Tag: California Air Resources Board

Fifth District Rules CARB Acted in Bad Faith in Selecting Baseline for Analysis of Low Carbon Fuel Standards Regulations

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In POET, LLC v. State Air Resources Board (2017) 12 Cal.App.5th 52 (“POET II”), the Fifth District Court of Appeal held that the California Air Resources Board (CARB) failed to comply with the terms of the writ of mandate issued by the same court in POET, LLC v. State Air Resources Board (2013) 218 Cal.App.4th 681 (“POET I”). The court invalidated the trial court’s discharge of the writ, modified the existing writ, and ordered CARB to correct its defective CEQA Environmental Analysis (EA).

Legal and Factual Background
CARB promulgated low carbon fuel standards (LCFS) in 2009 as required by the 2006 California Global Warming Solutions Act (“AB 32”). In promulgating the LCFS, CARB adopted an EA, the regulatory equivalent to an Environmental Impact Report, pursuant to CEQA. Those original regulations and the associated EA were the subject of litigation in POET I, where the Fifth District found that the EA violated CEQA by impermissibly deferring analysis of nitrous oxide (NOx) emissions from biodiesel fuel. The appellate court took the acknowledged “unusual” step of allowing the regulations to remain in effect, pending satisfaction of a writ of mandate (“2014 writ”).

In 2015, in response to the court’s ruling in POET I, CARB produced an updated EA, updated LCFS regulations (2015 regulations), and alternative diesel fuel regulations (ADF regulations). The EA analyzed the project using a 2014 baseline and determined that the regulations would not have significant impacts related to NOx emissions. On the return to the writ, the trial court sided with CARB and discharged the 2014 writ. This appeal followed.

Court’s Analysis
The Court of Appeal applied the abuse of discretion standard to its analysis of whether the lower court’s discharge of the 2014 writ was proper. The court concluded that CARB continued to violate CEQA and the 2014 writ by selecting a 2014 project baseline. The court explained that a normal existing-conditions baseline begins when the project commences and must include all related project activities. In addition, a regulatory scheme is a “project” under CEQA and includes all enactment, implementation, and enforcement activities. Here, the original regulations, 2015 regulations, and ADF regulations were related activities because they concerned the same subject matter, had a shared objective, covered the same geographic area, and were temporally connected.

Thus, by selecting 2014 as the baseline, the court found that the EA failed to consider how the original regulations, which remained in effect during and after POET I, encouraged and increased the use of biodiesel fuel and its effect on NOx emissions. According to the court, selecting such a limited baseline was not even “objectively reasonable” from the point of view of an attorney familiar with CEQA and the Guidelines. In addition, the court found that the flawed CEQA analysis was prejudicial because it deprived the public of a meaningful opportunity to review the effect of the agency’s actions on the environment.

Remedy
On remand, the court ordered that CARB review its project baseline. While declining to require a specific baseline date, CARB was instructed to select a “normal” baseline consistent with the court’s analysis and in any event, to not select a baseline date of 2010 or after. The court implied that the baseline could even have begun in calendar year 2006, consistent with then-Governor Schwarzenegger’s 2007 mandate to the agency to review fuel emissions.

The parties agreed that the ADF regulations were both severable and independently enforceable from the 2015 regulations. The court found that the 2015 regulations were also severable from the remainder of the LCFS regulations because, though more effective in their entirety, the remaining regulations would be complete and retain utility. Ultimately though, like in POET I, the court concluded that, on balance, suspending the regulations would cause more environmental harm than allowing them to remain.

Thus, the court reversed the order discharging the writ and ordered the superior court to modify the writ to compel CARB to amend its analysis of NOx emissions and freeze the existing regulations as they relate to diesel and its substitutes. In addition, the court ordered the superior court to retain jurisdiction, and to require CARB to “proceed diligently, reasonably and in subjective good faith.” Finally, the court ordered that if CARB fails to proceed in this manner, the superior court shall immediately vacate the portion of the writ preserving the existing regulations, and may impose additional sanctions.

 

California Air Resources Board 2017 Climate Change Scoping Plan Update Issued

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In January 2017, the California Air Resources Board (CARB) released the Draft 2017 Climate Change Scoping Plan Update. The Proposed Scoping Plan identifies the overall strategy to reduce greenhouse gas (GHG) emissions by 40 percent below 1990 levels by 2030—the target codified in SB 32. The strategy requires contributions from all economic sectors and includes a combination of extending key reduction programs and new actions that would prioritize direct emissions reductions.

The Proposed Scoping Plan continues the cap-and-trade program through 2030. The analysis in the plan finds that cap-and-trade is the lowest cost, most efficient policy approach to meeting the 2030 goal. According to the analysis, even if other measures fall short, cap-and-trade provides certainty that California will meet the 2030 target emissions reduction. The agency is also evaluating potential changes to the cap-and-trade program to “support greater direct GHG emissions reductions.” Under evaluation are measures which include reducing the offset usage limit, redesigning the allocation strategy to support increased technology and energy investments to reduce GHG emissions, and reducing allocation for entities with criteria or toxic emissions that exceed a predetermined baseline.

Other key components of the overall approach include: a 20 percent reduction in GHG emissions from the refinery sector; continued investment in renewable energy; efforts to reduce emissions of short-lived climate pollutants; and increased focus on zero- and near-zero emission vehicle technologies.

CARB is currently seeking comments on the Proposed Scoping Plan. The comment period was recently extended until April 10, 2017. A public board meeting on the Final Proposed Scoping Plan is scheduled for June 22-23, 2017.

First District Court of Appeal Rejects Challenge to California Air Resources Board’s Regulations Implementing the Cap-and-Trade Program

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The First District Court of Appeal has held the California Air Resources Board (CARB) did not exceed its authority under the California Global Warming Solutions Act of 2006 (2006 Act) in implementing the Compliance Offset Protocols and the early action offset provision of its Cap-and-Trade program. Our Children’s Earth Foundation v. California Air Resources Board, Case No. A138830 (Feb. 23, 2015).

Under the 2006 Act, CARB is required to adopt regulations specifying GHG emission limits and emission reduction measures in furtherance of achieving the statewide GHG emissions limit. The 2006 Act expressly authorizes CARB to adopt regulations establishing market-based compliance mechanisms to reduce GHG emissions. Every CARB regulation adopting GHG emission limits and measures must ensure that GHG emissions reductions are “real, permanent, quantifiable, verifiable, and enforceable” by CARB. (Health & Saf. Code, § 38562, subd. (d)(1).) Those regulations must also ensure that the emissions reduction “is in addition to any greenhouse gas emission reduction otherwise required by law or regulation, and any other greenhouse gas emission reduction that otherwise would occur.” (Health & Saf. Code, § 38562, subd. (d)(2), italics added.) This latter provision is known as the “additionality” requirement.

Pursuant to its authority under the 2006 Act, CARB implemented in January 2012 a Cap-and-Trade program regulation, a market-based compliance mechanism for achieving reductions in GHG emissions. The Cap-and-Trade program imposes a cap on the aggregate GHG emissions that covered entities may emit during the annual compliance period. Covered entities include industries who have previously reported exceedances of emissions above CARB’s threshold established for that industry. CARB enforces the cap by issuing a limited number of compliance instruments known as “allowances,” the total value of which is equal to the cap amount. Subject to limitations, participants can buy, bank, or sell allowances which are used by the covered entities to comply with their compliance obligations.

In March 2012, Appellant Our Children’s Earth Foundation (OCEF) (and another organization who is not a party on appeal) filed a petition for writ of mandate and complaint for declaratory and injunctive relief against CARB. OCEF claimed that CARB’s Compliance Offset Protocols and early offset credit provision violated the additionality requirement of the 2006 Act because they did not ensure the offsets would be truly additional to any GHG reductions that would otherwise occur.

The First District Court of Appeal affirmed the lower court’s denial of the petition. On appeal, OCEF first claimed that CARB exceeded its authority by adopting a market-based compliance mechanism that fails to ensure offset credits are additional to “any” GHG emissions reductions “that otherwise would occur.” The 2006 Act does not define “additional” or “otherwise would occur.” But the 2006 Act does define “market-based compliance mechanism” as including GHG emissions exchanges, banking, credits, and other transactions, governed by rules and protocols to be established by CARB. Within this authority delegated to CARB by the Legislature, the court concluded that CARB appropriately established rules and protocols that ensure additionality with respect to offset credits accepted under the Cap-and-Trade program.

The court also found it problematic that OCEF failed to articulate how a project operator could prove the GHG reduction would not otherwise occur or how CARB could provide the certainty that OCEF claims the 2006 Act demands. Whether a project would have been implemented without the offset incentive can never be proven with absolute certainty. The court found OCEF’s interpretation unworkable and, in practice, would preclude CARB from implementing market-based compliance mechanisms. That result is not what the Legislature intended, the court believed.

The court also rejected OCEF’s claim related to the early offset credit program. OCEF claimed that CARB exceeded its statutory authority by allowing offset credits for projects that were already occurring. According to the court, however, OCEF incorrectly assumed that a project that began before the Cap-and-Trade program was adopted could never satisfy the additionality requirement. That assumption was not supported by the provisions of the 2006 Act itself, which reflected the Legislature’s intention that there could be incentives for voluntary early reductions even before the Act was passed for which CARB could give credit.

Finally, the court considered OCEF’s challenge to the effectiveness of specific measures included in several of the Compliance Offset Protocols. As to this claim, the court made it clear that it would not substitute its judgment for that of the agency regarding CARB’s factual and policy considerations supporting the regulation. Pointing to the record, the court found that evidence substantially supported CARB’s policy decisions in formulating the protocols.

Trial Court Incorrectly Granted Motion for Judgment on the Pleadings Challenging CARB’s Regulations Addressing In-use Engines

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In a case heavy on administrative law and civil procedure, the Third District Court of Appeal determined that the California Air Resources Board acted within the scope of its authority when it promulgated regulations addressing heavy-duty engines currently in use. Therefore, the trial court should not have granted a motion for judgment on the pleadings which challenged these regulations. Engine Manufacturers Association v. California Air Resources Board, Case No. C071891(Nov. 24, 2014).

CARB is charged with overseeing the vast regulatory process designed to protect and improve California’s air quality. As part of these efforts, CARB regulates engines installed in vehicles certified for sale in the state. Most of these certified engines come equipped with an on-board diagnostic system (OBD). OBDs monitor emissions systems and detect malfunctions in these systems. Engine manufacturers must demonstrate to CARB that the installed OBDs will function properly for the “actual life” of the engine before new engines can be sold in the state. To satisfy this requirement, new engines are rigorously tested via an “accelerated aging process.” The OBD must function properly at the end of this test to pass for certification.

The regulations challenged in this case require engine manufacturers to apply the pre-certification testing on a sample of in-use engines for engines with model year 2010 and later. If the OBDs on the in-use engines selected for testing function properly, no further testing of the engine group is required. Otherwise, the regulations empower CARB to require additional testing or order recall and repair of engines in an engine class with failing OBDs.

The Engine Manufacturers Association (EMA) challenged the regulations for in-use engines. EMA’s complaint alleged that CARB exceeded its statutory authority by adopting regulations that would be “onerous and costly” for manufacturers and that the regulations unlawfully mandate recall and repair of engines.

After CARB filed an answer, EMA filed a motion for judgment on the pleadings. The motion was granted following lengthy proceedings before multiple trial court judges. The trial court reasoned that the authorizing statute at issue addressed only new engines, as opposed to in-use engines, and that the regulations were not “reasonably necessary.”

The Appellate Court’s Decision

The appellate court determined that EMA’s motion for judgment on the pleadings was granted in error. In short, since CARB filed an answer which raised fair grounds for presenting a defense, the case could not have been settled on the pleadings. Careful to show its work, the appellate court explained the analytical route it took to reach this conclusion.

First, the appellate court independently reviewed whether the OBD regulations were consistent with the law controlling the agency’s actions. The Health and Safety Code directs CARB to adopt regulations, rules, and standards to address air pollution caused by motor vehicles. Section 43013, subdivision (a) explicitly grants CARB the authority to adopt “in-use performance standards.” The appellate court characterized the regulations at issue—regulations ensuring in-use OBDs function properly as establishing an in-use performance standard—as falling within the scope of the statute. Along with rejecting the narrow reading of the statute urged by EMA and adopted by the trial court, the opinion emphasizes that the Legislature granted CARB broad authority to adopt regulations addressing vehicle emissions. This authority is limited by the requirement that regulations be feasible and cost-effective. But since CARB specifically denied EMA’s allegations to the contrary, the issue could not be settled in a judgment on the pleadings.

Second, the appellate court concluded EMA’s motion should not have been granted because the trial court improperly made a finding that the proposed OBD regulations were not “reasonably necessary” for CARB to carry out the intended purposes of the Health and Safety Code. While it is true that an agency’s regulations must be “reasonably necessary to effectuate the statutory purposes,” EMA had the burden to demonstrate, with evidence based on the pleadings, that the regulations did not meet this requirement. Since EMA did not meet this burden, the trial court should not have issued a ruling against CARB.

This published opinion may not break new ground on administrative law issues, but it provides a helpful explanation of judicial review of an agency’s quasi-legislative rules. The opinion is careful to note and explain the different standards of review the court applies.

California Chamber of Commerce Sues to Invalidate AB 32 Cap-and-Trade Program

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On November 13, 2012, the California Chamber of Commerce filed a petition seeking to block the California Air Resources Board (CARB) from auctioning carbon allowances. The complaint, filed in a Sacramento state court, asserts that CARB lacks the authority under AB 32 to raise money beyond what is needed to cover its administrative costs of implementing a state emissions regulatory program.

The Chamber argues that the California Legislature never authorized CARB to raise fees or taxes through an auction mechanism. Therefore, the program constitutes an unauthorized and unconstitutional tax according to the Chamber. The Chamber cites the California Constitution, which requires a two-thirds vote of the Legislature to raise taxes. In prepared statements regarding the suit, the Chamber states the current CARB proposal “is the most costly way to implement AB 32” and that it will “hurt consumers, the job climate, and the ability of business to expand” in California. The Chamber argues other states will decline to follow California’s AB 32 as a model if it is not designed to be the most cost effective way of reducing carbon emissions.

In the suit, the Chamber did not seek a court order blocking the first auction set for November 14, 2012, and state officials indicated the sale would proceed as scheduled. An affiliate of the Chamber indicated that the organization is trying to eliminate future auctions, which are set for regular intervals over the next eight years. Tim O’Conner, director of the Environmental Defense Fund’s California Climate and Energy Initiative noted that the Chamber’s filing of the suit on the eve of the first auction “seems quite unsavory” and could dampen California’s comprehensive program to curb greenhouse gases. The Chamber insisted the suit was not filed in relation to the specific auction scheduled for November 14, 2012.

CARB spokesperson Stanley Young indicated that the agency is confident the cap-and-trade program will withstand any court challenge. CARB believes the market-based approach to cutting greenhouse emissions gives California business flexibility to best decide now to reduce emissions.

The court must decide whether the auction should be viewed as a tax and whether AB 32 granted CARB discretion to design a mechanism, such as cap and trade, to curb the state’s greenhouse gas emissions. Considering that the Legislature passed legislation directing the State’s Department of Finance and CARB to develop a plan to invest auction proceeds and to set up an account for the deposit of auction funds, it seems the Chamber may have a difficult time convincing a court that the Legislature intended to limit CARB’s discretion in a way that would prohibit the auction of allowances for a cap-and-trade program designed under AB 32.

California Air Resources Board Conducts Auction for Cap-And-Trade Program

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On November 14, 2012, the California Air Resources Board will conduct its first quarterly auction for greenhouse gas allowances under the cap-and-trade program, which is identified in the Assembly Bill 32 Scoping Plan as one of the strategies California will employ to reduce the greenhouse gas emissions that cause climate change.

In 2006, the Legislature passed and Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which requires California to reduce greenhouse gas emissions to 1990 levels by 2020. In complying with AB 32, CARB prepared a Scoping Plan identifying a cap-and-trade program as one of the strategies California will use to reduce the GHG emissions that cause climate change. The cap-and-trade program places a limit on the GHG emissions allowed from pollution producers like refineries and cement manufacturers, and directs all entities subject to the cap (covered entities) to surrender “compliance instruments” equivalent to their GHG emissions to CARB. Compliance instruments include both allowances, which are allocated by CARB or obtained from auctions or secondary markets, and offset credits, which represent GHG emissions reductions achieved in sectors that are not subject to the cap.

This year, the cap-and-trade program covers about 350 industrial businesses operating a total of 600 facilities throughout the state. They include cement plants, steel mills, food processors, electric utilities, and refineries. Starting in 2015, the program will also cover distributors of natural gas and other fuels. For the first two years of the cap-and-trade program, covered entities will receive 90 percent of their allowances for free, with the free amount and the cap declining over time. Covered entities must either cut their GHG production to that level or buy credits to make up the difference. Companies that have more credits than they need can sell them at the auction, and CARB will sell additional credits as well. The proceeds from CARB’s sale of allowances sold at auction will be deposited in CARB’s Air Pollution Control Fund, awaiting appropriation by the Legislature.

The November 14, 2012, auction is the first, major step for CARB in implementing the cap-and-trade program. Though there remains strong opposition to the program from those businesses required to participate in it, CARB’s completion of this first auction signifies its commitment and readiness to enforce compliance with the cap-and-trade program when it comes online in January 2013.