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California Sets Mandatory Limits on Greenhouse Gas Emissions, Steps Out Ahead of EPA

September 20, 2006

California is set to become the first state in the nation to adopt an economy-wide cap on carbon dioxide emissions (“CO2”).[1] Assembly Bill 32 (“AB 32”), also known as the “Global Warming Solutions Act of 2006”, was adopted by the legislature on August 31, 2006 and Governor Schwarzenegger has stated that he will sign the bill into law. The new law will commit California to cutting statewide greenhouse gas emissions to 1990 levels by 2020. In addition to the impacts that AB 32 will have on California, the law will likely influence climate change policy and business decisions throughout the country.

Summary of AB 32

AB 32 requires that California reduce its statewide greenhouse gas emissions to 1990 levels by 2020.[2] The reduction will be accomplished through the use of a statewide emissions cap that will gradually be phased in beginning in 2008. AB 32 does not mandate specific measures to reduce greenhouse gas emissions. Rather, the bill directs the California Air Resources Board (“CARB”) to develop regulations to achieve the required emissions reductions. The new law specifically contemplates that CARB may adopt regulations that establish market based approaches such as emissions trading to achieve the required reductions.[3] In developing the implementing regulations CARB is required to consult with other states, the federal government, and other nations, in order to “facilitate, the development of integrated, and cost-effective regional, national, and international greenhouse gas reduction programs.”[4] The implementing regulations must be in place by January 1, 2011.[5]

Prior to developing implementing regulations CARB must identify all significant sources of greenhouse gas emissions in the state and adopt regulations establishing a mandatory monitoring and reporting system for these sources.[6] The regulations creating this mandatory emissions registry must be in place by January 1, 2008.[7]

The new law anticipates the potential for court action that may affect what CARB can do to reduce CO2 emissions. California is currently facing a lawsuit over its clean car standards, which require carmakers to reduce global warming emissions from new passenger cars and light trucks beginning in 2009.[8] If the state wins the lawsuit, automakers will almost certainly seek relief from the federal government in order to avoid having to comply with California’s emissions standards. If the state loses the lawsuit, and California is prevented from regulating CO2 emissions from automobiles, AB 32 requires that CARB “implement alternative regulations to control mobile sources of greenhouse gas emissions to achieve equivalent or greater reductions.”[9]

Impact on Federal Climate Change Policy

The adoption of AB 32 places California squarely in the center of the national debate over how the United States should address the challenge posed by climate change. Over the past several years there has been increasing pressure on the Federal government to adopt a comprehensive national climate change policy.[10] The federal government has declined to adopt mandatory measures to reduce United States’ CO2 emissions.[11] Instead, the Federal government’s climate change policy to date has focused almost exclusively on the use of voluntary commitments from industry to reduce emissions and the use of tax incentives to spur the use of cleaner renewable energy and more energy efficient technologies.[12] The Bush administration has strongly opposed any measures that would place mandatory limits on greenhouse gas emissions.[13]

In the absence of a comprehensive federal climate change policy, numerous state and local government across the nation have adopted measures aimed to reduce greenhouse gas emissions. These strategies have run the gamut from comprehensive state-wide action plans to reduce emissions, to narrowly tailored initiatives in the areas of renewable energy promotion, transportation, energy efficiency standards, and education campaigns. Among the more well known of these efforts is the plan being developed by nine states in the northeast to develop a cap and trade system to control carbon dioxide emissions from power plants. See previous Environmental News Article entitled, Northeast States Propose Greenhouse Gas Cap and Trade Program. Significantly however, only a few of the measures adopted by state and local governments have been mandatory, and of these, almost all have been directed at specific sectors of the economy such as the electricity industry. With AB 32, California becomes the first state in the nation to mandate reductions across the entire economy.

The new California law will provide additional fuel to the ongoing debate over whether the federal government should adopt a mandatory national program to address greenhouse gas emissions. AB 32 will add to an already diverse collection of climate change policies that have been adopted by state and local governments around the country.[14] Such a fragmented approach has the potential to pose significant challenges and inefficiencies for businesses as they navigate these different policies. A business operating in New York could face a completely different set of climate change regulations than the same business operating in California or Washington. According to Eileen Clausen of the Pew Center on Global Climate Change the increased volume of state climate change action “will compel more companies to seek nationwide regulation from Congress. … Companies don’t want to see a patchwork of state regulations. As more states get involved, it ups the ante.”[15] Further, the fact that AB 32 will cover sectors of the economy that have thus far avoided mandatory climate change regulation may also increase the call for national legislation.

According to a recent article in the Wall Street Journal, more companies are in fact pushing the federal government to enact a comprehensive national strategy to address climate change. The article reported that many companies that previously opposed mandatory curbs on CO2 emissions by the federal government are now offering proposals on what federal regulation should look like.[16] The article noted that the federal government has received over 160 plans from businesses and business organizations outlining possible federal regulatory schemes.[17] According to John Pershing, a climate change expert at the World Resources Institute, businesses want regulatory certainty and the only way for them to get that certainty is through federal regulation.[18] AB 32 will most likely add to this growing call for national regulation.

AB 32 Could Result In Other States Adopting Mandatory Emissions Caps

California has a history of serving as a laboratory for groundbreaking environmental policies that are eventually adopted throughout the country.[19] In the 1970’s, California was the first state to require automobile manufacturers to use catalytic converters and was also the first state to require the use of unleaded gasoline, both of which are now federally mandated.[20] Some people believe that AB 32 could have a similar ripple effect on the climate change strategies of other states. According to Judi Greenwald, director of innovative solutions at The Pew Center on Global Climate Change, a nonprofit, nonpartisan group based in Arlington, Va. “people are watching what California is doing.” Greenwald added that California has long served as a kind of policy laboratory, either providing models for other states or, through its size and influence, forcing them to follow.[21]

That appears to have been the intent of at least one of AB 32’s sponsors. Assembly Member Fran Pavley (D-Augora Hills) believes that passage of AB 32 will set an example for other states and nations. “As California goes, so goes the rest of the world,” notes Pavley.[22] “As California leads and innovates, we believe that Congress and other states will also implement economy wide energy standards.”[23]

What this law means for the Northwest is not immediately clear but the passage of AB 32 may lead to calls for similar legislation in Oregon and Washington. In recent years the governors of the three states have worked closely through the West Coast Governor’s Initiative to coordinate efforts to address climate change.[24] The goal of the Initiative is to use regional goals and strategies to combat global warming.[25] Given this goal, it is hard to imagine AB 32 not having a significant effect on Washington and Oregon’s climate change strategies. Evidence of this policy coordination between the three states has already been seen. When California adopted its clean car standards clean car standards in 2004 in effort to reduce CO2 tailpipe emissions from cars and light truck CO2 emissions both Oregon and Washington followed suit. See previous Environmental News Article entitled, Washington Takes Steps Towards Adopting New Vehicle Emissions Standards (With Some Help from Oregon).

[1] The term “economy-wide” refers to the fact that the new California law requires statewide reductions in greenhouse gas emission levels, as opposed to reduction requirements that target only specific industries. The most well known effort that targets specific industries for emission reductions is the Regional Greenhouse Gas Initiative (RGGI) being implemented by nine states in the northeast. While RGGI is a mandatory cap and trade emission reduction program, it only covers carbon dioxide emissions from power plants. In contrast, the new California law has the potential to go far beyond the regulation of power plants and to cover a broad range of California industries.

[2] AB 32 at Part 3.

[3] AB 32 at Part 5.

[4] AB 32 at Part 4.

[5] AB 32 at Part 4.

[6] AB 32 at Part 2.

[7] AB 32 at Part 2.

[8] See, Central Valley Chrysler Jeep, Inc., et al v. Witherspoon, CIV-F-04-6663-REC-LJO, U.S. District Court for the Central District of California.

[9] AB 32 at Part 7.

[10] See, eg , Global Warming Heats Up Capital Hill, Business Week Online, September 18, 2006; The West Takes Lead on Climate Change, USA Today, February 27, 2006; Shell Oil Chief: U.S. Needs Global Warming Plan, MSNBC Online, September 8, 2006

[11] See White House Climate Change Fact Sheet.

[12] U.S. Climate Change Policy Fact Sheet, Released by the White House, Office of the Press Secretary, Washington DC, November 19, 2004

[13] See, White House Council on Environmental Quality, Addressing Global Climate Change. See generally, Kerry and Bush Sharply Divided on Response to Global Warming, Seattle Times, September 28, 2004

[14] For a summary of state and local climate change initiatives being implemented across the country see, What’s Being Done in the States, Pew Center for Global Climate Change at http://www.pewclimate.org/what_s_being_done/in_the_states/

[15] http://www.pewclimate.org/docUploads/States%5FInBrief%2Epdf

[16] See, Big Businesses New Take on Warming, John J. Fialka, The Wall Street Journal, March 28, 2006.

[17] Id.

[18] Id.

[19] See, A Critical Step on Warming: Air Resources Board stands to gain great economic influence, San Francisco Chronicle, September 1, 2006.

[20] Id.

[21] See, Going With the Flow: Analysts say it’s an inevitable sea change, San Fransico Chronicle, September 1, 2006.

[22] http://www.lacitybeat.com/article.php?id=3687&IssueNum=152

[23] Id.

[24] See West Coast Governor’s Climate Change Initiative website.

[25] Id.

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