California Appellate Court Greenlights California Air Resources Board's Cap-And-Trade Program

by Sheppard Mullin Richter & Hampton LLP

[author: Whitney Hodges and Randolph Visser]

On Tuesday, June 19, 2012, the California First District Court of Appeal ruled in favor of the California Air Resources Board (“ARB”) and upheld its Climate Change Scoping Plan (“Scoping Plan”), which charts dozens of climate change control measures, in Association of Irritated Residents et al. v. ARB, Case No. A132165 (decision here). This ruling clears the way for ARB to move forward with its designated plan to combat greenhouse gas (“GhG”) emissions with a market-based cap-and-trade program. The decision also found the Scoping Plan to be in compliance with the 2006 California Global Warming Solutions Act, also known as AB 32, which required ARB to prepare a scoping plan to reduce GhG emissions to 1990 levels by the end of 2020. A ruling against ARB could have forced ARB to revise the Scoping Plan and freeze implementation of its GhG regulations.

The cap-and-trade program sets industry-wide limits on GhG emissions and allows businesses that exceed their limits to buy allowances, or credits, from under-polluting businesses. The cap-and-trade program also permits over-polluting businesses to meet their obligations through the purchase of carbon offsets generated by approved projects outside the cap-and-trade compliance program, including environmentally friendly actions like planting trees. The cap-and-trade program is scheduled, after a one-year delay, to take effect next year (article here).

The three-judge appellate panel rejected a challenge from environmental advocates and activist groups led by Association of Irritated Residents (collectively, “AIR”)[2], who argued that the Scoping Plan, in conjunction with the cap-and-trade program, violated AB 32. However, the Court disagreed and ruled that AIR could not point to a single control measure that was included or rejected in the Scoping Plan by ARB in which substantial evidence was not considered. Instead, the Court determined the entirety of the Scoping Plan “reflects an exercise of sound judgment” and was not arbitrary or capricious.

The Court found that ARB, which adopted the Scoping Plan in 2009, provided adequate reasons for rejecting alternatives like binding limits on emissions and a carbon-based fuel tax. In the unanimous ruling, Justice Stuart Pollak stated, “[i]t is not for this court to re-evaluate ARB’s judgment call” that was the result of “knowledgeable input from industry, academia, environmental organizations, and members of the general public.” The ruling further emphasized the “exceptional lengths” taken by ARB “to obtain informed and scholarly input on the complex scientific and economic issues” related to compliance with AB 32. Additionally, the Court determined that “[e]ven if other measures, such as inflexible emission limits or emissions taxes might conceivably result in greater reductions, the act does not call for maximum reductions without qualification, but for maximum reductions that are both feasible and cost-effective.”

AIR originally brought its suit in 2009 in the California Superior Court in San Francisco, charging that the Scoping Plan violates CEQA and AB 32 and claiming the cap-and-trade program allows the worst polluters to continue to pollute without restriction. Last year, the Superior Court ruled that ARB did violate CEQA but did not violate AB 32 (article here).

While the CEQA issues have been resolved, AIR continued to pursue the AB 32 claims under a cross-appeal. AIR contended that the Scoping Plan failed to achieve “maximum technologically feasible” GhG emission reductions and failed to include agricultural and certain other industry sectors. Specifically, AIR argued that emission credits for tree-planting and voluntary reductions in farm-related air pollutants are largely unenforceable and less effective than binding emissions limits. In addition to claiming the Scoping Plan violated AB 32, AIR also alleged the cap-and-trade program presented an environmental justice problem as the state’s worst polluters are located, by and large, in low-income and non-white communities and the program, by allowing polluters to “buy” their compliance, would disproportionately affect minority groups. In furtherance of this particular claim, some of the environmental advocates and activist groups involved in this lawsuit filed a civil rights complaint with the United States Environmental Protection Agency on June 8, 2012, which is still pending.

Plaintiffs’ attorney, Brent Newell of the Center on Race, Poverty and the Environment, said that his clients were disappointed with the Appellate Court’s ruling, adding that a decision on whether to appeal the ruling has yet to be made. Newell opined that “[t]he Court was very deferential to ARB’s interpretation of what AB 32 requires and was very deferential to ARB’s decision and analysis implementing AB 32.”

ARB spokesman Stanley Young said the ruling supports ARB’s goal of encouraging innovative technologies that will “continue to create new jobs and move California toward a clean-energy economy.”

[1] This article is the latest in a series chronicling the first litigation challenge to AB 32 (the Global Warming Solutions Act) and the cap-and-trade program in Association of Irritated Residents, et al. v. California Air Resources Board, Case No. CPF-09-509562.

[2] Other environmental groups that joined Association of Irritated Residents in this suit include the Center on Race, Poverty and the Environment, California Communities Against Toxins, Communities for a Better Environment, Coalition for a Safe Environment, Society for Positive Action and West County Toxins Coalition.


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