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CEQA Updates

Keeping You Up-to-Date on the California Environmental Quality Act

Posts Tagged ‘Air Resources Board’


CARB Regulatory Advisory “Project Approval” Triggers CEQA Review Despite Agency Certified Regulatory Program, Public Testimony Must Be Adequately Addressed to Meet Cal APA Standards

Wednesday, January 31st, 2018

In John R. Lawson Rock & Oil, Inc. v. State Air Resource Board (2018) 20 Cal. App. 5th 77, the Fifth District Court of Appeal found the California Air Resources Board’s (CARB) issuance of a regulatory advisory was “project approval” triggering CEQA review. Doing so prior to completion of environmental review violated CEQA timing requirements. Later, CARB relied on a negative declaration, which the Court also set aside. Further, CARB failed to comply with the California Administrative Procedures Act (CalAPA). As such, the Court directed CARB to comply with CEQA in modifying a set of 2008 regulations known as the Truck and Bus Regulations (Regulations).

CARB issued the Regulations to reduce greenhouse gas emissions from large vehicles by, as pertinent here, requiring vehicle owners to retrofit and upgrade existing vehicles by January 2014. In mid-2013, CARB staff found the global recession substantially reduced trucking activity making compliance with the Regulations financially difficult, especially for those in rural areas and small business settings. CARB responded by delaying reporting deadlines and requesting modification proposals. In November 2013, CARB issued a regulatory advisory stating a handful of modifications to the Regulations would be implemented. Specific changes included: delaying compliance dates, eliminating filter replacement requirements for certain light trucks, and providing a 10-year window where only engines less than 20-years-old would require modernization. After circulating a staff report and proposed modifications in March 2014, CARB issued its final approval in December 2014. Plaintiffs and Respondents filed suit on behalf of fleets that had already incurred significant cost in complying with the unmodified regulations, alleging CARB failed to comply with CEQA and CalAPA requirements.

The Appellate Court found agencies that operate under a certified regulatory program are exempt from certain elements of CEQA review yet still subject to the “functional equivalent” of CEQA environmental review, per the Court’s holding in POET, LLC v. State Air Resources Control Board (2013) 218 Cal.App.4th 681. CARB’s regulatory program requires the preparation of a public staff report at least 45 days before public hearing on a proposed regulation, discussion of environmental alternatives, response to public comment, and compliance with CEQA. Within the regulatory scheme, documents like the CARB staff report are expected to be analyzed and considered before project approval in the same way that CEQA documents are considered.

Applying CEQA principles, the Court determined that project approval triggering CEQA or its equivalent occurred where the regulatory advisory “opened the way” for a project to proceed. CARB conduct following the advisory was “detrimental to further fair environmental analysis.” That the final approval was not to be until 2014 and there was stated CARB authority to change the modifications before that time was insufficient to show the regulatory advisory was not project approval. Language in the advisory that truckers could immediately take advantage of certain programs and the subsequent CARB reliance on the advisory “foreclosed alternatives” to the proposed modifications. Because the advisory was issued before environmental review was complete, CARB failed to comply with CEQA timing requirements.

Next, the Court held the proper baseline for CEQA consideration in this case is the actual environmental conditions at the time of review, not those allowable by the current regulations. As such, CARB acted within its discretion to use a baseline that recognized some trucks and buses were not yet in compliance

Despite this, substantial evidence supported a fair argument that modifications to the Regulations would negatively and significantly impact air quality therefore CARB was incorrect to rely on a negative declaration. CARB failed to address that the modifications, while continuing to decrease emissions in the long term, would increase emissions in the short term. CARB also failed to address the inconsistencies between the proposed project’s emissions and applicable general plans, specific plans, and regional plans.

Notwithstanding these findings, the Court held that the trial court incorrectly directed CARB to prepare an EIR, or its functional equivalent. Such a remedy is only appropriate where the agency no longer has discretion to act in compliance with CEQA. Here, CARB still retained such discretion so the proper remedy is to simply direct CARB to comply with CEQA.

Lastly, CARB failed to comply with CalAPA where it did not adequately address economic impacts to intrastate commerce. While the Court usually gives deference to the agency on determinations of economic impacts, there is no deference for improperly adopted regulations. Here, CARB heard public testimony that relaxing the regulations would impact intrastate competition where those in compliance took on a large expense to be so and others would be able to undercut them. The Court held that testimony, while not written in a formal letter or report, nonetheless put CARB on notice of such issues. While CARB claimed it answered this issue in other comment answers, the Court found that its responses were not supported by any record evidence or meaningful analysis.

Key Point:

A regulatory advisory may be “project approval” triggering CEQA where it forecloses project alternatives therefore environmental review must be complete before its issuance. This standard applies to partially-exempt regulatory bodies and state agencies when their certified regulatory programs are intended to be CEQA-compliant.

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.