Toward a US Cap And Trade System

David Hayes, former Deputy Secretary of the Interior, has an interesting report on the Public Policy Institute's website on how the US should structure a carbon cap and trade system, and the benefits to the US of setting up a market now. Hayes argues that the US's failure to join the Kyoto parties has put the US behind in an important developing market, and he identifies lessons that the US should learn from the development of carbon markets to date.

On that note, the World Bank reports that the global carbon market tripled from $11 billion to $30 billion in 2006, with the EU accounting for about 75 percent of that amount. http://www.iht.com/articles/2007/05/02/business/carbon.php.

Morgan

Biofuels and unintended consequences

As is so often the case in matters of environmental policy, the law of unintended consequences is rearing its problematic head in the much-hyped bio-fuels arena.  Whether and how much bio-fuels may help solve global warming depends on many factors, Mike Corder of the Associated Press reported yesterday:

In the rush to develop biofuels, forests are burned in Asia to clear land for palm oil, and swaths of the Amazon are stripped of diverse vegetation for soya and sugar plantations for ethanol.

http://www.washingtontimes.com/world/20070428-105649-1097r.htm.

Mr. Corder's article goes on to explain that a Dutch commission has developed a framework designed to ferret out whether a given bio-fuel production process is doing more harm than good.

--Brian

British Columbia Reported To Join Western Region Climate Initiative

Reuters reported on April 25 that British Columbia has joined California and five other states in the Western Region Climate Initiative, a carbon trading market promoted by Governor Schwarzenegger.
http://news.yahoo.com/s/nm/20070425/wl_canada_nm/canada_environment_britishcolumbia_ca_col_1

Proposed Early Actions Under AB 32

The California Air Resources Board has issued a report regarding proposed Early Actions under AB 32 to mitigate climate change. The report is one of many resources on CARB's Climate Change page.

There are a number of additional interesting documents, including the Governor's executive orders regarding the Low Carbon Fuel Standard and the Western Regional Climate Action Initiative, on the Governor's energy page.

Climate Change: A New Job

Climate change legislation and regulations (and possibly litigation) will be the most important environmental law trend in the next decade. California passed the first state legislation, Assembly Bill No. 32, to cap and reduce greenhouse gases in 2006. AB 32 by itself will have little direct effect on industry, but it sets in motion a planning and regulatory process that will eventually affect every business that uses energy -- electricity, any type of vehicle besides a bicycle, even potentially a leaf blower. Surprisingly, many lawyers I know, even environmental lawyers, have not read the statute. It's a short, easy read, and here's what it provides in a nutshell:

AB 32 adds a new Division 25.5 to the Health & Safety Code, starting at Section 38500. Part 1, Sections 38500 to 38505, contains a short title (the "California Global Warming Solutions Act of 2006"), findings and declarations, and definitions. The Act defines greenhouse gases to include not only carbon dioxide and methane, but also nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.

Part 2, Section 38530, authorizes the State Air Resources Board to adopt regulations requiring the reporting and verification of greenhouse gas emissions. The regulations may apply to all "greenhouse gas emissions sources," and the State Board has discretion to determine which sources are significant enough to be regulated. Thus, the statute ducks the question of whether greenhouse gas regulations should apply to sources at the level of leaf blowers and lawn mowers, or just to large industrial users. The statute does require, however, that the State Board "[a]ccount for all electricity consumed in the state."

Part 3, Sections 38550 and 38551, requires the State Board to determine the state's level of greenhouse gas emissions in 1990, set that level as a target for emissions in 2020, and continue reductions after 2020.

Part 4, Sections 38560 to 38565, sets forth the tools that the State Board may use to reduce greenhouse gas emissions. First, the State Board's regulations must be designed to "achieve the maximum technologically feasible and cost-effective greenhouse gas emission reductions from sources or categories of sources." Second, subject to that standard, the State Board shall publish a list by June 30, 2007 -- three months from now -- of "early action" measures that can be implemented in regulations to be adopted by January 1, 2010. Third, by January 1, 2009, the State Board shall prepare a "scoping plan," which will be updated every five years, to reduce greenhouse gas emissions. Fourth, by January 1, 2011, The State Board shall adopt regulations, which will become effective January 1, 2012, to achieve the plan. The Act includes principles to guide the Board in developing regulations (minimizing costs and maximizing benefits), and in particular AB 32 requires in Part 5, Section 38570, that the State Board consider a cap-and-trade emissions system.

Parts 6 and 7 contain enforcement and miscellaneous provisions; the Board is empowered to mpose fees on greenhouse gas sources, and there is an escape clause that allows the Governor to postpone deadlines set by the State Board in one-year increments. There's more detail, but that's the gist of it.

Here in summary is the time-table:

• June 30, 2007: Identification of early action measures
• January 1, 2009: State Board to prepare scoping plan
• January 1, 2010: Early action measure regulations to be adopted
• January 1, 2011: Adopt regulations to achieve scoping plan
• January 1, 2012: Regulations become effective

Some companies have already begun to incorporate greenhouse gas planning into their business decision-making, but most businesses seem to think this process will happen to someone else. It's possible that some small businesses may not be much affected, but every large business should be following the regulatory process and identifying those key strategic business decisions that may be affected by greenhouse gas emissions regulations. If you're in environmental law, especially if you work in California, this is likely to be your new job.

Environmental Enforcement Through Strict Liability

My year 2006 was mostly consumed with a trial and post-trial briefing in City of Modesto v. Dow. As a result, this blog has been dormant. I do intend, however, to resume posting in 2007.

One of the trends in the late 1990's and early 2000's that we have seen in our practice is the use of state product liability tort claims as an enforcement tool for municipalities to address environmental contamination. In City of Modesto, for example, the City sued product suppliers for PCE contamination in Modesto. These claims beg the question whether strict liability was ever intended to encompass claims for environmental contamination by a public entity. They also raise a host of questions regarding the policy bases on which the strict liability doctrine was founded -- for example, should the strict liability doctrine apply outside the context of a commercial sale of a product -- i.e., when the product is still in the product "pipeline"?

In Nelson v. Exxon Mobil, the trial court was convinced that strict liability should not apply to a product that was still in the product pipeline:

“While California law permits bystanders injured by a product, in certain circumstances, to recover under strict product liability, it has apparently only been when that injury was attendant to the use or consumption of the product, not while the product was still possessed and stored by a participant in the stream of commerce.”

The California Court of Appeal reversed, holding that sale of the product to an "ultimate consumer" is not required for the imposition of strict liability:

"In short, there is no basis for a narrow construction of the class of 'user' that supports imposition of strict liability. Our conclusion is consistent with caselaw recognizing, in other contexts, that there are reasonably foreseeable incidental and attendant uses of a product, such as storage and disposal."

The court also stated that "California provides broad, protection to bystanders and does not limit strict liability to situations occurring after sale of the product or equivalent transaction."

Nelson suggests that at least on the issue of whether strict liability applies to pre-consumer use, the courts may apply the strict liability doctrine broadly. But it does not address the policy issues that arise when a public entity plaintiff employs strict liability as an environmental enforcement tool. In Nelson, the plaintiffs were the owners of a private water company, and thus the court had no occasion to consider whether the policies supporting strict liability would support a claim that is in essence environmental enforcement. That issue has yet to be addressed.

Agency Supervision Does Not Necessarily Satisfy Public Participation Requirement

In Carson Harbor Village v. Unocal, decided January 12, 2006, the Ninth Circuit addressed one of those oft-repeated but largely untested assumptions of environmental law: that agency supervision of a cleanup is sufficient to meet the public participation requirement of the National Contingency Plan for the purposes of recovering CERCLA response costs. The Ninth Circuit held that Regional Board oversight of the cleanup in Carson Harbor was not sufficient to meet the public participation requirement. The court left open whether greater involvement would have been sufficient, but from the opinion it appears that the Board's supervision in this case was typical of Board involvement in voluntary cleanup cases.