California's Greenhouse Gas Cap and Trade Program Enjoined

Posted on June 8, 2011 by Robert Wyman

By: Bob Wyman and Aron Potash, Latham & Watkins LLP


A San Francisco Superior Court ruling on May 20, 2011, enjoins California from undertaking any further work to implement a greenhouse gas (GHG) cap and trade program until the California Air Resources Board (CARB) comes into compliance with the California Environmental Quality Act (CEQA) by more fully analyzing alternatives to cap and trade. While a setback to CARB, which had been planning to conduct spring workshops and summer rulemaking to finalize important unresolved aspects of its planned cap and trade program, the ruling in Association of Irritated Residents v. California Air Resources Board is less damaging than it could have been to CARB’s efforts to achieve the GHG emission reductions required by the Global Warming Solutions Act of 2006 (AB 32). The court’s earlier March 18 statement of decision threatened to put the brakes on not just the cap and trade program but also CARB’s entire suite of GHG reduction measures, including the low carbon fuel standard, the renewable electricity standard and other initiatives. So the court’s final order is significantly narrower in scope. Nonetheless, the cap and trade scheme is the centerpiece of the first economy-wide program in the United States to limit GHG emissions, and it is unclear whether that part of CARB’s program can commence as originally planned on January 1, 2012. While it works to complete a new CEQA alternatives analysis, CARB will almost certainly also appeal the judgment and seek a stay to keep cap and trade implementation on track.


This roadblock to California’s cap and trade plan was brought about when the Association of Irritated Residents (AIR) and others filed a petition for a writ of mandate alleging that CARB substantively and procedurally failed to comply with CEQA in approving the Scoping Plan, CARB’s detailed roadmap for reducing GHG emissions under AB 32. AB 32 was enacted in 2006 and requires the state to reduce GHG emissions to 1990 levels by 2020. CARB was charged with implementing AB 32 and approved the Scoping Plan in December 2008. Since that time, CARB approved a number of regulations contemplated by the Scoping Plan, including the GHG cap and trade program in December 2010. Many significant aspects of the cap and trade program remain unresolved, however, and CARB workshops and rulemakings were planned for this spring and summer with the intention of finalizing such critical program components matters as the allocation of free GHG allowances, the use of auction revenue, the generation and use of offsets, and the designation of GHG intensity benchmarks for regulated sectors.


In its March 18 statement of decision, the court found that CARB violated CEQA by failing fully to evaluate possible alternatives to the measures described in the Scoping Plan. Focusing on the cap and trade program, the court wrote: “ARB’s extensive evaluation of the proposed cap and trade program…provides the public with information about cap and trade only. CEQA requires that ARB undertake a similar analysis of the impacts of each alternative so that the public may know not only why cap and trade was chosen, but also why the alternatives were not.” The March 18 decision specifically criticized the Scoping Plan CEQA analysis for failing to discuss in detail a carbon fee alternative to cap and trade. Cap and trade is not a “fait accompli,” the court wrote.


The court set forth its remedy in the new May 20 ruling, ordering that its writ “shall specifically enjoin ARB from engaging in any cap and trade-related Project activity that could result in an adverse change to the physical environment until ARB has comes [sic] into complete compliance with ARB’s obligations under its certified regulatory program and CEQA, consistent with the Court’s Order. This includes any further rulemaking and implementation of cap and trade…” The Court also ordered CARB both to take no action in reliance upon the Scoping Plan as it relates to cap and trade and to set aside the executive order approving and certifying the CEQA analysis of the Scoping Plan. Although the intent of the ruling appears to be to halt work only on the cap and trade component of the AB32 program, this second portion of the court’s order potentially opens the court’s decision and the validity of the other Scoping Plan measures to attack on the ground that a court may only have the authority either to invalidate a CEQA approval in its entirety or not to invalidate any portion at all. The court’s path of partially invalidating a CEQA action remains an uncertain area of California law.


CARB will almost certainly appeal the decision and seek a stay of the judgment during the course of the appeal. The next battle in this case will likely involve CARB arguing that its appeal of the court’s writ automatically stays the judgment—allowing cap and trade rulemaking to continue apace—and AIR arguing that CARB will have to obtain a writ of supersedeas in order to stay the judgment. This battle will hinge in part on how the reviewing court characterizes the lower court’s writ (e.g., whether it is prohibitory or mandatory in nature) and on the whether the reviewing court sees the lower court order as overbroad in its limitations on CARB’s rulemaking activities.



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