February 13th, 2014 by Chris Stiles
On February 10, 2014, the California Air Resources Board released the proposed first update to the AB 32 Scoping Plan. The Scoping Plan is a key component of AB 32. It describes the strategies California will implement to reduce greenhouse gases to achieve the goal of reducing emissions to 1990 levels by 2020. The Scoping Plan was first considered by ARB in 2008 and, pursuant to AB 32, must be updated every five years.
The initial AB 32 Scoping Plan contains the main strategies used by California to reduce the greenhouse gases that cause climate change. The initial Scoping Plan has a range of GHG reduction actions which include direct regulations, alternative compliance mechanisms, monetary and non-monetary incentives, voluntary actions, market-based mechanisms such as a cap-and-trade system, and an AB 32 program implementation fee regulation to fund the program.
The proposed update highlights California’s progress toward meeting the near-term 2020 GHG emission reduction goals and builds on the initial Scoping Plan with new strategies and recommendations. It defines ARB’s climate change priorities for the next five years and sets the groundwork to reach California’s long-term climate goals, including an 80 percent reduction in GHG emissions by 2050. The new actions and strategies are intended to move the state farther along the path to a low-carbon, sustainable future.
The proposed update identifies eight key sectors for ongoing action: (1) energy; (2) transportation, fuels, land use and infrastructure; (3) agriculture; (4) water; (5) waste management; (6) natural lands (7) short-lived climate pollutants (such as methane and black carbon); and (8) green buildings. It explains that each of these sectors must play a role in supporting the statewide effort to continue reducing emissions. As steps are taken to develop a statewide target, sector targets will also be developed that reflect the opportunities for reductions that can be achieved through existing and new actions, policies, regulations and investments.
According to ARB’s press release, the proposed update incorporates the latest scientific consensus which indicates the need for accelerated emissions reductions in the coming decades to achieve climate stabilization.
The proposed update includes input from a range of key state agencies. It is also the result of extensive public and stakeholder processes designed to ensure that California’s greenhouse gas and pollution reduction efforts continue to improve public health and drive development of a more sustainable economy.
ARB is soliciting additional input before it considers the final version the update. ARB will hold a public informational presentation on the proposed update at its February 20, 2014, meeting, that will include additional opportunities for stakeholder feedback and public input. ARB plans to hold a Board hearing in late-Spring 2014 to formally consider the Final Scoping Plan Update and environmental analysis.
The proposed Scoping Plan Update is available on the ARB website at: http://www.arb.ca.gov/cc/scopingplan/2013_update/draft_proposed_first_update.pdf
December 12th, 2013 by Gwynne Hunter
On December 10, 2013, Governor Brown’s administration released a draft of its climate change adaption strategy, the “Safeguarding California Plan.” The plan addresses the state’s preparedness for the effects of extreme weather, rising sea levels, shifting snowpack, and other climate-related concerns. It outlines risk management options needed in sectors such as public health, energy, agriculture, and water.
The plan lists fires, floods, severe storms, and heat waves as some of the weather events California must be prepared to withstand, as those events will only become more frequent and dangerous as global temperatures rise. To combat these events, according to the plan, we must increase habitat resilience, strengthen the emergency response system, and improve coordination between local, state, and federal governments and private entities.
The plan focuses on sustainable strategies, such as local water sourcing, localized smart grids, and long-term mitigation funding, which will serve as the foundation for a clean energy economy in the state. The plan also calls for a reduced carbon footprint going forward.
The plan is an update to the 2009 California Climate Adaptation Strategy.
December 12th, 2013 by Gwynne Hunter
The Air Resources Board (ARB) has announced that California and the Quebec province are scheduled to link their cap-and-trade programs on January 1, 2014.
Quebec recently held its first auction for cap-and-trade allowances. ARB Chairman Mary Nichols praised the Canadian province for its hard work developing a cap-and-trade program and bringing about the successful auction. She stated that linking the regions’ programs will “show our respective nations, and the world, how states and provinces can work together to reduce greenhouse gases and fight climate change.”
A joint auction is expected later in 2014.
November 20th, 2013 by Gwynne Hunter
On November 13, 2013, the California Air Resources Board (ARB) announced that it had approved forest carbon offsets under the cap-and-trade program’s Forest Offset Protocol.
The protocol is designed to address the forest sector’s unique capacity to capture and store carbon dioxide. Whether forests function as net source of carbon dioxide emissions or as a net sink depends on their management as well as natural events. Sequestered carbon stays in the trees, plants, and soil for a long time, which slows the accumulation of greenhouse gases in the atmosphere and ocean. Thus, with sustainable management and protection, forests can play a significant role in addressing global climate change.
Under the forestry protocol, ARB provides offset credits for certain “Forest Projects.” These offsets may be used to comply with the cap-and-trade program. A Forest Project is a planned set of activities designed to increase removal of carbon dioxide from the atmosphere (“removal enhancement”) or reduce or prevent emissions of carbon dioxide (“emission reductions”) by increasing or conserving forest carbon stocks. To qualify for carbon offset credits, the projects must reduce greenhouse gas emissions or enhance greenhouse gas removal beyond any reductions or removals required by law or that would occur under business as usual. The forestry protocol provides methods for quantifying the net climate benefits of activities that sequester carbon on forest land.
Forest Projects eligible for offsets include reforestation, improved forest management, and avoided conversion. Offset projects using this protocol can be credited for up to 25 years after the project commences.
November 20th, 2013 by Jeannie Lee
On November 14, 2013, Judge Timothy Frawley of the Sacramento Superior Court rejected two industry challenges to California’s cap-and-trade program.
The Air Resources Board adopted regulations in 2011 to implement AB 32, the Global Warming Solutions Act. The 2006 Act authorized ARB to implement various mechanisms, including a market-based mechanism, such as a cap-and-trade program, to reduce the state’s GHG emissions. The cap-and-trade program is based on an initial “cap” on the total amount of GHG emissions that can be released by regulated sources. That cap is lowered over time.
Under the program, regulated entities must get a permit (referred to as an “allowance”) for every ton of GHG emissions they emit. The allowances will be distributed, under ARB’s regulations, through quarterly auctions for emissions, which will each consist of one round of sealed bidding. Allowances may subsequently be banked, or bought and sold on a new auction-based carbon market. Sale proceeds will be deposited into a special fund and available for uses designated in AB 32. The Legislative Analyst’s Office estimates that auctions will raise as much as $12 to $70 billion over the life of the program for the State.
The California Chamber of Commerce and the Morning Star Packing Company both challenged the cap-and-trade program in related lawsuits. Petitioners made two main claims: (1) the cap-and-trade provisions of ARB’s regulations are invalid because the Legislature never authorized ARB to raise billions of dollars by auctioning allowances, and thus cap-and-trade exceeds ARB’s delegated scope of authority, and (2) the charges for emissions allowances constitute illegal taxes adopted in violation of Proposition 13, which requires a two-thirds vote in the Legislature to pass a tax increase.
On the first issue, the court concluded that AB 32 specifically delegated to ARB the discretion to adopt a cap-and-trade program and to design a system of emissions reductions that meets the statutory goals. Even without the express delegation of authority, the court concluded that ARB would have had to make the inevitable choice as how to allocate the allowances. The court also pointed to post-AB 32 legislation, which reflected a legislative understanding that AB 32 permitted the sale of allowances.
As to the second issue, after acknowledging the question was a close one, the court declined to find the money collected by the auction is a tax. Instead, the court concluded the proceeds are more like regulatory fees. Ultimately, the court was persuaded by the fact that the primary purpose of the fees is regulation, not revenue generation. Furthermore, the court found that Prop. 13’s goal of providing effective tax relief was not subverted by shifting the costs of environmental protection to those who seek to impact natural resources. The sale of allowances helps to achieve AB 32’s regulatory goals by gradually increasing the cost of compliance, thereby creating a financial incentive to reduce emissions.
November 6th, 2013 by Gwynne Hunter
On November 1, 2013, the President issued an executive order intended to make the United States more prepared for the effects of climate change. The order builds on the current “foundation for coordinated action on climate change preparedness and resilience across the Federal Government” established by a 2009 executive order. The current order promotes information-sharing, risk-informed decisionmaking, adaptive learning, and preparedness planning. For example, it directs land and water management agencies to inventory and assess changes to their climate policies and regulations. The order also directs federal agencies to develop and distribute useful tools and information related to climate change preparedness. It establishes a Council on Climate Preparedness and Resilience with members from thirty different federal agencies and councils. The Council on Environmental Quality and the Office of Management and Budget must develop a portal for climate change issues and decisionmaking on data.gov.
October 29th, 2013 by Gwynne Hunter
On Monday, October 28, 2013, California Governor Jerry Brown signed a landmark climate change agreement. Governor Brown met in San Francisco with the governors of Washington and Oregon and the Premier of British Columbia to announce the partnership. Also in attendance were British Columbia’s Minister of the Environment as well as business, labor, and environmental officials from the four jurisdictions. The deal is based on the contiguous geography and shared infrastructure of the West Coast and linked economies with a combined GDP of $2.8 trillion – collectively, the world’s fifth largest economy. A meeting with the leaders of provinces on the coast of China is scheduled for January 2014, at which point those provinces may join the current group.
The three states and Canadian province formally aligned their climate policies to collectively combat climate change and promote clean energy. Oregon and Washington will bring their efforts to reduce greenhouse gas emissions from vehicles and industrial sources closer to those of California and British Columbia. Oregon will set a price for carbon, and Washington will develop a cap-and-trade market. California and British Columbia will continue their current carbon-reducing pursuits, and the four jurisdictions will harmonize their 2050 greenhouse gas reduction targets. The plan also includes integrating regional electricity grids to provide greater access to renewable sources.
The agreement did not create the regional carbon market sought by California. However, the state is planning to open an emissions market with the Quebec province in 2014. In 2007, a group of western states and Canadian provinces came together in the Western Climate Initiative to create a regional market for greenhouse gas emissions. The group dispersed in 2011, as California and Canadian provinces pursued emissions trading, and the other states branched off to non-market-based strategies.
The accord originated from the Pacific Coast Collaborative, a group that, since 2008, has organized climate change and clean energy policies.
Ninth Circuit Rules on Constitutionality of California’s Pioneering Regulatory Approach to Reducing Carbon in Fuels
September 27th, 2013 by John Wheat
In a significant victory for the California Air Resources Board, a Ninth Circuit Court of Appeals panel concluded that California’s Low Carbon Fuel Standard does not facially discriminate against out-of-state fuel producers. At issue in the case, Rocky Mountain Farmers Union v. Corey (Sept. 18, 2013, Case Nos. 12-15131, 12-15135), were regulations imposed as part of the California Global Solutions Act of 2006 (Assembly Bill 32). The Act established the nation’s first greenhouse gas regulatory program.
The Low Carbon Fuel Standard requires producers of ethanol, crude oil and other fuels to reduce the carbon intensity of transportation fuels sold or supplied to California. The regulations are based on “lifecycle” analyses that take into account not only emissions that result from combustion at the end of a fuel’s “life,” but also emissions generated during the production and transportation of such a fuel.
In 2009, Rocky Mountain Farmers Union challenged the ethanol provisions of the fuel standard. Rocky Mountain claimed the standard’s reach, which extends beyond California, exceeded the state’s authority under the dormant Commerce Clause, and that it was preempted by federal law. The American Fuel & Petrochemical Manufacturers Association challenged both the ethanol and crude oil provisions. A federal trial court held in late 2011 that the fuel standard was unconstitutional because it discriminated against out-of-state fuel producers, in violation of the dormant Commerce Clause.
In its opinion, the Ninth Circuit panel dissolved the lower court’s preliminary injunction that at one point prevented the California Air Resources Board from implementing the fuel regulations. The court held that the ethanol provisions do not “facially” discriminate against out-of-state commerce, and that the initial crude oil provisions did not discriminate against out-of-state crude oil “in purpose or practical effect.” The court also held that the regulations did not violate the dormant Commerce Clause’s prohibition on extraterritorial regulation. The Ninth Circuit did not completely dispense with the controversy, however. The court remanded the case to the lower court to determine whether the ethanol provisions discriminate in purpose or practical effect, and if not, to apply the less restrictive Pike balancing test to determine the standard’s validity under the Commerce Clause. The court also remanded on the crude oil issue, ordering a similar balancing determination.
The opinion contains an in-depth and favorable discussion of the fuel standard’s “lifecycle analysis” approach. It also approvingly describes California’s “tradition of leadership” among states in protecting the environment, particularly with regard to the regulation of greenhouse gas emissions to reduce the risk of global warming. In explaining its rationale, the court stated: “California should be encouraged to continue and to expand its efforts to find a workable solution to lower carbon emissions, or to slow their rise. If no such solution is found, California residents and people worldwide will suffer great harm. We will not at the outset block . . . this innovative, nondiscriminatory regulation to impede global warming.”
What follows is a deeper discussion of this case. It includes a summary of the genesis and technical aspects of the Low Carbon Fuel Standard for both ethanol and crude oil, the procedural background and challenges involved in the case, and the Ninth Circuit decision, which has generated significant media attention and speculation about whether the case will go to the U.S. Supreme Court.
The Ninth Circuit began its discussion of the facts by pointing to California’s long history of efforts to protect the environment, with a particular concern for vehicle emissions. The court noted that section 209(a) of the federal Clean Air Act allows California to adopt its own standards regulating vehicle emissions if they are at least as protective as federal standards. Other states may then either follow the federal or the California standards. But no other states may adopt vehicle emission standards of their own.
Following this tradition of environmental protection, California passed Assembly Bill 32, the Global Warming Solutions Act of 2006. Through AB 32, the state resolved to reduce greenhouse gas (GHG) emissions to 1990 levels by 2020. The bill directed the California Air Resources Board (CARB) to develop various regulations to achieve this goal. Through a scoping plan process required by AB 32, CARB determined that vehicle emissions constitute 40% of the state’s total GHG emissions. CARB responded to this finding by adopting a three-part approach to lowering GHG emissions in the transportation sector. The approach involved reducing emissions “at the tailpipe” by establishing progressively stricter emission limits for new vehicles and integrating regional land use and transportation planning to reduce vehicle miles traveled annually. Last, CARB aimed to lower the GHG intensity of transportation fuel by adopting the Low Carbon Fuel Standard. This would reduce the quantity of GHGs emitted in both the production and transportation of fuels.
The fuel standard applies to most transportation fuels currently used in California and any fuels developed in the future. The fuel standard was intended to establish a declining annual cap on the average carbon intensity of fuels in California beginning in 2011. To comply with the fuel standard, producers must keep the average carbon intensity of their total volume of fuel below the annual limit. Producers selling fuel with lower intensity than the annual cap receive credits. These credits may be sold to other fuel producers or banked for later years. Under this credit-trading scheme, a fuel producer may still sell fuel with higher carbon intensities than the annual limit by purchasing credits to offset the overage.
The total carbon intensity of any given fuel is determined by a “lifecycle analysis.” This analysis drove much of the controversy in the litigation. Before addressing this controversy, the court dedicated a sizable portion of its background discussion to CARB’s policy choices regarding the adoption of the fuel standard and the lifecycle analysis. The court noted that because GHG emissions mix in the atmosphere to create global impacts, emissions from the production of fuels used in California impact the state even if the fuels are produced out-of-state. The lifecycle analysis captures these emissions by including GHGs from fuel production in the fuel’s final carbon intensity score. If CARB did not adopt this inclusive lifecycle approach, GHGs emitted before fuels are imported into the state would escape California’s regulation. Additionally, climate-change benefits of biofuels, such as ethanol, would be ignored if CARB’s focus were simply on tailpipe emissions, as the benefits of these alternative fuels largely come before combustion of the fuel itself.
To measure the lifecycle emission of various fuels, CARB relied on Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model (“GREET”) produced by the Argonne National Laboratory. This model has been used by the federal Environmental Protection Agency for its own lifecycle analysis under the federal Clean Air Act and by agencies of other states. CARB set a baseline average carbon intensity in the 2010 gasoline market of 95.86 grams of carbon-dioxide equivalent per mega joule (gCO2e/MJ.) In 2011, this carbon intensity cap would drop .25% below the 2010 average. Each subsequent annual limit would be further reduced from the 2010 baseline. As a side note, the court pointed out that evidence demonstrates CARB’s program is starting to work as intended. After reviewing ethanol sales in different markets during 2011, the Oil Price Information Service reported that lower carbon intensity fuels received a price premium in California.
Regulated fuel producers comply with the fuel standard reporting requirements through one of two methods. Fuel producers may rely on “default pathways” established for a range of fuels CARB anticipates will be sold in California. Or fuel produces may register individualized pathways to be approved for use by CARB.
The ethanol issue:
Ethanol is a fuel-alcohol produced through the fermentation and distillation of various organic feedstocks. Most domestic ethanol comes from corn, while Brazilian sugarcane dominates the import market. The California GREET model for ethanol considers various factors in the production of the fuel to reach a carbon intensity value. These factors include: (1) growth and transportation of the feedstock, with a credit for GHGs absorbed during photosynthesis; (2) efficiency of production; (3) type of electricity used to power the plant; (4) fuel used for thermal energy; (5) milling process used; (6) offsetting value of an animal-feed co-product (distiller’s grains) that displace demand for feed that would generate its own emissions in production; (7) transportation of the fuel to the fuel blender in California; and (8) conversion of land to agricultural use.
By 2011, producers from California, the Midwest, and Brazil had all obtained approval from CARB to use individualized pathways to measure the carbon intensity of their fuels. The pathways ranged in carbon intensity from 56.56 gCO2e/MJ to 120.99 gCO2e/MJ. The lowest intensity was achieved by a Midwest producer. The default pathway for Brazilian sugarcane ethanol made with co-generated electricity had a slightly higher carbon intensity of 58.40 gCO2e/MJ. The highest intensity of 120.99 gCO2e/MJ was assigned to Midwestern wet-mill ethanol, using 100% coal for thermal energy. In comparison, the carbon intensity of gasoline in 2010 was 95.86 gCO2e/MJ.
The crude oil issue:
CARB’s fuel standard also regulates crude oil and derivatives sold in California. The court explained that regulation of crude oil is necessary for CARB to achieve its GHG emission reduction goals set for the state. As easily accessible sources of crude oil are exhausted, they will be replaced by newer sources that require more energy to extract and refine. This leads to a higher carbon intensity for the fuel. CARB predicted that fuels with carbon intensity values 50 to 80 percent lower than gasoline will be needed to reach AB 32’s emission reduction targets.
Provisions developed in 2011 for the CARB fuel standard distinguished between crude oil through two factors: first, whether the crude originated from an existing or emerging source, and second, whether the crude is high carbon intensity crude oil or not. Crude is classified as high intensity if more than 15.0 gCO2e/MJ of emissions in extraction, production, and transportation result.
This case involved a host of petitioners, intervenors, and amici curiae. Plaintiffs included Rocky Mountain Farmers Union et al. and American Fuel & Petrochemical Manufacturers Association et al. Numerous environmental organizations intervened on behalf of CARB. These groups included Environmental Defense Fund, Natural Resources Defense Council, and Sierra Club. A diverse group of amici curiae, including states, law professors, and other organizations also filed briefs.
The litigation began in 2009, when Rocky Mountain Farmers Union challenged the ethanol provisions of the fuel standard for violating the dormant Commerce Clause and being preempted by federal law. In 2010, American Fuels challenged both the ethanol and crude oil provisions on similar grounds. Rocky Mountain requested a preliminary injunction on its Commerce Clause and preemption claims, while American Fuels moved for summary judgment on its Commerce Clause claims. CARB filed cross-motions for summary judgment on all grounds.
The district court granted Rocky Mountain’s preliminary injunction and American Fuel’s partial motion for summary judgment. The district court determined that CARB’s fuel standard violated the Commerce Clause by engaging in extraterritorial regulation, facially discriminating against out-of-state ethanol, and discriminating against out-of-state crude oil in purpose and effect. The district court concluded that CARB’s fuel standard could not survive the strict scrutiny review courts apply to facially discriminatory regulations.
CARB achieved one small victory at the district court. The court granted partial summary judgment in favor of CARB after finding the fuel standard is “a control or prohibition respecting a characteristic or component of a fuel under section 211(c)(4)(B) of the Clean Air Act.” CARB appealed the case to the Ninth Circuit.
The Ninth Circuit’s Decision
The Commerce Clause and the Fuel Standard Ethanol Provisions
The Ninth Circuit first addressed plaintiffs’ Commerce Clause arguments regarding CARB’s regulation of ethanol. Specifically, plaintiffs argued the fuel standard’s ethanol provisions improperly discriminate against out-of-state commerce and regulate extraterritorial activity.
The court explained that under the dormant Commerce Clause, economic protectionism by states is prohibited. In other words, a state may not engage in the differential treatment of in-state and out-of-state economic interests to the benefit of the former and detriment to the latter. State statutes or regulations that discriminate on their face, in purpose or in practical effect, are unconstitutional unless they serve a “legitimate local purpose” and no alternative non-discriminatory means are available.
To determine whether a statute or regulation is actually discriminatory, courts must determine which factors make entities suitable for comparison. Entitles are “similarly situated” for the purposes of the dormant Commerce Clause test if their products compete against each other in a single market.
When analyzing the ethanol regulations to determine which fuel pathways were similarly situated, the district court excluded all factors based on origin of the fuel. The district court excluded sugar cane ethanol and all GHG emissions related to transportation, electricity used in production, and production plant efficiency when considering whether the regulations discriminated against out-of-state interests.
The Ninth Circuit rejected the district court’s approach. The Ninth Circuit pointed out that the factors the district court ignored “contribute to the actual GHG emissions from every ethanol pathway, even if the size of their contribution is correlated with their location.” In contrast, the district court’s analysis considered different fuel lifecycle pathways to be equivalent simply if they used the same feedstock and production process. But the Ninth Circuit determined that the factors the district court ignored were necessary in determining whether the fuel standard gives equal treatment to similarly situated fuels.
Under the dormant Commerce Clause, regulations are not necessarily facially discriminatory because they affect in-state and out-of-state interests unequally. Instead, the reason for different treatment must be based on something other than origin. Here, CARB did not base its different treatment of fuels on the fuel’s origin. Instead, the fuel regulations treated fuels differently based on their carbon intensity measured by a lifecycle analysis. As the court pointed out, under this analysis, Midwest ethanol attained both the highest and lowest carbon intensity values depending on various factors. Just because Brazilian ethanol earned the lowest default pathway for measuring carbon intensity did not mean the regulations were discriminatory. Instead, the various factors were necessary for realistically assessing and attempting to limit GHG emissions from ethanol production.
Further, CARB’s decision to establish default pathways based on regional categories was also not facially discriminatory. The fuel standard regulations established default pathways in each region based on the same factors. The regulations also allowed for individualized fuel intensity values in lieu of default pathway values. A fuel producer obtains an individualized value based on factual showings, regardless of region of origin. As a result, CARB’s decision to construct categories of default fuel pathways, with reference to California’s border, was not discriminatory. The default pathways provide symmetrical burdens and benefits to both in-state and out-of-state corn ethanol.
The Commerce Clause and the Fuel Standard Crude Oil Provisions
On appeal, CARB challenged the district court’s conclusion that the fuel standard’s crude oil provisions discriminated against out-of-state crude oil “in purpose and effect.” The Ninth Circuit found CARB’s arguments compelling.
Under the 2011 crude oil provisions, CARB assessed a crude oil pathway’s carbon intensity based on whether it was an emerging or existing source and whether it was a high carbon intensity source. If a crude oil was high carbon intensity and not an existing source (more than 2% of the state’s market share), it was assigned its individual carbon intensity value. All other crude oils were assigned a 2006 baseline average of 8.07 gCO2e/MJ. California crude oil recovered using thermal-enhanced oil-recovery techniques (California TEOR) was the only existing source that was also high carbon intensity to qualify for the 2006 baseline treatment of 8.07 gCO2e/MJ, even though the actual carbon intensity of California TEOR is approximately 18.89 gCO2e/MJ. CARB stated the purpose of distinguishing between existing and emerging sources and high carbon intensity versus non-high carbon intensity crudes was to prevent increases in carbon intensity and “fuel shuffling.” The district court concluded these stated purposes disguised a discriminatory purpose due to the fuel standard’s favorable treatment of California TEOR as compared to other crudes. The Ninth Circuit faulted the district court’s comparison for leaving out other sources of California crude oil.
The Ninth Circuit noted that the district court’s comparison left out significant portions of California’s 2006 crude oil market. In context of the full market, the court did not find the regulations protectionist in favor of California interests. For example, California Primary had the lowest individual carbon intensity in the market of 4.31 gCO2e/MJ, but was assigned the 2006 baseline value of 8.07 gCO2e/MJ. American Fuels argued this unfavorable treatment of California Primary was irrelevant, arguing that a state law that discriminates against out-of-state commerce is no less discriminatory simply because it burdens some interstate commerce. But the Ninth Circuit pointed out the cases American Fuels cited to involved regulations adopted by local governments which favored local interests at the expense of both in-state (but out-of-town) and out-of-state commerce . In contrast, the 2011 crude oil provisions of the fuel standard burdened and benefited in-state interests at the state level. The court could find no compelling evidence that CARB preferred California TEOR to California Primary and ultimately could find no protectionist purpose to the regulations.
The Fuel Standard and Regulation of Extraterritorial Conduct
The Ninth Circuit explained that the Commerce Clause prohibits, in addition to discrimination based on origin, any statute or regulation directly controlling commerce occurring wholly outside of the state. The district court agreed with plaintiffs that the fuel standard improperly attempted to regulate extraterritorial conduct for numerous reasons. For example, the district court believed the lifecycle analysis, including measuring GHG emissions during the transportation of fuel, improperly extended California’s police power to other states. The Ninth Circuit disagreed with this analysis.
The Ninth Circuit considered prior cases where courts found states engaged in improper regulation of extraterritorial conduct. It did not find the fuel standard’s regulation of ethanol analogous to any of these cases. The regulations had no impact on ethanol produced, sold and used outside of California. Nor did the regulations require other states to adopt reciprocal standards before allowing import of that state’s ethanol. Finally, the regulations were not intended to ensure California ethanol would remain at lower prices than in other states. The Ninth Circuit did not agree that offering financial incentives to encourage the sale of lower carbon intensity fuel within the state is categorically the same as regulating production of fuel outside of the state.
The Ninth Circuit also rejected plaintiffs’ assertion that the fuel standard would “Balkanize” the fuels market or lead to inconsistent regulations among the states. The court reasoned that the fuel standard does not place a financial barrier around the state. Similar states could adopt similar standards without impermissibly interfering with interstate trade. Instead, the purpose of the regulations was to allow California to assume legal and political responsibility for GHG emissions from fuels used within the state. Plaintiffs argued this attempt to take responsibility was indistinguishable from taking control of fuel production. The Ninth Circuit firmly disagreed, concluding that the “Commerce Clause does not protect plaintiff’s ability to make others pay for the hidden harms of their products merely because those products are shipped across state lines. The Fuel Standard has incidental effects on interstate commerce, but it does not control conduct wholly outside the state.”
The Ninth Circuit ultimately rejected CARB’s argument that the fuel standard was expressly allowed under the Commerce Clause due to California’s exemption from Clean Air Act section 211(c)(4). However, CARB did succeed in convincing the appellate panel that its crude oil provisions did not discriminate in purpose or effect and that its ethanol provisions were not facially discriminatory or an impermissible extraterritorial regulation. The panel remanded the case to the district court to determine whether the ethanol provisions discriminate in purpose or practical effect, and if not, to apply the Pike balancing test to the regulations to determine whether they are valid. Under this test, plaintiffs must show that CARB’s fuel standard imposes a burden on interstate commerce “‘clearly excessive’ in relation to its local benefits.” The court also directed the lower court to apply the Pike balancing test to the 2011 provisions for crude oil.
March 11th, 2013 by Holly Roberson
On March 1, 2013, the D.C. Circuit Court of Appeals upheld the listing of the polar bear as a threatened species under the federal Endangered Species Act.
The U.S. Fish and Wildlife Service listed the polar bear as threatened in 2008 because of shrinking sea-ice habitat. Industry groups challenged the listing determination under the Administrative Procedure Act’s “arbitrary and capricious” standard, arguing that the agency failed to establish a foreseeable extinction risk. Environmental groups challenged the listing as insufficiently protective, arguing that the polar bear should be listed as endangered.
The District Court rejected all challenges on summary judgment, finding that the claims “amount to nothing more than competing views about policy and science” and therefore the agency receives deference.
The Court of Appeals emphasized that “a court is not to substitute its judgment for that of the agency”. The Court further noted, “The Listing Rule is the product of FWS’s careful and comprehensive study and analysis. Its scientific conclusions are amply supported by data and well within the mainstream on climate science and polar bear biology.”
The opinion is a win for both federal and state agencies that routinely base administrative decisions on scientific modeling and other complex data.
November 16th, 2012 by Jeannie Lee
On November 13, 2012, the California Chamber of Commerce filed a petition seeking to block the California Air Resources Board (CARB) from auctioning carbon allowances. The complaint, filed in a Sacramento state court, asserts that CARB lacks the authority under AB 32 to raise money beyond what is needed to cover its administrative costs of implementing a state emissions regulatory program.
The Chamber argues that the California Legislature never authorized CARB to raise fees or taxes through an auction mechanism. Therefore, the program constitutes an unauthorized and unconstitutional tax according to the Chamber. The Chamber cites the California Constitution, which requires a two-thirds vote of the Legislature to raise taxes. In prepared statements regarding the suit, the Chamber states the current CARB proposal “is the most costly way to implement AB 32” and that it will “hurt consumers, the job climate, and the ability of business to expand” in California. The Chamber argues other states will decline to follow California’s AB 32 as a model if it is not designed to be the most cost effective way of reducing carbon emissions.
In the suit, the Chamber did not seek a court order blocking the first auction set for November 14, 2012, and state officials indicated the sale would proceed as scheduled. An affiliate of the Chamber indicated that the organization is trying to eliminate future auctions, which are set for regular intervals over the next eight years. Tim O’Conner, director of the Environmental Defense Fund’s California Climate and Energy Initiative noted that the Chamber’s filing of the suit on the eve of the first auction “seems quite unsavory” and could dampen California’s comprehensive program to curb greenhouse gases. The Chamber insisted the suit was not filed in relation to the specific auction scheduled for November 14, 2012.
CARB spokesperson Stanley Young indicated that the agency is confident the cap-and-trade program will withstand any court challenge. CARB believes the market-based approach to cutting greenhouse emissions gives California business flexibility to best decide now to reduce emissions.
The court must decide whether the auction should be viewed as a tax and whether AB 32 granted CARB discretion to design a mechanism, such as cap and trade, to curb the state’s greenhouse gas emissions. Considering that the Legislature passed legislation directing the State’s Department of Finance and CARB to develop a plan to invest auction proceeds and to set up an account for the deposit of auction funds, it seems the Chamber may have a difficult time convincing a court that the Legislature intended to limit CARB’s discretion in a way that would prohibit the auction of allowances for a cap-and-trade program designed under AB 32.
November 9th, 2012 by Jeannie Lee
On November 14, 2012, the California Air Resources Board will conduct its first quarterly auction for greenhouse gas allowances under the cap-and-trade program, which is identified in the Assembly Bill 32 Scoping Plan as one of the strategies California will employ to reduce the greenhouse gas emissions that cause climate change.
In 2006, the Legislature passed and Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which requires California to reduce greenhouse gas emissions to 1990 levels by 2020. In complying with AB 32, CARB prepared a Scoping Plan identifying a cap-and-trade program as one of the strategies California will use to reduce the GHG emissions that cause climate change. The cap-and-trade program places a limit on the GHG emissions allowed from pollution producers like refineries and cement manufacturers, and directs all entities subject to the cap (covered entities) to surrender “compliance instruments” equivalent to their GHG emissions to CARB. Compliance instruments include both allowances, which are allocated by CARB or obtained from auctions or secondary markets, and offset credits, which represent GHG emissions reductions achieved in sectors that are not subject to the cap.
This year, the cap-and-trade program covers about 350 industrial businesses operating a total of 600 facilities throughout the state. They include cement plants, steel mills, food processors, electric utilities, and refineries. Starting in 2015, the program will also cover distributors of natural gas and other fuels. For the first two years of the cap-and-trade program, covered entities will receive 90 percent of their allowances for free, with the free amount and the cap declining over time. Covered entities must either cut their GHG production to that level or buy credits to make up the difference. Companies that have more credits than they need can sell them at the auction, and CARB will sell additional credits as well. The proceeds from CARB’s sale of allowances sold at auction will be deposited in CARB’s Air Pollution Control Fund, awaiting appropriation by the Legislature.
The November 14, 2012, auction is the first, major step for CARB in implementing the cap-and-trade program. Though there remains strong opposition to the program from those businesses required to participate in it, CARB’s completion of this first auction signifies its commitment and readiness to enforce compliance with the cap-and-trade program when it comes online in January 2013.
June 29th, 2012 by Amanda Berlin
On June 26, 2012, in Coalition for Responsible Regulation, Inc., et al., v. Environmental Protection Agency, No. 09-1322 (D.C. Cir. June 26, 2012), the D.C. Circuit Court of Appeals upheld the Environmental Protection Agency’s Endangerment Finding and Tailpipe Rule regarding greenhouse gases. The court also upheld the agency’s interpretation of the Clean Air Act (CAA) requiring major stationary sources of greenhouses gases to obtain construction and operating permits. Opponents of these rules disputed the Endangerment Findings and EPA’s authority to regulate GHG emissions under the CAA based upon the finding.
Background and Procedure
The EPA promulgated the disputed rules following the Supreme Court’s holding in Massachusetts v. EPA that GHGs may be regulated as an air pollutant under the CAA. In response to this holding, the EPA first issued its Endangerment Finding for GHGs. The Finding was based “on a considerable body of scientific evidence,” and EPA concluded that emissions of specified GHGs “contribute to the total greenhouse gas air pollution, and thus to the climate change problem, which is reasonably anticipated to endanger public health and welfare.” Based on this finding, the EPA was required under the CAA to establish motor-vehicle emission standards for GHGs. The ensuing Tailpipe Rule set GHG emission standards for cars and light trucks as part of a joint rule-making with fuel economy standards issued by the National Highway Traffic Safety Administration.
Due to EPA’s standing interpretation of the CAA, the Tailpipe Rule automatically triggered regulation of stationary GHG emitters under the Prevention of Significant Deterioration of Air Quality (PSD) program and Title V. The PSD program requires state-issued construction permits for stationary sources producing either 100 tons per year (tpy) or 250 tpy of any air pollutant. Title V requires state-issued operating permits for stationary sources that have the potential to emit at least 100 tpy of any air pollutant. EPA then issued two rules phasing in stationary source GHG regulation. First, in the Timing Rule, EPA concluded that an air pollutant becomes subject to regulation under the CAA (and therefore to PSD and Title V) only once a regulation requiring control of that pollutant takes effect. Therefore, EPA determined major stationary emitters of GHGs would be subject to PSD and Title V permitting requirements on the date the Tailpipe Rule became effective—or the date when GHGs first became regulated under the CAA. Following the Timing Rule, EPA promulgated the Tailoring Rule, providing that only the largest sources of GHG emissions, those exceeding 75,000 or 100,000 tpy CO2e, would initially be subject to the GHG permitting. This rule was adopted after the EPA determined requiring permitting for all sources would be overwhelmingly burdensome for both permitting authorities and stationary sources.
A number of states and regulated industries filed petitions for review of these new GHG regulations, arguing the EPA misinterpreted the CAA or otherwise acted arbitrarily and capriciously.
Challenges to the Endangerment Finding.
Petitioners challenged EPA’s Endangerment Finding on numerous substantive and procedural grounds. All challenges were rejected by the court.
- EPA’s interpretation of CAA section 202(a)(1).
Petitioners argued that the EPA improperly interpreted CAA § 202(a)(1) as restricting the finding to a science-based judgment without considerations of policy concerns and regulatory consequences. Petitioners believed the EPA was required to consider the benefits of activities emitting GHGs, the effectiveness of emissions regulation, and the potential for societal adaptation to or mitigation of climate change. Petitioners argued that, by not considering these factors, EPA acted arbitrarily and capriciously.
The Court determined the plain language of CAA § 202(a)(1) was contrary to these arguments. The language of the section requires only that the endangerment evaluation relate to whether an air pollutant causes or contributes to air pollution which may reasonably be anticipated to endanger the public health or welfare. The court held that the evaluation process required “scientific judgment”—not policy discussions—about the potential risks of GHGs. The court also held that CAA § 202(a)(1) does not allow the EPA to consider, as part of the endangerment inquiry, the implications or impacts of regulations that might result from a positive endangerment finding.
- The Scientific Record
Petitioners also challenged the adequacy of the scientific record underlying the endangerment findings. Petitioners initially challenged the EPA’s reliance on publications issued by the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Climate Research Program, and the National Research Council. The court summarily rejected this argument, noting the scientific literature was peer-reviewed and consisted of thousands of individual studies on GHGs and climate change. The court also rejected, as “little more than a semantic trick,” that EPA delegated its authority by relying on these studies. The EPA relied on the reports not as substitutes for its own judgment but as evidence upon which it relied to make its ultimate judgment. The court noted that EPA is not required to re-prove “the existence of the atom every time it approaches a scientific question.”
Finally, in their challenge to the adequacy of the scientific record, Petitioners argued EPA erred in reaching the Endangerment Finding due to scientific uncertainty surrounding climate change. The court responded by noting the “substantial” body of scientific evidence supporting the Endangerment Finding. The court held the existence of some uncertainty does not, without more, warrant invalidation of an endangerment finding. The statute itself is designed to be precautionary in nature and to protect the public health. Further, the Supreme Court itself ruled in Massachusetts v. EPA that the agency may make an endangerment finding despite lingering uncertainty. The court held that the EPA’s decision was supported by substantial evidence and that the agency had relied on the scientific record “in a rational manner.” The court noted that it was not its role to reweigh the evidence before it and reach its own conclusion.
- Lack of a quantitative threshold
Petitioners contended that the Endangerment Finding was arbitrary and capricious because the EPA did not define, measure or quantify either the atmospheric concentration at which GHGs endanger the public health or welfare, the rate or type of climate change anticipated to endanger the public welfare, or the risk or impacts of climate change. The court, again relying on the plain language of CAA § 202(a)(1), held that EPA is not required to establish a precise numerical value as part of its endangerment findings. Instead, section 202(a)(1) allows for a qualitative approach that allows the EPA to make case-by-case determinations based on the potential severity of harm in relation to the probability that the harm will occur.
- EPA’s definition of “air pollutant”
EPA defined the GHG “air pollution” and “air pollutant” subject to the Endangerment Finding as an aggregate of six GHGs, which the EPA called “well mixed greenhouse gases”: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). Industry Petitioners argued EPA’s decision to include PFCs and SF6 was arbitrary and capricious because motor vehicles do not emit these pollutants. The court responded that no petitioner established standing to make this argument, as no petitioner could demonstrate an injury-in-fact resulting from EPA’s decision to include PFCs and SF6 in the Endangerment Finding.
- Failure to submit Endangerment Finding for review by Science Advisory Board
Petitioners claimed that the EPA’s failure to submit the Endangerment Finding to the Science Advisory Board (SAB) violates its mandate to “make available” to the SAB “any proposed criteria document, standard, limitation, or regulation under the Clean Air Act” at the time it provides the same “to any other Federal agency for formal review and comment.” The court noted that it wasn’t clear this obligation was even triggered because it wasn’t clear that the EPA provided the Endangerment Finding to any Federal agency for formal review and comment—it had only been submitted to the Office of Information and Regulatory Affairs pursuant to Executive Order 12,866 for informal review. The court found that even if the EPA violated its mandate by failing to submit the Endangerment Finding to the SAB, Petitioners did not show this error was prejudicial to the rulemaking.
- Denial of petitions seeking reconsideration of Endangerment Finding
In the final challenge, Petitioners argued the EPA erred by denying all ten petitions for reconsideration of the finding. Petitioners asserted that internal documents and emails obtained from the University of East Anglia’s Climate Research Unit undermined the scientific evidence upon which the EPA relied. When determining whether to commence reconsideration of a rule, EPA considers an objection to be of “central relevance to the outcome” of that rule “if it provides substantial support for the argument that the regulation should be revised.” Additionally, the party raising the objection must demonstrate that it was impracticable to raise the objection during the public comment period.
The court rejected Petitioners’ assertion, finding that they failed to provide substantial support for their arguments that the Endangerment Findings should have been revised. The assessment had relied on over 18,000 peer-reviewed studies, and two errors identified in IPCC reports were harmless because EPA did not actually rely on such errors to reach the positive Endangerment Finding. Isolated errors identified by Petitioners did not rise to the level of substantial evidence required to support their arguments to overturn the Endangerment Findings.
Challenges to the Tailpipe Rule
Petitioners did not directly challenge the vehicle emission standards set by the Tailpipe Rule, and instead argued the EPA acted arbitrarily and capriciously by failing to consider and justify the costs of its conclusion that the Rule triggers stationary-source regulation under the PSD Program and Title V. The court rejected this argument and held that once EPA made the Endangerment Finding, the language of section 202(a)(1) created a non-discretionary duty that the EPA adopt regulation applicable to vehicle GHG emissions. The court noted this interpretation was supported by the Supreme Court’s decision in Massachusetts v. EPA.
Petitioners also advanced a claim under the Administrative Procedures Act, alleging that EPA failed to show that the proposed standards “would meaningfully mitigate the alleged endangerment.” The court rejected this argument, indicating that petitioner misread earlier D.C. Circuit decisions on EPA air regulations. EPA was under no requirement to establish a particular level of mitigation that the regulation had to achieve. Instead, EPA was only required to show that the Tailpipe Rule would contribute to “meaningful mitigation of greenhouse gas emissions.”
Finally, the court rejected an argument made by Petitioners that EPA should have considered the cost of stationary source permitting that would follow adoption of the Tailoring Rule. The D.C. Circuit had previously held that section 202(a)(2) reference only compliance costs to the motor vehicle industry and does not mandate consideration of costs to other entities not directly subject to the proposed tailpipe emission standards.
Challenges to EPA’s interpretation of PSD Permitting, Timing and Tailoring Rules
Petitioners challenged EPA’s longstanding interpretation of the scope of the permitting requirements for construction and modification of major emitting facilities under the CAA. Since 1978, EPA has defined “major stationary source” as a source that emits major amounts of “any air pollutant regulated under the [CAA].” This interpretation held through EPA’s PSD regulations adopted in 1980 and 2002. “Any pollutant” was interpreted by the EPA to include both criteria pollutants for the National Ambient Air Quality Standards (NAAQS) and non-criteria pollutants. As a result, when EPA determined that GHGs would become a regulated pollutant, emissions of more than 100 or 250 tpy of GHGs would trigger a PSD permitting requirement. Petitioners challenged this interpretation and argued that EPA could and should have avoided extending the PSD permitting program to major GHG emitters. The court adopted a plain meaning of section 169(1), which requires PSD permits for stationary sources emitting major amounts of “any air pollutant.” Both the EPA and the Supreme Court in Massachusetts v. EPA clearly established that GHGs are air pollutants. As a result, the court rejected Petitioners’ arguments that EPA should not have extended the PSD permitting program to major GHG emitters. The court rejected the Petitioners’ alternative interpretations of the PSD permitting triggers, as none cast doubt on the unambiguous nature of the statute.
Petitioners also challenged the Tailoring and Timing Rules established by EPA to facilitate initial regulations of GHGs. The court determined Petitioners lacked standing to challenge these two Rules because none had suffered an injury-in-fact as a result of the rules. Instead, the court found the Timing and Tailoring Rules actually mitigated Petitioners’ purported injuries, as many would be subject to PSD and Title V permitting requirements at an earlier time absent the rules.
First District Court of Appeal Upholds ARB’s Scoping Plan for AB 32, Finding the Plan is Not Arbitrary and Capricious
June 19th, 2012 by Laura Harris
On June 18, 2012, in Association of Irritated Residents v. California Air Resources Board (2012) ___ Cal.App.4th ___ (No. A132165), the First District Court of Appeal upheld the California Air Resources Board’s (“ARB’s”) 2009 Climate Change Scoping Plan, finding it complies with the requirements of California’s Global Warming Solutions Act of (2006) (“AB 32”) and that ARB’s adoption of the plan was not arbitrary or capricious. Read the rest of this entry »
Second District Holds the Purpose of CEQA Is to Consider Impacts of Projects on the Environment rather than Environment’s Impacts on the Project
January 15th, 2012 by admin
Ballona Wetlands Land Trust v. City of Los Angeles
(2011) 201 Cal.App.4th 455
The Second District Court of Appeal upheld a revised EIR for the Playa Vista phase two project, prepared after a previous peremptory writ had been issued. The project opponents challenged the revised EIR with respect to the project description, the analysis of archaeological resources, the analysis of sea level rise resulting from global climate change, and the finding of no significant impact on land use consistency. The court concluded that the EIR adequately discussed preservation in place of archaeological resources and sea level rise. The court also concluded that newly-asserted challenges to the project description and the findings on consistency were beyond the trial court’s jurisdiction in these proceedings after issuance of the peremptory writ.
CEQA Guidelines section 15126.4, subdivision (b)(3) states that preservation in place is the preferred manner to mitigate impacts on historic archaeological resources and expressly requires a discussion of preservation in place in an EIR involving a historical archaeological site. The revised EIR stated that preservation in place is the preferred manner of mitigating impacts to archaeological sites, but explained the infeasibility of preservation in place. The revised EIR therefore concluded that data recovery and curation are appropriate mitigation measures, and described other mitigation measures that had already occurred and that would continue to occur. The court held that this analysis satisfied the requirements of CEQA Guidelines section 15126.4, subdivision (b)(3).
The court then addressed whether the revised EIR was required to analyze the effects of sea level rise on the project. The court explained that “the purpose of an EIR is to identify the significant effects of a project on the environment, not the significant effects of the environment on the project.” In doing so, the court cited CEQA Guidelines section 15126.2, subdivision (a), which states in part that: “The EIR shall also analyze any significant environmental effects the project might cause by bringing development and people into the area affected. For example, an EIR on a subdivision astride an active fault line should identify as a significant effect the seismic hazard to future occupants of the subdivision. The subdivision would have the effect of attracting people to the location and exposing them to the hazards found there. Similarly, the EIR should evaluate any potentially significant impacts of locating development in other areas susceptible to hazardous conditions (e.g., floodplains, coastlines, wildfire risk areas) as identified in authoritative hazard maps, risk assessments or in land use plans addressing such hazards.”
The court explained: “We believe that identifying the environmental effects of attracting development and people to an area is consistent with CEQA’s legislative purpose and statutory requirements, but identifying the effects on the project and its users of locating the project in a particular environmental setting is neither consistent with CEQA’s legislative purpose nor required by the CEQA statutes.” The court thus held that “[c]ontrary to Guidelines section 15162.2 subdivision (a). . . an EIR need not identify or analyze such effects.”
Regarding sea level rise, the revised EIR briefly noted that global warming could result in sea level rise and the inundation of coastal areas, but provided no specific analysis of the impact on the phase two project site. It also explained in responses to comments that according to estimates by the Intergovernmental Panel on Climate Change that the project was not expected to be subjected to inundation as a result of sea level rise resulting from climate change. The court had rejected the opponents request for judicial notice of a flood hazard map prepared by the city prior to approval of the project because the map was not included in the administrative record and the opponents had shown no extraordinary circumstances to justify consideration of the extra-record evidence. The court held the revised EIR’s discussion of sea level rise was adequate.
In previous litigation, the court had held that the previous EIR’s analysis of land use impacts was inadequate, and therefore a peremptory writ was issued. In their challenge to the return to the writ and in their supplemental petition challenging the revised EIR, the project opponents asserted new challenges related to the project description, land use impacts, and the city’s findings regarding these issues. The court held that these challenges had to be raised prior to the judgment in the previous round of litigation, and therefore rejected them.