Update On Litigation Challenging California's Greenhouse Gas Regulatory Programs

Legal challenges to California's greenhouse gas ("GHG") regulatory programs continue to work their way through California and federal courts. With the most significant challenge facing possible review by the U.S. Supreme Court, two other challenges pending before the California Court of Appeal, and a fourth prompting CARB to redo part of its rulemaking, the long-term viability of California's latest efforts to curb GHG emissions is uncertain. GHG Emission Allowances and Offset Credits Under California's cap-and-trade program, covered operators of stationary sources of GHG emissions must surrender compliance instrumentsemission allowances or offset creditsfor each ton of GHGs they emit. The California Air Resources Board ("CARB") has adopted several methods of allocating these compliance instruments to covered entities, two of which face continuing legal challenges. In Our Children's Earth Foundation v. CARB, No. CGC-12-519554 (S.F. Sup. Ct., March 8, 2013), two environmental groups are seeking a writ of mandate that would stop CARB, at least temporarily, from distributing any offset credits. Under the offset program, CARB may award credits to qualifying operators of projects that reduce GHG emissions or remove GHGs from the environment. CARB adopted four Compliance Offset Protocols for determining whether projects qualify for credits. The Global Warming Solutions Act of 2006 ("AB 32") authorizes the offset credit program, but it prohibits CARB from awarding credits for emission reductions that would have occurred even without the incentive of offset credits (the "additionality requirement"). The petitioners argue that the four Protocols do not satisfy the additionality requirement because they apply general standards, rather than a project-by-project analysis, to determine whether emission reductions would have occurred without the offset credit incentive. The Superior Court rejected this challenge, holding that CARB acted within its statutory authority to implement the offset credit program. Our Children's Earth Foundation filed an appeal, which currently is pending. In California Chamber of Commerce v. CARB, No. 34-2012-80001313 (Sac. Sup. Ct., Nov. 12, 2013) (consolidated with Morning Star Packing Company v. CARB), the petitioners challenged CARB's authority under AB 32 to sell GHG emission allowances at auctions. The petitioners also argued that CARB's auctions create a tax that was not authorized by a two-thirds vote in the...