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Canada will link its cap-and-trade program with California’s in 2014

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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.

Supreme Court Grants Review to Determine Whether CEQA Requires Analysis of the Effect of the Environment on a Project

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On November 26, 2013, the California Supreme Court granted review of California Building Industry Association v. Bay Area Air Quality Management District (“CBIA v. BAAQMD”) to settle the following issue: Under what circumstances, if any, does CEQA require an analysis of how existing environmental conditions will impact future residents or users (receptors) of a proposed project?

Prior to the CBIA case, this issue most recently arose in Ballona Wetlands Land Trust v. City of Los Angeles (2011) 201 Cal.App.4th 455. There, the petitioner argued that the EIR for a real estate development project failed to address the impacts that future sea level rise could have on the project. The court disagreed that the EIR needed to address this issue, stating 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.” The court concluded that identifying the effects on a project and its users of locating the project in a particular environmental setting was neither required by CEQA nor consistent with the statute’s legislative purpose. The court found that Guidelines section 15126.2, which encourages such analysis, was unauthorized by the CEQA statute and therefore invalid. Section 15126.2 would require analysis of the seismic hazard to future occupants of a subdivision astride an active fault line, or the effect of locating development in a floodplain or on a coastline.

In CBIA v. BAAQMD, the California Building Industry Association challenged the Bay Area Air Quality Management District’s significance thresholds for receptors affected by certain air pollutants as unauthorized by CEQA. These thresholds establish significance levels for certain air pollutants for both new sources (projects) and new receptors (residents and workers brought into the area as a result of the project). CBIA argued that the receptor thresholds were invalid under Ballona because the thresholds could require an EIR based solely on the effects of the existing environment on a proposed project and its occupants. The District argued that it made “no sense to require analysis of the health risks to residents if a freeway is built next to them, but not to require analysis of the exact same risks if new homes are built next to an existing freeway.” The District also argued that disregarding the effect of the environment on people who will occupy a new development is contrary to CEQA’s purpose of providing “a decent home and suitable living environment for every Californian.”

The court considered CBIA’s challenge a facial one, and held that BAAQMD’s thresholds were not invalid on their face because case law did not bar their application in all or even most cases. The court stated that it did not need to decide whether Ballona had been correctly decided because the thresholds could be used to determine not just the effect of a project on project receptors, but also could be used to evaluate the increase in pollutants from a project itself.

The parties will file their opening briefs with the Supreme Court in early 2014.

[Case No. S213478]

Sacramento Superior Court Finds State Water Resources Control Board Fees Not Fairly Distributed Among Permit Holders

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In 2003, the California Legislature shifted funding sources for certain State Water Resources Control Board activities, and mandated the board assess fees at a level sufficient to collect for the appropriate board work. The Legislature only authorized fees on water rights permit and license holders, rather than all water users, so the board assessed fees only on those groups. The California Farm Bureau Federation and the Northern California Water Association sued, claiming the board was imposing an unconstitutional tax because permit holders bore a disproportionate amount of the fee relative to benefits received. In 2011, the California Supreme Court upheld the fee statutes as facially constitutional, but remanded the matter to determine their constitutionality “as applied” by the board.

In California Farm Bureau Federation v. State Water Resources Control Board, Sacramento County Superior Court Case No. 03CS01776, the court found that the allocation of fees among actual and potential payors was invalid given the insufficient connection between the amount charged and benefits received.

The court found that the fees were reasonably related to the total costs of the Division of Water Rights’ regulatory program, and that the petitioners had not carried their burden to prove otherwise. But following 10 days of testimony taken in late 2012, the court analyzed whether the fees were properly allocated among actual payors (those holding licenses and permits) and potential payors (those not paying the fee but receiving benefits from the division’s activities).

The petitioners argued that the fee scheme was not fair or reasonable because no fees were assessed against the holders of approximately 38% of the total acre-feet of California water rights under the board’s jurisdiction, including those holding riparian, pueblo, and pre-1914 rights, none of which are subject to the permit and license process. Although these holders received benefits from the board’s Water Rights Division, the board had no statutory authority to impose fees on them. The court held that it was improper for the board to shift those fees to other permit holders to make up the deficiency. To do so would force permit and license holders to pay more than a de minimis amount for regulatory activities benefitting non-paying water rights holders and the general public.

The court also found that requiring Central Valley Project contractors to cover payments for all of the Bureau of Reclamation’s permits and licenses was invalid because it did not reflect the true beneficial interests of the contractors. The Bureau, which holds 22% of the total permitted or licensed water rights in California, claimed exemption from the board’s fees under the doctrine of sovereign immunity. To compensate, the board imposed fees on the recipient contractors (various irrigation and water storage agencies) based on a prorated portion of the total volume of water represented by the Bureau’s permits and licenses. The court stated that this method would be valid only if it represented a fair assessment of the recipient contractors’ actual beneficial interests in the Bureau’s water rights. The court found that while some of the Bureau’s water could be fairly attributed to the value of its project  delivery contracts, it did not follow that all of the water benefitted the contractors. (For example, Bureau project water is also released for environmental and water quality purposes.) Because the board had conducted no analysis of the contractors’ beneficial or possessory interest in the permits for the Bureau’s largest operation, the Central Valley Project, the court held the allocation unconstitutional.

The petitioners also established that for at least some payors, the fee regulations operated in an arbitrary manner, charging some permit holders multiple times for the same water.

The board was afforded one small victory: The court allowed the $100 minimum annual fee per permit  to stand. But as the court observed, the petitioners had never really presented any evidence concerning the minimum annual fee; the Court of Appeal had okayed it, and the Supreme Court had not addressed it.

The trial court stayed the board’s enforcement of its 2003-2004 regulations. Because the regulations have been modified over the years, the regulations for the period 2005-2013 may need further review. Under the stay agreement, subsequent proceedings will address the issue of whether permit and license holders that have been paying the fees under protest since 2003 should receive refunds for overpayment.

 

Fourth District holds County’s funding application was not a project under CEQA

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This case originates from a long-standing dispute between the County of Orange and the City of Irvine over the County’s plans to substantially increase the capacity of one of its existing prison facilities. The County approved an application for state funding to expand the facility, and the City of Irvine sued, arguing the approval constituted a “project” under CEQA requiring preparation of an EIR. The trial court denied the City’s petition for writ of mandate, and the Fourth Appellate District affirmed in City of Irvine v. County of Orange (2013) __ Cal.App.4th __ (Case No. G047895). The court concluded that a mere funding application was not a sufficient commitment to a proposal to constitute a project under CEQA.

The County has operated the James A. Musick Jail Facility for over 40 years. The facility is located on 100 acres of unincorporated land owned by the County but adjacent to the City of Irvine. The jail facility was originally designed to house about 700 minimum-security inmates, but in recent years had housed more than 1,200 inmates. The controversy began back in 1996, when the County prepared an EIR for the phased expansion of the facility to a maximum capacity of 7,584 inmates ranging from minimum to maximum security.

After some legal wrangling between the City and the County over the 1996 EIR, the County certified a revised EIR and authorized “the pursuit of funding” for the expansion of the Musick Jail Facility in accordance with the revised EIR. For a long time, no expansion took place, as the County lacked funding. But in 2007, the Legislature passed AB 900 to provide funding for local jail construction. The County submitted an application in 2011 seeking funds to expand the Musick Jail Facility by 512 medium-security beds. The County explained that it anticipated circulating an addendum to the 1996 EIR as the CEQA document for this proposed expansion. In 2011, the County Board of Supervisors adopted a resolution approving the application for funding. The application stated that County resolved to comply with CEQA before accepting any state funds.

The City of Irvine sued. In its petition, the City argued that the County’s approval of the application for state funding constituted a project under CEQA requiring preparation of an EIR or other CEQA documents prior to the action. The trial court denied the City’s petition, and the City appealed.

The Fourth Appellate District explained that the narrow issue before it was whether the County should have prepared and certified a CEQA document before approving an application for state funding. For guidance, the Fourth District looked to the California Supreme Court’s decision in Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116. In Save Tara, a developer proposed constructing low-income, senior housing on city-owned property. The city entered into a conditional development agreement with the developer and subsequently granted substantial assistance to the developer in its efforts to obtain a federal grant for the project. This assistance included an option to purchase the property from the city “at negligible cost” and a loan of nearly half a million dollars for use in the approval process. The developer was under no obligation to repay this loan if the city did not ultimately approve its project. The Supreme Court determined that under these circumstances, the city had committed itself to a definite course of action that precluded the consideration of alternatives or mitigation measures that CEQA might otherwise require. Therefore, the Supreme Court concluded that the development agreement was an approval under CEQA requiring environmental review.

In this case, the Fourth District ultimately distinguished between “advocating or proposing a project” and “committing to” a project. In the court’s view, the former would not be a project but the latter would.  The court concluded that in this case, the County was advocating for and proposing a project rather than committing to it. For example, under AB 900, agencies are required to use a detailed application prescribed by the bill. Further, the bill made clear that if the applications were approved, the funds would be conditionally awarded. The court emphasized that the conditions to payment were substantial. The applying agencies would have to complete numerous additional steps, including CEQA review, before they could then seek reimbursement for the costs authorized by the amount of the conditional funds. The court found this to be an important distinction from the circumstances in Save Tara.

The court noted additional factors which influenced its analysis: (1) the County had in the past rejected state funding previously approved under an AB 900 request due to conditions imposed by the state; (2) the County had been using the land identified for expansion as a jail for more than 40 years, so resources spent identifying the project site for expansion did not amount to an approval for CEQA purposes; and (3) even the presence of detailed design plans for the proposed facility expansion did not represent commitment to a definite course of action by the County. Since the commitment element was lacking, the Fourth District affirmed the trial court’s judgment dismissing the City of Irvine’s petition.

ARB approves first forest carbon offsets under cap-and-trade protocols

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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.

Sacramento Superior Court Upholds State’s Cap-and-Trade Program

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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.

Third District publishes opinion in South County Citizens for Smart Growth v. County of Nevada

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On November 13, 2013, the Third District Court of Appeal published its decision in South County Citizens for Smart Growth v. County of Nevada (Case No. C067764). We discussed this opinion previously, when it was issued in October.  The opinion is now citable precedent.

The opinion provides very helpful guidance on when a new “potentially feasible” alternative, proposed after the draft EIR has been circulated for public review, triggers the need for recirculation.  This decision is important because it carefully explains the burden of proof and the elements of proof for a challenge brought under CEQA Guidelines section 15088.5, subdivision (a)(3).  In essence, the petitioner has the burden to demonstrate that no substantial evidence supported the agency’s decision not to recirculate the EIR.  To demonstrate an abuse of discretion, a petitioner must show that no substantial evidence supports any of the following express or implied “negative findings” by a CEQA lead agency: the alternative was not actually feasible; the alternative was not “considerably different from” alternatives already analyzed in the EIR; and the alternative would not “clearly lessen the significant environmental impacts” of the project as approved. (Whether the project proponent has declined to adopt the alternative – another relevant element under subdivision (a)(3) – should be a comparatively more straightforward factual issue.)

 

 

Court of appeal reviews housing element update under substantial evidence standard and upholds city’s decision not to prepare an EIR

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In Latinos Unidos de Napa v. City of Napa (Oct. 10, 2013), Case No. A134959, affordable housing advocates sought to set aside the city’s approval of revisions to the housing element of its general plan on the ground that the updates required an environmental impact report. The trial court denied the petition on its merits and the court of appeal affirmed.

The court of appeal explained that the exacting “fair argument” standard set out in Public Resources Code section 21151 applies to new projects, whereas the deferential “substantial evidence” standard set out in section 21166 applies to projects tiered from program EIRs.  The applicable standard turns on whether a project is “new” or whether it is “within the scope” of the analysis in a previously certified EIR.

The court of appeal concluded that the City of Napa’s general plan housing element update was not a new project, but rather, was within the scope of the original program EIR. The court rejected plaintiff’s arguments that the high density residential units approved as part of the project were not adequately addressed in the program EIR.  The court found that the incremental increases in maximum residential densities for parts of the city approved as part of the housing element revisions would not intensify total potential development above what was already analyzed in the program EIR. Many of the projects approved by the city built out at less than the maximum permitted density and the city’s growth rate was slower than anticipated in the program EIR.  As a result, the impacts of increasing density in the housing element revisions remained “within the scope” of —in other words, no greater than those disclosed in—the original program EIR.

Court holds that only agency decisionmaking bodies may certify the project’s EIR

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In California Clean Energy Committee v. City of San Jose (2013) ___Cal.App.4th___ (Case No. CV212623), the city of San Jose prepared an environmental impact report for Envision San Jose, a comprehensive update of the city’s general plan. CCEC submitted a comment letter criticizing the project and the draft EIR’s analysis, arguing that the draft should be recirculated. The planning commission certified the EIR without recirculation. CCEC did not appeal the decision. CCEC subsequently submitted a letter to the city’s planning department but did not mention any deficiencies in the final EIR or the certification process. The city council thereafter independently reviewed, analyzed, and certified the final EIR. CCEC sued, the trial court granted the city’s motion for summary judgment, and CCEC appealed.

CCEC argued that the city planning commission’s certification of the final EIR was unlawful because the planning commission had no approval authority over the project.   The Court of Appeal agreed. The CEQA Guidelines prohibit the decisionmaking body of a public agency from delegating review of a final EIR to a nondecisionmaking body. The planning commission was not a decisionmaking body for the project because it could not to approve or disapprove the project. The court rejected the city’s contention that its certification process was bifurcated, since bifurcation would allow a decisionmaking body to be bound by a finding made by a nonelected, nondecisionmaking body. This process would skirt the purpose of CEQA by segregating environmental review of the EIR from project approval.  Because the planning commission did not have the authority to certify the EIR, the court held that CCEC did not need to take an administrative appeal against the commission in order to exhaust its administrative remedies. The court of appeal reversed the judgment of the trial court, effectively sending the matter back to the trial court to consider the merits of CCEC’s petition.

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