Environmental Law Alert: California Court Enjoins Implementation of Cap-and-Trade

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San Francisco Superior Court has issued a final decision in Association of Irritated Residents v. California Air Resources Board. For the moment, the California Air Resources Board (CARB) is enjoined from further rulemaking to implement the California Global Warming Solutions Act (A.B. 32), including for the cap-and-trade program. The Court upheld the validity of CARB's Scoping Plan for implementation of A.B. 32, saving CARB from having to revise the Plan. But, the Court found flaws with CARB's environmental review of the Scoping Plan under the California Environmental Quality Act (CEQA), in particular its analysis of alternatives to the Plan's recommended greenhouse gas (GHG) reduction measures, such as cap and trade. CARB is enjoined from further rulemaking until the agency has come into compliance with CEQA by amending its environmental review of the Scoping Plan.

For entities facing regulation under A.B. 32, this decision has important implications. Scoping Plan GHG reduction measures that have already made their way through the rulemaking process appear unaffected. But CARB's cap-and-trade program never made it out of the formal rulemaking process. While the Board members of CARB approved the cap-and-trade program in December 2010, it left it to the Executive Officer to take final action to adopt the proposed regulation (or bring it back to the Board) after more details were finalized. CARB had a packed schedule this year to finalize cap and trade prior to its January 1, 2012 start date. Under the Court's final decision, these activities will have to be shelved if they fall within the rubric of further rulemaking or implementation. Regulated entities thus may have a temporary reprieve from the onset of cap and trade in 2012. But continued uncertainty over the details of CARB's planned GHG regulation of stationary sources is a less than ideal situation for regulated sources.

A.B. 32 directed CARB to prepare and approve a Scoping Plan to create a regulatory path for reducing GHG emissions to 1990 levels by 2020. The statute describes the process to be followed by CARB in creating and implementing the Scoping Plan. A.B. 32 directs CARB to achieve the overall statutory GHG reduction goal through the use of "maximum technologically feasible and cost-effective reductions." CARB is required under the statute to implement measures that the agency "finds are necessary or desirable" to achieve the required GHG emissions reductions, but as the Court noted, the statute leaves the specifics of how to achieve the reductions and how to balance a variety of competing concerns up to the agency.

A.B. 32 requires that GHG emissions reduction measures adopted to achieve the statute's emissions reduction goal become operative by January 1, 2012. If CARB misses this deadline for the cap-and-trade program, the statute (and the Court's decision in Association of Irritated Residents v. California Air Resources Board) is silent on the implications. Perhaps the release valve in A.B. 32, giving the Governor authority to adjust deadlines for the state under certain circumstances, will come into play if CARB cannot amend its environmental review in time or obtain other relief from the courts.

The final decision issued in Association of Irritated Residents v. California Air Resources Board did not differ significantly from the tentative decision released in late January 2011, despite objections to the tentative decision filed by both sides. However, the final decision did provide some sought-after clarification on the scope of the Court's remedy. CARB adopted the Scoping Plan in December 2008 and since that time has adopted various regulations proposed in the Scoping Plan, including the cap-and-trade program. The tentative decision enjoined CARB from further implementation of the Scoping Plan until it came into compliance with CEQA, without identifying specific activities that might continue in accordance with A.B. 32, irrespective of the Scoping Plan. In the final decision, the Court clarified that CARB is enjoined from any further rulemaking, presumably on any Scoping Plan program, until CARB amends its environmental review to correct the deficiencies identified by the Court. The Court spoke specifically to the cap-and-trade program:

Continued rulemaking and implementation of cap and trade will render consideration of alternatives a nullity as a mature cap and trade program would be in place well advanced from the premature implementation which has already taken place. In order to ensure that ARB adequately considers alternatives to the Scoping Plan and exposes its analysis to public scrutiny prior to implementing the measures contained therein, the Court must enjoin further rulemaking until ARB amends the [environmental review document] in accordance with this decision.

The Court has retained jurisdiction over CARB's proceedings until the Court has determined that CARB has complied with CEQA.

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Allison C. Smith
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