In a detailed 66-page published opinion filed April 10, 2017, the Fifth District Court of Appeal reversed the trial court’s order discharging a writ of mandate that was issued to compel the California Air Resources Board (“CARB”) to correct CEQA violations in connection with its 2009 adoption of low carbon fuel standards (“LCFS”) regulations.  POET, LLC v. State Air Resources Board (National Resources Defense Council, Inc., Intervenor and Respondent) (2017) _____ Cal.App.5th _____, Case No. F073340  (“POET II”).  The CEQA violations resulting in the writ were discussed in the Court of Appeal’s earlier published opinion, POET, LLC. V. State Air Resources Bd. (2013) 218 Cal.App.4th 68 (“POET I”), which was summarized in my blog post here.

CARB enacted the LCFS regulations to progressively reduce GHG emissions from transportation fuels by requiring regulated parties to meet specified average carbon intensity requirements for the gasoline and diesel fuels they handle annually.  To meet the requirements, a party handling conventional diesel fuels would need to use some substitutes assigned lower carbon intensities, such as biodiesels (i.e., fuels made using animal fat and use of plant oil feedstocks) or renewable diesel.  The CEQA litigation over the LCFS regulations centers on the adequacy of CARB’s analysis of biodiesel.  This is because increased use of biodiesel as an alternative to conventional diesel to meet the LCFS has both beneficial and adverse environmental impacts (i.e., it decreases climate-change inducing GHG emissions but increases smog-producing NOx emissions).  The crux of the problem in both POET I and POET II was CARB’s failure to adequately analyze, disclose and mitigate the adverse impacts of increased NOx emissions that are attributable to its LCFS regulations.

The basic legal issue in POET II concerns whether CARB complied with a part of the writ issued in POET I (paragraph 3) requiring it to adequately analyze the effects of its “project” – i.e., adoption of the LCFS regulations – on biodiesel consumption and any related increases in NOx emissions.  The Court held CARB’s return to the writ failed to demonstrate compliance because it omitted any analysis of the NOx effects its original 2009 LCFS regulations – thus failing to analyze the “whole” of the activity comprising its CEQA “project” – and employed an impermissible 2014 emissions baseline well beyond the 2009 commencement of CARB’s environmental review.  From a legal perspective, the Court concluded these errors violated well established law including (1) CEQA’s “broad interpretation of ‘project’ to encompass ‘the whole of an action’ ([CEQA] Guidelines, § 15378, subd. (a)),” and (2) CEQA’s rule that the environmental “baseline” against which a project’s effects must be measured normally constitutes physical conditions existing at the time environmental review commences.  (§ 15125(a).)  From a practical perspective, these errors allowed CARB to minimize the NOx impacts of its revised 2015 LCFS regulations by measuring them against a “baseline” of NOx emissions that had considerably increased since 2009, without analyzing whether this increase had been caused in whole or part by its “project” (i.e., its enactment of the original 2009 LCFS regulations) and without analyzing and requiring any feasible mitigation.

While the Court’s lengthy published opinion elaborates on the issues and applicable rules in scholastic fashion, some of its more significant “take aways” can be encapsulated as follows:

• “[T]he abuse of discretion standard [of review] applies to [C]ARB’s actions because [its] attempt to comply with the writ is for all practical purposes, an attempt to comply with CEQA. ([Pub. Resources Code,] § 21168.5.)”  But in this context the standard was not deferential to CARB.  Because the Court of Appeal drafted the language of the 2014 writ that was at issue, it was “in the best position to determine its meaning and explain its purpose” and therefore held its “interpretation … should be treated as a question of law subject to our independent review and [C]ARB’s interpretation should be given no deference.  In short, the abuse of discretion standard of review does not allow [C]ARB to misconstrue the directions given by this court in POET I.”
• The Court observed that CARB’s “assurance” in its original environmental review documents for the 2009 LCFS regulation that it would promulgate biodiesel fuel specifications in the future that would ensure NOx emissions did not increase “was an empty promise.” Such specifications were never forthcoming, leading to the writ issued in POET I, which directed CARB to analyze and make evidence-supported findings on potential adverse NOx emissions impacts and adopt mitigation measures if such effects were found significant.  Instead, CARB adopted modified 2015 LCFS and Alternative Diesel Fuel (“ADF”) regulations and sidestepped that analysis entirely through use of a 2014 baseline which enabled it to conclude that “total NOx emissions from biodiesel will decline from the 2014 baseline level” under those new regulations and there would thus be no resulting significant adverse air quality impact to mitigate.  The Court was unhappy with this “analysis,” which obviously failed to account for any increases in biodiesel use and resulting emissions caused by the original 2009 LCFS regulations, despite the fact that those regulations clearly encouraged increased biodiesel use.
• The original and 2015 LCFS regulations were closely “related to one another” as “part of a single, coordinated endeavor” and were an “activity directly undertaken by [a] public agency.” They were thus part of the “project” to be analyzed by CARB under the writ and CEQA.  In holding CARB’s failure to analyze the effects of the 2009 LCFS regulations did not comply with the writ, the Court explained the continuing CEQA violation as follows:  “A simple way to conceptualize the goal of the writ is to consider the information that would have been provided if [C]ARB had complied with CEQA in the first place.  [C]ARB’s failure to comply with CEQA meant [its] first set of environmental disclosure documents failed to provide all of the information required by CEQA.  Paragraph 3 [of the writ] sought to remedy that informational deficit by directing [C]ARB to provide the missing information.  From an informational prospective [sic], … [C]ARB’s remedial actions should have placed the public and decision makers in the same positions they would have occupied if the first set of environmental disclosure documents had satisfied CEQA.”
• In sharply criticizing CARB’s narrow interpretation of “project” to exclude the original 2009 LCFS regulations, the Court noted it was contrary to how the term “would be interpreted by an objectively reasonable attorney familiar with CEQA, the Guidelines, [and] published CEQA decisions discussing the term….”
• Summarizing the applicable “baseline” principles as ordinarily requiring an “existing conditions” baseline analysis except where an adequate justification permits its omission – i.e., where such an analysis would be “uninformative or misleading to the decision makers and the public” – the Court held CARB had failed to demonstrate such a justification or that its 2014 baseline was a realistic or accurate one. CARB conceded 2009 NOx emissions were minimal and that it would not be “impossible” to apportion 2009-2014 increases among the original LCFS regulations and other factors (such as Federal biodiesel incentives).  Its use of a 2014 baseline included increased NOx emissions from the original regulations, overstating the baseline figure, skewing CARB’s analysis, violating the writ, and thus “result[ing] in its environmental documents omitting information (1) required by CEQA and (2) necessary to an informed discussion.”  The “information gaps” regarding 2009-2014 NOx emissions and omission of a proper baseline were not “insubstantial, technical errors” but, rather, went to “the heart of the analysis used to determine whether a project is likely to have a significant adverse environmental impact[.]”
• The Court summarized “the appellate relief available when a trial court erroneously discharges a writ” under Code of Civil Procedure section 906 and applicable case law as “(1) reversal of the order discharging the writ and (2) instructions to the trial court to issue (a) an order directing the public official or agency to comply with the writ and (b) any further appropriate orders to compel obedience to the writ.” A “further order” will generally be “appropriate” in a CEQA case if it requires a type of relief permitted by CEQA and promotes the goal of CEQA compliance; while there are express limits on CEQA relief under Public Resources Code, § 21168.9, there are no implied limits on a court’s equitable powers thereunder.
• While the Court thus had the power to suspend the 2015 LCFS regulations, it ultimately held it would not do so because of the same “baby-with-the-bathwater problem” that prompted its unusual POET I remedial order voiding the CARB’s “approval” but leaving the original LCFS regulations in place. After determining it would exercise its discretionary authority to prepare the terms of the order to be issued on command, the Court undertook a detail analysis of potential remedies, severance, and related issues, and concluded that, due to reliance by the regulated community in filling quarterly and annual reports and developing and investing in certain compliance strategies, returning to the pre-2015 LCFS status quo would be unduly disruptive to the regulated parties and fuel markets.  Accordingly, it chose not to sever the provisions relating to either biodiesel or other conventional diesel substitutes from the remainder of the 2015 LCFS regulations, and not to suspend any part of those regulations on remand.
• The Court held severance and suspension was not necessary, and that allowing the 2015 LCFS regulations to continue in effect while CARB corrected its CEQA violation would not prejudice its consideration of alternatives and mitigation measures. The “overall environmental impact of suspension” was a factor favoring this result as well.  Per the Court:  “[W]e conclude that suspending the diesel provisions of the LCFS regulations would result in adverse environmental effects due to the increased emissions of greenhouse gases.  Weighing this actual increase against a potential reduction in NOx emissions favors not suspending the diesel provisions of the LCFS regulations.”
• The Court of Appeal had some more sharp criticisms of CARB’s conduct. It found CARB did not act in good faith because its “misrepresentation of the term ‘project’ was not subjectively reasonable.”  CARB appeared to be “attempting to avoid its disclosure and fact finding responsibilities” with respect to analyzing biodiesel NOx emissions, and it exhibited a “willingness to ignore the weight of authority to grasp the slenderest of reeds to justify misreading the writ.”  The Court nonetheless concluded that “the tail should not wag the dog and the goals of CEQA should not be compromised to punish agency bad faith. …  The only way to justify such relief [i.e., suspending the 2015 regulations to punish CARB] would be if the benefits derived from deterring future agency misconduct clearly outweighed the adverse environmental effects of that relief.  Here, the possible deterrence benefit does not meet this test.”  Per the Court:  “[W]e [thus] conclude that the provisions in the LCFS regulations addressing diesel fuel and its substitutes, though severable, should not be suspended while [C]ARB makes another attempt at analyzing NOx emissions from biodiesel in a manner that complies with CEQA and the writ.”  To maintain the 2017 status quo, the Court did, however, order that the severable portion of the regulations would be frozen and remain the operative standards until CARB obtained a discharge of the writ.
• Offering guidance on remand, the Court appeared to view CARB’s proposed use of a 2010 baseline with skepticism; it appeared to strongly suggest a 2009 baseline would be most appropriate.  It cautioned that if CARB determined to apply a 2010 “baseline” it would need to “justify that departure from the norm and support its justification with substantial evidence” (citing Neighbors for Smart Rail v. Exposition Metro Line Construction Authority (2013) 57 Cal.4th 439, 448), as well as considering (as factfinder) the possibility that the original LCFS regulations may have incentivized increased biodiesel use by the regulated community’s anticipation even before they took effect.  As part of its very detailed disposition, the Court also expressly forbade CARB to use any baseline later than year 2010.