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One Step Forward, Two Steps Back: California Moves Toward Finalizing Climate Regulations, While Federal Action Stalls

July 9, 2008

On June 26, 2008, the California Air Resources Board (CARB) released a draft roadmap for achieving the ambitious greenhouse gas emission reductions mandated by California’s landmark climate change law – A.B. 32.[1] CARB’s draft scoping plan proposes a blend of regulations, market mechanisms, fees, and voluntary measures to reduce California’s greenhouse gas emissions by 42 million metric tons (MMTCO2e), or 10 percent below the state’s 2002-2004 average, by 2020. CARB is scheduled to vote on the final greenhouse gas reduction plan in November 2008, and adopt final regulations by January 1, 2011.

As California moved a step forward, the federal government took two steps back – by first failing to move the Lieberman-Warner bill, and, second in a federal court decision, by declining to set deadlines for EPA to issue regulations implementing the Supreme Court’s Massachusetts v. EPA decision.[2] Both state and federal developments are discussed in this climate change update.

I. California Announces Draft Climate Change Framework

In 2006, California Governor Arnold Schwarzenegger signed A.B. 32, the nation’s first state-level greenhouse gas reduction legislation, which requires California to reduce its aggregate greenhouse gas emissions to 1990 levels by 2020. In order to achieve mandatory emission reductions, A.B. 32 directs CARB to develop “technologically feasible and cost effective”[3] regulations and establishes a series of regulatory benchmarks for doing so. CARB must approve a final scoping plan by January 1, 2009 and adopt early emission reduction measures by 2010. The regulatory benchmarks will culminate in 2011 with the adoption of enforceable greenhouse gas emission caps and reduction measures that will become effective on January 1, 2012.

Over the past year, CARB has successfully met the first benchmarks. In September 2007, CARB approved nine Discrete Early Action measures to reduce greenhouse gas emissions, and is in the process of developing associated regulations that will become enforceable by January 1, 2010. In December 2007, CARB adopted the first Discrete Early Action regulations which require ship electrification at ports. CARB will consider the remaining eight Discrete Early Action measures, which include improved landfill gas capture, a low carbon fuel standard for automobiles, and a tire inflation program, over the coming months. Also in December 2007, CARB adopted regulations requiring large industrial sources to report and verify their greenhouse gas emissions.

CARB’s draft scoping plan proposes a blend of market mechanisms (i.e. cap and trade), direct regulations, fees, and voluntary measures for achieving steep emission reductions beginning in 2012. CARB’s recommended emission reduction framework touches all economic sectors, including power generation, industrial, and transportation sources.

A. Cap & Trade

The central component of CARB’s proposal involves developing a cap-and-trade system in conjunction with the Western Climate Initiative (WCI).[4] CARB proposes capping emissions from electrical generation, transportation, commercial and residential, and industrial sources at 365 MMTCO2e in 2020. Complying with the cap would require regulated sources to reduce their emissions by 147 MMTCO2e as compared to projected 2020 emissions under a “business as usual” approach. CARB’s scoping plan does not address critical details necessary for implementing a cap-and-trade system, such as distributing emission allowances either through auctions or free allocations, and the use of offsets. Significantly, CARB proposes capping emissions from transportation fuels despite the fact that the WCI has not yet endorsed including such emissions in the regional trading system. In coordination with the WCI, CARB will develop detailed regulations to implement the cap-and-trade system by January 1, 2011.

B. Transportation Measures

In addition to incorporating transportation emissions in the cap-and-trade system, CARB proposes additional direct regulations and incentives aimed at reducing transportation sector emissions. However, California’s ability to implement some of the key proposed regulations remains uncertain. For example, CARB’s scoping plan relies on 2004 regulations which require reduced greenhouse gas emissions from new passenger and light-duty vehicles beginning in model year 2009. CARB estimates that California’s clean car standards would result emission reductions totaling 31.7 MMTCO2E. However, in December 2007, the United States Environmental Protection Agency (EPA) denied California’s request under the Federal Clean Air Act to implement its greenhouse gas emission standards.[5] In order to implement its automobile greenhouse gas emission standards, California will either need to prevail in the lawsuit it filed with 13 other states challenging EPA’s waiver denial or obtain a new decision from EPA once the next administration takes over in January 2009.

Additional transportation measures in the draft scoping plan include a low carbon fuel standard aimed at reducing the life-cycle greenhouse gas emissions attributable to transportation bio-fuels; regulations to ensure that tires are properly inflated when vehicles are serviced; measures aimed at freight movement and port activity; retro-fits for medium- and heavy-duty trucks to increase fuel efficiency by reducing aerodynamic drag and rolling resistance; and incentives for individuals purchasing high-efficiency vehicles.

C. Renewable Power Generation Standards

CARB’s draft scoping plan also proposes increasing the amount of electricity generated from renewable sources such as wind, tidal, solar, and geothermal. Under California’s current renewable portfolio standard (RPS), the state’s three largest utilities are required to produce at least 20 percent of their electricity using renewable sources.[6] CARB proposes increasing the RPS to 33 percent by 2020 in order to reduce greenhouse gas emissions by 21.2 MMTCO2E.

D. Implementation Timeline

Over the coming months, CARB will consider public comments on the draft scoping plan, as well as sector-based economic analyses which are expected later this summer. CARB intends to release a Proposed Scoping Plan in October 2008, which it will vote on during its November 2008 meeting. CARB will then begin public rulemakings necessary to finalize the cap-and-trade system and other emission reduction measures by January 1, 2011. California’s cap-and-trade system and greenhouse gas regulations must be operative by January 1, 2012.

III. Federal Climate Regulation Stalls – for the Time Being

While California takes steps to move its climate agenda forward, efforts to regulate greenhouse gas emissions at the federal level have stalled, and it is commonly held that the federal government will not change its approach until the next administration takes office in January 2009. In June 2008, the leading federal climate change bill, the Lieberman-Warner Climate Security Act of 2008 (S. 3036/ S. 2191), was pulled from the Senate after supporters failed to gather enough votes for cloture. The Lieberman-Warner legislation did not explicitly preempt state- and regional-level emission reduction programs, but offered substantial incentives for states that abandon their plans and transition to the federal plan.

Meanwhile, on June 26, 2008, the United States Court of Appeals for the District of Columbia Circuit rejected efforts by Massachusetts, California, and other states to impose a strict timeline for EPA to determine whether greenhouse gas emissions endanger public health or welfare.[7] In April 2006, in Massachusetts v. EPA, the Supreme Court held that carbon dioxide is a “pollutant” subject to regulation under the federal Clean Air Act. EPA had previously declined to act on a petition to regulate greenhouse gases from mobile sources on policy and foreign relations grounds. The Court, however, remanded the petition to EPA with instructions to make the statutory determination of whether greenhouse gas emissions from mobile sources endanger public health and welfare. Despite the passage of over a year, EPA has not made its final determination on whether greenhouse gases endanger public health and welfare.[8] A positive endangerment finding would potentially result in widespread federal regulation of greenhouse gas emissions from both mobile and, eventually, stationary sources.

In April 2008, however, EPA announced that it would issue an Advanced Notice of Pubic Rulemaking (ANPR) which would solicit public comment on approaches for regulating greenhouse gas emissions from both mobile and stationary sources. EPA is reportedly planning on releasing the ANPR in early July 2008 after the White House Office of Management and Budget (OMB) completes its review. The ANPR will clarify EPA’s proposed timeline for developing greenhouse gas regulations, although significant regulatory development is not expected to occur until at least 2009.

For more information on state and federal climate change regulation and legislation, please contact any member of Marten Law Group’s Climate Change and Sustainability practice group.

[1] CARB, Climate Change Draft Scoping Plan – A Framework for Change (June 26, 2008).

[2] 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007).

[3] HSC § 38560.

[4] As previously reported in this newsletter, the WCI released its initial draft design for a regional cap and trade system in June 2008. For more information, please see Western Regional Cap-and-Trade System Takes Shape (June 25, 2008).

[5] For more information, please see EPA Rejects California’s Waiver Request for State-Specific Vehicle Emission Standards (Dec. 19, 2007).

[6] Senate Bill 107 (2006). Public-owned utilities are encouraged, but not required, to comply with the RPS.

[7] Commonwealth of Massachusetts v. EPA, No. 03-1361 (June 26, 2008).

[8] EPA Faces Rulemaking Petitions as Greenhouse Gas Endangerment Decision Nears (Feb. 27, 2008).

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