California Environmental Law Blog - Insight and information for the environmental and natural resource industry

On Friday, February 22, Senator Darrell Steinberg (D-Sacramento) introduced a bill outlining proposed revisions to the California Environmental Quality Act (CEQA).  A substantial CEQA reform bill championed by Senator Michael Rubio (D-Shafter) was highly anticipated in this legislative session.  But, earlier in the day on Friday, Senator Rubio announced his resignation from the California State Senate and in the wake of that resignation, Senator Steinberg's CEQA bill was introduced. 

Senate Bill 731 (SB 731) proposes only modest changes to CEQA.  While the details of the changes have not yet been developed, the bill outlines a number of intended changes.  Stoel Rives' Environmental Law Alert provides a summary of the bill.  Our team will continue to monitor and provide updates on SB 731 as it progresses through the legislative process.

My colleague, Barbara Brenner, posted an environmental law alert on the recently published CEQA decision issued by the California Third District Court of Appeal in Mount Shasta Bioregional Ecology Ctr. v. County of Siskiyou, No. C064930, 2012 Cal. App. LEXIS 1088 (Cal. Ct. App. Sept. 26, 2012).  The case is significant because it provides precedent for a lead agency and project proponent to reject project alternatives that are not feasible, thus avoiding the time and cost of analyzing infeasible alternatives.  In addition, the Court concluded that analysis of the project and the No Project alternative constituted a reasonable range of alternatives where the agency could identify no other feasible alternatives.  Based on the Court’s determination, a record clearly showing there is no feasible project alternative can be upheld.

On October 20, 2011 the California Air Resources Control Board (CARB) passed the cap-and-trade regulation that was called for the in the AB32 Scoping Plan.  The main focus of the regulation is to establish a program that allocates a certain allowance of greenhouse gas emissions to the industry based on certain calculations. Those emissions allowances will decline over the following years and the industry will be required to either reduce their emissions or purchase offsets to reach the required overall levels of 1990 for California by the year 2020.

In 2006, the legislature approved and Governor Schwarzenegger signed AB32, the Global Warming Solutions Act of 2006, which set the greenhouse gas (GHG) goals into law.  The Act required immediate measures, as well as a scoping plan to identify what measures to take to reach the 2020 goals.  The scoping plan was approved in 2008 and provides an outline for actions to reduce GHG in California.   

The formal cap-and-trade regulations began with the release of a Staff Report on December 16, 2010, that was titled, “The Initial Statement of Reasons.”  The cap-and-trade regulation establishes an overall cap on emissions from all covered sources.  The cap declines over the period of the program leading to overall reductions by the year 2020 and from 18 to 27 million metric tons in CO₂ equivalents (MMT CO₂e). The cap-and-trade is a large component of CARB’s AB32 strategy and the cap-and-trade was intended to account for 20% of the emissions reduction necessary to reach the target.

Included gases are:  carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, per fluorocarbons, sulfur hexafluoride, and air nitrogen triflouride.  Each of these gases are converted based on certain conversion factors to CO₂ equivalents.

Although the cap declines on an annual basis to 159.7 MMT CO2e by 2014,  at the beginning of 2015 the cap is increased to 394.5 MMT CO₂e to reflect emissions from fuel suppliers when they are first brought into the program. The cap then declines to 334.2 MMT CO₂e for the final compliance year of 2020.

The program is divided into three separate one year compliance periods, which have been changed since their original dates. During the first period, the requirement for allowances covers electricity providers, large industrial sources, and carbon dioxide suppliers. In 2015, the program will expand to cover fuel deliverers in California.

Electricity Sector

Compliance is required at the point of generation by those who generate in-state power and deliver it to the grid. Compliance is also required by those who are the first in-state distributors of imported electricity to the California grid.  These are based on emissions from the generating facility, if it is known. For imported electricity, the generator source is not known and is considered a default emission factor based on the average emissions associated with the available electricity generators that could be sold on the spot market and brought into California.

Carbon Dioxide Suppliers

Carbon dioxide suppliers for industrial purposes will be covered to the extent they supply more than 25,000 tons of CO₂.

Large Industrial Sources

Large industrial sources, including refineries, cement plants and chemical plants are covered if they admit more than 25,000 carbon dioxide equivalents.

This determination is based on individual facility reporting under the CARB's mandatory reporting regulation (“MMR”) which covers facilities with 10,000 or more dioxide equivalents. If a covered facility fails to report or its report is determined to be inaccurate CARB will assign facility compliance obligation.

Fuel Suppliers

Fuel suppliers, such as natural gas suppliers, will be covered to the extent their total deliveries in the state less those amounts covered by other covered entities (ie: electricity generators or industrial facilities) exceed 25,000 CO₂e. Transportation fuel suppliers will be covered for the total omissions from the fuel that they sell or distribute for consumption in California.

Liquefied petroleum gas producers including fractioners, refiners and LPG importers have a compliance obligation for emissions resulting from full combustion or oxidation of all fuel sold or distributed in California.

Special compliance categories include combined heat and power emissions associated with electricity generated from cogeneration facilities and generation facilities have a compliance obligations to the extent the industrial facility total emissions exceeds 25,000 CO₂e.

Biomass derived fuels and combustion emissions from specified biomass fuels are excluded from compliance obligations, if the biomass derived fuel is reported and verified pursuant to MMR and if the start up fossil fuels that supplement biomass derived and unverified biomass derived fuels exceed the cap-and-trade threshold, the facility will be subject to the extent of that excess. The program will exclude emissions from the combustion of biomass produced in waste management and wastewater treatment, if they can verify their biomass emissions through the MMR process. 

Waste-to-energy electricity delivers using biomass derived fuels will have a compliance obligation for any biomass dry fuel that is not verified through the MMR process. Any entity that falls within any of the covered categories but does not meet the special requirements for inclusion can opt in during any compliance period. These entities can receive free allowance on the same terms as other participants.  However, they also face all the other obligations imposed on those entities that must comply with the regulation.

Each industrial sector will get free allocations equal to about 90% of the sectors total emissions that the allocation is made up of (a combination of transition assistance and leakage) and the transition assistance will gradually decline during the nine years of the program.

Instead of allocating allowances directly to those entities in the electrical sector with a compliance obligation, i.e. in-state generators importers of out-of-state generation, the draft regulation will instead allocate the allowances to retail electricity distributors, including investor owned utilities and publicly owned utilities.  Both sets of utilities will be required to use their allowances for the benefit of the ratepayers. The IOUs will be required to auction all of their allowances at the quarterly auction of allowances held by CARB. The proceeds from their auction of allowances sold solely for the direct benefit of the ratepayers either in the form of customer rebates, bill allowances or to pay for GHG reducing measures such as energy efficiency programs

CARB is working on a market tracking system that will record information about the holders of compliance instruments among market participants.

CARB will hold quarterly auctions at which the CARB itself or anyone else with allowances, wants to sell to put their allowances up for auction.

Trading and banking trade sales allowances can take place at the auctions or separately in the secondary market.  These trades collectively establish the market price for the allowances. Trades must be between registered parties from one party’s holding accounts to the other.

While it is uncertain the effects these regulations will have on the environment, it is clear that cap-and-trade comes at a high cost to the private section businesses which in turn may pass the price down to the consumer.  It is also likely that either an unsatisfied environmental group or concerned industry group will likely bring suit on these regulations.

The San Joaquin Valley Air Pollution Central District (SJVAPCD) has released a Final Draft Staff Report and proposed rule revising Rule 2301 that concerns the banking of greenhouse gas (GHG) reductions.

The rule amends the SJVUAPCD’s existing offset banking Rule 2301 and would allow entities to bank GHG credits generated by protocols issued by California Air Resources Board (CARB) or credits that can be properly verified under the existing rule.  The bank is to be used for instances when an entity requires GHG offsets for CEQA purposes.  At this time, the credits would not be available for Cap & Trade.  The workshop for this rule was held on September 7, 2011. 

Falling victim to a Legislature pre-occupied with massive budget deficit issues and last minute wrangling over the Governor’s corporate tax package on out-of-state companies, AB 591, California’s legislative foray into the charged arena of hydraulic fracturing regulation, stalled in the State Senate’s Appropriations Committee.  In its current form, the bill embodied a fairly comprehensive agreement between the bill’s author, Assemblymember Wieckowski, and its sponsors, but several outstanding issues remained.  Among the remaining outstanding issues was mandatory reporting of hydraulic fracturing fluid components.  The sponsors had hoped for far-reaching reporting regulations for hydraulic fracturing fluid, but confidentiality issues based on trade secret concerns led to protracted negotiations that stalled the bill.  AB 591’s proposed language had included requirements mandating disclosure of the constituent compounds in each operator’s hydraulic fracturing fluid, and requirements for disposal of such fluids.  With the end of the regular legislative session today, interested parties can expect a new version of the bill to appear early in the next legislative session, set to open on January 4, 2012.  If it is adopted as an urgency measure, it would take effect immediately, and oil and gas operators could potentially be faced with immediate reporting obligations under the legislation beginning in early 2012. 

The California Supreme Court’s ruling on Save the Plastic Bag Coalition v. City of Manhattan Beach decided two important issues regarding the interpretation and application of the California Environmental Quality Act (CEQA).  First, the Court decided the city of Manhattan Beach was not required to prepare an environmental impact report (EIR) under CEQA before enacting a ban on local retailers’ distribution of plastic bags to their customers.  Even more significant, the Court decided the plastic bag industry group bringing the lawsuit had standing to pursue the litigation.

An industry group called Save the Bag Coalition filed a lawsuit to overturn the ban enacted in July 2008.  The coalition argued that paper bags have a greater negative effect on the environment than plastic bags and demanded an EIR be done before the ban went into effect.  The Court ruled on the merits that the city was not required to prepare an EIR before adopting the ordinance banning plastic bags.  The decision explains the legal threshold for requiring an EIR on a project or ordinance.  In the unanimous 24-page ruling,  Justice Carol A. Corrigan wrote, “Substantial evidence and common sense support the city's determination that its ordinance would have no significant environmental effect.” 

On the standing issue, the Court addressed the key issue of industry group standing for CEQA cases.  The lower courts had rejected the city’s argument that the industry group failed to make the enhanced showing required by Waste Management of Alameda County, Inc. v. County of Alameda (2000) 79 Cal.App.4th 1223, 1238 (Waste Management) for corporate entities to bring a citizen suit.  In a significant decision, the Court here disapproved Waste Management’s holding that corporations are subject to heightened scrutiny when they file citizen suits.  In deciding whether the industry group qualified for “public interest” standing under CEQA, the Court ruled against the city and found the industry group plaintiffs did have standing to pursue the CEQA challenge.

In making this decision, the Court disassociated itself with environmental standing rules established by the federal courts.  The Court rejected the city’s argument that CEQA should only be invoked by those who have environmental, rather than economic interests.  Although the industry group here has a commercial interest in overturning the ban, the Court ruled that businesses and other institutional litigants have as much right to file CEQA lawsuits as individuals do. 

As we discussed previously, the AB 32 rule making process for Cap and Trade received a large setback when the lawsuit brought by several environmental groups successfully argued, at the Superior Court level, that the environmental document that was required to be approved at the time the regulations were approved was deficient.   The Court after providing a tentative order issued a final Writ that prohibited the California Air Resources Control Board (“CARB”) from continuing to work on the regulations.   For additional information see our blog entitled, “California Cap & Trade Challenge Final Order Issued."

CARB appealed the decision and continued to work on the regulations which prompted objections from the original Petitioners.  On June 6, 2011, in fact, the San Francisco Superior Court issued an order (PDF) that criticized CARB for continuing to work on AB 32 regulation despite the injunction issued in the CEQA case. 

Then, in a strange turn of events it was discovered that prior to the Superior Courts' June 6 order criticizing CARB,  the  Court of Appeals temporarily stayed the trial court’s injunction that prevented the CARB from implementing its cap and trade program.

“Pending this court's consideration of appellants' Petition for Writ of Supersedeas, enforcement of the superior court's Peremptory Writ of Mandate, dated May 20, 2011 issued in Association of Irritated Residents et al. v. California Air Resources Board et al., San Francisco County Superior Court Case No. CPF-09-509562 is temporarily stayed. Appellees are directed to serve and file points and authorities in opposition to the petition for writ of supersedeas on or before June 20, 2011. (California Rules of Court, rule. 8.112(b).) In addition to addressing all the issues raised in the petition, shall inform the court of any further orders issued by the San Francisco Superior Court at or after its June 3, 2011 hearing in this matter…”

Thus, the parties will provide argument to the Appeals Court as to whether to continue to maintain the stay or lift the stay while the appeal is pending. 

In our view, one issue the Appeals Court should be looking at is whether allowing CARB to go forward could foreclose alternatives or mitigation measures that could otherwise be considered when the revised environmental document is finalized.   Since the main focus of the new document is alternatives, the further promulgation of regulations could foreclose alternatives.  However, if the implementation of the rules occurs after the environmental document is release one could argue that the alternatives discussed may not have been ruled out.  Stay tuned.

Sacramento Superior Court Judge Timothy Frawley’s recent ruling (PDF) in the case challenging East Bay Municipal Utility District’s (EBMUD) approval of its updated water supply plan is a reminder of the importance of fully disclosing potential impacts of a project under the California Environmental Quality Act (CEQA), even when the CEQA project is a programmatic plan and specific projects contemplated by the plan may not yet be ripe for approval. 

The project at issue in this case is EBMUD’s update to its Water Supply Management Program 2040 Plan, a planning document intended to identify and recommend solutions to meet EBMUD’s dry-year water supply needs through the year 2040.  The Plan presents a Preferred Portfolio to meet water supply needs, which includes dry-year rationing, conservation measures, recycled water programs, and supplemental water supply projects including expansion of the Pardee Reservoir and Lower Bear Reservoir.  In 2009, EBMUD certified an environmental impact report (EIR) and approved the Plan.  Foothill Conservancy, Friends of the River, and the California Sportfishing Protection Alliance filed a CEQA lawsuit, alleging that EBMUD failed to adequately evaluate the potential impacts of the proposed project, in particular the impacts of the potential reservoir expansions, and failed to adequately evaluate alternatives as required by CEQA.

EBMUD argued that the Plan does not commit to any particular project and, therefore, the EIR was properly a programmatic EIR, eliminating the need for site-specific project level analysis of the reservoir expansions.  Essentially, under the Plan, various combinations of the proposed projects could be implemented, but no one project has yet been approved for construction.  

In a detailed ruling, Judge Frawley agreed that it was appropriate to prepare a programmatic EIR for the Plan, but found that EBMUD had nonetheless failed to include sufficient information about potential impacts that could result from implementation of the reservoir expansion components of the Plan.

In particular, the Court noted the EIR acknowledges that reservoir expansion would result in inundation of a portion of the Mokelumne River.  Yet, the Court found that the EIR did not adequately describe and mitigate for the potential impacts of that inundation on recreational and cultural resources, and public safety.  Although a detailed configuration of the Pardee Reservoir expansion had not been developed, there was sufficient information about the potential resources that would be impacted by inundation of the River, and the EIR failed to adequately disclose and mitigate for these potential impacts.  The challengers argued that the EIR was inadequate in its evaluation of biological impacts as well, but the Court there found that the EIR sufficiently disclosed the potential impacts on biological resources and that EBMUD, in its project approvals, sufficiently committed to mitigating those impacts.

A programmatic EIR can be a valuable tool for assessing plan-level projects and projects that have future components that remain uncertain or undefined.  But, it is important to remember that a programmatic EIR does not excuse the lead agency from disclosing impacts that it knows will result if the project is implemented.  Carefully identifying all of a program’s elements early in the environmental review process, and assessing the components of a program that are defined and those that remain undefined, will help frame the scope and specificity of the environmental review, and help the lead agency assure that all potential impacts are properly disclosed.