Pacific Legal Foundation filed alawsuit today in the Superior Court of California County of Sacramento challenging California’s cap-and-trade auction. The suit was filed on behalf of a broad group of California businesses, trade associations and individuals, who believe the auction process acts as an unconstitutional tax because it was not enacted by two-thirds majorities in both chambers of the California Legislature, which is required by the California Constitution. The lawsuit states that the California Air Resources Board (CARB) instituted the auction as a plan to raise billions of dollars in revenue without direction from the Legislature. They argue, if citizens and corporations must obey the state Constitution, shouldn’t an agency of the California government?

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Last week, the U.S. Court of Appeals for the District of Columbia declined to grant a rehearing of EME Homer City Generation LP v. EPA, a case that challenged EPA’s Cross-State Air Pollution Rule (CSAPR). The court, in a 2-1 ruling in August, vacated the CSAPR. The court stated that EPA was exceeding its statutory authority, as the agency should allow states to develop their own rules to address emissions and CSAPR could have required states to account for more emissions than necessary. EPA hoped to challenge the ruling of the court and asked for an en banc hearing, so that the case could be heard before all eight of the circuit’s judges. However, a majority of the judges voted against the request, so the court will not rehear the case. The question now is whether EPA will take its challenge to the Supreme Court.

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The AB32 Implementation Group (AB32IG) sent a letter to California Governor Brown requesting that the cap-and-trade program and first allowance auction scheduled for November 14, 2012 be delayed. AB32IG had hoped CARB would address some of their concerns at the September board meeting, however CARB failed to do so. The letter requests that Gov. Brown step in to protect the state’s economy; and states that the independent Legislative Analyst’s Office confirmed that the auctioning of allowances is not necessary to reach the state’s greenhouse gas reduction goals set forth in AB32. Part of the letter reads, “CARB’s requirement to buy allowances will impose high and unnecessary costs on California businesses, threatening jobs and tax revenues in the state.” It continues to say that consumers will be impacted by higher costs of fuel, utilities, food and other essential services. So far the Governor has yet to respond to AB32IG’s letter.

Last week, Judge Lawrence O’Neill issued a preliminary injunction against California’s low-carbon fuel standard(LCFS). The LCFS program, which was originally ordered by former Gov. Schwarzenegger in 2007 and later approved by the California Air Resources Board(CARB) in late 2009, would cut vehicle emissions by 10 percent by 2020. Judge O’Neill believes that the LCFS ultimately discriminates against interstate commerce. His ruling reads in part, “California is attempting to stop leakage of GHG emissions by treating electricity generated outside of the state differently than electricity generated inside its border. This discriminates against interstate commerce.” CARB has said they will appeal the ruling and seek a stay on the injunction, as will other environmental groups. This is not a surprise, as the LCFS along with the state’s cap-and-trade program are two key policy initiatives for the state to reduce greenhouse gas emissions. It will be interesting to see if this ruling affects other states in their efforts to begin greenhouse gas reduction programs.

In March of this year, California’s roll-out of AB 32 hit a legal hold up which we blogged about here. The Plaintiffs in the case sought a petition for writ of mandate on a total of eight causes of action in regards to a 2008 Functional Equivalent Document (FED) alternative analysis under the California Environmental Quality Act (CEQA). Judge Goldsmith granted the Plaintiff’s writ of mandate on two of the causes of action in May of this year, requiring the state to further justify its selection of the greenhouse gas cap-and-trade market, in light of alternatives. Finding that the state had adequately justified its selection, on Monday, Judge Goldsmith issued his final ruling on the issue discharging the Peremptory Writ of Mandate, and he wrote in his decision that “respondents having demonstrated satisfactory compliance with the Court’s Peremptory Writ of Mandate.” With this legal hurdle now cleared, California can move forward with AB 32 and its cap-and-trade program.

Today, the California Air Resources Board(CARB) met to consider final adoption of a proposed cap and trade program that is part of the state’s implementation of AB 32. CARB approved the cap and trade program by a unanimous vote. At a public hearing in August, CARB reviewed and heard testimony on the Functional Equivalent Document(FED). CARB has now posted its response to the comments of the FED on its website, and reviewed them during today’s hearing. The cap and trade plan will cover 85% percent of California’s emissions. Beginning in 2013 the plan places emission allowances on California’s power plants, refineries, cement plants and other high polluting facilities in the state. Other facilities won’t be part of the program until 2015.

The cap and trade program will require polluters to buy allowances from the state. The allowances represent a specific amount of greenhouse gases per year. The allowances can be bought or sold in the marketplace. If a company has extra allowances, because they were able to reduce emissions, they are able to sell their allowances to companies that failed to cut emissions or in fact increased their emission levels. In order to allow companies to gradually get used to the program, 90 percent of the allowances will be free in the first years of the program. Companies may also purchase carbon offsets, which are investments projects that reduce greenhouse gases. Companies can use these offsets to account for 8% of their emissions reductions.

Citing the “importance of reducing regulatory burdens and regulatory uncertainty, particularly as our economy continues to recover,” President Obama has asked Environmental Protection Agency (EPA) Administrator Lisa P. Jackson to withdraw the draft National Ambient Air Quality Standards for ground-level ozone (smog), proposed in January of 2010.  Characterized as a victory for business, Obama’s request means that current smog standards will not be revisited until 2013. 

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The California Air Resources Board(CARB) held a board meeting today to review the Final Supplement to AB 32 and the AB 32 Scoping Plan Functional Equivalent Document. The ARB staff gave a presentation updating the current status of AB 32 implementation and also detailed the updated environmental analysis of alternatives to the scoping plan. The presentation reviewed the current progress of key measures already being implemented under AB 32, including: the low carbon fuel standard, SB 375, and the renewable portfolio standard.

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The state of Wyoming has challenged EPA’s rights to take over greenhouse gas permitting in the state. A federal court ruled that the decision should be made by the U.S. District Court of Appeals, so it will be transferred there rather than the Denver-based 10th Circuit U.S. Court of Appeals like Wyoming desired. Wyoming’s case focuses on the EPA’s state implementation plans(SIP’s) which calls for states to prove that they can oversee greenhouse gas emissions through their state air-pollution programs. The states that lacked this ability under their current SIP, must implement a federal plan or let the EPA take over. The DC Circuit court, which handles a number of regulation disputes, already has a similar case on its plate involving the state of Texas. As the court moves forward don’t be surprised if the cases end up being dealt with at the same time.

The California Air Resources Board(CARB) issued a 15-day notice of public availability for a modified text and additional documents relating to the Regulation of the Mandatory Reporting of Greenhouse Gas Emissions. The proposed amendments can be found here. The public has until August 9, 2011 to submit comment. Written comments may be submitted by mail by sending them to:

Clerk of the Board, Air Resources Board
1001 I Street, Sacramento, California 95814

Comments can be submitted electronically here.