Legal challenges to California's greenhouse gas
("GHG") regulatory programs continue to work their way
through California and federal courts. With the most significant
challenge facing possible review by the U.S. Supreme Court, two
other challenges pending before the California Court of Appeal, and
a fourth prompting CARB to redo part of its rulemaking, the
long-term viability of California's latest efforts to curb GHG
emissions is uncertain.
GHG Emissions Allowances and Offset Credits.
Under California's cap-and-trade program, covered operators of
stationary sources of GHG emissions must surrender compliance
instruments—emissions allowances or offset credits—for
each ton of GHGs they emit. In Our Children's Earth Foundation
v. CARB, No. CGC-12-519554 (S.F. Sup. Ct., March 8, 2013), two
environmental groups are seeking a writ of mandate that would
stop CARB, at least temporarily, from distributing any offset
credits. The petitioners argue that CARB's methods of
distributing credits violate the implementing statute by failing to
ensure that only new or "additional" emissions reductions
qualify for credits. The Superior Court rejected this challenge,
holding that CARB acted within its statutory authority to implement
the offset credit program. The petitioner's appeal is
pending.
In California Chamber of Commerce v. CARB, No. 34-2012-80001313
(Sac. Sup. Ct., Nov. 12, 2013) (consolidated with Morning Star
Packing Company v. CARB), the petitioners challenge CARB's
authority to sell GHG emissions allowances at auctions. They also
argue that the auctions create a tax that was not authorized by a
two-thirds vote in the legislature, as required by the California
Constitution. The Superior Court rejected both challenges, holding
that CARB acted within its delegated authority to design a system
for distributing allowances, and that auction payments are valid
regulatory fees that are not subject to the supermajority
requirement. In early March 2014, the petitioners filed their
appeals with the California Court of Appeal.
Low Carbon Fuel Standard. The Low Carbon Fuel
Standard ("LCFS") assigns "carbon intensity
scores" to all transportation fuels used in California. A
fuel's score is based on the GHG emissions it generates over
its entire "lifecycle" on its "pathway" from
production to consumption. CARB uses carbon intensity scores to
impose compliance costs on fuel producers, which must surrender
credits to offset any emissions its fuel generates in excess of the
annual emissions cap, as measured by the carbon intensity
score.
In Rocky Mountain Farmers Union v. Goldstene, 730 F.3d 1070 (9th
Cir. 2013), the Ninth Circuit held that the LCFS does not facially
discriminate against interstate commerce or regulate
extraterritorially in violation of the Commerce Clause. The court
reasoned that, although the LCFS expressly distinguishes between
fuels on the basis of geographical origin, those distinctions are
based on real differences in the carbon intensities resulting from
transportation and other factors. The LCFS is not an
unconstitutional extraterritorial regulation, the court held,
because the regulation creates incentives that influence
out-of-state activity, not mandates that control out-of-state
activity. In March 2014, after the Ninth Circuit denied a petition
for rehearing en banc, the challengers filed a petition for
certiorari to the U.S. Supreme Court.
In Poet LLC v. CARB, 217 Cal. App. 4th 1214 (App. 5th Dist. 2013),
the California Court of Appeal held that CARB committed procedural
violations of the California Environmental Quality Act and the
California Administrative Procedures Act when it enacted the LCFS.
However, the Court of Appeal also allowed CARB to continue
enforcing the LCFS while it works to cure the defects. On March 11,
2014, CARB held a public workshop to discuss potential amendments
to the LCFS. It will propose a revised regulation in the fall of
2014. (For more on EPA's proposed standard, read our Jones Day
Alert, "
Update on Litigation Challenging California's Greenhouse Gas
Regulatory Programs").
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