CEQA Review Of Regulatory Program Must be Completed Before Approval Of Regulations

A state agency’s board approved new environmental regulations on fuels contributing to greenhouse gas emissions and at the same time delegated completion of environmental review and response to public comments to the agency’s chief executive officer.  A manufacturer of corn-based ethanol fuel filed suit, claiming the agency violated the California Environmental Quality Act (“CEQA”).  The trial court rejected the claim.  On appeal, the state appellate court reversed the decision, finding that the agency violated CEQA by approving the regulations before completion of environmental review and by delegating responsibility for environmental review.  (POET, LLC v. California Air Resources Bd. (--- Cal.Rptr.3d ----, Cal.App. 5 Dist., July 15, 2013).

Facts

In 2006, the California Legislature passed Assembly Bill No. 32, the Global Warming Solutions Act (“AB 32”).  AB 32 requires the state to lower its greenhouse gas emissions to 1990 levels by 2020 and charges the state Air Resources Board (“ARB”) with monitoring and regulating sources of emissions that contribute to greenhouse gas in the atmosphere.  In compliance with AB 32 and an executive order issued by the governor, ARB proposed regulations on Low Carbon Fuel Standards (“LCFS”) aimed at reducing the carbon content of fuels used for transportation.  The LCFS created performance standards that set annual benchmarks, called carbon intensity values, for the amount of carbon output allowed for different types of fuel.  These values were determined by analyzing the total quantity of greenhouse gas emissions created at all steps of a fuel’s lifecycle, from production to use of the fuel.  As part of the lifecycle analysis for crop-based biofuels such as corn-based ethanol, the ARB staff modeled how land use changes connected with use of biofuel might contribute to greenhouse gas emissions. 

The proposed LCFS were presented and discussed at public rulemaking workshops and in an Initial Statement of Reasons (“ISOR”).  The ISOR stated that diesel made from crop or animal fat sources (“biodiesel”) had been reported to increase emissions of the greenhouse gas nitrogen oxide (NOx).  At the same time, the ISOR took the position that promoting the use of biodiesel would not increase NOx, “because staff is currently conducting an extensive test program . . . to establish specifications to ensure there is no increase in NOx.”  In response to public comments critical of this assumption, the ARB repeated the assertion that there would be no NOx increase because the ARB would establish a new fuel specification for biodiesel that would lead to that result. 

On April 23, 2009, the ARB’s Board conducted a public hearing approving the LCFS regulations for adoption.  The Board assigned the ARB’s Executive Officer to incorporate nonsubstantive modifications and be the decisionmaker in completing environmental review of the regulations.  These modifications were later made available for public comment.  Final adoption of the LCFS regulations occurred in 2010.

POET, LLC, a producer of corn-based ethanol, and James M. Lyons (“Plaintiffs”) filed a petition for writ of mandate and declaratory and injunctive relief, claiming that ARB violated CEQA and the Administrative Procedures Act (“APA”).  The trial court rejected Plaintiffs’ lawsuit and found in favor of ARB.  The Plaintiffs appealed.

Decision

The Fifth District Court of Appeal reversed the trial court decision, finding that ARB had violated CEQA and the APA in its rulemaking process on the LCFS regulations.  Regarding the CEQA violations, the court of appeal found that ARB violated CEQA in three ways:  1) by essentially approving the regulations before completing environmental review; 2) by dividing the authority to approve the regulations from the responsibility of completing the environmental review; and 3) by impermissibly deferring the formulation of mitigation measures for increases in NOx caused by biodiesel.  However, the court of appeal ruled that the LCFS regulations could remain in effect while the ARB came into compliance with CEQA and the APA.

The court noted at the outset that ARB’s CEQA environmental review requirements for agency rulemaking differed from those required for typical land developments.  While a development such as a shopping center may require an Environmental Impact Report (“EIR”), a certified regulatory program of a state agency does not.  This is because environmental review of the program is required to be contained in the program plan or other program-related documentation, and to require an EIR as well would be redundant.  However, the court noted that under a certified regulatory program, an agency was still required to comply with other provisions of CEQA, including CEQA’s goals and policies.  The court of appeal rejected ARB’s assertion that the CEQA Guidelines contained in the California Code of Regulations do not apply to certified regulatory programs.

Premature Approval of Regulations

The Court of Appeal observed that although the CEQA statute did not expressly specify when project approval may occur for a certified regulatory program, the CEQA Guidelines indicate that approval may not occur before consideration of environmental review documents.  The court concluded that to find otherwise would subvert CEQA’s goal of requiring decisionmakers to consider project alternatives and mitigation measures before approving the project, resulting instead in environmental review that was a “post hoc rationalization.” 

The court rejected ARB’s contention that the LCFS regulations were not approved until after environmental review was complete.  Instead, the court agreed with the Plaintiffs’ argument that approval for CEQA purposes occurred at the April 23, 2009 public hearing, before completion of environmental review.  The court stated that “approval” under the CEQA Guidelines occurs when a public agency makes a decision “which commits the agency to a definite course of action” regarding the project.  Under the Guidelines, the date of approval is determined by rules set by the public agency, but ARB had not established a rule defining that date.  In the absence of an ARB rule, the court turned to the California Supreme Court decision in Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116.  The court observed that Save Tara held that project approval should be determined on a case-by-case basis to identify the point at which the public agency commits itself “as a practical matter to the project.”  In Save Tara, that point occurred when a city entered into a conditional development agreement that made a large predevelopment loan to the project proponent.

The court of appeal noted that Save Tara involved a project built by private parties but that the general principles of the case should be extended to public projects under certified regulatory programs.  The court of appeal noted that the Guidelines did not limit the definition of approval to private projects and that to limit it would undermine CEQA’s policy of timing environmental review so that it may inform and guide decisionmakers before project approval.  The court of appeal examined ARB materials associated with the April 23, 2009 public hearing including the notice of hearing, the Board resolution passed at the hearing, press releases, and Notices of Decision filed with the Resources Agency.  The court noted that these documents discussed how the Board was taking action at the meeting to “approve” or “adopt” the LCFS regulations.  While the Board decision did leave the door open for some modifications to the LCFS, the court concluded that overall the documents indicated that the LCFS “had significant bureaucratic momentum” after the Board approved their adoption on April 23, 2009.  This “left little doubt that ARB was committed to implementing the LCFS.”  The court noted that ARB did not dispute that environmental review had not been completed at the time of the April 23, 2009 public meeting.

Dividing Decisionmaking Authority from Authority to Complete CEQA Review

Along with approving the LCFS regulations, at the April 23, 2009 public meeting the Board also tasked the ARB’s Executive Officer with the job of decisionmaker in completing environmental review and responding to environmental issues and comments on the LCFS regulations.  The court found that this action violated CEQA by separating decisionmaking on environmental review from decisionmaking on the approval of the project.  The court rejected ARB’s argument that CEQA allowed delegation of those actions to the Executive Officer.  The court observed that the CEQA guidelines do not allow the decisionmaking body of a public agency to delegate the making of CEQA findings or the review and consideration of a final environmental document such as a final EIR or negative declaration.

The court concluded that ARB’s delegation violated “a fundamental policy of CEQA” because in order for “an environmental review document to serve CEQA's basic purpose of informing governmental decision makers about environmental issues, that document must be reviewed and considered by the same person or group of persons who make the decision to approve” the project.

Impermissible Deferral of Mitigation Measures for Increases in NOx

The court of appeal found ARB further violated CEQA by improperly deferring formulation of mitigation measures for NOx that would be triggered by the LCFS regulations’ promotion of increased use of biodiesel.  The court observed that deferral of formulating the details of mitigation may be allowed under CEQA provided that the agency commits to specific performance standards for that mitigation.  The court rejected ARB’s assertion that it set a performance standard by committing to set fuel specifications “to ensure there is no increase in NOx.”  The court held that ARB’s mitigation proposal lacked objective performance criteria by which to measure success.  For example, the ARB failed to specify “what tests will be performed and what measurements will be taken” to demonstrate that NOx emissions are not increasing.

LCFS Regulations to Remain in Effect

Nonetheless, the court concluded that the LCFS regulations should remain operative while ARB comes into compliance with CEQA, provided that ARB acts with diligence in doing so.  The court explained that allowing the regulations to stand was unlikely to prejudice the consideration of alternatives or the development of mitigation measures.  “Written standards, unlike projects involving construction of facilities, do not become part of the physical environment.”  Moreover, the court concluded that suspending the regulations would be contrary to CEQA and to the public interest due to impacts to the environment that would likely occur in the absence of the regulations.

Note

For a discussion of the referenced Save Tara case, please see our Legal Alert entitled, “Supreme Court Determines City's Agreement To Allow Private Development Conditioned On Future Compliance With The California Environmental Quality Act Amounts To Approval Of The Project And Must Be Preceded By Preparation Of An Environmental Impact Report”, November 9, 2008.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Daniel J. O’Hanlon or Leslie Z. Walker | 916.321.4500

 

Topics:  CEQA, Ethanol, Greenhouse Gas Emissions, Oil & Gas

Published In: Energy & Utilities Updates, Environmental Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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