Court Rejects Challenge to California’s Cap-and-Trade Carbon Offset Program

On January 25, 2013, a California state court rejected a challenge to an important component of California’s cap-and-trade scheme, its emission offset program. In the first legal decision regarding the program since its compliance obligations began on January 1, 2013, the San Francisco Superior Court in Citizens Climate Lobby v. California Air Resources Board denied a challenge to the offset standards designed by the California Air Resources Board (CARB). Two citizens groups, Citizens Climate Lobby (CCL) and Our Children’s Earth Foundation, brought the action against CARB.

Under CARB’s cap-and-trade program, developed pursuant to the California Global Warming Solutions Act of 2006 (AB 32), certain projects that reduce greenhouse gas (GHG) emissions can apply to receive offset credits for each ton of GHG reduction. These credits can then be sold to regulated entities, who must acquire allowances or offsets for each ton of GHG emitted, and can satisfy up to eight percent of their compliance obligations through offsets. The legislature authorized CARB to credit emission reductions that were “in addition to . . . any greenhouse gas emission reduction that would otherwise occur” under a business-as-usual scenario. Cal. Health & Safety Code § 38562(d)(2). At issue in the Citizens Climate Lobby lawsuit was the method developed by CARB to determine whether a GHG offset project meets this “additionality” requirement.

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