On March 27, 2012, two public interest groups filed suit in San Francisco Superior Court against the California Air Resources Board ("CARB"), challenging the offset credits allowed under California's " cap and trade" regulations. Citizens Climate Lobby and Our Children's Earth Foundation v. California Air Resources Board.
As discussed in previous editions of The Climate Report, CARB's cap and trade regulations are a key component of California's effort to implement the Global Warming Solutions Act of 2006 (AB 32). Emission sources subject to the program must annually surrender "compliance instruments" equal to their emissions of specified greenhouse gases, collectively expressed as CO2e. Compliance instruments can be obtained in several ways, including the purchase of offset credits, which can be generated from projects that reduce greenhouse gas emissions from activities that are not otherwise regulated under the cap and trade program. To qualify as offset credits, the greenhouse gas reductions must be real, additional, quantifiable, permanent, verifiable, and enforceable.
In their complaint, plaintiffs allege that the offset program violates AB 32 and that CARB's tests to determine whether an offset is truly additional are inherently subjective and uncertain. The complaint also alleges that the "performance standard" used in each of the four offset protocols approved by CARB is flawed because it recognizes offset activities that are "significantly better than average" and thus includes activities that already exist. As a result, the complaint alleges, the offset projects are not "in addition to any greenhouse gas emission reduction that otherwise would occur" and thus violate AB 32.
Plaintiffs ask the Superior Court to order CARB to repeal (i) the four offset protocols; (ii) several definitions, including the definition of "additional"; and (ii) the offset program set out in sub-articles 13 and 14 of the regulations. Plaintiffs also seek a declaration that the relevant regulatory provisions are invalid and a permanent injunction prohibiting CARB from authorizing the use of offset credits as compliance instruments.
A court order prohibiting the use of offset credits would be a huge blow to the cap and trade program and to industry's ability to comply with the substantial greenhouse gas emission reductions required by AB 32.
For additional detail on California's cap and trade program, see Jones Day's White Paper entitled " California Adopts Cap and Trade."
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