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Posts Tagged ‘AB 32’


Third Appellate District Upholds CARB’s Cap-And-Trade Program

Monday, July 24th, 2017

In California Chamber of Commerce, et al., v. State Air Resources Board, et al. (2017) 10 Cal.App.5th 604, the Third Appellate District affirmed the trial court and rejected challenges to a cap-and-trade program developed by the State Air Resources Board (“CARB”) under the California Global Warming Solutions Act of 2006 (“AB 32”).

The program imposes a “cap” on the total amount of GHG emissions from regulated entities, which mostly consist of large GHG emitters. CARB lowers the cap over time to reduce the total emissions and issues allowances, the total value of which is equal to the amount of the cap.

Regulated entities receive these allowances – either through auction, from CARB for free, or a combination of both – or purchase “emission offsets,” credits generated from voluntary emission reductions made outside the capped entities, and surrender an allowance for each ton of emissions they release. If a regulated entity does not need all of the allowances it has in a given period, it may bank them to surrender later or sell them to another registered party. Non-covered entities may buy allowances, either to speculate, or to retire them and reduce emissions.

Business groups filed the suit, arguing that the auction sales exceeded CARB’s authority under AB 32, and that the revenue generated by the auction sales amounted to a tax subject to Proposition 13, which requires any new tax to be passed by a supermajority vote of each house of the state legislature.

First, the court held that CARB did not exceed its authority in designing the cap-and-trade auction program because the legislature had given broad discretion to CARB to design a system including an auction style, market-based mechanism for reducing GHG. The court noted that even if AB 32 had not authorized CARB to adopt the auction program, the legislature ratified it in 2012 through passage of four bills specifying how auction proceeds would be used to effectuate AB 32.

Second, the court held that the revenue generated by the auction sales was not a tax subject to Proposition 13, based on what the court deemed as two “hallmarks” of a tax: (1) it is compulsory; and (2) it does not grant any special benefit to the payer. The court found that participation in the program was voluntary. According to the court, this is because an entity would not have to obtain extra allowances or offset credits unless it chooses to pollute beyond the level of allowances it receives from CARB for free. The court also found that the allowance credits, unlike taxes, would grant benefits to the payers as they were valuable commodities tradable between private parties.

Finally, the court held that the test used to determine whether regulatory fees were taxes in Sinclair Paint Company v. State Board Of Equalization (1997) 15 Cal.4th 866 (Sinclair Paint), which was applied by the trial court, did not control this case. The court explained that the auction system that set up a revenue generating measure at hand was entirely different than a regulatory fee.

In a 13-page dissent, Justice Hull agreed that CARB did not exceed its authority under AB 32, but argued that the cap-and-trade auction program was compulsory and a tax, because covered entities currently in California would be compelled to buy allowances if they were to remain in California. Justice Hull also questioned the majority’s characterization of the auction credits, noting that the value of the auction credits would be ephemeral, given that the state could at its sole discretion limit or terminate them. 

Key Point:

The new test set by the court for assessing whether the cap-and-trade auction program is a tax is far from clear. The majority and Justice Hull disagreed on what “compulsory” meant under the test. On June 28, 2017, the California Supreme Court denied the petitions for review of the Third Appellate District’s decision.

Court Holds CARB’s Scoping Plan Complies with AB 32

Tuesday, June 26th, 2012

In Associated of Irritated Residents v. California Air Resources Board, (2012) ___ Cal.App.4th ___, the California Court of Appeal, First District, held that the California Air Resources Board (CARB) complied with the requirements of AB 32, the Global Warming Solutions Act, when it adopted its Climate Change Scoping Plan (Plan).

AB 32 requires, among other things, that CARB adopt a “scoping plan[,] as that term is understood by [CARB], for achieving the maximum technologically feasible and cost-effective reduction in greenhouse gas emissions from sources or categories of sources of greenhouse gases by 2020.” The Plan must identify and recommend emission reduction measures and alternatives, as well as evaluate total benefits to California’s economy, environment, and public health. The legislation also specifies that greenhouse gas emissions be reduced to 1990 levels by 2020, with the ultimate goal of reducing greenhouse gas emissions to 80% below 1990 levels by 2050. On May 7, 2009, CARB adopted a Plan designed to: (1) expand and strengthen existing energy efficiency programs and building and appliance standards, (2) achieve a statewide renewable energy mix of 33%, (3) implement a cap-and-trade program, (4) establish targets for transportation-related greenhouse gas emissions and incentives to meet those targets, (5) implement measures pursuant to existing state laws such as the low carbon fuel standard, and (6) create targeted fees to reduce greenhouse gas emissions.

The Association of Irritated Residents (AIR) believed CARB’s Plan did not satisfy AB 32’s requirements and initiated a lawsuit wherein the trial court ruled in favor of CARB. On appeal, the court reviewed CARB’s Plan for compliance with AB 32 under the abuse of discretion standard and addressed AIR’s arguments as follows.

The court first addressed AIR’s contention that AB 32’s Section 38561 requires CARB to adopt a Plan designed to achieve “maximum technologically feasible and cost effective reductions in greenhouse gas emissions” and that CARB failed to do so. AIR interpreted use of the word “maximum” to require CARB’s Plan to facilitate the greatest feasible greenhouse gas emissions reductions. In rejecting this contention, the court explained the Legislature intended that CARB create a Plan designed to achieve 1990 greenhouse gas emission levels by 2020 as a step toward achieving a longer-term climate goal of an 80% reduction below 1990 greenhouse gas emission levels by 2050. Thus, CARB’s Plan properly seeks to achieve 1990 greenhouse gas emission levels by 2020, and doing so is related to achieving the maximum reductions required by Section 38561. Moreover, in formulating the Plan, CARB extensively analyzed numerous measures to reduce greenhouse gas emissions as they related to achieving “maximum technologically feasible and cost effective reductions[.]” Through such analysis, CARB decided to adopt a cap-and-trade system, as well as numerous additional measures to achieve 1990 greenhouse gas emissions levels by 2020. Accordingly, CARB’s adoption of the Plan was supported by substantial evidence and could be neither arbitrary nor capricious with regard to the means chosen to satisfy AB 32’s goals.

Next, the court rejected AIR’s argument that CARB’s Plan failed to create and apply valid standard criteria for cost-effectiveness by which to compare alternative measures. As defined by AB 32’s Section 38505, cost-effectiveness is “the cost per unit of reduced emissions of greenhouse gasses adjusted for its global warming potential.” This definition does not provide criteria to assess cost effectiveness, nor does it define how costs are to be measured. Working with that definition, CARB considered four possible approaches for measuring cost-effectiveness, and ultimately adopted the “Cost of a Bundle of Strategies” approach. In the Plan, however, CARB explained in detail that a valid comparison of measures is not possible as limitations of modeling tools prevent a direct comparison of market-based measures (ie. cap-and-trade) with direct regulation measures (ie. technology forcing). As such, CARB did not directly compare certain measures in terms of cost-effectiveness because doing so would provide misleading results. The court was satisfied with CARB’s efforts to determine cost-effectiveness, and concluded those efforts were within the Legislature’s directive.

The last of AIR’s major claims was that the Plan did not do enough to reduce greenhouse gas emissions in the agricultural sector. Though the record indicated CARB extensively analyzed measures designed to reduce such emissions, the Plan only encourages capture of methane at dairies and plans to reassess the measure after five years. It goes on to explain the scientific knowledge and technology to reduce greenhouse gas emissions in the agriculture sector does not exist because 82% of the sector’s emissions result from complex biological processes. The court upheld this reasoning, finding that adopting premature mandates could be excessively costly and have environmental drawbacks.

Key Point:

CARB’s Plan is a first step toward achieving the maximum goal of reducing greenhouse gas emissions in California to 80% of the state’s 1990 emissions. The Plan reflects substantial technical analysis and scientific research with which the court was hesitant to interfere by substituting its own judgment over CARB’s.

Written By: Tina Thomas, Amy Higuera and Grant Taylor (law clerk)
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For questions relating to this blog post or any other California land use, environmental and/or planning issues contact Thomas Law Group at (916) 287-9292.

The information presented in this article should not be construed to be formal legal advice by Thomas Law Group, nor the formation of a lawyer/client relationship. Readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

Attorney General Joins Petitioners in SANDAG Litigation

Tuesday, January 24th, 2012

On January 23, 2012, Attorney General Kamala D. Harris filed a Notice of Intent to File a CEQA Petition for Writ of Mandate in Intervention to intervene in the CEQA lawsuit filed by the Cleveland National Forest Foundation and the Center for Biological Diversity on November 28, 2011, challenging the 2050 Regional Transportation Plan/Sustainable Communities Strategy (RTP/SCS) adopted by San Diego Association of Governments (SANDAG).  (See http://ag.ca.gov/cms_attachments/press/pdfs/n2614_2012-01-23_notice_of_intent_to_file_ceqa_petition.pdf (AG notice), and http://ag.ca.gov/cms_attachments/press/pdfs/n2614_2012-01-23_ex_parte_application_to_intervene.pdf (related AG ex parte application).)  Also on January 23, 2012, petitioners filed a First Amended Petition for Writ of Mandate and Complaint for Injunctive Relief to add Sierra Club as a petitioner in the litigation. (See http://transitsandiego.files.wordpress.com/2012/01/cnff-verified-amended-petition.pdf.)  The focus of the Attorney General’s intervention concerns the adequacy of the EIR’s air quality analysis and related public health impacts.  The Attorney General has taken this position notwithstanding that the plan achieves the greenhouse gas targets established by AB 32 and the California Air Resources Board (CARB) concurred that the plan meets all CARB greenhouse gas targets.  For more information on the Attorney General’s decision to intervene visit:  http://oag.ca.gov/news/press_release?id=2614.

Written By: Tina Thomas and Chris Butcher

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For questions relating to this blog post or any other California land use, environmental and/or planning issues contact Thomas Law Group at (916) 287-9292.

The information presented in this article should not be construed to be formal legal advice by Thomas Law Group, nor the formation of a lawyer/client relationship. Readers are encouraged to seek independent counsel for advice regarding their individual legal issues.