Proposition 26 is likely to prompt a legal challenge to any fees or emissions rights auctions under the California Air Resources Board\u2019s proposed carbon cap-and-trade program, according to some legal scholars and attorneys. The proposition redefines as taxes--which require a two-thirds approval vote by the Legislature--a number of fees aimed at improving the environment. Increases in administrative fees under the state\u2019s climate change law, AB 32, or emissions rights auctions conducted by the state could come under the proposition, the law firm VanNess Feldman said in a legal alert issued earlier this month. University of California legal scholars are split on how the measure could affect a state carbon cap-and-trade program. University of California at Los Angeles law professor Jonathan Zasloff opined that because AB 32 was enacted in 2006--prior to a provision of the measure that would snare fees under laws passed after January 1, 2010-- it would be hard to argue it falls under the proposition\u2019s requirements. Zasloff also noted that any court would have to determine state voter intent. Because voters earlier this month disapproved Proposition 23--which would have suspended the state\u2019s climate change law--he argues that in passing Proposition 26 voters did not intend for it to cover AB 32. Another analysis by three UCLA law professors stated: \u201cTo the extent that future AB 32 fees go beyond amounts necessary to compensate the state for benefits conferred on industry alone, those fees could potentially be reclassified as taxes under the Proposition 26 regime.\u201d While the professors admit that the impact of Proposition 26 on AB 32 remains cloudy, they wrote that \u201cat a minimum\u201d they expect businesses are likely to legally challenge any AB 32 fees or credit auctions. Meanwhile, the Air Board plans to go forward in adopting a carbon cap-and-trade program next month that would include an emissions rights auction. * * * * * The Chicago Climate Exchange is set to wind up its voluntary carbon emissions trading market at the end of the year, the organization said in a little-noticed announcement late last month. Since starting in 2003, the exchange has been the trading floor for 149 million metric tons of carbon dioxide emissions credits. On average, the price for carbon has been $3.26\/metric ton. Some analysts say a price of about $30\/ton is needed to spur greenhouse gas reductions. Trading has involved about 450 major companies and organizations, including power producers with operations in California, like Dynegy, Mirant, NRG, and RRI. The exchange plans to shift from a carbon trading market into a carbon offset registry, through which producers of offsets can verify and register their emissions reduction credits for trading in other carbon markets. * * * * * Governor Arnold Schwarzenegger Nov. 16 signed a Memorandum of Understanding with the regional governors of Acre, Brazil, and Chiapas, Mexico, to stem the destruction of forests and curb climate change. \u201cProtecting the world\u2019s forests is critical in the global fight against climate change,\u201d said Schwarzenegger. The deal was announced before the close of the Governor\u2019s third annual Global Climate Summit held at the University of California, Davis, Nov. 15-16. Deforestation in and outside California is a major contributor to climate change. Forests are considered carbon sinks, with the amount of carbon stored dependent on the type of forest and geography. Under the California Air Resources Board draft carbon cap-and-trade program, eligible carbon offsets linked to projects to protect forests around the world could be used by utilities and other industrial emitters of global warming gases to comply with the carbon levels set by the state\u2019s climate protection law, AB 32. A key issue in the legitimacy of carbon offsets related to forestry protection is how to factor in the risk of loss of trees\u2019 carbon storage because of fire or insect infestations. That is particularly significant in California because the threat of wildfire is estimated to increase two-to-three fold. Buying carbon offsets entails risks like other investments potentially impacted by natural, political, and other factors. In traditional investments, the risk is partly reflected in the price of the commodity. The trading of carbon offsets should be treated \u201cjust like any other investment, and you treat it wisely,\u201d David Cleaves, U.S. Forest Service climate change advisor told Current. In voluntary carbon markets, the risk factor from fires is incorporated into the price of carbon offsets. For example, the price of California forestry carbon offsets in the voluntary market is discounted 20 percent because of the higher fire risk. Under the memorandum signed by the three governors announced this week, a working group is to develop recommendations on international forestry-related offsets. \u201cThis achievement will serve the dual purpose of increasing the cost effectiveness of California\u2019s program and protecting tropical forestland,\u201d according to the governor\u2019s press office. The working group is to convene next month at the United Nation\u2019s Climate Change meeting in Cancun, Mexico. * * * * * The governor established a subnational public-private alliance dedicated to building the global green economy. A global coalition made up of regional entities and business and non-governmental organizations--known as R20, or Regions of Climate Action--aims to help fast track clean technologies, green investment, and influence national and international policies. \u201cThe role of subnational governments is more important than ever, and California has shown that state and regional governments can institute policies that will grow the green economy, create jobs, and clean our environment,\u201d said Governor Schwarzenegger. * * * * * It\u2019s the California Energy Commission\u2019s last call for bidders to submit proposals to study the technical and economic feasibility of capturing and storing carbon dioxide emissions from gas-fired, combined-cycle power plants. CEC plans to accept proposals until December 1. It has reserved $1.4 million for the study, which it hopes to commission in January and see completed by Sept. 2011. The project is to be conducted under WESTCARB, which includes Pacific Gas & Electric and Lawrence Livermore National Laboratory. WESTCARB is a research and development program co-funded by the U.S. Department of Energy that\u2019s aimed at developing carbon capture and sequestration technology for power plants and other major sources of greenhouse gases.