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

August 24, 2011

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.