By Robert A. Wyman, Jr., Daniel V. Van Fleet, and Aron Potash

California’s proposed greenhouse gas (GHG) cap and trade program suffered an expected setback on May 20 when a San Francisco Superior Court issued a writ of mandate enjoining the California Air Resources Board (CARB) from any further cap and trade rulemaking until CARB complies with the California Environmental Quality Act (CEQA) by analyzing cap and trade alternatives such as a carbon fee.  ARB has surely been strategizing in recent months about how to respond as the court made clear in a previous tentative decision (discussed here) and statement of decision (discussed here) that the injunction would issue.  CARB publicly stated its intention to appeal the writ and seek a stay of its effect during the pendency of the appeal, and it is likely that ARB has also been working on the CEQA alternatives analysis ordered by the court.  If ARB is unable to stay the judgment, ARB’s planned schedule of cap and trade program workshops and rulemakings will continue to be disrupted, jeopardizing the planned January 1, 2012 commencement of the cap and trade program.  The writ is a partial victory for CARB, however, as the previous statement of decision had threatened to halt entirely CARB’s efforts to implement the Global Warming Solutions Act of 2006 (AB 32) by enjoining not just the cap and trade program but also a multitude of other GHG reduction measures, such as the low carbon fuel standard and the renewable electricity standard.

This roadblock to California’s cap and trade plan arises out of a suit in which a number of environmental groups, including the Association of Irritated Residents (AIR), alleged that CARB substantively and procedurally failed to comply with CEQA in approving the Scoping Plan, CARB’s detailed roadmap for reducing GHG emissions under AB 32.  CARB is the agency primarily responsible for implementing AB 32, which requires the state to reduce GHG emissions to 1990 levels by 2020.  Since CARB’s December 2008 approval of the Scoping Plan, it has promulgated regulations covering many of the initiatives detailed in the plan, including GHG cap and trade program regulations in December 2010.  Many significant aspects of the cap and trade program remain unresolved, however, and CARB workshops and rulemakings were planned for this spring and summer with the intention of finalizing such critical program components as the allocation of free GHG allowances, the use of auction revenue, the generation and use of offsets, and the designation of GHG intensity benchmarks for regulated sectors.  

Further work on the cap and trade program is on hold for now, though, as the court found in its March 18 statement of decision that CARB violated CEQA by insufficiently evaluating possible alternatives to the measures described in the Scoping Plan, including the cap and trade program: “ARB’s extensive evaluation of the proposed cap and trade program…provides the public with information about cap and trade only.  CEQA requires that ARB undertake a similar analysis of the impacts of each alternative so that the public may know not only why cap and trade was chosen, but also why the alternatives were not.”  The court wrote in its March 18 decision that cap and trade is not a “fait accompli” and criticized the Scoping Plan CEQA analysis for failing to analyze in more detail a carbon fee alternative to cap and trade.

The court’s March 18 ruling ordered petitioners to file proposed writs for the court’s consideration, and the petitioners filed two different proposals.  The petitioners’ Proposed Writ would have enjoined ARB from “any further implementation of the measures contained in the Scoping Plan.”  The petitioners’ Alternate Proposed Writ, which the court incorporated into its judgment, included an injunction only of further work on the cap and trade program and not of further work on other Scoping Plan measures.  CARB also prepared a proposed writ, which was not filed with the court but was described in the petitioners filing.  Under CARB’s proposed writ, CARB would have been allowed to continue all actions in furtherance of cap and trade implementation while it was working on the alternatives analysis except that it would have been prohibited from finalizing the cap and trade regulations with the Office of Administrative Law until the CEQA Functional Equivalent Document (“FED”) had been corrected.

The court took the narrower approach, ordering that its writ “shall specifically enjoin ARB from engaging in any cap and trade-related Project activity that could result in an adverse change to the physical environment until ARB has comes [sic] into complete compliance with ARB’s obligations under its certified regulatory program and CEQA, consistent with the Court’s Order.  This includes any further rulemaking and implementation of cap and trade…”  The Court also ordered CARB both to take no action in reliance upon the Scoping Plan as it relates to cap and trade and to set aside the executive order approving and certifying the CEQA analysis of the Scoping Plan.  Although the intent of the ruling appears to be to halt work only on the cap and trade component of the AB 32 program, this second portion of the court’s order potentially opens the court’s decision and the validity of the other Scoping Plan measures to attack on the ground that a court may only have the authority either to invalidate a CEQA approval in its entirety or not to invalidate any portion at all.   The court’s path of partially invalidating a CEQA action remains an uncertain area of California law.

CARB will almost certainly appeal the decision and seek a stay of the judgment during the course of the appeal.  CARB has argued that an appeal would automatically stay the judgment, which would allow cap and trade rulemaking to continue apace.  AIR could be expected to respond that the writ of mandate the court issued is prohibitory and that prohibitory writs are not automatically stayed.  The resolution to such a dispute over whether the judgment is automatically stayed upon appeal would probably turn in part upon whether the court were to characterize the status quo ante as being a state of affairs in which CARB was well on its way to finishing up the carbon market or one wherein neither a cap and trade regime nor a carbon fee had been implemented or ruled out.  If CARB were to succeed in arguing that the judgment is automatically stayed upon appeal, AIR could then argue for a lift of the stay on the ground that a stay would irreparably harm it.  If the writ were deemed prohibitory and thus not automatically stayed, CARB would have to obtain a writ of supersedeas from an appellate court in order to stay the judgment, a remedy CARB might argue for by describing the judgment as overbroad in its limitations on CARB’s rulemaking activities or as otherwise irreparably harming it.