Court Rules State Cap-And-Trade System Is Legal And Not A Tax

California’s signature program to fight climate change got a big win Thursday. An appellate court ruled the state cap-and-trade system is legal and not a tax. Ben Bradford reports from Sacramento.

The cap-and-trade system requires businesses to either reduce emissions or purchase credits from the state that permit them. Business groups have argued that’s essentially a tax, which can only be created with two-thirds support of lawmakers. Cap-and-trade passed by simple majority.

In a 2-1 decision, the appeals court disagreed, because—it said unlike a tax—the credits have value, can be sold, and businesses don’t have to buy them.

Plaintiffs can still appeal the decision to the state Supreme Court, and lawmakers will still need to work out a deal if they want to preserve cap-and-trade past its expiration date in 2020. But for now, it gives the program some breathing room.