Posts Tagged ‘Climate Change’


On April 29, 2015, Governor Brown issued Executive Order B-30-15 setting an interim target to cut California’s greenhouse gas emissions to 40 percent below 1990 levels by 2030. According to the Governor’s announcement, California is on track to meet or exceed its current target of reducing GHG emissions to 1990 levels by 2020, as required by the California Global Warming Solutions Act of 2006 (AB 32). The new goal of reducing emissions to 40 percent below 1990 levels by 2030 is intended to help the state achieve its ultimate goal of reducing emissions 90 percent under 1990 levels by 2050, a target established by Governor Schwarzenegger’s Executive Order S-3-05. The new interim target is consistent with the recommendation of the California Air Resources Board, in its First Update to the Climate Change Scoping Plan (May 2014).

The new executive order requires the Air Resources Board to update the Climate Change Scoping Plan to express the 2030 target in terms of million metric tons of carbon dioxide equivalent. All state agencies with jurisdiction over GHG emission sources must implement measures to achieve the 2030 and 2050 targets.

In addition, the Natural Resources Agency is to update the state’s climate adaptation strategy, Safeguarding California,  every three years and ensure that its provisions are fully implemented. The Safeguarding California plan will help California adapt to climate change by identifying vulnerabilities by sector (e.g., vulnerabilities to the water supply, the energy grid, the transportation network, etc.); outlining primary risks of these vulnerabilities to people, property, and natural resources; specifying priority actions needed to reduce the risks; and identifying lead agencies to spearhead the adaption efforts for each sector. Each sector will then be responsible to prepare an implementation plan by September of this year outlining adaptation actions and report back to the Natural Resources Agency by June 2016 on the actions taken.

Brown’s executive order also requires state agencies to take climate change into account of their planning and investment decisions, and employ full life-cycle cost accounting to evaluate investments and alternatives. The order establishes principles that state agencies must use in making planning and investing decisions. These principles include: prioritizing actions that both help the state prepare for climate change and reduce GHG emissions; implementing flexible and adaptive approaches, where possible, to prepare for uncertain climate change impacts; protecting the state’s most vulnerable populations; and prioritizing natural infrastructure solutions.

Executive Order B-30-15 follows relatively swiftly on the heels of Executive Order B-29-15, issued earlier this month, which imposes a 25-percent mandatory water reduction in 2015 over 2013 usage for urban areas, commercial, industrial, and institutional properties, along with other restrictions.

Division One of the Fourth District Court of Appeal granted Sierra Club’s petition to enforce a climate change mitigation measure adopted by the County of San Diego. The court affirmed the decision below. Sierra Club v. County of San Diego (2014) 231 Cal.App.4th 1152.

Mitigation measure CC-1.2, which was included in a program EIR for the County’s 2011 general plan update, committed the County to preparing a climate change action plan (CAP) with more detailed greenhouse gas (GHG) emissions reduction targets and deadlines, and comprehensive and enforceable GHG emissions reductions measures that would achieve specified GHG reductions by 2020. Sierra Club alleged that, contrary to this commitment, the County prepared a CAP that expressly did not ensure reductions. The County also developed associated guidelines for determining significance thresholds. Sierra Club alleged that CEQA review of the CAP and thresholds was performed after the fact, using an addendum to the EIR, which did not address the concept of tiering or the County’s failure to comply with the express language in CC-1.2, and contained no meaningful analysis of the impacts of the CAP and thresholds.

The court first rejected the County’s contention that Sierra Club’s mitigation-related claim was barred by the statute of limitations because it could have been brought with the challenge to the general plan update. The court found that Sierra Club did not challenge the validity of the general plan update EIR or the enforceability of the mitigation measures provided therein, but instead challenged the County’s separate approval of the CAP.

Next, the court held that with respect to the CAP as mitigation for a plan-level document, the County failed to proceed in a manner required by law by going forward with the CAP and thresholds project in spite of the express language of CC-1.2 that the CAP include more detailed GHG emissions reduction targets and deadlines. The County described the CAP’s strategies as recommendations, rather than requirements. It also relied on unfunded programs to support the required emissions reductions. The CAP’s transportation section did not include an analysis of the County’s own operations and the record contained contradictions surrounding programs over which the County had exclusive control. The County did not bind itself to implementation of its programs, and did not cite to any evidence supporting its belief that people would participate in the programs to the extent necessary to achieve the asserted reductions. In fact, the CAP expressly stated that it did not ensure reductions. Quantifying GHG reduction measures, the court stated, was not synonymous with implementing them.

The County also made the erroneous assumption the CAP and thresholds project was the same project as the general plan update, despite the fact that no component of the CAP or thresholds had been created at the time of the general plan update. Thus, the general plan update EIR did not analyze the CAP as a plan-level document that itself would facilitate further development. As a result, the County failed to render a written determination of environmental impact before approving the CAP and thresholds. By failing to consider the environmental impacts of the CAP and thresholds, the court noted, the County effectively abdicated its responsibility to meaningfully consider public comments and incorporate mitigating conditions. The project acknowledged it did not comply with Executive Order No. S-3-05, and would therefore have significant impacts that had not previously been addressed in the general plan update EIR.

The Governor’s Office of Planning and Research released a preliminary discussion draft of revisions to the CEQA Guidelines implementing Senate Bill 743 on August 6, 2014. Currently, transportation impacts are typically evaluated based on the delay in traffic flows that vehicles experience at intersections and roadway segments. Delay is measured by the “level of service” or LOS. Mitigation for these impacts often takes the form of traffic improvements focused on increasing roadway capacity such as adding lanes. Recognizing that this practice may actually be counter to public policy by encouraging auto use and emissions, and discouraging alternative forms of transportation, OPR has proposed changes to how transportation impacts are evaluated. Specifically, OPR’s draft revisions to the CEQA Guidelines propose analysis of vehicle miles traveled (VMT), in lieu of LOS, for evaluating transportation impacts.

Most notably, OPR proposes to add Section 15064.3, a new section of the CEQA Guidelines that addresses new methods of measuring transportation impacts. Because Section 15064.3 would be added to Article 5 of the CEQA Guidelines, which relates to the “preliminary review of projects and conduct of initial study,” the new section would apply in the context of negative declarations and EIRs. To conform to the proposed Section 15064.3, OPR has also proposed amendments to the questions in Section XVI, Transportation and Traffic, of Appendix G.

Draft Section 15064.3 includes four subdivisions. Subdivision (a) discusses the purpose of the new section, stating that the primary considerations of a project’s transportation impacts are the amount and distance of vehicle travel associated with a project. Subdivision (a) expressly states that “[a] project’s effect on automobile delay does not constitute a significant environmental impact.” The draft section does not modify CEQA’s general rules regarding the determination of a project’s significant impacts, including the need to consider substantial evidence of a project’s environmental impacts.

Subdivision (b) specifies the criteria for determining the significance of transportation impacts. As stated in subdivision (b), VMT is “generally” the best measurement of transportation impacts, thus allowing agencies room to tailor their analyses to include other measures if appropriate. The draft section describes factors that might indicate whether a project’s VMT is less than significant or not, and gives examples of projects that might have less-than-significant impacts with respect to VMT, such as projects that would result in decreased VMT. Subdivision (b) recognizes that not all transportation projects will induce vehicle travel, such as projects improving transit operations, and thus would not result in a significant transportation impact. In addition to a project’s impact on VMT, “a lead agency may also consider localized effects of project-related transportation on safety.” Finally, subdivision (b) states that a lead agency’s evaluation of a project’s VMT “is subject to a rule of reason,” but also states that “a lead agency generally should not confine its evaluation to its own political boundaries.”

Subdivision (c) refers to proposed amendments in Appendix F, which addresses energy impacts. The proposed amendments to Appendix F acknowledge that VMT may be relevant to the analysis and mitigation of energy impacts. The proposed amendments to Appendix F include examples of mitigation measures and alternatives that may reduce VMT. Examples include improving the jobs/housing balance and improving access to transit. Subdivision (c) clarifies that the proposed revisions in the CEQA Guidelines and Appendix F do not limit an agency’s ability to condition a project pursuant to other laws. For example, agencies may continue to require projects to meet LOS designations set out in applicable general plans or zoning codes. Nor do the proposed revisions prevent an agency from enforcing previously adopted mitigation measures.

Finally, subdivision (d) proposes a phased approach to implementing Section 15064.3. OPR proposes that Section 15064.3 shall apply prospectively to new projects that have not started environmental review. Section 15064.3 shall apply immediately upon the filing of Section 15064.3 with the Secretary of State. After January 1, 2016, Section 15064.3 shall apply statewide.

Under the second part of OPR’s proposed revisions, OPR proposes amendments to Appendix F, which discusses the evaluation of energy impacts under CEQA noted above.

The draft guidelines can be viewed at:

http://opr.ca.gov/docs/Final_Preliminary_Discussion_Draft_of_Updates_Implementing_SB_743_080614.pdf

OPR is requesting that comments be submitted by October 10, 2014.

Air Resources Board Releases Proposed AB 32 Scoping Plan

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

California Releases Draft Climate Change Preparation Plan

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.

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.

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.

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.

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.

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.

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.  

 Factual Background

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.

 Procedural Background

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 Holding

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.

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.

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.

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.