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California Marches to Own Drummer on Climate Change

February 25, 2011

California, well known for its independence, has broken with most of the rest of the country in the area of climate change. While Congress considers legislation to roll back EPA greenhouse gas regulation,[1] California is implementing a mandatory carbon cap-and-trade program, increasing requirements for renewable energy, recommending rules for carbon capture and sequestration, and announcing future greenhouse gas standards for light-duty vehicles.

Mandatory Cap-and-Trade

California’s Air Resources Board (CARB), on December 16, 2010, adopted an historic cap-and-trade program to cap emissions at 600 facilities. The regulation is divided into two phases: an initial phase beginning in 2012 that will include major industrial sources and utilities; and, a second phase that starts in 2015 and brings in distributors of transportation fuels, natural gas and other fuels. The goal of the program is to achieve a 15 percent reduction in greenhouse gas emissions compared to 2012 levels. For a comprehensive summary of California’s cap-and-trade program, see California Unveils Nation’s First Economy-Wide Cap-and-Trade Program, Marten Law Environmental News (November 12, 2010).

Significantly, however, a San Francisco Superior Court recently issued a tentative decision that could delay the January 2012 commencement of the cap-and-trade program. In Association of Irritated Residents, et al. v. California Air Resources Board, Case No. CPF-09-509562, the Court held that CARB failed to comply with the California Environmental Quality Act (CEQA). The Court found CARB to have neglected to conduct a sufficient environmental impact review prior to adopting the state’s Scoping Plan, which is a central requirement to Assembly Bill 32, the Global Warming Solutions Act (AB 32). The Scoping Plan identifies the cap-and-trade program as a key element in GHG reduction strategy. Specifically, the court found that CARB failed to adequately analyze all potential alternatives and prematurely adopted the Plan prior to fully responding to public comment. In a small victory for CARB, the court did reject the plaintiff’s substantive legal challenges to the Scoping Plan. The court found that CARB did not act arbitrarily or capriciously in adopting the Plan and dismissed plaintiff’s request to find the Plan inconsistent with AB 32.

Both parties filed objections to the tentative ruling on February 8, 2011. In response, the court may order a hearing, leading to a final ruling ten days later, or make a decision without a hearing, which would lead to a ruling before March 15, 2011.[2] If the decision is finalized as it currently stands, CARB has limited options. It could 1) file an expedited appeal, requesting a stay pending the appeal; 2) revise and re-issue its CEQA environmental review documents to address the court’s concerns; or 3) lobby for a legislative exemption to overturn the court’s decision.

Renewable Portfolio Standard

California’s renewable portfolio standard, or RPS, mandates that utilities replace a portion of their hydrocarbon-based electricity with clean power sources.[3] In late 2010, the California Air Resources Board approved Resolution 10-23, which increased the state’s standard for the proportion of electricity generation by eligible renewable sources from 20 percent to 33 percent.[4] Approving the rule as a directed executive order became necessary when Senate Bill 722, which could have codified the 33 percent standard, failed to pass in both 2009 and 2010.

Approval of the 33 percent standard came at the same time that permits for renewable sources were being issued at an unprecedented rate in order to take advantage of federal stimulus incentives.[5] Renewable sources include, with some conditions for specific sources, biomass, biodiesel, fuel cells using renewable fuels, anaerobic digestion of organic wastes, geothermal, landfill gas, municipal solid waste, ocean wave and thermal technology, tidal currents, solar photovoltaic, small hydroelectric, solar thermal, and wind.[6] Nuclear facilities, large hydropower, and natural gas are not included as renewable sources in the state’s RPS.

More than 650 megawatts of new renewable power were brought online last year under contracts with California’s three investor-owned utilities, nearly doubling the amount of clean electricity that became operational in 2009.[7] The state’s RPS mandated that the three investor-owned utilities (IOUs) — Pacific Gas and Electric Co., Southern California Edison Co. and San Diego Gas & Electric Co. — attain 20 percent of their power from renewables by the end of 2010. The biggest renewable plant to come online in 2010 was 300 MW of a 1,550 MW future wind plant in Tehachapi, Calif. Seventy percent of the new projects (or 435 MW) brought online in 2010 were in-state, with 30 percent coming from out-of-state.

Looking forward, the report says the IOUs have enough renewable electricity under contract to meet the 33 percent standard by 2020.[8] Still, much of that power may fail to become a reality, depending on permits, financing and contract terms. Concerns also remain regarding the costs of the RPS. A 2008 report by the California Public Utilities Commission found that to a 33 percent standard would require an increase of 110,000 gigawatt-hours of new renewable energy in 2020. The PUC estimated that this will necessitate seven new major transmission lines, “an infrastructure build-out on scale and timeline perhaps unparalleled anywhere in the world.”[9]

Carbon Capture and Sequestration

California’s Carbon Capture and Storage Review Panel[10] released findings on January 20, 2011 concluding that “Carbon capture and storage (CCS) is a technology that may need to be deployed on a significant scale to curb CO2 emissions from power plants and industrial sources.”[11]

Among the key recommendations made by the panel is the finding that, for capped stationary sources under A.B. 32, the state should “recognize CO2 sequestered by CCS projects as having not been emitted to the atmosphere … with the result that an allowance is not required to be held for each ton of CO2 that is captured and geologically stored.” For capped sources, the report recommends that the state decide whether offset protocols for CCS projects within the state should be adopted.

The report goes on to say the California Energy Commission should be designated lead agency for regulating CCS projects under CEQA, and affirms that the State Fire Marshall is the lead agency for regulations the safety and operations of intrastate CO2 pipelines. It also seeks to establish the first-ever guidelines as to land ownership, recommending the state legislature “declare that the surface owner is the owner of the subsurface ‘pore space’ needed to store CO2.”

To address concerns about federal overlap, the report advises state regulators to evaluate rules issued last year by EPA. The report states that California should consider seeking primacy for permitting carbon wells under the Underground Injection Control Program, referring to two EPA rules meant to aid the expansion of CCS for fossil fuel-burning power plants. The first rule creates new “Class VI” injection wells for sequestration to be regulated by EPA, while the second would permit holders to create a CO2 monitoring, reporting and verification plan, and to report the amount of CO2 sequestered using a mass balance approach under the Clean Air Act. The report recognizes that EPA’s recently promulgated UIC Class VI rule and subpart RR of the Greenhouse Gas Reporting Rule both apply to California geologic sequestration sites and go a long way toward establishing regulatory requirements for such sites,” but that “[n]onetheless, gaps remain under those programs and the need exists for California to address those gaps.”

Coordinating GHG Standards for Light-Duty Vehicles

California had been expected to announce its 2017-2025 greenhouse gas standards for light-duty vehicles as early as March 2011, but will now delay the release until Sept. 1, 2011. The delayed date accommodates the release of EPA’s and the National Highway Traffic Safety Administration’s fuel efficiency standards for passenger cars and light-duty trucks built between 2017 and 2025.[12]

California is permitted under the Clean Air Act to implement its own rules, but it agreed in the fall of 2010 to comply with federal greenhouse gas standards that required a fleetwide standard of 35.5 miles per gallon, creating the first coordinated national program. EPA and NHTSA are working on standards for model years 2017-2025 that would increase fuel economy by 3 to 6 percent a year, setting the standard as high as 62 miles per gallon by 2025. A draft rule is expected later this year, and a final rule should be in place by July 2012.[13]

While a delayed release of the new standards may at first appear as stalled progress, it is an effort to prevent a “patchwork” of differing state and federal regulations that would be difficult for the auto industry to meet.[14] If California had, as anticipated, released its new standards months before the federal standard, auto makers may have had to sell different cars in different states.

For more information on state and regional programs addressing climate change, please contact any member of Marten Law’s Climate Change practice group.

[1] Rep. Marsha Blackburn, R-Tenn. introduced legislation on January 5, 2011 to exempt carbon dioxide from the Clean Air Act (POL 109-549) and Rep. Shelley Moore Capito, R-W.Va., authored a bill to suspend EPA’s regulatory authority over greenhouse gases for two years.

[2] California Rule of Court 3.1590.

[3] For more information about Renewable Portfolio Standards in general, and California’s specifically, see Renewable Portfolio Standards Drive Market for Alternative Energy, Marten Law Environmental News (November 20, 2008).

[4] See CARB’s Renewable Electricity Standard website.

[5] Colin Sullivan, Calif. Raises RPS to 33%, E & E News, September 24, 2010 (subscription required).

[6] See CPUC’s Renewable Energy and RPS Eligibility website.

[7] Colin Sullivan, Calif. Set new capacity record in 2010 – state report, E & E News PM, January 25, 2011 (subscription required).

[8] California Public Utilities Commission, Renewables Portfolio Standard Quarterly Report, 4th Quarter 2010.

[9] California Public Utilities Commission, Renewables Portfolio Standard, Quarterly Report, October 2008.

[10] The CCS Review Panel is formed by three state agencies – the California Energy Commission, the California Public Utilities Commission, and the California Air Resources Board.

[11] Findings and Recommendations by the California Carbon Capture and Storage Review Panel, December 2010.

[12] Jason Plautz, Calif. Will align GHG standards timeline with EPA, E & E News PM, January 24, 2011 (subscription required).

[13] Jason Plautz, Car makers wary of Calif. Developing fuel economy standards, E&E News PM, January 12, 2011 (subscription required).

[14] Jason Plautz, Car makers wary of Calif. Developing fuel economy standards, E&E News PM, January 12, 2011 (subscription required).

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