Communities for a Better Environment v. South Coast Air Quality Management District

On March 15, 2010, the California Supreme Court published a highly anticipated decision involving the California Environmental Quality Act ("CEQA"). The Court held that the "environmental baseline," against which the significance of a proposed project's physical environmental effects shall be judged, will normally be the existing physical or operational conditions, rather than the maximum allowable level under an existing permit.

The litigation arose from an attempt by ConocoPhillips ("Conoco") to modify and replace certain equipment at its Wilmington, California refinery in order to produce ultra low sulfur diesel fuel ("ULSD"). Conoco applied to the South Coast Air Quality Management District (the "District") for a permit to operate its proposed ULSD project.

The District determined that the project as proposed would not exceed the maximum daily nitrogen oxide ("NOx") emission levels allowed under validly held boiler permits previously issued by the District.

Because the proposed ULSD project would not cause NOx emissions to exceed the previously permitted maximum, the District treated the allowable emission levels as part of the existing conditions, or "environmental baseline," against which the District could analyze the proposed project's physical environmental effects. The District then found that no significant impact would result from the daily release of NOx above the District's established emissions when such emissions are within levels allowed under the prior permit. Based on this line of reasoning, the District issued a mitigated negative declaration.

Communities for a Better Environment ("CBE") challenged the District and Conoco on the theory that the proposed project's additional release of NOx was environmentally significant and that an Environmental Impact Report should have been prepared. CBE argued that the environmental baseline for purposes of determining the significance of a project's physical impacts is the "realized physical conditions on the ground," rather than what a permit may hypothetically allow. The thrust of CBE's argument was that although Conoco could conceivably operate its boilers such that the maximum NOx emission level was reached, it had not done so to date and, therefore, the baseline was something less than the permitted maximum.

The trial court disagreed with CBE and entered judgment for the District and Conoco. The appellate court, however, reversed the trial court's decision and the Supreme Court upheld the appellate court's reversal. In so doing, the Supreme Court cited the "general rule" governing the determination of the baseline as derived from a long line of appellate decisions. Generally, the impacts of a proposed project are to be compared to the actual environmental conditions at the time CEQA analysis is conducted, rather than to the maximum allowable level of conditions defined by a plan or regulatory framework.

The Supreme Court found no exceptional circumstances in this instance that would prompt deviation from this general rule. Conoco argued that deviation was necessary on the theory that using the actual daily NOx emissions as the baseline rather than the maximum permitted boiler NOx emissions would impair Conoco's vested rights under its existing boiler permits. The Court found this argument unpersuasive, stating that since the District could periodically modify or restrict the permitted boiler operation as part of the new ULSD project, Conoco's established vested rights were not impaired. The Court further recognized that Conoco's entitlement to operate at higher NOx emission levels pursuant to its existing vested right "does not excuse the agency from following the dictates of CEQA and realistically analyzing the project's effects."

In finding that the actual operational conditions at the Conoco refinery must be used, the Supreme Court stressed that the purpose of CEQA is to fully inform the public as to the environmental effects of a project and stated that using hypothetical, allowable conditions as a baseline is not informative. The Court, however, also recognized those Court of Appeal decisions that support the use of permitted maximum operational levels as a CEQA baseline under certain circumstances. These include either the modification of a previously analyzed project in which limited CEQA review is required, or the continued operation of an existing facility without significant expansion that qualifies for CEQA exemption.