This article is the latest in a series chronicling the first litigation challenge to AB 32 (the Global Warming Solutions Act) and the cap-and-trade program in Association of Irritated Residents, et al. v. California Air Resources Board, Case No. CPF-09-509562, ("Ass'n of Irritated Residents v. CARB"). Though environmental justice groups continue to object to cap-and-trade as the primary vehicle to reduce greenhouse ("GHG") emissions to 1990 levels by 2020, the California Supreme Court recently allowed California Air Resources Board's ("ARB") cap-and-trade implementation to move forward, and agency rule development continues.
Agency Development
On August 24, 2011, the ARB Board ("Board") unanimously approved both ARB's new supplemental assessment ("Supplement") and re-approved its Scoping Plan, which provides the overall roadmap and rule measures to carry out AB 32. The Board also approved a more robust California Environmental Quality Act equivalent document supporting the supplemental analysis of the cap-and-trade program.1 The Board's determination was made at the conclusion of a presentation by ARB staff and arguments proffered by environmental justice groups. Environmental justice groups' arguments centered around the contention that a cap-and-trade program would allow large industrial emitters of GHG to meet their obligations through the purchase of offsets and emissions from other locations, which would discriminately impact low-income and minority areas. Ultimately, the ARB Board approved cap-and-trade in spite of concerns raised by environmental justice groups. The Board also considered the written public comments to the supplemental analysis, and ARB staff's prepared responses to those comments.2
While ARB declined to comment on the Board's vote, this
development ultimately reaffirms the organization's support for
the controversial cap-and-trade program. The vote also validated
the belief amongst its supporters that cap-and-trade is the most
effective tool in reducing GHG emissions. As currently written, the
cap-and-trade program would cover eighty percent (80%) of the
state's emissions, including 360 business representing 600
facilities across the state.
According to a source close to ARB, the newly approved Supplement
may not contain the only revisions and additions to AB 32, the
Scoping Plan, and the cap-and-trade program. Amendments to be
considered in future ARB meetings include expansion of the supply
of GHG offsets, protection for in-state companies from trade
exposure to out-of-state companies, linkage to other trade
programs, and design of a market-trade system.
Additional revisions prior to the 2013 launch of the cap-and-trade
program would stem from legally sensitive, complex issues facing
California officials regarding cost containment and impacts on
out-of-state activities. As with the revisions adopted by the Board
in August, any further change would probably renew opposition to
the already highly controversial program.
Currently, ARB is scheduled to approve dozens of revised
implementation regulations for the cap-and-trade program at its
October 20-21, 2011 meeting. On September 12, ARB staff released a
set of final revisions to be discussed at this October meeting. The
fifteen-day public comment period for these revisions ended
September 27. Comments have been received by environmental groups,
major industry organizations, carbon-offset traders and other
stakeholders.
Litigation Development
As explained in prior blogs, a California Superior Court
decision from earlier this year halted implementation of
cap-and-trade. On June 24, the First District Court of Appeal
issued an order granting ARB's petition for a writ of
supersedeas.3 This stayed the Superior Court's
ruling4 against the program and allowed ARB to continue
to advance and finalize plans for the cap-and-trade program while
the Appellate Court determined the merits of ARB's appeal. The
Center for Race, Poverty, and the Environment filed a petition for
review with a request for stay with the California Supreme Court on
July 26.5 In its petition, the Center asked the Supreme
Court to lift the stay on the injunction to again stop ARB from
continuing to work on the cap-and-trade program. The petitioners
also requested that the Supreme Court hear ARB's appellate
petition.
The petitioning environmental groups argued that the Appellate
Court should not have granted a stay on the lower court's
injunction. The groups also insisted that ARB should have to
complete a "meaningful environmental review of alternatives to
cap-and-trade program before the rules can be finalized, and that
the new review approved last month is deficient." ARB's
attorneys countered that the petitioners failed to raise an
"important question of law justifying review." Instead,
ARB contends that petitioners mischaracterized the cap-and-trade
proceeding as "premature implementation," rather than the
non-final administrative proceeding it was. ARB also argued that
the trial court's injunction was mandatory in effect, rather
than prohibitory as alleged by the petitioners.
On September 28, 2011, after review of the advocates' petition
and ARB's answer, the California Supreme Court declined to
immediately halt implementation of the cap-and-trade program. The
Supreme Court's decision was limited only to the stay
application instituted by the Appellate Court, and was not a ruling
on the merits. The Court of Appeal will continue to hear ARB's
appeal on the merits of the Superior Court's final order.
In addition to the pending Ass'n of Irritated
Residents appeal, ARB may soon be facing other suits against
its cap-trade-program. Brent Newell, the attorney representing the
Center for Race, Poverty, and the Environment in the
above-mentioned Supreme Court ruling, recently noted that it is
likely there will be a direct legal challenge to the revised
analysis and Scoping Plan Supplement approved by the Board in
August. A lawsuit could be filed as early as January 2012, after
state administrative officials finalize regulations to implement
the cap-and-trade program.
On other fronts portending additional litigation, the California
Chamber of Commerce, and other state industry groups have alleged,
and continue to allege, that the state's plan to sell GHG
allowances under its cap-and-trade program amounts to a tax
requiring two-thirds (2/3) approval of the California Legislature.
These groups claim the allowance payments to the states are, in
reality, taxes that do not provide a direct benefit or service to
the fee payer, in violation of California law. State officials have
publically denounced these legal claims to be misguided.
Specifically, ARB maintains the auction sales are not subject to a
two-thirds (2/3) vote.
Further, California utilities have raised various legal objections
regarding ARB's regulation of interstate electricity
transactions under the cap-and-trade program. Specifically, state
utilities are worried their compliance with the program will
subject them to complex ramifications if they purchase electricity
from the United States Department of Energy Bonneville Power
Association ("BPA"), a major electricity-supply agency in
the Pacific Northwest. Adding fuel to these fears, BPA has signaled
it may bring suit against ARB for regulating activities under the
cap-and-trade program.
In a letters dated September 20 and August 1, 2011, BPA attorney J.
Courtney Olive, contends that ARB has no authority to regulate BPA
since BPA operates as a sovereign entity. Olive charges that,
despite ARB's contention that the Clean Air Act waives
sovereign immunity, it is questionable whether that waiver would be
applicable to BPA due to the fact BPA is "purely a marketer
that is not engaged in an activity that discharges
pollutants." At this point, BPA is participating in the
cap-and-trade program in a voluntary basis, but is concerned that
mandatory regulations could interfere with "existing contracts
and conflict with the marketing scheme established by Congress in
BPA's governing statutes."
Only time will tell what the final determination of Ass'n
of Irritated Residents v. CARB and the future of the
cap-and-trade program as proposed by AB 32 will be. More updates to
come.
Footnotes
1. Discussion of the supplemental analysis can be found here. As explained in prior blogs on this website, ARB was compelled to present a more detailed assessment of cap-and-trade in order to overcome legal challenges.
2. The final version of the supplemental analysis approved by the Board, the ARB staff's presentation, and its response to written comments on the analysis can be found here.
3. Ass'n of Irritated Residents v. CARB, Case No. A132165, in the California First District Court of Appeal can be found here.
4. Discussion of the Superior Court ruling can be found here.
5. Ass'n of Irritated Residents v. CARB, Case No. S195112, in the California Supreme Court can be found here.
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