CEQA Alert UPDATE: Petitions for Review Filed in Greenhouse Gas and ICCTA Preemption Cases

As previously reported, two decisions by California’s Fourth Appellate District in late 2014 highlighted CEQA compliance challenges facing local governments charged with implementing state and local greenhouse gas emissions reduction mandates.

Update: Petitions for review with the California Supreme Court were subsequently filed in both cases. On March 11, 2015, the California Supreme Court granted the petition for review filed by the San Diego Association of Governments and the San Diego Association of Governments Board of Directors in Cleveland National Forest Foundation v. San Diego Association of Governments. The issue to be briefed and argued is limited to the following question: Must the environmental impact report for a regional transportation plan include an analysis of the plan's consistency with the greenhouse gas emission reduction goals reflected in Executive Order No. S-3-05 to comply with the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq.)? A petition for review in Sierra Club v. County of San Diego is pending, with the time allotted for the Supreme Court to grant or deny review extended until April 3, 2015.

We also previously reported on the Surface Transportation Board’s (STB’s) December 12, 2014 decision in which it found that the Interstate Commerce Commission Termination Act categorically preempts CEQA with respect to the 114-mile passenger rail line that the Authority is constructing between Fresno and Bakersfield as part of its High-Speed Train System.

Update:  On December 29 and December 30, 2014, two petitions for reconsideration of the STB’s December 12, 2014 decision were submitted to the STB - one by a California resident and the other by a group that included Kern and King Counties, the City of Shafter, and several organizations. The STB has not yet ruled on those petitions.

On February 9, 2015, two separate petitions for review of the STB’s December 12, 2014 decision were filed in the Ninth Circuit and D.C. Circuit Courts of Appeal. The D.C. Circuit challenge was filed by the California nonprofit corporation, Dignity Health, one of the parties that filed the December 29, 2014 petition for reconsideration with the STB. The Ninth Circuit challenge was filed by a subset of the other parties to the December 29, 2014 petition for review, including Kings County, Kern County, and several nonprofit corporations. The STB filed motions to dismiss for lack of jurisdiction in both of the federal court actions in early March. The STB argued that the federal courts lack jurisdiction because the STB’s decision is not a final order as it has not yet ruled on the petitions for reconsideration filed at the administrative level.

-- Don Sobelman and Nicole Martin

For more information, contact Don Sobelman at des@bcltlaw.com or (415) 228-5445, or Nicole Martin at nmm@bcltlaw.com or (415) 228-5435.

Court Upholds CARB Regulations Implementing Cap and Trade Program to Reduce Greenhouse Gas Emissions

On February 23, 2015, the California Court of Appeal affirmed a trial court decision upholding regulations adopted by the California Air Resources Board (“CARB”) under the California Global Warming Solutions Act of 2006 (“the Act”) implementing CARB’s “Cap-and-Trade” program for reducing greenhouse gas (“GHG”) emissions. The Court rejected challenges to the regulations brought by the environmental organization Our Children’s Earth Foundation (“OCEF”), which argued that the regulations improperly allowed GHG emission offset credits for emission reductions that would otherwise occur, and deferred to CARB’s exercise of its statutory authority.

Our Children’s Earth Foundation v. California Air Resources Board (Feb. 25, 2015, 1st DCA Case No. A138830).

The Act requires that CARB regulations adopting market-based compliance mechanisms, such as the Cap-and-Trade program, ensure that a GHG “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.” Cal. Health & Safety Code  § 38562(d)(2) (emphasis added). OCEF argued that CARB violated this “additionality” requirement by failing to ensure that GHG reductions credited under the Cap-and-Trade program are in addition to any GHG emission reduction that is otherwise required or that would otherwise occur.

The Cap-and-Trade program imposes a “cap” on the aggregate GHG emissions that covered entities may emit during an annual compliance period. CARB enforces the cap, which is lowered over time, by issuing a limited number of compliance instruments referred to as “allowances,” the total value of which is equal to the cap. A covered entity can also use offsets to meet a percentage of its compliance obligation. An offset is a voluntary GHG emission reduction from a source that is not directly covered by the program which is used by a covered entity to comply with the GHG emission cap.

One of the eligibility requirements imposed by the regulations is that a qualifying offset credit must result from the use of an adopted “compliance offset protocol.” The function of an offset protocol is to establish procedures and requirements to qualify and quantify GHG destruction, ongoing GHG reduction, or GHG removal enhancements achieved by an offset protocol. The regulations also include a procedure for early action projects to qualify for offset credits.

OCEF sought to invalidate CARB’s compliance offset protocols and early action offset credit program for allegedly violating the Act’s additionality requirement. OCEF argued that the compliance offset protocols are defective because they are based on a performance standard that: (1) includes activities which would otherwise occur; and (2) incorporates a “profitability” factor which improperly assumes that a project activity satisfies the additionality requirement if it would be profitable only with the financial incentive of the offset payment. OCEF challenged the early action offset credit provision because it allegedly allows offsets to be generated from entire classes of projects even though projects within those classes are already being undertaken and would be undertaken without the incentive provided by the offset payments.

The Court found that the fundamental problem with OCEF’s position was that it refused to account for the fact that it is virtually impossible to know with certainty what GHG emission reduction otherwise would have occurred in most cases, and that the practical effect of accepting OCEF’s unworkable statutory interpretation would be to preclude CARB from implementing many, if not all, market-based compliance mechanisms. The Court held that CARB did not exceed its power, but rather, in exercising the authority delegated to it by the Legislature, established rules and protocols that give sufficient meaning to the concept of additionality so that this requirement is capable of enforcement.

Having determined that CARB reasonably interpreted its legislative mandate, the Court declined OCEF’s request to independently evaluate the effectiveness of specific measures incorporated into several of the compliance offset protocols. Noting that CARB engaged in an extensive regulatory process and finding that the voluminous administrative record substantially supported the many policy decisions that CARB had to make in formulating the challenged regulations, the Court held that OCEF had failed to demonstrate that any action CARB took was arbitrary or capricious.
 
In rejecting OCEF’s argument, the Court’s decision provides businesses participating in California’s Cap-and-Trade program with certainty regarding the validity of GHG offset credits and CARB’s compliance offset protocols.

The Court of Appeal’s decision is available here.

--Marc Zeppetello    

For more information, contact Marc Zeppetello at maz@bcltlaw.com or (415) 228-5496.

CEQA Alert: Court of Appeal Rules Against San Diego Agencies in Two Separate CEQA Challenges Involving Greenhouse Gas Emissions Reduction Planning Documents

Two recent decisions by California’s Fourth Appellate District highlight the CEQA compliance challenges facing local governments charged with implementing state and local greenhouse gas (GHG) emissions reduction mandates.

Cleveland National Forest Foundation et al. v. San Diego Association of Governments et al.  (November 24, 2014, 4th DCA Case No. D063288) involved a challenge to the program Environmental Impact Report (EIR) prepared by the San Diego Association of Governments (SANDAG) for its 2050 Regional Transportation Plan/Sustainable Communities Strategy (RTP/SCS). The Sustainable Communities and Climate Protection Act of 2008 (SB 375) requires Metropolitan Planning Organizations such as SANDAG to prepare “sustainable communities strategies” as part of their transportation plans, outlining how the region will meet GHG emissions reduction targets established by the California Air Resources Board. SANDAG’s RTP/SCS was the first sustainable communities strategy adopted in the state pursuant to SB 375.

Two of the three justices on the appellate panel concluded that the EIR for the RTP/SCS was deficient in every way alleged by the petitioners challenging the document – including with respect to a number of issues that the trial court did not even address. Most importantly, the justices held that the EIR’s failure to analyze the inconsistency between the RTP/SCS and Executive Order S-3-05 – the precursor to the California Global Warming Solutions Act of 2006 (AB 32) and SB 375 – rendered the EIR inadequate as an informational document under CEQA. Specifically, although Executive Order S-3-05 called for a continuing decrease in the state’s greenhouse gas emissions after 2020, the RTP/SCS acknowledges that implementation of the plan would result in increased regional emissions after 2020.

SANDAG argued that the EIR’s greenhouse gas emissions analysis complied with CEQA because the agency utilized the significance thresholds specified in CEQA Guidelines section 15064.4(b) to evaluate those impacts. Section 15064.4(b) provides: “A lead agency should consider the following factors, among others, when assessing the significance of impacts from greenhouse gas emissions on the environment: (1) The extent to which the project may increase or reduce greenhouse gas emissions as compared to the existing environmental setting; (2) Whether the project emissions exceed a threshold of significance that the lead agency determines applies to the project [; and] (3) The extent to which the project complies with regulations or requirements adopted to implement a statewide, regional, or local plan for the reduction or mitigation of greenhouse gas emissions. Such requirements must be adopted by the relevant public agency through a public review process and must reduce or mitigate the project’s incremental contribution of greenhouse gas emissions. If there is substantial evidence that the possible effects of a particular project are still cumulatively considerable notwithstanding compliance with the adopted regulations or requirements, an EIR must be prepared for the project.”

According to the Court, although a lead agency generally has discretion to select which significance thresholds it will utilize to evaluate impacts under CEQA, its reliance on the significance thresholds specifically identified in Section 15064.4(b) for GHG emissions impact analysis may not be enough. In this case, the Court determined that SANDAG was obligated to consider the consistency of the RTP/SCS with Executive Order S-3-05 as part of its impact analysis, despite the absence of any such requirement in the Guidelines. “Consequently, the use of the Guideline’s thresholds does not necessarily equate to compliance with CEQA, particularly where, as here, the failure to consider the transportation plan’s consistency with the state climate policy of ongoing emissions reductions reflected in the Executive Order frustrates the state climate policy and renders the EIR fundamentally misleading.”

The Court also held that the EIR was deficient because it omitted discussion of feasible mitigation measures that could substantially lessen the RTP/SCS’s significant GHG impacts, and because it did not include any alternative that could significantly reduce total vehicle miles traveled.

Justice Benke penned a strong dissent, which asserts that the decision reflects an improper intrusion into the discretion of lead agencies trying to implement the requirements of SB 375: “This insinuation of judicial power into the environmental planning process and usurping of legislative prerogative is breathtaking.” 

If this decision stands, lead agencies across the state will face significant uncertainty as to the proper analysis of GHG emissions under CEQA – which is exactly the uncertainty that Guidelines section 15064.4 was intended to resolve.

A second case, Sierra Club v. County of San Diego (Filed October 29, 2014; Certified for Publication November 25, 2014; 4th DCA Case No. D064243), arose from the County’s attempt to implement a mitigation measure adopted as part of its 2011 general plan update. The program EIR adopted for that update included “Climate Change Mitigation Measure CC-1.2,” which required the County to prepare a “climate action plan” (CAP) that would include detailed GHG emissions reduction targets and deadlines and “comprehensive and enforceable GHG emissions reductions measures that [would] achieve” specified GHG reductions by 2020. In 2012, the County adopted a CAP along with guidelines for determining the significance of GHG emissions (“CAP and Thresholds” project). The County prepared an addendum to the program EIR regarding the CAP and Thresholds project and then adopted the project with no further environmental review. The Sierra Club filed suit, alleging that the CAP did not meet the requirements of Mitigation Measure CC-1.2 and that an EIR should have been prepared for the CAP and Thresholds project.

The Court of Appeal held that the County violated CEQA when it approved the CAP and Thresholds project because: (i) the CAP failed to comply with the requirements of Mitigation Measure CC-1-2, as it did not include enforceable GHG emissions reductions requirements and contained no detailed deadlines for reducing GHG emissions; (ii) the County failed to make requisite findings regarding the environmental  impacts of the CAP and Thresholds project and made the erroneous assumption that the project was the same as the project analyzed in the 2011 program EIR; (iii) the County failed to incorporate mitigation measures in the CAP, which is a plan-level document under CEQA that requires such measures; and (iv) substantial evidence supported a fair argument that the County should have prepared an EIR for the CAP and Thresholds project.

These two appellate decisions illustrate how attempts by local government to address GHG emissions in the CEQA context face significant hurdles, as the legal framework continues to evolve.

UPDATE - March 13, 2015: On March 11, 2015, the California Supreme Court granted the petition for review filed by the San Diego Association of Governments and the San Diego Association of Governments Board of Directors in Cleveland National Forest Foundation v. San Diego Association of Governments. The issue to be briefed and argued is limited to the following question: Must the environmental impact report for a regional transportation plan include an analysis of the plan's consistency with the greenhouse gas emission reduction goals reflected in Executive Order No. S-3-05 to comply with the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq.)?

A petition for review in Sierra Club v. County of San Diego is pending, with the time allotted for the Supreme Court to grant or deny review extended until April 3, 2015.

--Don Sobelman and Nicole Martin

For more information, contact Don Sobelman at des@bcltlaw.com, or (415) 228-5456, or Nicole Martin at nmm@bcltlaw.com, or (415) 228-5435.

EPA Releases Proposed Rule for Reducing Power Plant CO2 Emissions

Earlier today, EPA released its much-anticipated proposal for reducing greenhouse gas emissions from existing fossil fuel-fired power plants.

In its proposed rule, EPA proposes “state-specific rate-based goals for carbon dioxide emissions from the power sector.” To achieve these goals, states implementing the program would be given flexibility to adopt a range of approaches, including caps on overall emissions (as in California’s cap and trade program) and other programs that would achieve greenhouse gas emissions reductions “outside the fence”—i.e., outside of the utility sector. 

EPA projects a reduction in annual carbon dioxide emissions in the range of 26 to 30 percent of 2005 levels by 2030 if the proposed rule is implemented. Although all fossil fuel-fired power plants would be affected by the draft rule, coal-fired plants would face the steepest reduction requirements.

As anticipated, environmental groups have generally reacted positively to EPA’s announcement, while the coal industry and lawmakers from West Virginia, North Dakota, and other coal producing states oppose the proposal. 

Comments on the proposed rule are due September 30. 

-- Chris Jensen

For more information, contact Chris Jensen at cdj@bcltlaw.com or (415) 228-5411.

CARB Releases Draft Update of Climate Change Scoping Plan

The California Air Resources Board (CARB) has released a discussion draft of the First Update of California’s Climate Change Scoping Plan for public review and comment. 

The California Global Warming Solutions Act of 2006 (AB 32) requires CARB to update the Scoping Plan every five years.  The updated Scoping Plan discusses progress toward meeting AB 32’s short-term target of reducing greenhouse gas emissions to 1990 levels by 2020, concluding that California is on track to meet that goal, and summarizes policy alternatives that would allow the State to achieve the long-term goal of reducing greenhouse gas emissions to 80% of 1990 levels by 2050.  (See Executive Order S-3-05.)

The Scoping Plan also states CARB’s intention to adopt an interim target for 2030 emissions, citing the United States’ pledge in the Copenhagen Accord to reduce emissions to 42% percent below 2005 levels (33% of 1990 levels) by 2030, and noting that “this level of reduction is achievable in California.”

With respect to the Cap and Trade Program that covers emissions from electric utilities, transportation fuels, and certain industrial sectors, the Scoping Plan notes that “CARB will develop post-2020 emissions caps to reflect the establishment of a 2030 midterm target,” and leaves open the possibility that the Cap and Trade Program “may need to include broader emissions scope” that would extend the Program to new industries. 

The Scoping Plan neither specifies the level of the midterm emissions reductions target nor does it identify the additional industrial sectors that may be covered under an expanded Cap and Trade Program.   These details are left for future legislation and regulatory activity and are sure to the subject of intense debate and lobbying efforts in Sacramento.

--Chris Jensen

For more information, contact Chris Jensen at (415) 228-5411, cdj@bcltlaw.com.

Ninth Circuit Rejects Constitutional Challenge to California’s Low Carbon Fuel Standard

On September 18, the Ninth Circuit handed a major victory to the California’s program to control greenhouse gas emissions from transportation fuels, turning aside constitutional challenges to the program brought by ethanol and petroleum industry interests in Rocky Mountain Farmers Union v. Corey (No. 12-15131).

The case arose from rulings in two separate actions in the Eastern District of California involving California’s “Low Carbon Fuel Standard.” The Low Carbon Fuel Standard is intended to reduce greenhouse gas emissions attributable to the sale of transportation fuel in California by 10 percent by 2020.  To achieve this goal, the California Air Resources Board (CARB) set “carbon intensity” standards for different fuel feedstocks, which distinguished on a geographic basis among different ethanol sources and different categories of crude oil.  The district court found that the application of Low Carbon Fuel Standards to out-of-state ethanol and crude oil production violated the Dormant Commerce Clause of the U.S. Constitution by (1) facially discriminating against out-of-state ethanol, (2) impermissibly engaging in the extraterritorial regulation of ethanol produced outside of California, and (3) having the purpose and effect of discriminating against out-of-state crude oil production.

By a 2-1 vote, the Ninth Circuit reversed all three of these rulings.  In a strongly worded opinion, Judge Gould recognized California’s authority to “create a market that recognizes the harmful costs of products with high carbon intensity,” observing that “[t]he Commerce Clause does not protect Plaintiffs’ ability to make others pay for the hidden harms of their products merely because those products are shipped across state lines.”

The panel remanded to the district court with instructions to determine whether the Low Carbon Fuel Standard’s ethanol provisions have the purpose and effect of discriminating against interstate commerce, and if not, to apply the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).  The panel also instructed the district court to apply the Pike balancing test to the standard’s crude oil provisions.

The panel affirmed the district court’s holding that the provision of the federal Clean Air Act saving California’s motor vehicle emissions standards from preemption (Section 211(c)(4)(b)) does not authorize the Low Carbon Fuel Standard under the Commerce Clause.

--Chris Jensen and Morgan Gilhuly

For more information, please contact Chris Jensen, cdj@bcltlaw.com, (415) 228-5411, or Morgan Gilhuly, rmg@bcltlaw.com, (415) 228-5460.