In response to a San Francisco Superior Court order, on June 13, 2011, the California Air Resources Board ("CARB") released a supplement to its prior environmental analysis of the Scoping Plan developed under California's climate change law, AB 32, setting out the measures to reduce the state's greenhouse gas emissions to 1990 levels by the year 2020. The original Scoping Plan was approved by CARB in December 2008. One of the major components of the Scoping Plan is a cap and trade program, which sets greenhouse gas emission caps on covered entities and allows covered entities to trade compliance instruments (such as emission allowances and offset credits). Accompanying the 2008 approval was a "Functional Equivalent Document" that evaluated the environmental impact of the Scoping Plan, including the cap and trade program, under the California Environmental Quality Act ("CEQA").


As discussed in our March 2011 Commentary, 13 petitioners challenged CARB's adoption of the Scoping Plan, asserting that CARB failed to comply with CEQA. On March 18, 2011, the San Francisco Superior Court determined in Association of Irritated Residents v. California Air Resources Board that CARB had not adequately evaluated alternative approaches to achieving greenhouse gas emission reductions as required by CEQA, and enjoined implementation of the Scoping Plan (including the cap and trade program) until CARB complied with CEQA.

On June 24, 2011, a California Court of Appeal stayed enforcement of the Superior Court's order, California Air Resources Board, et al. v. Association of Irritated Residents et al., Cal. Ct. App., No. 132165 (June 24, 2011), meaning that CARB may proceed to implement the Scoping Plan, including the cap and trade program, pending further consideration of the appeal. Because the appeal is still pending, and the Court of Appeal has not yet made a decision on the merits, we expect CARB to proceed with review and approval of its supplemental environmental analysis, thereby addressing the shortcomings of the 2008 Functional Equivalent Document, as identified by the Superior Court.

The supplement analyzes five alternative measures for reducing greenhouse gas emissions to 1990 levels by 2020: (1) a "no project alternative" that considers the greenhouse gas reduction actions currently in place and those reasonably expected to occur in the foreseeable future; (2) a cap and trade program; (3) source-specific regulatory requirements that would establish specific emission limits or performance standards; (4) a carbon fee or tax; and (5) a variation of the above four proposed strategies or measures. The fifth alternative is made up of three components: (a) existing source-specific emission limitations or performance standards, along with an added regulation strengthening new vehicle emission standards; (b) a cap and trade program on large sources; and (c) an emission fee on transportation fuels, residential and commercial fuels, and fuels used by smaller sources not subject to the cap and trade program.

As required by CEQA, the supplement evaluates the potential environmental impact of each of the five alternatives on aesthetics, agricultural and forest resources, air quality, biological resources, cultural resources, geology, energy, water quality and supply, hazardous materials, land use, employment and housing, noise, public services, transportation, recreation, and utility systems. The supplemental analysis concludes that the cap and trade alternative and combined measures (fifth alternative) have a high likelihood of enabling the state to reach the target of 1990 emission levels by 2020, while source-specific regulation and a carbon fee or tax are less likely to achieve that target because of the potential for substantial emissions "leakage" through sources moving out of state. It also concludes that the "no project" alternative has a low likelihood of achieving the objectives of AB 32.

Release of the supplemental environmental analysis triggers a 45-day public review and comment period, extending to July 28, 2011. CARB staff will consider, and provide written responses to, the comments received. A CARB hearing on the supplemental analysis is scheduled for August 24, 2011.