When it comes to real estate, it’s all about location, location, location. When it comes to mounting a court challenge to a decision by an environmental agency, it’s all about standard of review, standard of review, standard of review.

At least that’s one of the lessons to be learned from the recent 35-page opinion by Judge Ernest H. Goldman of the San Francisco County Superior Court setting aside the California Air Resources Board’s (ARB) greenhouse gas cap-and-trade program – the central component of the ARB’s attempt to implement AB 32, the California Global Warming Solutions Act of 2006.

The petitioners in the case included several environmental groups that principally represent low-income communities, including the Association of Irritated Residents and Communities for a Better Environment. The respondents were the ARB and each of the board members, in their official capacity.

The petitioners advanced two claims: one directly under AB 32, which was unsuccessful, and one under CEQA (the California Environmental Quality Act), which was successful. The reason for the difference in the outcomes? In large part, the standard of review.

Many of the direct claims under AB 32 appeared to have been well-founded, focusing on serious flaws in the ARB’s analysis. They included the following:

  • The ARB failed to adopt enforceable standards to regulate the agricultural sector, relying instead on economic incentives and voluntary measures;
  • The ARB limited its public health analysis to certain geographic regions within the state, failing to analyze impacts to other areas even though that information was available; and
  • The ARB did not adequately consider the effectiveness of its proposed cap-and-trade program, not giving effect to evidence that most other such programs had failed in reducing emissions (both nationally and internationally).

Although the Court recognized that these arguments were potentially meritorious, it rejected all of them (and others) because, in adopting the scoping plan, the ARB was considered to have acted in a “quasi-legislative” role. Therefore, even though the Court concluded that there were “flaws” in the ARB’s analysis, it found that it was within the ARB’s discretion, “right or wrong … to choose cap-and-trade….”

However, under CEQA, the Court could invalidate the ARB’s actions if it found they were not adopted in a manner required by law and the Court in fact held that the ARB failed to comply with CEQA in (i) analyzing alternatives to cap-and-trade and (ii) analyzing public comment.

As to the consideration of alternatives, the ARB limited its discussion of all but one alternative to just three pages and presented an especially brief and conclusory analysis of the carbon fee (or carbon tax) alternative. The Court accused the ARB of attempting to “create a fait accompli by premature establishment of a cap-and-trade program before alternatives can be exposed to public comment and properly evaluated by ARB itself.”

Likewise, as to the public comment issue, the Court was equally critical, noting that the ARB had approved the cap-andtrade program before it prepared or issued its written response to comments received by the public.

The ARB has stated that it will appeal Judge Goldman’s decision. However, an appeal likely would take longer than a year to be resolved and the ARB had planned to implement its program beginning January 1, 2012. The ARB also could seek a legislative solution to avoid the effect of the ruling but that also would probably take a similar amount of time.

In the meantime, those potentially regulated by the climate change rules are faced with the uncertainties of not knowing when ARB’s revised rules will become law and how they will be modified