• Update on California's Climate Change Programs and Litigation
  • April 29, 2015 | Authors: Daniel L. Corbett; Thomas M. Donnelly
  • Law Firm: Jones Day - San Francisco Office
  • Compliance Offset Credits. Under California's cap-and-trade program, the California Air Resource Board ("CARB") awards offset credits to operators of qualifying projects that generate greenhouse gas ("GHG") emission reductions. These credits can be sold to regulated entities to offset their GHG emissions. In Our Children's Earth Foundation v. CARB, the plaintiff environmental organizations allege that CARB's compliance offset protocols—which establish the eligibility criteria for offsets—fail to ensure that qualifying projects generate additional GHG emission reductions that otherwise would not have occurred, as required by statute. The California Court of Appeal heard arguments on December 9, 2014, and will decide whether to overturn the lower court's ruling that the protocols comply with the statute.

    While this challenge is pending, CARB continues developing the offset program to meet its long-term goals. In its First Update to the Climate Change Scoping Plan, CARB concluded that the compliance offset protocols will not authorize enough credits to meet maximum anticipated demand. CARB originally adopted four protocols—for forestry, urban forestry, manure digesters, and destruction of ozone depleting substances. In April of 2014, CARB adopted a fifth protocol for coal and trona mines. CARB currently is developing a protocol for rice cultivation projects but will need to further expand eligibility to meet its expected long-term demand.

    Low Carbon-Fuel Standard ("LCFS"). Rocky Mountain Farmers Union v. Goldstene, the Commerce Clause challenge to California's LCFS, continues on remand following the U.S. Supreme Court's denial of certiorari. The Ninth Circuit previously limited the plaintiffs' claims but permitted some to proceed. In December 2014, the plaintiffs filed an amended complaint, alleging that the LCFS burdens interstate commerce and discriminates against out-of-state fuels and fuel feedstocks, in part by assigning physically identical fuels different "carbon intensity scores" based in part upon their places of origin. Because the LCFS caps the carbon intensities of fuels used in California, the plaintiffs allege that this different treatment of physically identical fuels burdens and discriminates against interstate commerce. The plaintiffs also have asserted new claims challenging the 2012 amendments to the LCFS. The 2012 amendments allow California crude oil producers to calculate their fuels' carbon intensity scores using a "California average," which is the average of carbon emissions from California crude oils. This method could be beneficial to a fuel producer if its fuel's actual carbon intensity is higher than the statewide average. The plaintiffs allege that the LCFS amendments violate the Commerce Clause by making this averaging approach available only for California crude oil but not non-California crude oil. The Ninth Circuit did not consider the 2012 amendments, possibly opening the door to this new challenge.

    On January 23, 2015, the defendants filed a motion to dismiss, arguing that the amended complaint does not allege new facts or raise new issues other than those already decided by the Ninth Circuit: namely, that the LCFS does not regulate extraterritorially or discriminate against interstate commerce. The defendants also argue that they are entitled to judgment on the plaintiffs' claims, based on the Ninth Circuit's decision and the lower court's obligation to execute it. The court now will need to decide the exact scope of the Ninth Circuit's decision, and whether the plaintiffs' amended complaint is consistent with that decision.