California court ruling on allowance auctions boost to confidence, says IETA

07 Apr 2017 2:41 PM | Anonymous member (Administrator)

Contact: Katie Sullivan, sullivan@ieta.org  

TORONTO, 7 April - A ruling in favour of allowance auctions in California’s emissions trading system is a welcome boost to confidence as it provides market clarity, says IETA.

The state’s Court of Appeals ruled yesterday that the sale of allowances for California’s cap-and-trade system at auction do not constitute a tax, upholding an earlier court ruling that rejected the claim by the California Chamber of Commerce.

IETA had filed an Amicus supporting the State position, asserting that allowances are different than taxes in their legal nature. The Court’s ruling found a number of distinctions between emissions trading and taxation, consistent with IETA’s arguments.

“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,” the court wrote in its opinion.

“The court’s ruling will go a long to increase confidence in the market,” says IETA President and CEO Dirk Forrister. “This allows it to continue as it has been, without the specter of a rollback of auctions hanging over the program.”  

California’s cap-and-trade program began in 2012, covering large power and industrial facilities, before broadening coverage in 2015 to include fuels. Today, the program caps 85% of the state’s total emissions. In 2014, it linked with Québec’s market and it is expected to link to Ontario’s new cap-and-trade program in 2018. 

“The Court’s judgement is a significant hurdle jumped," says Katie Sullivan, Managing Director for IETA. “There is a big and welcome sigh of relief – not only among California market participants, but also across current and future North America markets.

“While there is still the possibility that petitioners will pursue a California Supreme Court ruling, in the meantime we can get back to business with a bit more confidence.”


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