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California Trial Court Upholds CARB Authority to Use Offsets in Cap-and-Trade Program

On January 25, 2013, a California Superior Court issued a ruling allowing the California Air Resources Board (ARB) to use carbon offset projects as a compliance tool under the state’s economy-wide greenhouse gas cap-and-trade program.

At issue in the case are four protocols the California ARB approved in October 2011 that give cap-and-trade program participants the option of meeting a portion of their emissions reduction obligations by investing in projects that reduce methane from livestock operations, destroy refrigerants with high-global warming potential, and create carbon sinks by planting new forests through two separate protocols. 

The case was brought by the Citizens Climate Lobby, which argued that the offset projects undercut the goals of the state's Global Warming Solutions Act of 2006 (A.B. 32) because they do not ensure the emissions reductions would be “additional” to those otherwise achieved under the state's climate policies.  The court rejected this argument, holding that A.B. 32 gives the California ARB “vast discretion” to develop regulations to curb greenhouse gas emissions, and that evidence in the administrative record shows the California ARB's use of the standards-based approach in developing the carbon offset protocols is consistent with the law.  

Challenge to New York’s Participation in RGGI Dismissed

An attempt to disrupt New York's participation in the Regional Greenhouse Gas Initiative, which caps carbon pollution from the power sector in the northeastern U.S., was dismissed by the Albany County Supreme Court on June 13, 2012.

The lawsuit (Thrun v. Cuomo, Index No. 4368-11 (N.Y. Supreme Court Albany County, 2012)) was filed by three state residents who argued the program was effectively a coercive tax on electricity levied without the approval of the state legislature, in violation of the state constitution.  The court found that the plaintiffs lacked standing to sue because they did not face an injury that could be distinguished from effects of the program on the general public.  The court also found that the case was barred due to the “unreasonable delay” between 2008, when New York implemented its RGGI regulations, and 2011, when the suit was filed.  

D.C. Circuit Stays EPA Cross-State Air Pollution Rule (CSAPR)

On December 30, 2011, the D.C. Circuit Court of Appeals issued a stay against implementation of the Cross-State Air Pollution Rule (CSAPR).  The CSAPR sets emissions budgets for 28 states whose emissions of SO2, NOx, and/or ozone currently represent a significant impediment to another state’s National Ambient Air Quality Standards (NAAQS) attainment in an average year.  The rule was finalized by EPA on August 8, 2011, with technical revisions proposed on October 6, 2011, and was scheduled to take effect on January 1, 2012.

The case in which the stay was issued, EME Homer City Generation LP v. U.S. Environmental Protection Agency, 11-1302, is one of more than three dozen lawsuits challenging the CSAPR.   Oral argument has not been scheduled, but the order indicates that the parties should prepare briefs for an April hearing.  The stay order does not address the underlying merits of the case, only the issue of irreparable harm.  Although the court did not spell out its reasoning, the plaintiffs had argued that the EPA’s six-month compliance timeline imposes a substantial and imminent injury. 

The CSAPR replaces the 2005 Clean Air Interstate Rule (CAIR), which was struck down in North Carolina v. EPA on the grounds that CAIR’s region-wide cap-and-trade structure did not address the effects of emissions from each particular state on downwind states. (531 F.3d 896 (D.C. Cir. 2008)).  CSAPR seeks to address the defect in CAIR by placing strict limits on interstate trading of emissions allowances, along with other safeguards to ensure that upwind state emissions of SO2, NOx, and ozone do not significantly contribute to nonattainment of the NAAQS in a downwind state.

Under the August 8 CSAPR, Tradable emissions allowances are initially allocated under Federal Implementation Plans (FIPs) to existing units in proportion to their historical heat input values, with a small portion set aside for new units.  States can replace these FIP allocations with State Implementation Plans (SIPs) beginning in 2013. 

EPA estimates that the CSAPR will reduce emissions of CO2 from electric generating units (EGUs) by about 25 million metric tons (about 1.1% of total domestic electricity sector emissions) annually once fully implemented in 2014, mostly via accelerating retirement of inefficient EGUs.  

Court Allows California to Continue Work on Cap-and-Trade Program, Agency Proposes to Delay Requiring Compliance Until 2013

On June 13, a California Appellate court stayed an injunction issued by a lower court against the California Air Resources Board (ARB), allowing the agency to continue working on its cap-and-trade program. (No. A132165). Separately, ARB approved a revised analysis of alternatives to cap and trade on August 24, responding to the lower court’s ruling that the agency’s original analysis was inadequate. ARB also announced that it would be delaying the date that entities would be required to comply with its cap-and-trade program until 2013.

In Association of Irritated Residents, et al. v. California Air Resources Board, the San Francisco Superior Court issued an injunction on May 20 preventing ARB from conducting any further work on its cap-and-trade program. (No. CPF-09-509562). The environmental justice plaintiffs alleged, and the court agreed, that ARB failed to conduct an adequate analysis of alternatives to cap and trade, as required by California’s Environmental Quality Act, when it decided to make cap and trade a central element of its scoping plan to reduce greenhouse gas (GHG) emissions. The scoping plan lays out the state’s strategy to achieve its mandatory GHG reductions goals under the Global Warming Solutions Act of 2006 (AB 32), which requires the state to reduce GHG emissions to 1990 levels by 2020.

Environmental justice advocates have argued that using cap-and-trade mechanisms to control GHGs is likely to result in continued or increased disparate emissions of harmful conventional pollutants in low-income or minority communities.

The plaintiffs in Association of Irritated Residents have appealed the appellate court’s stay to the California Supreme Court. A group of environmental justice advocates, including the plaintiffs, also sent a letter on July 28 to Governor Jerry Brown articulating their concerns and urging him to reconsider the use of cap and trade in achieving California’s required emissions reductions.

The revised alternatives analysis adopted by ARB, referred to as the “Supplement to the AB 32 Scoping Plan Functional Equivalent Document,” elaborates on the alternatives mentioned in the original scoping plan, but comes to the same conclusion that cap and trade is the best tool for achieving California’s emission reduction goals. ARB Chair Mary Nichols explained:

"The analysis that led us to conclude that a cap-and-trade program was the correct
alternative choice is fundamentally sound, and I think that this document lays that out quite clearly." (State releases new cap-and-trade alternatives analysis, Climate Wire, June 14, 2011).

If the lower court finds that this revised analysis is adequate, it would moot the rationale for the court’s injunction.

ARB continues to move forward with its cap and trade rulemaking. The board approved the proposed rules at its December 16, 2010 meeting, but requested certain changes to the regulations before they were to be finalized. ARB released a proposed modification on July 25 responding to the board’s directions and incorporating changes to better align the program with other cap-and-trade programs that are to be part of the Western Climate Initiative (WCI).

The revised rule includes a decision to delay compliance requirements for the cap-and-trade program until January 2013. The program will still begin in January 2012 and hold two allowance auctions in 2012, but the agency will not require firms to demonstrate that they are holding the necessary allowances until 2013. Nichols testified to the California Senate Committee on Environment, Economy and Climate Change that the delay would not affect the stringency of the program or the amount of GHGs that industries will be forced to cut by the end of the decade. (California delays its carbon-trading program until 2013, L.A. Times, June 30, 2011).

ARB took comments on the revised rules until Aug. 11, and plans to release a final draft soon. The agency must submit a final rule to the California Office of Administrative Law by Oct. 28 in order to comply with internal deadlines.

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