United States: Climate Change: California Global Warming Solutions Act Of 2006

Yesterday, on the last day of its two-year session, the California Legislature passed Assembly Bill 32, the "California Global Warming Solutions Act of 2006." Passage by the Legislature followed an "historic agreement" between the legislative leadership and Governor Schwarzenegger. The Governor is now expected to sign the bill into law during September. Once signed, the bill will become effective on January 1, 2007 and will establish the first comprehensive greenhouse gas (GHG) regulatory program in the United States. The California program will directly regulate GHG emissions from most industries in California and will affect business and the economy throughout California, the nation and the entire globe.

The bill does not contain elaborate findings on the nature or scope of global climate change. The bill assumes that GHG reductions are necessary and beneficial.

Unlike nearly all other environmental laws, the bill does not contain detailed control measures. Instead, the bill establishes a statewide "greenhouse gas emissions limit" measured in tons of carbon dioxide equivalents during a given year. The level of the limit must be "equivalent" to the statewide GHG emissions level in 1990. To make this approach work, by January 1, 2008, the California Air Resources Board (ARB) must "determine what the statewide greenhouse gas emission level was in 1990," based on the ARB’s evaluation of the "best available scientific, technological, and economic information on greenhouse gas emissions." The ARB must then develop an implementation program to achieve the limit by 2020, and must adopt GHG control measures "to achieve the maximum technologically feasible and cost-effective greenhouse gas emission reductions from sources or categories of sources."

The bill’s GHG emissions limit remains in place until otherwise amended or successfully appealed. It is widely assumed that levels of statewide GHG emissions must be reduced by approximately 25% to achieve the AB32 greenhouse gas limit, but it is impossible to determine that number until the ARB performs its highly complex – and possibly highly uncertain and contentious – re-creation of 1990 GHG emission levels. The bill requires ARB to determine GHG emissions both inside and outside of California, considerably complicating ARB’s task.

Here is a brief timetable of the major ARB actions required by the bill.

The State of California has already started to take steps which should assist ARB to meet this timetable. For example, the Governor’s Climate Action Team prepared a comprehensive "Climate Action Team Report to Governor Schwarzenegger and the California Legislature" dated March 2006.³ This Report describes over 40 measures to achieve GHG emissions reductions in California. In AB32, the Legislature expressed its intent that the Climate Action Team (CAT) established by the Governor continue its role in coordinating overall climate policy in California.

From the initial CAT list of measures developed to date, it is clear that AB32 can have dramatic and farreaching effects on individual facilities of all kinds in California, on broad categories of industries in California and on the entire economy of California and perhaps the nation. In just one example of the bill’s scope, the bill provides special requirements for utilities and energy facilities under the jurisdiction of the California Public Utilities Commission. The bill assigns to California the emissions of GHG "from the generation of electricity delivered to and consumed in California, accounting for transmission and distribution line losses, whether the electricity is generated in state or imported." Thus, GHG emissions from coal-fired or gas-fired powerplants located outside of California throughout the West – and even in Canada or Mexico – may be attributed to California’s GHG emissions inventory.

To attempt to moderate the economic impacts of the program, this bill includes several key provisions:

• GHG emissions reduction measures must be "cost-effective." "Cost-effectiveness" is defined to mean "the cost per unit of reduced emissions of greenhouse gases adjusted for its global warming potential." Very significantly, however, the bill does not include a cost cap.

• At the Governor’s request, the bill includes a provision allowing the Governor to defer deadlines for compliance with individual regulations year by year in the event of "extraordinary circumstances, catastrophic events, or threat of significant economic harm." The Governor can also declare emergencies resulting from the program, as Governor Davis did during the California energy crisis of 2001.

• Again at the Governor’s request, the bill includes market-based compliance mechanisms. ARB may, but is not required to, include market-based compliance mechanisms in its GHG control regulations. However, the bill also includes significant limitations and hurdles which may limit the vlaue of market-based GHG compliance mechanisms in California.

• The bill requires the ARB to adopt methods for quantifying "voluntary greenhouse gas emission reductions." The ARB must also identify opportunities from "all verifiable and enforceable voluntary actions."

• The bill requires the ARB to take into account the relative contribution of different sources and source categories to statewide GHG emissions and must "recommend a de minimis threshold of greenhouse gas emissions below which emission reduction requirements will not apply."

• The bill requires the ARB to appoint an Economic and Technology Advancement Advisory Committee to advise ARB on research and development opportunities, including funding, partnership, technology transfer, investment, and incentive opportunities. However, it is not clear how ARB can or must use the Committee’s advice to achieve "the maximum technologically feasible and cost-effective greenhouse gas emission reductions."

The bill contains explicit savings clauses. For example, the bill does not affect any state agency’s existing authority to require GHG emission reductions, and public agencies are not relieved of their duty to comply with applicable Federal law. Also, the bill explicitly states that nothing in the bill "shall limit or expand the existing authority of any [local or regional air pollution control or air quality management] district." The Legislature contemplates legal challenges to the bill and provides that its provisions are "severable."

Despite the scope and importance of the bill, it leaves much unsaid. It delegates an unprecedented level of discretion to a state agency (ARB) to determine the goals of the program, the means of achieving those goals, and even the penalties for failing to do so. The bill does not assure that the ARB has adequate additional resources to accomplish all of its tasks on time, with adequate public input, and in compliance with the "cost-effectiveness" and other requirements of the bill. The bill authorizes the ARB to impose fees on GHG sources. According to early estimates of costs to establish this new program, the ARB may need 100 new employees and $10-20 million in budget resources during the current fiscal year alone.

It is now clear that California is committed to establishing a major GHG emission reduction program which will ramp up and take effect over the next few years. However, in its haste to pass this legislation, the state threatens to repeat its electric deregulation debacle of 2001. One long-time California political pundit characterizes AB32 as "political symbolism with consequences."⁴ It is unclear whether AB32 will fail like California’s electric deregulation program or, instead, will succeed in "developing a market-based system that makes California a world leader in the effort to reduce carbon emissions."⁵

State of California Climate Action Team Report

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