On May 20, 2011, the San Francisco Superior Court entered a final judgment in Association of Irritated Residents v. California Air Resources Board, concluding that the California State Air Resources Board (CARB) failed to complete an adequate environmental impacts analysis of the state’s greenhouse gas (GHG) cap and trade element. The cap and trade program is expressly allowable under AB 32, and CARB’s roadmap for future GHG rulemaking, the Scoping Plan. Specifically, the court found that CARB did not sufficiently consider alternatives to the cap and trade program, and, therefore, failed to comply with the California Environmental Quality Act (CEQA).1 The court ruled that the state is enjoined from implementing that element of the Scoping Plan until an adequate CEQA analysis has been prepared. CARB has appealed the decision.

Range of Sectors Affected

A wide range of sectors are affected by the state’s enjoined cap and trade program, including transportation, electricity, commercial and residential, and manufacturing. Reductions from the cap and trade program are responsible for approximately one-fifth of the total GHG emissions reductions to be accomplished through the Scoping Plan’s measures (34.4 MMT of CO2e reductions, or approximately 20 percent of total GHG emissions reductions of 169 MMTs).

The case was brought by environmental justice (EJ) groups that were concerned that while the cap and trade program my reduce GHG emissions, it may also lead to an increase in other pollutants in communities already impacted by air pollution emissions. The EJ groups had earlier fiercely opposed the inclusion of the cap and trade program’s inclusion in AB 32, favoring a “carbon tax” instead; however, they lost the legislative fight.

The lawsuit is the first filed by environmental advocacy groups challenging an element of California’s planned GHG reduction plan, and it is also the first to challenge the adequacy of the plan based on compliance with CEQA. Among other things, the suit demonstrates the EJ groups’ continuing level of dissatisfaction with elements of the widely acclaimed AB 32, and reveals a split in the environmental advocacy community. Several, more traditional, environmental groups that strongly support AB 32 have privately expressed frustration and concern at the deployment of CEQA to challenge climate change implementation plans, particularly since the Scoping Plan was subject to only a more generalized, “programmatic” level of environmental review – and full environmental review will be required in tandem with the adoption of the actual cap and trade rulemaking.

Moreover, the court’s decision also highlights the apparent ease with which CEQA can be used to challenge policies aimed at addressing sustainability and climate change issues. The ruling raises questions, for example, as to the scope of alternatives that a lead agency (state and local government) must consider when adopting plans to address issues ranging from sea level rise to transportation and land use planning.

Scope of the Court’s Ruling

Unlike many other government agencies, CARB complies with CEQA by preparing Functionally Equivalent Documents (FEDs) rather than the more familiar Environmental Impact Reports (EIRs). Even under the FED process, the court held that the FED prepared by CARB failed to comply with CEQA. In its preliminary order of March 18, 2011, the court directed CARB to: (1) set aside the FED; (2) enjoin “any further implementation of the measures contained in the Scoping Plan” relating to the cap and trade program; and (3) enjoin “any further rulemaking” until CARB amends the FED.

In an April 22, 2011 letter to the court, the plaintiffs argued that the final writ should set aside the entire Scoping Plan. The court rejected this petition in its May 20, 2011 final decision, and clearly limited the scope of the injunction to CARB’s cap and trade program only. Specifically, the court ordered that “ARB shall set aside” the resolution adopting and approving the Scoping Plan “as it relates to cap and trade.”

CARB’s Alternatives Analysis Held Insufficient

The court found that CARB erred in failing to provide a full analysis of alternatives to the cap and trade program. Specifically, the court found that CARB failed to adequately analyze and inform the public about the use of carbon taxes and fees as alternative approaches for reducing GHG emissions. The court rejected CARB’s argument that it would analyze alternatives to the cap and trade program as part of the planned next step, which is the cap and trade rulemaking process; that process also triggers the need for a new FED. It found instead that “consideration of alternatives here is central to the analysis and decision-making process of determining GHG reduction methodology.”

The court also found procedural error with the response to comment process, and determined that a resolution passed by CARB prior to completing the public comment review process for the Scoping Plan effectively constituted a premature approval of the Scoping Plan.

CARB’s Appeal and the Future of Cap and Trade

CARB has already filed an appeal to the lower court’s decision, and announced its intent to seek a stay and proceed with its cap and trade rulemaking. CARB’s revision and reissuance of the FED, followed by adoption of any ongoing recommendation to include a cap and trade element of the Scoping Plan, could take at least a year.