On September 27, 2006, California enacted the California Global Warming Solutions Act of 2006, CAL. HEALTH & SAFETY CODE §§ 38500–38599 (2006) (the Act), to limit statewide emissions of greenhouse gases, avoid the detrimental impacts of climate change, and encourage other states, the federal government, and other countries to act. The overall goal of the Act is to reduce statewide emissions of greenhouse gases (GHG) from stationary sources6 to 1990 levels by 2020. In addition to early reduction measures that will be implemented by January 1, 2010, the 2020 goal will be implemented through a series of statewide emission reductions commencing no later than January 1, 2012. The Act leaves open whether the required emission reductions will be achieved through “direct reductions,” or through a market-based “cap-and-trade” system. Any cap-and-trade program will most likely allow for voluntary GHG reductions outside California to be credited against the emission reduction requirements applicable to California sources. The California Air Resources Board (CARB) is the agency with the primary responsibility to implement the provisions of the Act. CARB has been directed to promulgate regulations—with input from the California Environmental Protection Agency’s Market Advisory Committee—implementing the precise emission reduction in the January 1, 2012, requirements.

Key Provisions

Sections 38550–38551 require CARB to calculate—with public comment—California’s 1990 emissions of GHGs, and then require that California limit its statewide emissions of GHGs to 1990 levels by 2020 and beyond. Further emission reductions beyond 1990 levels after 2020 are also specifically contemplated—in conformity with Executive Order S-3-05’s goal of reducing GHG emissions to eighty percent of 1990 levels by 2050—though the precise contours of those reductions are reserved for future legislative action.

Section 38560 instructs CARB to adopt regulations requiring sources or categories of sources to implement “maximum technologically feasible and cost-effective greenhouse gas emission reductions.” These implementing regulations are carried out in two parts, discussed below. First, Section 38560.5 requires CARB to implement discrete early GHG emission reduction requirements on sources or categories of sources by January 1, 2010. CARB would be expected to target the “low hanging fruit” for these early reduction requirements.

Second, Section 38562 requires CARB to promulgate regulations with an effective date of January 1, 2012, requiring statewide GHG emission reductions at sources or categories of sources. CARB has wide discretion to design this statewide program, and may require “direct reductions” at sources, or may promulgate a market-based “declining-cap-and-trade”7 program. In any program, CARB is instructed to apply and reconcile to the extent feasible the following principles: (1) regulations should be equitable, impose minimized costs, encourage maximized benefits, and encourage early action; (2) regulations should preserve environmental justice; (3) regulations should reward early voluntary reductions; (4) regulations should not interfere with achieving Clean Air Act goals; (5) minimize leakage;8 and (6) prioritize reduction efforts in light of the relative contribution of GHGs by sources or categories of sources. The following elements would be a part of any cap-and-trade program: (1) any voluntary reductions would need to be additional to any other GHG reductions required by law (additionality); (2) localized impacts from a market system must be addressed; (3) market systems must avoid the increase in Clean Air Act-regulated pollutants; (4) methodologies for quantifying voluntary GHG reductions will be promulgated by CARB;9 (5) GHG reductions must be “real, permanent, quantifiable, verifiable, and enforceable;” (6) the California market system may be integrated into other regional, national, and international GHG reduction programs; and (7) environmental justice must be a strong consideration. See Sections 38562(d) and 38564–38574.

Section 38530 requires CARB to adopt statewide GHG emission monitoring and reporting regulations. The monitoring and reporting requirements extend not only to emission sources within the state, but also to the GHG emissions from electric power generation consumed in the state from intra- and inter-state sources, including GHG emission impacts of electric transmission and distribution losses. These monitoring and reporting protocols are to be consistent with the existing California Climate Action Registry.

Section 38599 provides for a gubernatorial “extraordinary circumstances” extension of the deadlines in the statute, not to exceed one year per extension upon notice to the Legislature.

Subsequent Action

On January 25, 2007 the California Public Utilities Commission (PUC) adopted a Greenhouse Gas Emissions Performance Standard, designed to serve as an interim measure until an enforceable load-based GHG emissions limit is established and in operation.

The interim GHG Emissions Standard requires that all new generation facilities and long term contracts for base load power have emissions no greater than those of a combined cycle gas turbine plant, which translates to 1,100 pounds of CO2 per megawatt-hour. This action serves to implement California Senate Bill 1368, passed in 2006, which prohibits loadserving entities from entering into long-term financial commitments for baseload generation unless it complies with a GHG emissions performance standard.

Executive Order S-01-07: Low Carbon Fuel Standard

On January 18, 2007, Governor Schwarzenegger signed an executive order establishing a Low Carbon Fuel Standard (LCFS) for transportation fuels sold in California. The LCFS requires fuel providers to ensure that the fuel they sell into the California markets meets, on average, a declining standard for GHG emissions, with the ultimate goal being a 10 percent reduction in the carbon intensity of California’s fuels by 2020.

Key Provisions

CARB shall determine if an LCFS can be adopted as a discrete early action measure pursuant to the California Global Warming Solutions Act of 2006.

The LCFS can be met through market-based methods by which fuel providers exceeding the performance requirements receive credits that may be applied to future obligations or traded to other providers not meeting the requirements.

The Secretary of the California Environmental Protection Agency will coordinate activities between the University of California, the California Energy Commission, and other agencies to develop and propose a draft compliance schedule to meet the 2020 target. The LCFS draft compliance schedule will then be incorporated into the State Alternative Fuels Plan and, upon submission of this plan, CARB will consider initiating a regulatory proceeding to establish and implement the LCFS.