inc. v. City of Santa Monica 2007 41 Cal.4th 1232 10

6

Addison v. Dept. of Motor Vehicles,supra, 69 Cal.App.3d 4, 11, 28 , 29

8

AFL v. Unemployment Ins. Appeals Bd. 1996) 13 Cal.4th 1017 2, 11, 17

10

Branczforte Heights, LLC v. City ofSanta Cruz11 2006 138 Cal.App.4th 91 4 10

12 Calif. Chamber of Commerce v. Brown 2011 19 6 Cal.App.4th 23 3 19

14 Caljf Teachers Assoc. v. San Diego Community Coil. Dist.

15 1981 28 Cal 3d 692 9

16 Citizens Assoc. of Sunset Beach v. Orange Co. LAFCO 2012 209 Cal.App.4th 1182 17

17

Citizens to Save Calif. v. FPPC 2006 145 Cal.App.4th 736 12

19

County of Los Angeles v. State Dept. of Public Health20 1958 158 Cal.App.2d 11

21Curtis v. County of Los Angeles

22 1985) 172 Cal.App.3d 1243 5

23 Diageo-Guiness USA, Inc. v. Bd. of Equalization24 2012 205 Cal.App.4th 901 11

25 Dyna-Med, Inc. v. Fair Emp. Housing Com.

26 1987 43 Cal 3d 1379 10, 24

27 Environmental Defense Project ofSierra County v. County of Sierra 2 0 0 8 158 Cal.App.4th 877 9

28

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1Harrott v. County of Kings

2001 25 Cal.4th 1138 10, 242

Henderson v. Mann Theatres Corp. i9’6 65 Cal.App.3d 397 3, 19

Horwich v. Superior Ct.5 1999 21 Cal.4th 27 2 22 , 23

6 In re Jesusa

7 2 0 0 4 3 2 CaL4th 588 20

8 InreLukeW. 2001 88 Cal.App.4th 650 20

10 Miller v. Municipal Ct. of the City of Los Angeles 1943 22 CaL2d 818 10, 24

11

National R.V., Inc. v. Foreman12

1995 34 Cal.App.4th 1072 1513

Palos Verdes Faculty Assoc. v. Palos Verdes UnWed Sch. Dist.14 1978 21 Cal.3d 650 1315

People v. Leong Fook16 1928 206 Cal. 64 20

17 People v. McNarnee18

2 0 0 2 96 Cal.App.4th 66 22

19 Rancho Murieta Airport, Inc. v. County of Sacramento

20 2 0 0 6 142 Cal.App.4th 32 3 10

21 Redwood Coast Watersheds Alliance v. Bd. of Forestry 1999 70 Cal.App.4th 962 10

22

Regents of Univ. of Calif v. East Bay Mun. Utility Dist.23

2005 13 0 Cal.App.4th 1361 9, 1024

Sinclair Paint Co. v. Bd. of Equalization25 1997 15 Cal.4th 866 passim

26 So. Calif. Gas Co. v. Public Util. Corn.27 1979 24 Cal.3d 653 15

28

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State Bd. of Equalization v. Bd. of Supervisors 1980 105 Cal.App.3d 813 12

2

State Personnel Bd v. Dept. of PersonnelAdmin. 2005 37 Cal.4th 512 19

Terhune v. Superior Court5 1998 65 Cal.App.4th 864 12

6 Walker v. County of Los Angeles 1961) 55 Cal. 2d 626 11

8 Yamaha Corp. ofAmerica v. Bd. of Equalization 1998 19 Cal.4th 12

10 Yeager v. Blue Cross of Calif. 2 0 0 9 175 Cal.App.4th 1098 22

11

12

13 STATUTES

14 Assembly Bill 32 , Stats. 2 0 0 6 , ch . 488 AB 32 passim

Childhood Lead Poisoning Prevention Act, Stats. 1991, ch. 799, § 3 24

1990 Clean Air Act, 42 U.S.C., § 76510 21, 22

CA Code Civ. Proc., § 1085 1018

CA Code Civ. Proc., § 1859 9

20 CA Gov. Code, § 16428.8, Stats. 2012, ch . 39 § 25 8

21 CA Health Safety Code

22§ 372.7 25

23

38500 et seq

5

§ 38501 passim26 §38505 5

27 §38530 5

28 §38550 5

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§ 3 8 5 6 5

§ 38562 passim

3 §38564 6 21

§ 38565 65

§ 38597 passim6

§39510 97

8 § 39710 Stats. 2012 ch. 807 § 27

§ 57001 6

10Sta t s 2o12 ch 21 15 n 27

11

12

CALIFORNIA CODE OF REGULATIONS

Cal Code Regs. Tit. 7 6

15 §95801 et seq 6

16 §95802

17 § 95810 95814 6

§95811 7

§ 95820 20

§95840 7

22 § 95856 7

23 §95870 8

24 95890 95892 725

§ 95910 826

§ 95911 2627

8 §95920 8

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§ 9 5 9 2 8

2

CALIFORNL CoNsTITuTIoN

Cal. Const., art. XIII A 3 3 12, 285

6

OTHER AUTHORITIES7

76 Ops.Cal.Atty.Gen. 11 1993 11 28

Directive 2008/87/EC of the European Parliament and of the Council of13 October 2003 establishing a scheme for greenhouse gas emission

10

allowance trading within the Community and amending Council11 Directive 96/61/EC, Article 10 21

12 Gillian Ku Deepak Maihotra, and J. Keith Murnighan, “Towards a ompetitive rousal Model of Decision Making:A Study of Auction Fever

13 in Live and Internet Auctions ” Organizational Behavior and Human14 Decision Processes, 96 2005) 89-103 26

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1 I. INTRODUCTION.

2 This case is about one thing and one thing only the lack of authority of

an unelected politically appointed regulatory board to engraft into a regulatory

4 program a revenue raising device that would impose what in effect is an invalid tax

or an unconstitutional fee and would exact from taxpayers as much as 70 billion

6 or more a massive sum of tax/fee revenue that would be more than was sought

by the Proposition 30 tax initiative approved by voters on November 6, 2012.

8 This action by an unelected state board to use regulatory statutes to raise

tens of billions of dollars from taxpayers is unprecedented in our state’s history.

10 Even the elected and democratically accountable Legislature and Governors of

California havenever imposed such a massive tax/fee.

12 What is shocking about this money grab, in addition to the fact it exceeds

13 the authority granted to the regulatory agency by the Legislature, is the agency’s

‘4 admission that this revenue raising component of i ts regulations is unnecessary to achieve the purposes of the regulatory scheme.16 California’s Air Resources Board is the regulatory agency. The unauthorized

17 tax/fee device has been engrafted to the Board’s regulatory program to reduce18 greenhouse gas “GHG” emissions through among other things a “cap and trade”

program that i) sets a statewide “cap” on the amount of GHG emissions that

20 entities covered by the program are allowed to emit, 2 ) calculates individual

21 emissions allowances that are applied to covered entities i.e., determines for each

22 covered entity, how many tons of GHG that the entity can emit in a given year, and

23 3 allows an entity to “trade,” for compensation any part of its GHG emissions

24 allowances the entity will not use in other words, permits another covered entity

25 to exceed the amount of its allocated GHG emissions allowances by acquiring GHG

26 emissions allowances from other covered entities

27 / / /28 / / /

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1 The Air Resources Board’s calculation of a statewide cap on the amount of

2 GHG that lawfully can be emitted each year its calculation of individual emissions

3 allowances and its creation of a cap and trade program to reduce GHG emissions

4 over time were authorized when the Legislature enacted and the Governor signed

5 Assembly Bill 32 “AB 32”) in 2006 .

6 What was not authorized by AB 32 is the Board’s decision to withhold for

itself a percentage of the annual statewide GHG emissions allowances and to

8 auction or sell them off to the highest bidders thus raising from taxpayers up to

9 70 billion or more of revenue for the state to use.

io In this summary and in more detail in the analysis that follows petitioners

explain why the Board’s unprecedented action is unlawful

12 The authority of the Air Resources Board to adopt and to implement the

13 GHG emissions regulatory program called for by AB 32 is limited to the authority

conferred on the Board by AB 32 AFL v. Unemployment Ins Appeals Bd. 1996)

13 Cal 4th 1017 1042.)

16 Absent in AB 32 is any explicit authorization for the Air Resources Board

17 to raise billions of dollars of revenue for the state by withholding and auctioning18 off or selling of a percentage of the statewide GHG emissions allowances adopted b

19 the Board The only fee authorized by AB 32 is a regulatory fee limited to covering

20 ordinary administrative costs of implementing the GHG emissions regulatory

21 program

22 Likewise absent from AB 32 is any implied authority for the Air Resources

23 Board to keep for itself a percentage of the statewide GHG emissions allowances

24 and then sell them to raise billions of dollars of revenue for the state For starters

25 in its Enrolled Bill report to the Governor the Board flatly disavowed the notion

26 that AB 32 would give it the “carte blanche” power to raise revenue beyond the

27 limited administrative fee explicitly authorized by AB 32 Despite this concession

28 the Board changed its tune and adopted the massive tax/fee provision described

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i above. Surely, if AB 32 intended to authorize the Board to do so, there would have

2 been extensive debate and opposition by members of the Legislature who have

3 consistently opposed revenue-raising legislation. Yet, the legislative history says

4 absolutely nothing that even remotely suggests AB 32 intended to give the Board

such a green light to raise tens of billions of dollars from taxpayers. Thus, it would

6 be absurd to read into AB 3 2 a grant of authority for the Board to utilize a revenue-

7 raising device of such magnitude.

8 The fact that AB 32 explicitly allows the Board to impose a regulatory fee

limited to ordinary administrative costs of implementing the program demonstrates

10 that the Legislature knew how to allow the Board to raise revenue by explicitly

including such authority in the bill. ccordingly the lack of express authority for

12 the Board to withhold for itself and auction off GHG emissions allowances to raise

13 revenue for the state necessarily leads to the conclusion that the Legislature did not

14 intend to give the Board such an incredible power. Henderson v. Mann Theatres

15 Corp. 1976 65 Cal.App.3d 397, 40 3 [“the expression of certain things in a statute

16 necessarily involves exclusion of other things not expressed”].

17 There is another reason why AB 32 cannot be read to allow the ir Resources18 Board to raise billions of dollars of revenue as it is attempting to do. Courts must

presume that the Legislature did not intend to give the Board authority to take

20 unlawful action or action that raises serious doubts as to AB 32’s constitutionality.

21 Bills that impose or increase taxes must be adopted by a two-thirds vote in each

22 house of the Legislature. Cal. Const., art. XIII A, 3. Because AB 32 did not

23 receive such a super-majority vote, it cannot be interpreted as delegating to the

24 Board the power to impose a tax. And AB 32 cannot be read to allow the Board to

25 impose an administrative fee by charging for GHG emissions allowances the Board

26 withholds and then sells at auction. This is so because such a fee would be an

27 unconstitutional tax since it does not comply with the test articulated in Sinclair

28 Paint Co. v. Bd. of Equalization 1997 15 Cal.4th 866.

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i Lastly as the Air Resources Boardconceded and the Legislative Analyst has

2 found the goals of AB 32 can be achieved by the Board allocating all the statewide

GHG emissions allowances free of charge. Therefore it would be inappropriate to

imply that the Board has the authority to withhold and to sell at a profit a

5 percentage of the allowances raising from taxpayers tens of billions of dollars of

6 revenue for the state. Cf. Addison v. Dept. of Motor Vehicles 1977 69 Cal.App.3

7 486 498 [“the doctrine of implied powers is not without limitations. For a powe

8 to be justified under this doctrine it must be essential to the declared objects and

9 purpose of the enabling act not simply convenient but indispensable”].

10 At this point, it is important to reiterate that this lawsuit is about one thing

and one thing only the lack of authority of the unelected politically-appointed

12 Air Resources Board to engraft into a regulatory program a 7 billion or more

13 revenue-raising device that would impose what in effect is an invalid tax or an

14 unconstitutional fee.

15 The lawsuit does not challenge the merits of climate change science. It does

16 not challenge the Legislature’s authority to regulate GHG emissions in California.

17 And it does not challenge the Air Resources Board’s decision to use a so-called18 “cap and trade” method of reducing GHG emissions. The only thing this lawsuit

‘9 challenges is the portion of the Board’s regulatory program that seeks to permit

20 the Board to allocate to itself GHG emissions allowances and to profit by selling

21 them to GHG emitters, raising tens of billions of dollars of revenue for the state

22 when the Board has no statutory authorization to do so and the charge would be

23 an unconstitutional tax.

24 Without this unlawful component, the cap and trade program can continue

25 the state’s efforts to combat climate change can go on and the Legislature’s ability

26 to properly impose fees and charges will not be thwarted. The only thing that will

27 cease is the unauthorized and illegal tax/fee exaction scheme that the Air Resource

28 Board has impermissibly engrafted into its GHG emissions regulatory program.

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i II. BACKGROUND.

2 A. The Statute.

3 On September 27 , 2006 , the Governor signed AB 32 into law. Chaptered as

4 Statutes 2 0 0 6 , chapter 488, Health and Safety Code Div. 25.5 section 38500 et

seq. , AB 32’s stated goal is to reduce GHG emissions in the state to 1990 levels by

6 2020 . Health Saf. Code, 38550. AB 32 tasked the California Air Resources

Board “ARB”) with responsibility to accomplish AB 32’s objective of reducing GH

8 emissions. Health Saf. Code, 38560 38562. Specifically, AB 32 assigns th

ARB three straightforward tasks: i implement a GHG emissions monitoring

10 program Health Saf. Code, § 38530 ; 2 determine what the statewide GHG

emissions level was in 1990, and then adopt that level as the statewide GHG

12 emissions limit, to be achieved by 2020 Health Saf. Code, § 38550 ; and

adopt a regulatory program that will achieve the mandated GHG reductions.

14 Health Saf. Code, § 38560 38562.

15 In designing a regulatory program to accomplish the desired GHG emissions

16 reductions, the ARB is authorized to use a “market-based compliance mechanism”

17 to reduce GHG emissions in California. As defined in AB 32 , a “market-based18 compliance mechanism” includes either of the following:

19 i A system of market based declining annual aggregate emissionslimitations for sources or categories of sources that emit greenhouse gases.

20 2 Greenhouse gas emissions exchanges, banking, credits, and other21

transactions, governed by rules and protocols established by the state board ARB),that result in the same greenhousegas emission reduction, over the same time

22 period, as direct compliance witha greenhouse gas emission limitor emissionreduction measure adopted by the state board pursuant to this division.

23

24 Health Saf. Code, § 38505, subd. k .

25 AB 32 requires the ARB to “design the regulations, including the distribution

26 of emissions allowancesl where appropriate, in a manner that is equitable, seeks to

27 emission “allowance” is defined in AB 32 as “an authorization to emit, during

28 specified year, up to one ton of carbon dioxide equivalent.” Health Saf. Code, § 38505,subd. a).)

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1 minimize costs and maximize total benefits to California, and encourages early

2 action to reduce greenhouse gases.” Health Saf. Code, 38562, subd. b i .

3 The ARB is also instructed to consult with other governments on the most effective

4 strategies and methods to reduce GHG. Health Saf. Code, 38564.

In order to cover the costs of the new program, AB 32 authorizes the ARB

6 to adopt a “schedule of fees to be paid by the sources of greenhouse gas emissions

7 regulated” by AB 32 , consistent with Health and Safety Code section 57001.2

8 Health Saf. Code, 38597.)3

B. The ARB’s Regulations.

10 On January 1, 2012 the ARB’s regulations implementing AB 32 went into

ii effect. Cal. Code Regs., Tit. 17, Div. 3, Ch. 1, Subch. 10, Art. 5 95801 et seq].

12 The regulations primarily rely upon the aforementioned “market-based

13 compliance mechanism” approach. Commonly referred to as a “cap and trade”

14 model, the regulations place a cap on the aggregate GHG emissions from entities

‘5 responsible for roughly 8o percent of the state’s GHG emissions. 17 CCR, §

16 95810-95814. While they are not assigned an individual emissions reduction

target, entities in specified industries that annually emit at least 25 000 metric tons18 /1 /

19 /1 /20

212 Health and Safety Code section 57001 sets forth the California Environmental

ProtectionAgency’s “EPA”) fee accountabilityprogram applicable to all entities within th22 EPA.

3 Beyond these key provisions, AB 32 contains a number of aspirational statements23 . . expressing the Legislature s desire for the ARB s regulations to: avoid burdening low-24 income communities; ensure proper credit is given to those who voluntarily reducetheir

GHG emissions; take cost-effectiveness into account; avoid interference with state and25 federal clean air programs; consideroverall societal benefits; minimizeadministrative

burdens and leakage; ensure that the GHG reductions are real, permanent, verifiable, and26 enforceable; consider the significance of each source’s contribution to statewide GHG27 emissions; rely on the best scientific and economic data available; and, where feasible,

direct public investment toward disadvantaged communities. Health Saf. Code, §28 38562 38565.)

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1 of GHG are subject to the cap and trade regulation and are therefore considered to

2 be a “covered entity.”4 17 CCR, § 95802, subd. a ; 95811; 95812.

3 Under the regulations, the ARB will issue GHG “allowances,” with each

allowance representing the right to emit one ton of carbon dioxide equivalent.

5 CCR, 95802 a 8 , 41 , 5 . In order to comply with the regulation, an

6 emission source that is subject to the regulation must possess, and then surrender

back to the ARB, one allowance for each ton of carbon dioxide emissions it produces

8 within a given compliance period.5 17 CCR, 95856. Under the ARB’s cap and

trade program, GHG allowances are tradable. 17 CCR, § 95802, subd. a 8 ;

10 95820, subd. c); 95921. Thus, a covered entity may increase its individual

GHG emissions by acquiring additional allowances from other covered entities

12 without increasing overall statewide GHG emissions since the total number of

13 allowances in circulation is capped at a specified level. This “cap” on the overall

14 number of allowances in circulation, along with the ability to “trade” allowances

15 among covered entities, are the central features of a “cap and trade” program.

16 To this point, the ARB’s regulatory program adopted pursuant to AB 32 is

fairly run-of-the-mill. The story gets interesting only when the issue of allocating18 GHG allowances is introduced into the mix. For the most part, at least at the outset

19 covered entities will receive GHG emissions allowances from the ARB free of

20 charge. The number of allowances freely allocated to a particular covered entity

21 will be based on a series of scientific and mathematical formulas set forth in the

22 regulations. 17 CCR, 95890-95892 .

23 III

24

25 4 Covered industries include, but are not limited to, cement production,cogeneration, glass production, hydrogen production, iron and steel production, lime

26 manufacturing nitric acid production, petroleum and natural gas systems, petroleum27

refining, electricitygenerating facilities, pulp and paper manufacturing, andotherconsumers and suppliers of electricity, natural gas, and petroleum. 17 CCR, 95811.

28 5 Under the ARB’s regulations, there are three compliance periods:2013-14, 2015-17, and 2018-20. 17 CCR, 95840.

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i However, the ARB has also decided to allocate to itself a portion of the GHG

2 allowances and then sell those allowances to the highest bidders via auction or

3 through reserve sales. 17 CCR, § 95870, 95910-95914. The revenue generated

from these sales will be deposited into the Air Pollution Control Fund and will be

available for appropriation by the Legislature. In the first sale, set to be conducted

6 via auction on November 14, 2012, the ARB will initially allocate to itself and sell of

7 10 percent of the total allowances available for use by covered entities in years 2015-

8 2020.7 17 CCR, § 95870, subd. b) 95910, subd. b) 2) A).) The nonpartisan

g Legislative Analyst’s Office “LAO”) estimates that this initial sale of allowances wil

10 generate between 660 million to 3 billion for the state.

11 The ARB’s plan to allocate to itself and sell off GHG allowances at market

12 rates does not stop there. Over the course of the entire program, between 2012

13 and 2 0 2 0 , the ARB will allocate to itself and sell off approximately hJf of all the

14 GHG allowances that will ever be put into circulation as part of the cap and trade

15 program. 17 CCR, 95870 95910. Cumulatively, the LAO estimates the ARB’s

16 self-allocation and sale of GHG allowances as part of its cap and trade program will

produce between a low of 1 2 billion and high of 7o+ billion for the state.18 /1 /

19 III

20

216 Subsequent to the adoption of adoption of the ARB’s regulations, Stats. 2012, ch .

39, 25 SB 1018) created a new “Greenhouse Gas Reduction Fund” in the State Treasury,22 and now requires “all moneys collected by the State Air Resources Board from the auction

or sale of allowances” to be deposited into that fund for appropriation by the Legislature.23 Gov. Code , 16428.8, subd. a) b).)24 7 The ARB’s proposal to allocate to itself and then auction off GHG allowances is no

to be confused with the “trading” aspect of the cap and trade program. The rules25 applicable to trading of GHG allowances between covered entities are set forth in

Subarticle of the regulations, Sections 95920 and 95921.26 8 Legislative Analyst’s Office, “The 2012-13 Budget: Cap-and-Trade Auction

27Revenues,” Feb i6, 2012, at p. 3. Petitioners’ Request for Judicial Notice, at Exhibit. 1. Hereinafter “Pet RJN, at Exh ”

28 9 Legislative Analyst’s Office, “Evaluating the Policy Trade-Offs in ARB’s Cap-andTrade Program,” Feb 9, 2012, at p. 13. Pet. RJN, at Exh. 2.

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1 This massive revenue generating scheme by the ARB to allocate to itself an

2 increasing portion of GHG allowances and then sell off those allowances at is the

3 only part of the AB 32 regulations challenged in this action.

4 Stated plainly, there is no authorization in law for the ARB to convert

GHG reduction statutes into one of the largest revenue generators in this state

6 by allocating to itself and selling a sizable portion of GHG allowances for profit.

AB 32 does not authorize the ARB, under the guise of “regulation,” to raise tens of

8 billions of dollars in new state money In deciding to allocate to itself and sell off

GHG allowances, the ARB acted in excess of the authority granted to it by AB 32 .

10 Petitioners respectfully request this Court to invalidate this extra-legal

administrative action taken by the ARB.

12 III. STANDARD OF REVIEW.

A. Statutory Interpretation.

14 This case involves purely a matter of law: whether AB 32 granted to the ARB

15 an unelected body,’° the authority to impose tens of billions of dollars in new state

16 fees/taxes from the sale of GHG allowances. Statutory interpretation is a question

17 of law which Courts decide de novo. Regents of Univ. of Calzf. v. EastBayMun.18 Utility Dist. 2005 13 0 Cal.App.4th 1361, 1372 “Regents” ; Calif Teachers Assoc.

19 v. San Diego Community Coil. Dist. 1981 28 Cal 3d 692, 699; Environmental

20 Defense Project ofSierra County v. County of Sierra 2008 158 Cal.App.4th 877,

21 889.

22 In undertaking de novo review of a statute, the Court’s primary objective is

23 to determine and give effect to the underlying legislative intent. Regents, supra,

24 130 Cal.App.4th at p. 1372; Code Civ. Proc § 1859. The first step in determining

25 legislative intent is to scrutinize the actual words of the statute, giving them a plain

26 and commonsense meaning. Regents, supra, at 1372. Courts must give meaning

27

8 10 Under Health Saf. Code section 39510, subdivision b , the members of theARB are appointed by the Governor.

9

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i to every word and phrase in the statute to accomplish a result consistent with the

2 legislativepurpose. If the words of the statute are reasonably free ofambiguity an

3 uncertainty, the inquiry ends and the Court looks no further than those words to

4 determine the meaning of the language. Id., at 1372-73.

5 Further, a statute must be construed, wherever reasonably possible, so as to

6 preserve its constitutionality or to avoid serious constitutional doubt. Dyna-Med,

Inc. v. Fair Emp. Housing Corn. 1987 43 Cal.3d 1379, 1387. Thus, if a statute

8 is reasonably susceptible of two constructions, one of which will render the statute

9 constitutional and the other will raise serious and doubtful constitutional question

io the construction which will render the statute free from doubt as to its

11 constitutionality must be adopted, even if the other construction might also be

12 reasonable Harrott v. County of Kings 2001 25 Cal.4th 1138, 1153; Miller v.

13 Municipal Ct. of the City of Los Angeles 1943 22 Cal.2d 818, 828.

14 B. Mandate.

15 Because the ARB, and unelected body, has exceeded its authority by enactin

16 a regulation that imposes a multi-billion dollar fee/tax increase on Californians

17 despite a lack of authorization in law to do so, mandamus under Code of Civil18 Procedure section 1085 is available to enjoin the illegal act. Branczforte Heights,

19 LLC v. City of Santa Cruz 2 0 0 6 138 Cal.App.4th 914, 933-34; see also Rancho

20 Murieta Airport, Inc. v. County of Sacramento 2 0 0 6 142 Cal.App.4th 323,

21 32 6 [“A trial court may issue a writ of mandamus to a public body to compel the

22 performance of an act which the law specially enjoins. Code Civ. Proc., 1085,

23 subd. a)”] Bolding added.

24 C. Declaratory Relief.

25 “The interpretation of ordinances and statues are proper matters for

26 declaratory relief.” Action Apartment Assoc., Inc. v. City of Santa Monica 2007

27 41 Cal.4th 1232, 1250, n. 5; Redwood Coast Watersheds Alliance v. Bd. of Forestry

28

10

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i 1999 70 Cal.App.4th 962 970; Walker v. County of Los Angeles 1961) 55 Cal.2d

2 626, 637.

IV. ARGUMENT.

4 A. AB 3 2 Did Not Confer Upon The ARB The Authority To Raise 7o+ Billion In Fees/Taxes Through Self-Allocation And SaleOf GHG Emissions Allowances.

6

California courts have consistently held that administrative agencies have

8 only the authority that is conferred upon them by statute. Administrative actions i

excess of or contrary to the statutory authorization are void. “[I]t is well settled tha

10 administrative agencies have only the powers conferred upon them, either express

or by implication by Constitution or statute. An administrative agency must act

12 within the powers conferred upon it by law and may not act in excess of those

13 powers.” AFL supra, 13 Cal.4th at p. 1042; internal citations omitted.) “Actions

14 exceeding express or implied delegated powers are void.” Diageo-Guiness USA

15 Inc. v. Bd. of Equalization 2012 205 Cal.App.4th 9 01 , 9 15 .)

16 Implied administrative powers must be narrowly construed, and any

17 reasonable doubt as to the existence of the implied power is to be resolved against18 the agency. Addison, supra, 69 Cal.App.3d at p. 498 [“{T]he doctrine of implied

19 powers is not without limitations.. .For a power to be justified under the doctrine

20 it must be essential to the declared objects and purpose of the enabling act—

21 not simply convenient but indispensable. Any reasonable doubt concerning the

22 existence of the power is to be resolved against the agency.” Underscoring added.]

23 See also 76 Ops.Cal.Atty.Gen. i i , i6 1993 .

24 An administrative agency’s interpretation of a statute is merely “a weight in

25 the scale to be considered but not to be inevitably followed.” Agency

26 interpretations are “never conclusive” because administrative officers cannot make

27 a regulation that alters or enlarges the terms of the legislative enactment. County

28 of Los Angeles v. State Dept. of Public Health 1958) 158 Cal.App.2d 425, 438

11

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1 underscoring added; State Bd. of Equalization v. Bd. of Supervisors 1980 105

2 Cal.App.3d 813, 820; Terhune v. Superior Court 1998 65 Cal.App.4th 864, 872-

3 73. Moreover, the Courts “do not defer to an agency’s view when deciding whether

4 a regulation lies within the scope of the authority delegated by the Legislature. The

5 court, not the agency, has final responsibility for the interpretation of the law under

6 which the regulation was issued.” Citizens to Save Calif v. FPPC 2006 145

7 Cal.App.4th 736, 747; Yamaha Corp. ofAmerica v. Bd. of Equalization 1998 19

8 Cal.4th 1, 11 , fn . 4.

9 1. AB 3 2 does not impose a tax, and does not authorize the10

imposition of any fee except one to cover ordinaryadministrative costs.

11

Through its regulations, the ARB asserts that AB 32 provides the ARB with13 the ability to raise tens of billions of dollars in new fees/taxes because AB 3214 authorizes the ARB to allocate to itself and sell off GHG allowances. Not so.15 There are two primary ways for the Legislature to raise revenues of this16 magnitude for the state: the Legislature can enact a bill that imposes a tax, or the

17 Legislature can enact a bill that imposes a fee h

18 Bills that impose or increase taxes must be adopted by a two-thirds vote in19 each house of the Legislature. Cal. Const., art. XIII A, § 3. AB 32 did not receive

20 a two-thirds vote in either house of the Legislature so, as a matter of constitutional21 law, it could not have imposed a valid tax.’22 Thus, the only remaining way that the ARB could be authorized under AB 32

23 to allocate to itself and sell off GHG allowances would be if AB 32 authorized the24 ARB to impose a fee of that type. The only fee expressly authorized by AB 32is

2511 The ARB has stipulated that the sale of GHG allowances is not the sale of

26 property. 17 CCR, § 9 5 8 2 0 , subd. c states that a GHG allowance issued by the ARB “doe27

not constitute property or a property right.”12 AB 32 received 23 affirmative votesversus negative votes in the state Senate;

28 and received 47 affirmative votes versus32 negative votes in the state Assembly. SeeAssembly Bill No. 32 , Complete Bill History. Pet. RJN, at Exh. 3.

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1 the one found in Health and Safety Code section 38597, which is strictly limited to

2 covering ordinary administrative costs There is no discussion of any other fee-

3 raising authority anywhere else in the statute. Indeed, the ARB candidly admits

that the language of “AB 32 does not direct ARB” to allocate to itself allowances and

sell them at auction or through reserve sales.’3

6 2 . AB 3 2 does not authorize an unelected board to impose7 up to 7 0 billion in new fees/taxes.

8 For the reasons set forth below, there is no legitimate way to read AB 32 as

providing the ARB authority to impose a fee/tax that will total between 1 2 billion10

and 70 billion.11 a. In adoptingAB 3 2 , the intent of the Legislature12 was to reduce GHG emissions, not to permit an

unelected board to raise up to 7o+ billion in new13 fees/taxes.14 Findings and declarations or other statements of intent included in statutes15 by the Legislature can assist the Courts in determining the scope and meaning of16 statutes. Palos Verdes Faculty Assoc. v. Pubs Verdes UnWed Sch. Dist 1978)17 21 Cal 3d 650, 658.) The Legislature inserted substantial findings and declarations18 in AB 32. Health Saf. Code, § 38501.) They focus exclusively on the potential19 harms posed by GHG and the need to reduce those potential adverse effects.20 Nothing in AB 32’s findings and declarations mentions any intent to authorize21 the ARB to raise 7 0+ billion state fees/taxes by allocating to itself and selling off22 GHG allowances.23 The findings and declarations state that global warming poses a threat to24 California’s environment, economy, and public health, including air quality, water20 supply, snow pack and sea levels Health Saf. Code, § 38501, subd. a)); global26

7 ‘ Air Resources Board’s October 2011 Final Statement of Reasons for Rulemaking,California’s Cap-and-Trade Program, at p. 732. Pet. RJN, at Exh. 4. “AB 32 does not

28 direct ARB to use any particular methodto distribute allowances”).

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i warming will adversely impact California’s agriculture wine, tourism skiing,

2 forestry, and fishing industries Health Saf. Code, 38501 subd. b)); California

3 has long been an international leader on energy conservation and environmental

4 stewardship and the program established by AB 32 will continue this tradition

Health Saf. Code, 38501 subd. c)); action taken by California to reduce GHG

6 emissions will encourage other governments to ac t to similarly reduce GHG Health

Saf. Code, 38501 subd. d)); by exercising a global leadership role, California w

8 also position its economy and industries to benefit from national and international

efforts to reduce GHG emissions Health Saf. Code, 38501 subd. e)); the ARB

io should coordinate with other state agencies and stakeholders in implementing

AB 32 Health Saf. Code, 38501 subd. f)); electricity and natural gas providers

12 regulated by the Public Utilities Commission should not be required to meet

13 duplicative or inconsistent regulatory requirements Health Saf. Code, 38501

subd. g)); the ARB should design GHG emission reduction measures in a manner

15 that minimizes costs and maximizes benefits to California’s economy Health Sa

16 Code, 38501 subd. h)); and the Governor’s Climate Action Team should continue

17 its role in coordinating overall climate policy Health Saf. Code, 38501 subd. i)18 As can be seen, the Legislature’s findings and declarations accompanying

19 AB 32 focus solelyand exclusively on the dangers posed by GHG emissions and

20 the need to reduce those emissions. GHG reduction was the Legislature’s sole aim.

21 There is nothing indicating the Legislature intended to authorize the ARB to

22 construct a massive fee/tax program. If that was the intent one would expect to

23 see language in AB 32’s findings and declarations so indicating but there is none.

24

25 /1 /26

28

14

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1b. AB 3 2 ’s legislative history makes no mention of

any intent to grant an unelected board authority2 to impose billions of dollars in new fees/taxes;

indeed, it contains statements that contradict

theARB’s

position.4

In addition to findings and declarations, “[s]tatements in legislative

6 committee reports concerning the statutory objects and purposes which are

in accord with a reasonable interpretation of the statute are legitimate aids in

8 determining legislative intent.” So. Calif. Gas Co. v. Public Util. Corn. 1979 24

Cal.3d 653 659; National R.V., Inc. v. Forernan 1995 34 Cal.App.4th 1072, 1083.

io “It will be presumed that the Legislature adopted the proposed legislation with

ii the intent and meaning expressed in committee reports.” Curtis v. County of

12 Los Angeles 1985 172 Cal.App.3d 1243, 1250.

13 Seven separate legislative reports and analyses were prepared on AB 32.14

14 Not a single one of them contains any discussion whatsoever regarding any new tax

15 or fee-raising authority of the type the AR B alleges it possesses. The only revenue

16 powers that are discussed at all in any of the legislative committee reports are found

17 in the Senate Committee on Rules’ Third Reading Analysis, which states AB 32

18 “[a]uthorizes ARB to impose administrative, civil, and/or criminal penalties

19 consistent with its authority under air quality statutes for violations of any rule,

20 regulation, or order adopted by ARB pursuant to the bill’s provisions;” and AB 3 2

21

2214 i Assem. Corn. on Nat. Res., analysis of Assem. Bill No. 32 2005-06 Reg. Sess

23 as introduced Dec. 6, 2004; 2 Assem. Corn. on Appropriations,analysis ofAssern. Bill24 No. 32 2005 -06 Reg. Sess. as amended Mar. 31, 2005; Assem. Floor Analysis,

analysis of Assern. Bill No. 32 2005 -06 Reg. Sess. as amended Mar. 31, 2005; 4 Sen.25 Corn. on Environmental Quality, analysis of Assem. Bill No. 32 2005-06 Reg. Sess. as

amended Jun. 22 , 2006; Sen. Corn. on Appropriations, analysis of Assem. Bill No. 3226 2005 -06 Reg. Sess. as amended Aug. 7, 2006; 6 Sen. Corn, on Rules, Ofc. of Floor27

Analyses, 3d reading analysis of Assem. Bill No. 32 2005-06 Reg. Sess. as amended Aug30 , 2006; and ‘ Assembly Floor Analysis, Concurrence in SenateAmendments to Assem

28 Bill No. 32 2005 -06 Reg. Sess. as amended Aug. 30 , 2 0 0 6 . Pet. RJN, at Exh. 5 throughExh. ii .

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1 “[a]uthorizes ARB to adopt a schedule of fees to pay for the costs of implementing

2 the program established pursuant to the bill’s provisions.”5

3 Even the ARB’s own Enrolled Bill Report to the Governor on AB 3 2 is directly

at odds with the position it now takes. Page 3 of the ARB’s Enrolled Bill Report

5 contains a section entitled “Fee Authority.”1 In that section, the ARB explains:

6 AB 32 grants ARB the authority to adopt a schedule of fees to be paid byregulated GHG emission sources for program administration. Republicansfeel that the fee authority language provides ARB with carte blanche

8 authority to collect fees on anything including imposing a tax on sport utilityvehicles. To clear confusion Speaker Nunez added a letter to the file to

9 clarify that the fee is limited to ARB’s direct implementation costs only. 17

10

Thus, in its own Enrolled Bill Report, the ARB acknowledged that fears were11 raised regarding whether AB 32 gave the ARB “carte blanche” fee or tax raising

12 authority. The ARB dismissed those fears by directly stating that its fee and tax

13 raising authority is limited to “direct implementation costs only.” There is no other

14 mention by the ARB in its Enrolled Bill Report, prepared contemporaneously with

15 AB 32’s passage, of any other tax or fee-raising powers being granted by AB 32.

16 Surely, if AB 32 intended to authorize the ARB to do so, there would have

17 been extensive debate and opposition by members of the Legislature who have18 consistently opposed revenue-raising legislation. Yet, the legislative history says

19 absolutely nothing that even remotely suggests AB 32 intended to give the ARB suc

20 a green light to raise tens of billions of dollars from taxpayers. Thus, it would be

21

22 Sen. Corn. on Rules , Ofc. of Floor Analyses, 3d reading analysis of Assem. Bill No

23 32 20 05 -06 Reg. Sess. as amended Aug. 30 2006 at pp . 4, ¶4 and 4-5, ¶9. Pet. RJN, a24 Exh.io.

i6 Air Res. Bd., Enrolled Bill Report for Assem. Bill No. 32 2005-06 Reg. Sess. as25 amended Aug. 30 2006 at pg. 3. Pet. RJN, at Exh. 12.

17 In the letter referred to in ARB’s Enrolled Bill Report , SpeakerNunez—the author26 of AB 32—stated that “It is my intent that any funds provided by Health and Safety Code27

Section 38597 are to be used solely for the direct costs incurred in administering thisdivision. This intent is further demonstrated by the fact that Section 38597 is contained

28 within Part 7 of the bill which related to ARB’s administrative functions ” Hon. FabianNunez, Letter to Assembly Journal, Aug. 31, 2 0 0 6 . Pet. RJN, at Exh. 13.

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i absurd to read into AB 32 a grant of authority for the ARB to utilize a revenue-

2 raising device of such magnitude.

3 The total silence in AB 32’s legislative history regarding any large scale grant

of fee or tax raising authority to the ARB—andthe contradictory concession made

by the ARB itself—isfurther evidence supporting the conclusion that AB 32 did not

6 grant the ARB any authority to impose fees/taxes beyond that necessary to cover

ordinary administrative expenses.

8 In answering whether Proposition 218 1996) applied to local annexations,

the Court of Appeal Fourth Appellate District, recently explained, “there is much

10 in the very structure of Proposition 218 that, if it had been intended to apply to

11 annexations, should have been there, but isn’t. Just as the silence ofa dog trained

12 to bark at intruders suggests the absence of intruders, this silence speaksloudly.”

13 Citizens Assoc. of Sunset Beach v. Orange Co. LAFCO 2012 20 9 Cal.App.4th

14 1182, 1191. The same is true here with respect to AB 32. If AB 32 intended to

15 bestow upon the ARB the authority to impose tens of billions of dollars in new fees

16 or taxes, there is very much that would be in both AB 32’s operative language and

17 its legislative history, but it is not there. Akin to the Sunset Beach case, this silenc18 speaks loudly.

19 c. That the language of AB does not explicitlyforbid the ARB from raising up to 70-I- billion in

20 new fees/taxes by allocating to itself and selling21

GHG allowances does mean the ARE possessessuch authority.

22

As already explained herein, administrative agencies have only the powers

24 conferred upon them by statute. AFL, supra, 13 Cal 4th at p. 1042. Th e fact that

25 a statute does not expressly forbid an administrative agency from taking a particular

26 action does not constitute conferral of the power to take the action. Contrary to

27 these settled principles, the ARB has attempted to take the latter view; i.e., that it

28 has all powers except those expressly denied to it by AB 32.

17

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1 In response to comments it received during its rulemaking process that

2 questioned the ARB’s authority to allocate to itself and sell o ff GHG allowances

3 the ARB claimed that AB 3 2 authorizes it to use a system of “market-based

4 declining annual aggregate emission limits” i.e. cap and trade , and thus GHG

5 allowances must somehow be allocated to covered entities. On that particular

6 point, the ARB pointed to Health and Safety Code section 38562, subdivision b i ,

noted supra, which states the ARB is authorized to design regulations “including

8 the distribution of emissions allowances where appropriate” in a manner that is

equitable, seeks to minimize costs and the like. The ARB went on to say that GHG

‘a allowances could be distributed freely or sold at market rates, or a combination of

ii the two under cap and trade, and that “AB 3 2 does not direct ARB to use any

12 particular method” and “does not specify” that some methods of allocation are

13 allowed and others are n o t The ARB further stated that selling allowances is a

14 recognized approach, and that, in authorizing the ARB to distribute allowances “t

15 Legislature did not intend to forbid ARB from choosing” this method.19 Completing

16 the legerdemain from a lack of an express prohibition into an explicit authorization,

17 the ARB said it believes that AB 3 2 provides ARB with the authority to include18 u tions s a feature of a cap and trade program.

9 The ARB’s argument regarding its authority to allocate GHG allowances to

20 itself and then to sell them for profit, turns the doctrine of administrative

21 authorization on its head. The RB argues that AB 3 2 provides it with authority to

22 allocate to itself and then sell off GHG allowances because “AB 32 does not direct

23 ARB to use any particular method” to allocate allowances and “does specify”

24 that some methods are allowed and others are not, and that “the Legislature did

25 intend to forbid ARB from choosing” to allocate to itself and sell off GHG

26

i8 ir Resources Board’s October 2011 Final Statement of Reasons for Rulemaking

California’s Cap-and-Trade Program atpp. 732 and 2189 90 Pet. RJN at Exh. 4.28 19 Ibid.

20 Ibid.i8

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1 adopt “a schedule of to be paid by the sources of greenhouse gas emissions” fo

2 the purposes of carrying out AB 32 . Underscoring added. Thus, in Section 3859

3 the Legislature unmistakably demonstrated that, when it wants to empower the

ARB to impose a fee, it knows exactly how to do so. To conclude that some other

5 fee-raising authority is hidden in AB 32 would be contrary to the presumption that

6 the inclusion of the administrative fee in Section 38597 indicates the exclusion of

other fees or taxes.

8 On a related point, reading into the ARB’s authority to engage in cap and

trade the power to allocate to itself and sell off GHG allowances would render

10 Health and Safety Code section 38597 as surplusage, which Courts will avoid

wherever possible. In re Luke W. 2001 88 Cal.App.4th 650, 656 [“In construing

12 a statute, every word thereof is, if possible, to be given meaning so as to avoid

13 surplusage.”] If the authority to utilize market-based mechanisms provided in

14 Health and Safety Code section 38562, subdivision c , or the authority to

15 “distribute” emissions allowances in Health and Safety Code section 38562,

16 subdivision b i , actually grant the ARB authority to raise tens of billions of

17 dollars in fees/taxes through the sale of GHG allowances then the authorization in18 Section 38597 to raise a pittance in comparison would be meaningless.

19 Third, when engaging in statutory construction, California courts compare

20 and contrast California statutes with those from other states and jurisdictions. Se

21 e.g., In re Jesusa V 2 0 0 4 32 Cal.4th 588, 613 [interpreting California’s version

22 of the Uniform Parentage Act by comparison to New Jersey’s version of the same];

23 and People v. Leong Fook 1928 206 Cal. 64, 72 [comparing actions of California’s

24 Legislature to legislative actions taken in other states]. Here, it is evident on the

25 face of AB 32 that the Legislature was cognizant of GHG reduction programs in

26 other jurisdictions 21 Nonetheless, the language used by the Legislature with

2721 See, e.g., Health Saf. Code, § 38501, subd. d [declaring that national and

28 internationalactions are necessaryto fully address global warming, and that California’sGHG reduction efforts will encourage other states and countries to act]; and Health

20

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1 respect to GHG allowance allocation is significantly different from that used in

2 other well-known cap and trade programs that predate AB 32 .

3 At least two well-known cap and trade programs preceded the adoption of

AB 32 : the federal 1990 Clean Air Act; and the European Union’s “EU” Emissions

Trading Scheme “ETS” . The Clean Air Act contains an explicit authorization for

6 the administrative agency to auction off emissions credits. 42 U.S.C., § 76510,22

7 subdivision d) 2) states that the U.S. EPA administrator “shall conduct auctions a

8 which the allowances referred to in paragraph i) shall be offered for sale.. .The

auction shall be open to any person. A person wishing to bid for such allowances

10 shall submit.. .to the [U.S. EPA] Administrator.. offers to purchase specified

numbers of allowances at specified prices.” In addition to explicitly authorizing an

12 auction, the Clean Air Act also expressly specifies how the proceeds from the

13 auctions are supposed to be allocated. 42 U.S.C., § 76510, subdivision d) 3) states

14 that auction proceeds are to be transferred back to entities from whom the

15 allowances sold at auction were originally withheld, and no funds from the auction

16 shall be “treated for any purpose as revenue to the United States or the [U.S. EPA]

17 Administrator.”18 Likewise, Article 10 of EU Directive 2 0 0 3 / 8 7 establishing a scheme for

19 greenhouse gas emission allowance trading states that “Member States shall

20 allocate at least 95 of the allowances free of charge” in the first three-year period,

21 and “shall allocate at least 90 of the allowances free of charge” in the succeeding

22 five-year period of the program. 23

23 III

24

Code, § 38564 [instructing ARB to consult with other states, the federal government, andother nations to identify effective GHG emission reduction strategies].

26 22 The “o” in 76510 is a letter and not a number. Pet. RJN, at Exh. 14.27

23 European Parliament and Council of Europe, Oct. 13, 2003 Directive2008/87/EC establishing a scheme for greenhouse gas emission allowance trading within

28 the Communityand amending Council Directive 96/61/EC, Article 10. Pet. RJN, at Exh.15.

21

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i In stark contrast, AB 32 contains no similar language with respect to the sal

2 or auction of GHG allowances, or the percentage that must be freely allocated versus

3 that which may be allocated for charge. Nor does AB 32 expressly direct the uses o

4 auction proceeds as is done in the Clean Air Act. The most that the ARB can point

to is Health and Safety Code section 38562, subdivision b) i), which allows the AR

6 to “distribute” emissions credits “where appropriate” in a manner that is equitable,

7 minimizes costs maximizes benefits, and the like. However this is a far cry from

8 providing the sort of explicit language used in the Clean Air Act and EU directive

If the Legislature wanted to bestow the same fee/tax-raising authority on the ARB

10 the Legislature could have used explicit language regarding the sale of GHG

11 allowances and the use of proceeds therefrom similar to that found in other GHG

12 reduction regimes. The fact that it did not speaks volumes. See e.g. Yeager v.

13 Blue Cross of Calif. 2 0 0 9 ) 175 Cal.App.4th 1098, 1103 [“We may not make a silent

statute speak by inserting language the Legislature did not put in the legislation.”])

15 e. Construing a global warming statute as allowingan unelected board to raise up to 7o÷ billion in

16 new fees/taxes would be an absurd result that17 Courts are bound to avoid.18 There perhaps may be no better instance in which to apply the tried and true

19 maxim that a court interpreting a statute should avoid an interpretation that leads

20 to anomalous or absurd consequences. People v. McNamee 2 0 0 2 ) 96 Cal.App.4th

21 66 72 ; Horwich v. Superior Ct. 1999) 21 Cal.4th 272, 280.)

22 The attempt by an unelected board to use an environmental protection

23 statute to raise up to 7 0 billion dollars or more in fees/taxes is completely

24 unprecedented in the history of this state. Even the elected and democratically

25 accountable Legislature and Governors of California have never imposed such

26 a massive tax/fee. One has to at least give the ARB credit for thinking big: it has

27 stunningly set out to raise an amount of money that is nearly commensurate with

28 a year’s worth of State General Fund revenues. In fiscal year 2010-11, the General

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i Fund took in 93 billion.24 If the higher of LAO’s estimates proves true, the ARB

2 will generate 75 percent of that amount over the next eight years through the sale

of GHG allowances. That would represent, on an annual basis, approximately 9

4 billion—fully a third more than the Governor sought to raise in income and sales

and use taxes through Proposition 30 2012).25 In fact, at that amount, fees raised

6 through the sale of GHG allowances would most likely be the fourth single largest

state funding source, coming in only after the personal income tax billion in

8 FY 2010-11), the sales and use tax 27 billion in FY 2010-11), and the corporate

income tax 9.8 billion in FY 2O1011).26 Such a craven attack on the public’s

10 pocketbook has never before been attempted, much less permitted.

11 When one steps out of the halls of government where AB 32 was adopted

12 and where this lawsuit will be decided, and into the real world where everyday

13 Californians will ultimately have these costs passed on to them through increased

14 prices for goods and services, the notion that an unelected board could raise such

15 a breathtakingly massive sum of money on really nothing more than the argument

16 that GHG allowances “must somehow be allocated”27is far more than anomalous

17 or absurd—it is utterly preposterous. This Court should not countenance this most18 absurd reading of AB 32.

19 III20 /1/

21 /1 /

22 /1 /

23

24 BallotPamp.,Gen. Elec. Nov. 2012), Leg. Analyst analysis ofProposition30 , atp. 13. Pet. RJN, at Exh. 16.

25 25 Id., at 17.26 Id., at 13. See also State Controller’sonline report, “Sources of State Taxes.” Pet.

26 RJN, at Exh. 17.27

27 Air ResourcesBoard’s October2011 Final Statement of Reasonsfor RulemakingCalifornia’sCap-and-TradeProgram,at pp. 732 and 2189-90. Here, in responseto a

28 comment questioningARB’s authority to allocate to itselfand sell off GHG allowances,ARB responded that “allowancesmust somehowbe allocated.” Pet. RJN, at Exh. 4.

23

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B. To Find That AB 3 2 Authorized The ARB To Raise Billions InNew Fees/Taxes By Allocating To Itself And Selling Off GHG

2 Allowances To The Highest Bidder Would Render AB 32Unconstitutional Or Raise Serious Constitutional Doubt.

3

Equally problematic is the fact that finding AB 32 authorizes the ARB to raise

billions in new fees/taxes by allocating to itself and selling off GHG allowances

6 would render AB 32 unconstitutional.

As noted above under California law a major tenet of statutory

8 interpretation commands that a statute should be construed wherever possible

so as to preserve its constitutionality. Dyna-Med, supra, 43 Cal 3d at p 1387.

10 The basis of this rule is the presumption that the Legislature intended, not to violat

the Constitution, but to enact a valid statute within the scope of its constitutional

12 powers. Harrott v County of Kings supra, 25 Cal.4th at p 1153. Therefore, if a

13 statute is susceptible of two constructions, one of which will render it constitutional

14 and the other unconstitutional in whole or in part, or raise serious and doubtful

15 constitutional questions, the Courts will adopt the construction which without

16 doing violence to the reasonable meaning of the language used, will render it valid

17 in its entirety, or free from doubt as to its constitutionality, even though the other18 construction may also be reasonable. Ibid.; Miller, supra, 22 Cal 2d at p 828.

As already explained, AB 32 did not authorize the imposition of a tax given

20 that it was not enacted by a two-thirds vote, and it expressly authorized only a fee

21 covering ordinary administrative costs For the additional reason that follows

22 AB 32 cannot be interpreted to impliedly authorize the ARB’s fee/tax proposal to

23 generate 70 billion in new fee/tax money for the state.

24 The rules applicable to the Legislature’s adoption of fees at the time AB 32

25 was enacted are set forth in the Supreme Court’s decision Sinclair, supra, 15 Cal.4th

26 866. Fees that do not comply with Sinclair are unconstitutional.

27 At issue in Sinclair was the Childhood Lead Poisoning Prevention Act of 1991

28 Stats. 1991, ch 799 3 Enacted by the Legislature on a simple majority vote the

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i Act provided for evaluation, screening,and medically necessary follow up services

2 for children deemed to be potential victims of lead poisoning. The Act’s program

3 was supported entirely by fees assessed on manufacturers whose products

4 contributed to environmental lead contamination. Sinclair, supra, 15 Cal.4th at

pp . 869-70.) The total amount of fees that could be collected in any single year wa

6 capped in the statute at 16 million. Stats. 1991, ch. 799, 3; Health Saf. Code,

7 372.7, subd. f).) The portion of the fees assessed upon each manufacturer was

8 determined based on the manufacturer’s market share of products contributing

to environmental lead contamination. Those able to show that their industry did

10 not contribute to environmental lead contamination, or that their lead-containing

products did not result in quantifiably persistent lead contamination were exempt

12 from paying the fees. Sinclair, supra, at p. 872.) The “fee” was challenged on the

13 ground it was actually a tax that could be legally imposed only upon a two-thirds

vote in each house of the Legislature. Id., at 870 873.)

15 The Supreme Court held the fee was not a tax but was a regulatory fee that

16 the Legislature could impose under its police power. As described by the Supreme

17 Court, the fee was a “bona fide regulatory fee” because it required manufacturers18 whose products had exposed children to lead contamination to bear a fair share

of the cost of mitigating the adverse effects of those products. Sinclair, supra,

20 15 Cal.4th at p. 877.)

21 However, the Sinclair decision did not find the Legislature’s ability to impos

22 regulatory fees under the police power to be unlimited Quite to the contrary, the

23 Sinclair decision explained that, in order for a simple majority vote fee to qualify a

24 a regulatory fee enacted pursuant to the police power instead of an

25 unconstitutionally-imposed tax, three requirements must each be satisfied: i ther

26 must be a reasonable relationship between the amount of the fee and the social or

27 economic burdens imposed by the fee payer’s operations Sinclair, supra, 15 Cal.4

28 at pp. at 876 881); 2) the fee cannot be imposed for unrelated revenue purposes

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1 id., at 881); and 3) the remedial measures funded with the fee must have a causal

2 connection or nexus to the fee payer’s operations and their adverse effects id., at

3 878 881). The fees/taxes the ARB seeks to impose by allocating to itself and

4 selling off GHG allowances run afoul of each Sinclair requirement.

As a matter of law, the ARB’s regulations violate the first prong of Sinclair’s

6 three-part test because there is no relationship between what covered entities will

pay to the State for GHG allowances in an auction format and the costs of mitigating

8 the harms caused by the covered entities’ GHG emissions. Rather the price in an

auction format will be based on the perceived benefit to the purchaser in acquiring

10 the ability to emit additional tons of GHG, and other market f o r c e s There is no

nexus between the “harm” caused by the winning bidder and the amount that

12 bidder pays to the State for a GHG allowance.

13 This is further borne out by the fact that the ARB’s regulations do not attempt

14 to quantify the costs of mitigating the harms caused by the covered entities’

15 emissions. This is a far cry from the statute in question in Sinclair where the

16 Legislature itself determined the maximum cost of the program and capped the

17 amount of fees that could annually be raised at a commensurate amount. To the18 contrary here the ARB is simply attempting to capture as much money as it can

19 through an auction format. What a covered entity will pay in the auction is only

20 related to the benefit the purchaser perceives it is receiving; it is in no way related

21 to the harms caused by that purchaser if any. 17 CCR, 95911, subd. d . Instead

22 of having a reasonable relationship between the amount charged to a fee payer and

23 the harms caused by the fee payer the ARB’s plan has relationship between the

24 two at all. Without a reasonable relationship between the fees charged by the ARB

25 in its GHG allowance auctions and the costs of mitigating the harms of GHG

26 28 See, e.g., Gillian Ku, Deepak Maihotra,and J. Keith Murnighan, “Towards a27

Competitive ArousalModel of Decision-Making:A Study of Auction Fever in Live andInternet Auctions ” Organizational Behavior and Human Decision Processes 96 2005

28 89-103, at 91 “Rational choice suggests that bidders will stop bidding when they hittheirlimit i.e., the price at which they value the item).”) Pet. RJN, at Exh. i8 .

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1 emitted by the covered entities, the ARB’s regulations cannot comply with the

2 Sinclair test as a matter of law.

3 Even beyond the fatal flaw that there is no relationship between the prices

4 paid for GHG allowances at auction and the costs of mitigating the harms of GHG

5 emissions, the fees the ARB seeks to impose pursuant to the authority it claims wa

6 bestowed by AB 32 are deficient under the second and third prongs of Sinclair.

For example, even though the first auction has not yet been held, fee/tax proceeds

8 from the ARB’s plan to allocate to itself and sell off GHG allowances are already

being used for unrelated revenue purposes. Desperate for budgetary relief in an era

10 of continual deficits, Section 15.11, subd. a) of the 2012-13 Budget Act, Stats. 2012,

ch. 21 AB 1464 , authorizes the Director of Finance to “allocate or otherwise use a

12 amount of at least 5 0 0 0 0 0 0 0 0 from money derived from the sale o fgreenhouse

13 gas emission allowances, which are deposited to the credit of the Greenhouse Gas

14 Reduction Fund, and make commensurate reductions to General Fund expenditure

15 authority.”29 Underscoring added. Additionally, other extremely recent proposals

16 to spend fees/taxes from GHG allowance auctions on state and local government

17 buildings, or to assist industries which are not even covered by the ARB’s cap and18 trade program, such as agriculture and forestry, are completely devoid of any nexus

19 or causal connection with any possible adverse effects caused by the entities who

20 will pay fees to the ARB. Stats. 2012 ch. 807, 2; Health Saf. Code, 39710

21 subd. c 1 , 3)— ).)

22 Regulatory fees that do not comply with Sinclair’s three-part test are “taxes”

23 Cal. Const. art. XIII A, 3) that must be approved by a two-thirds vote in each

24 house of the Legislature. Sinclair supra, 15 Cal.4th at p. 873.) The “fees” that

25 the ARB seeks to extract from entities subject to the cap and trade program,

26 pursuant to the authority purportedly granted by AB 32, fail the each of the Sinclair

27 tests. Since they fail the Sinclair tests, they are nothing more than “taxes” subject to

2829 Pet. RJN, at Exh. 19.

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i the two-thirds vote threshold mandated by Cal. Const. art. XIII A 3. AB 32 was

2 not adopted by a two-thirds vote in each house of the Legislature. Thus, to find tha

AB 32 , a simple majority vote bill authorized a charge that could be imposed only

4 upon a two-thirds vote would be to find that AB 32 was enacted in contravention o

the California Constitution.

6 C. Because The Goal Of AB 3 2 Can Be Achieved Without The7

ARB Allocating To Itself And Selling Off GHG Allowances ForBillions Of Dollars, It Cannot Be Implied That AR 3 2 Granted

8 Such Power.

9 Finally an implied administrative authorization can be found only where the

10 power is essential and indispensable. Mere convenience is insufficient. Addison

11 supra, 6g Cal.App.3d at p. 498; 76 Ops.Cal.Atty.Gen. 11, 16. Further, any

12 reasonable doubt as to whether the implied power exists must be resolved against

13 the agency. Id.

14 On this score, the ARB’s position is doomed to failure because the ARB has

15 conceded that allocating to itself and selling GHG allowances is not essential to the

16 purposes of AB 3 2 specifically or even to cap and trade programs generally. During

17 the regulatory comment period, the ARB responded to a comment questioning its18 authority to sell GHG allowances. The ARB stated that in a cap and trade program,

19 allowances can be “distributed free of charge, they can be sold at a predetermined

20 price, they can be auctioned off with competitive bidding, or by another allocation

21 method developed.”3° The ARB also conceded that “Traditionally, cap and trade

22 programs have favored freely allocating allowances to the covered entities ”31

23 And both the nonpartisan Legislative Analyst’s Office and the ARB Economic

24 and Allocation Advisory Committee established by AB 3 2 independently confirmed

25 1

26 30 Air Resources Board’s October 2011 Final Statement of Reasons for Rulemaking27

California’s Cap-and-Trade Program at pp. 73 2 and 2190. Pet. RJN at Exh. 4.31 Air Resources Board’s October 2 8, 2 01 0 Proposed Regulation to Implementthe

28 California Cap-and-Trade Program Appendix J “Allowance Allocation at J Pet. RJN,at Exh. 20

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i enough votes to qualify as a tax. It does not expressly authorize the ARB to impose

2 any fees/taxes other than a minor administrative fee. And the language of AB 32

3 its legislative history and applicable canons of statutory construction lead to the

4 unquestionable conclusion that AB 32 did not authorize ARB to extract such

5 fees/taxes. Indeed the “fee” that the ARB seeks to impose runs afoul of the

6 Supreme Court’s Sinclair decision and thus would be an unconstitutional tax.

And the ARB concedes that allocating to itself and selling GHG allowances is not

8 essential to its cap and trade program. This is a compelling reason among others

that fatally undermines the ARB’s position.

10 If the Legislature wants to authorize the ARB to impose fees or taxes on

emitters of GHG it has every power to do so through new legislation. But such

12 authority must come from the elected branches of government through the

13 democratic process not slipped under the rug by an unelected board.

14 Efforts to combat climate change can continue. So can ARB’s cap and trade

15 program. The only thing that must cease is the unauthorized unnecessary and

16 illegal attempt by an unelected board to cloak a multi billion dollar tax increase in

17 an environmental regulation.18 For the foregoing reasons petitioners respectfully request that the relief

19 sought be GRANTED.

20

Dated: November 13 2 1 2 NIELSEN MERKSAMER PARRINELLOGROSS LEONI LLP

22

y _ _ _25 ames R. Parrinello26 Attorneys for Petitioners

27

Documents

California Chamber of Commerce sues ARB