California Cap-and-Trade Program on Hold Pending Additional Environmental Review

by Davis Wright Tremaine LLP

A California state court has halted implementation of the California Cap-and-Trade Program. The court issued a ruling based on compliance with requirements of the California Environmental Quality Act (CEQA) that could have significant impacts on the California Air Resources Board’s (CARB) planned implementation of California’s landmark greenhouse gas (GHG) law, Assembly Bill 32 (AB 32).

The March 17, 2011, Statement of Decision from San Francisco Superior Court in Association of Irritated Residents v. California Air Resources Board [Case No. CPF-09-509562] has the potential to delay implementation of a wide range of measures set forth in the AB 32 Scoping Plan, which includes the Cap-and-Trade Program that was scheduled to begin on Jan. 1, 2012.

Background on the California Global Warming Solutions Act of 2006 (AB 32)

AB 32 was enacted on Sept. 27, 2006. The statute directs CARB to develop a Scoping Plan to reduce statewide GHG emissions to 1990 levels by the year 2020. In December 2008, CARB adopted its Scoping Plan.

CARB’s AB 32 Scoping Plan sets forth CARB’s overall program design for meeting its AB 32 statutory mandate. It includes a variety of strategies for reducing GHG emissions, including measures such as energy efficiency, a renewable portfolio standard, and a low carbon fuel standard. The Scoping Plan also endorsed the establishment of a Cap-and-Trade Program to meet AB 32’s mandatory GHG reduction targets. Entities covered by AB 32 must rely on the GHG allowance and offset products available in the cap-and-trade market to satisfy their compliance obligations. The Cap-and-Trade Program is scheduled to begin for California’s electricity sector and large industrial sources on Jan. 1, 2012. The transportation and natural gas sectors will be covered by mandatory AB 32 compliance obligations starting in January 2015.

Environmental justice groups challenge the AB 32 Scoping Plan and the Cap-and-Trade Program

On June 10, 2009, the Association of Irritated Residents (AIR) filed suit in San Francisco Superior Court against CARB along with a consortium of other environmental justice groups (Petitioners). Petitioners alleged that CARB failed to satisfy CEQA when it implemented the AB 32 Scoping Plan and the Cap-and-Trade Program. Petitioners also claimed that CARB’s implementation of the AB 32 Scoping Plan failed to satisfy the statutory requirements of AB 32.

Petitioners challenged the environmental review document that CARB prepared to evaluate the Scoping Plan on the grounds that CARB failed to take the steps necessary to complete a valid environmental review under CEQA. More specifically, Petitioners claimed that CARB (1) did not adequately evaluate the impacts of Scoping Plan measures; (2) did not adequately evaluate alternatives; and (3) improperly approved and implemented the AB 32 Scoping Plan before CARB received and responded to public comments. Only the latter two challenges to the AB 32 Scoping Plan were successful.

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