The California Chamber of Commerce is preparing to appeal a ruling by the Sacramento Superior Court in favor of the state’s Air Resources Board’s cap-and-trade auction.

Judge Timothy M. Frawley on Nov. 12 denied requests filed by the Chamber and the Pacific Legal Foundation to block the auctions. They had argued that the money collected via the auctions amounted to an unlawful tax, and that the ARB’s auctions were not authorized in the language of the Global Warming Solutions Act of 2006, or AB 32.

In his ruling, Judge Frawley said the money collected by the ARB ($395 million in five auctions so far) is not a tax but a regulatory fee, although he acknowledged that “it is a close question” that would ultimately have to be addressed by a higher court.

He said additional legislation enacted after AB32 was passed which specifically addresses the use of auction proceeds clearly demonstrates that legislators condoned the auctions.

“While we were certainly disappointed by the decision, we were not surprised,” the Chamber said in a statement. The Chamber had anticipated that a trial court judge would be reluctant to “scuttle an internationally renowned, multibillion-dollar program.”

The Chamber noted that, regardless of later legislation, AB32 did not authorize auctions.

“On the tax issue, Judge Frawley was much more tentative and essentially admitted he is in uncharted water,” the Chamber said. Although the judge concluded that the purpose of the fees is regulatory, they are unlike other regulatory fees because they are not intended to offset the cost of regulation.

In effect, the Chamber believes, the judge made up a new standard. Rather than requiring a reasonable relationship between fees and the costs of a regulatory program, the judge ruled, “all that is required is a reasonable relationship between the charges and the covered entities’ (collective) responsibility for the harmful effects of GHG (greenhouse gas) emissions. As the State’s largest sources of GHG emissions, the court is persuaded that a reasonable relationship exists.”

With this ruling, the Chamber believes, “the judge is making new law” which would open the door to other taxes disguised as fees. “The subtext of the opinion,” said the Chamber, “is that this issue is appropriately in the bailiwick of the court of appeal. As we suggested from the earliest days of this case, this is where the battle will truly be fought.”