Tag: Cap-and-Trade Program

Fifth District Court of Appeal Approves of Oil Refinery EIR’s Use of Cap-and-Trade Program to Mitigate GHG Emissions, But Disapproves of Kern County’s Reliance on Federal Preemption in Failing to Analyze Off-Site Rail Activities

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On November 21, 2017, the Fifth District partially published its decision in Association of Irritated Residents v. Kern County Board of Supervisors (2017) 17 Cal.App.5th 708. The published sections covered arguments about the baseline used for the oil refinery modification project, the mitigation of greenhouse gas (GHG) emissions, and the extent to which federal preemption precludes aspects of CEQA review of project impacts. In reversing the trial court’s judgment denying the petition for writ of mandate, the Court of Appeal upheld the EIR’s treatment of the project baseline and GHG emissions but determined that the county erred in relying on federal preemption to avoid analyzing and mitigating impacts from off-site rail activities.

The project involved modifications proposed by Alon USA to an existing petroleum refinery northwest of the City of Bakersfield. The refinery had undergone several ownership changes since 1932, with Alon USA purchasing it from Flying J and its subsidiary during the latter’s 2008 bankruptcy proceedings. Alon USA sought to expand existing rail, transfer and storage facilities, including the construction of a double rail loop connected to the BNSF railway. The expanded train facilities would allow the transport of crude oil from the Bakken formation in North Dakota to the refinery for processing. The Association of Irritated Residents, Center for Biological Diversity, and Sierra Club filed suit after the County certified an EIR and approved the project.

First, the court dealt with plaintiffs’ arguments about the use of year 2007 as the baseline for air pollution emissions instead of using year 2013 – the year that the County published the notice of preparation. In discussing Neighbors for Smart Rail v. Exposition Metro Line Const. Authority (2013) 57 Cal.4th 439, 457 (“Neighbors”), the court established that it was interpreting Neighbors to only require heightened scrutiny of baselines that use hypothetical future conditions and not of those that use data from past, fluctuating conditions. Based on this interpretation, the court found no error in the County’s use of data from year 2007 because substantial evidence supported this deviation from the “normal” baseline. The court concluded that it was reasonable to include an operating refinery in the baseline because: (a) existing permits and entitlements allow for the processing of up to 70,000 barrels per day; (b) Flying J’s bankruptcy filing in 2008 only temporarily halted processing of hydrocarbons; (c) refinery operations have been subject to prior CEQA review; and (d) the processing of crude oil could begin again without the currently proposed project. The court then turned to whether the County’s choice of year 2007 was supported by substantial evidence, and found that it was because 2007 was the last full year of refinery operations, and was not some hypothetical, maximum authorized amount. The court even included its own calculations of the average barrels per day for the period of 2001 through 2008 to show that the year-2007 figure of 60,389 barrels-per-day was less than the average of 60,994 barrels-per-day.

Second, the court addressed GHG emissions arguments. The court started by analyzing under the de novo review standard a question of first impression: can the volume of a project’s estimated GHG emissions be decreased to reflect the use of allowances and offset credits under the state’s cap-and-trade program? The court concluded that this use of the cap-and-trade program did not violate CEQA because Section 15064.4, subd. (b)(3), effectively directed the County to consider the project’s compliance with the state’s cap-and-trade program as a “regulation[] or requirement[] adopted to implement a statewide . . . plan for the reduction of mitigation of greenhouse gas emissions.” And the court concluded that the project’s compliance with the cap-and-trade program could be part of the substantial evidence supporting a finding of less-than-significant impacts from GHG emissions even though surrender of allowances would not result in the project emitting fewer GHG molecules than if the allowance had not been surrendered. The court explained that the cap-and-trade program was designed so that the “limited allocation and use of allowances means they are not available for use elsewhere” in the state.

In the final published section, the court dealt with federal preemption and off-site rail impacts. Claiming that the Interstate Commerce Commission Termination Act of 1995 (ICCTA) preempted CEQA review, the County had excluded analysis of some of the impacts from off-site main line rail operations that will deliver crude oil to the refinery. The court disagreed. Interpreting the California Supreme Court’s direction in Friends of Eel River v. North Coast Railroad Authority (2017) 3 Cal.5th 677, 722, the court of appeal concluded that the development of information pursuant to CEQA is not categorically preempted but may be preempted on an as-applied basis. Then, as an alternative to that broad legal conclusion, the court considered whether categorical preemption applied to the specific circumstances in this case. It concluded that no categorical preemption applied because analysis of indirect environmental effects “would impose no permitting or preclearance by a state or local agency upon the delivery of crude oil to the project site by a rail carrier,” and “would not control or influence matters directly regulated under federal law.” The court also concluded that there was no as-applied preemption because the environmental analysis of off-site rail activities “would not prevent, burden, or interfere with BNSF Railway’s operation.” Finally, the court directed the County on remand to use the tests stated in this opinion to determine whether particular mitigation measures may be preempted by the ICCTA.

 

 

First District Court of Appeal Rejects Challenge to California Air Resources Board’s Regulations Implementing the Cap-and-Trade Program

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The First District Court of Appeal has held the California Air Resources Board (CARB) did not exceed its authority under the California Global Warming Solutions Act of 2006 (2006 Act) in implementing the Compliance Offset Protocols and the early action offset provision of its Cap-and-Trade program. Our Children’s Earth Foundation v. California Air Resources Board, Case No. A138830 (Feb. 23, 2015).

Under the 2006 Act, CARB is required to adopt regulations specifying GHG emission limits and emission reduction measures in furtherance of achieving the statewide GHG emissions limit. The 2006 Act expressly authorizes CARB to adopt regulations establishing market-based compliance mechanisms to reduce GHG emissions. Every CARB regulation adopting GHG emission limits and measures must ensure that GHG emissions reductions are “real, permanent, quantifiable, verifiable, and enforceable” by CARB. (Health & Saf. Code, § 38562, subd. (d)(1).) Those regulations must also ensure that the emissions reduction “is in addition to any greenhouse gas emission reduction otherwise required by law or regulation, and any other greenhouse gas emission reduction that otherwise would occur.” (Health & Saf. Code, § 38562, subd. (d)(2), italics added.) This latter provision is known as the “additionality” requirement.

Pursuant to its authority under the 2006 Act, CARB implemented in January 2012 a Cap-and-Trade program regulation, a market-based compliance mechanism for achieving reductions in GHG emissions. The Cap-and-Trade program imposes a cap on the aggregate GHG emissions that covered entities may emit during the annual compliance period. Covered entities include industries who have previously reported exceedances of emissions above CARB’s threshold established for that industry. CARB enforces the cap by issuing a limited number of compliance instruments known as “allowances,” the total value of which is equal to the cap amount. Subject to limitations, participants can buy, bank, or sell allowances which are used by the covered entities to comply with their compliance obligations.

In March 2012, Appellant Our Children’s Earth Foundation (OCEF) (and another organization who is not a party on appeal) filed a petition for writ of mandate and complaint for declaratory and injunctive relief against CARB. OCEF claimed that CARB’s Compliance Offset Protocols and early offset credit provision violated the additionality requirement of the 2006 Act because they did not ensure the offsets would be truly additional to any GHG reductions that would otherwise occur.

The First District Court of Appeal affirmed the lower court’s denial of the petition. On appeal, OCEF first claimed that CARB exceeded its authority by adopting a market-based compliance mechanism that fails to ensure offset credits are additional to “any” GHG emissions reductions “that otherwise would occur.” The 2006 Act does not define “additional” or “otherwise would occur.” But the 2006 Act does define “market-based compliance mechanism” as including GHG emissions exchanges, banking, credits, and other transactions, governed by rules and protocols to be established by CARB. Within this authority delegated to CARB by the Legislature, the court concluded that CARB appropriately established rules and protocols that ensure additionality with respect to offset credits accepted under the Cap-and-Trade program.

The court also found it problematic that OCEF failed to articulate how a project operator could prove the GHG reduction would not otherwise occur or how CARB could provide the certainty that OCEF claims the 2006 Act demands. Whether a project would have been implemented without the offset incentive can never be proven with absolute certainty. The court found OCEF’s interpretation unworkable and, in practice, would preclude CARB from implementing market-based compliance mechanisms. That result is not what the Legislature intended, the court believed.

The court also rejected OCEF’s claim related to the early offset credit program. OCEF claimed that CARB exceeded its statutory authority by allowing offset credits for projects that were already occurring. According to the court, however, OCEF incorrectly assumed that a project that began before the Cap-and-Trade program was adopted could never satisfy the additionality requirement. That assumption was not supported by the provisions of the 2006 Act itself, which reflected the Legislature’s intention that there could be incentives for voluntary early reductions even before the Act was passed for which CARB could give credit.

Finally, the court considered OCEF’s challenge to the effectiveness of specific measures included in several of the Compliance Offset Protocols. As to this claim, the court made it clear that it would not substitute its judgment for that of the agency regarding CARB’s factual and policy considerations supporting the regulation. Pointing to the record, the court found that evidence substantially supported CARB’s policy decisions in formulating the protocols.