Spending California's Cap-and-Trade Revenue: Understanding the Sinclair Paint Risk Spectrum

Abstract

This paper assesses legal constraints on AB 32 auction revenue allocation that derive from the statute itself or from California’s constitutional restrictions on the use of regulatory fees (embodied in Proposition 13). Based on our findings, we make recommendations about the relative risks of approaches to allocating AB 32 state auction proceeds. The aim of our paper is to inform decision making on revenue allocation; as such, we do not address broader questions about the legality of the cap-and-trade program as a whole, but focus on questions that are affected by allocation decisions.

In general, we conclude that the safest proposals, from a litigation risk perspective, are those that are primarily aimed at funding greenhouse gas reductions; those that achieve other goals explicitly endorsed by AB 32; those where these conclusions are supported by a factual record developed by the Legislature or by CARB; and those that avoid direct allocation of money for revenue purposes unrelated to AB 32.

Keywords: Sinclair Paint, California, cap-and-trade, AB 32, auction revenue, emissions trading, climate change