AB 32: Challenges on the Road to 2020

Litigation under AB 32: Implementation of the Low

Carbon Fuel Standard and Cap and Trade

September 24, 2013RADER/RECTCC Program

* The opinions contained in this presentation are those of the presenter and do not represent the views of the Office of the

Attorney General or the California Air Resources Board.

2

California Climate Impacts

1.7 ºF higher temperatures since 1895

~7 inch sea level rise

12% decrease in runoff between April and July

Snowmelt and spring blooms advanced 2

days/decade since 1955

4-fold increase in wildfire frequency in past three decades

67

8

910

0

4

3

2

5

1

ºF

11°F

“Our Changing Climate 2012,” www.climatechange.ca.gov/adaptation/third_assessment/Westerling et al., “Warming and Earlier Spring Increase Western U.S. Forest Wildfire Activity”, Science (2006)

Climate Change Hotspots in U.S.

3

4

Codified goal of reducing California’s GHG emissions to 1990 levels by 2020

Applies to Kyoto pollutants CO2, CH4, N2O, HFC, PFC, and SF6

Directed ARB to develop regulations by 2012 to achieve “maximum technologically feasible and cost-effective GHG reductions”

ARB established statewide emissions limit in 2007 at 427 MMTCO2E

Includes consideration of market measures

AB 32 – Global Warming Solutions Act

5

AB 32 Implementation

20202007 2008 2009 2010 2011 2012

C&T AuctionLink to Quebec

Cap and Trade

adopted

Scoping plan adopted

Mandatory reporting

LCFS and other early actions in

effect

Reduce GHG emissions to 1990 levels

Identification/ implementation

of 2050 emission reduction strategies

List of early actions

2020 limit set 427 MMTCO2E

6

AB 32 - Emission Reductions Needed to Meet 2020 Goal

7.2

15

11.4

133

14

16.4

Advanced Clean Cars and Vehicle Efficiency MeasuresRES 33%

LCFS

Energy Efficiency Measures + Million Solar RoofsSB 375

Uncapped sectors (landfill methane, sustainable forests)Remaining Reductions (Cap and Trade, other measures)

Revised baseline = 507 MMTCO2E (includes Pavley I and original RFS)

80 MMTCO2E needed

MMT

7

Low Carbon Fuel Standard Executive Order S-01-07 directed ARB to

consider rule to reduce carbon intensity of fuel by 10% by 2020

LCFS phased in over 10 year period (2011-20) Applies to most transportation fuels Regulated parties fuel producers/importers

LCFS (cont’d)

Based on “well-to-wheels” or “field-to-wheels” lifecycle emissions approach

Carbon intensity includes emissions from production, transportation, use

Land use changes incorporatedFuels below the requirement generate

credits which can be banked or sold

8

Federal Challenges to LCFSCorn ethanol and refiner trade groups

allege LCFS preempted by RFS2 and violates dormant Commerce Clause

Dormant Commerce Clause claims: • discriminates against Midwest corn

ethanol and out of state crude oil• extraterritorial regulation; controls out-of-

state fuel production in “practical effect” • Burdens on commerce outweigh benefits

9

Dormant Commerce Clause

Bars economic protectionismThree prongs:

• Discrimination against out-of-state commerce = strict scrutiny

• Extraterritorial regulation: direct control of out-of-state conduct = per se violation

• Burdens on interstate commerce that outweigh in-state benefits = Pike balancing

10

LCFS Legal Basis

Non-discriminatory purpose = reduce GHG emissions

State police power + CAA §211(c)(4)(B): CA can regulate fuels for the purpose of motor vehicle emission control

Congress authorized CA to regulate fuels despite burdens on commerce

District Court Decision843 F.Supp.2d 1071

District Court found the LCFS: • Facially discriminates against corn ethanol

on the basis of origin• Impermissibly regulates extraterritorially

by lifecycle analysis• Discriminates in purpose and effect as to

crude oil• Despite legitimate purpose of emission

control, LCFS not exempt from Commerce Clause and does not pass strict scrutiny

12

Argument on Appeal LCFS regulates only fuel sold in CA No discrimination: regulates on basis of

carbon intensity, not origin Not economic protectionism; incentive-

based LCFS does not regulate conduct “wholly

outside” state Lifecycle analysis is scientifically justified

and is geographically and fuel neutral No “less discriminatory” alternatives

13

9th Circuit Decision Upholding LCFS

Lifecycle approach not facially discriminatory against out-of-state fuel

LCFS does not regulate conduct occurring wholly outside CA

LCFS is not discriminatory in purpose or practical effect with respect to crude

Remanded for Pike balancing

14

Cap and Trade Rulemaking

Adopted in December 2011Cap covers 85% of CA GHGs, in

concert with direct regulationsARB chose cap with guaranteed

reductions over uncertainty of carbon tax/fee

Allowance auctions held in November 2012; February, May, August 2013

15

Offsets Offset credits limited to 8% of compliance

obligation4 offset protocols adopted to date:

livestock, forest practices, urban forests, ozone-depleting substances

Reductions must be “real, permanent, quantifiable, verifiable, enforceable”

H&SC § 38562(d)((2) “reduction is in addition to” any other GHG reduction• CCR, Title 17, § 95802(a)(4): additional to reductions in

“conservative business-as-usual scenario”

16

Challenge to Offsets: Citizens Climate Initiative v. ARBAlleged reductions from offsets not

additional Court denied petition, holding that

ARB’s four offset protocols are consistent with the requirement for additionality in AB 32

Appellant’s opening brief filed August 30; opposition due September 30

17

Chamber and Morning Star Cases

Challenges to ARB authority under AB 32 to implement allowance auction and that auction is an unconstitutional tax under State Constitution (Prop 13)

Procedural Status: • Court tentative ruling rejected authority

argument; matter under submission following August 28 hearing

18

SB 1018: LinkagePrior to linking, Govt. C § 12894(f)

requires Governor to find:• Linked jurisdiction program requirements

are equivalent or stricter than CA’s• Linkage allows CA to enforce its

regulatory requirements• Linkage shall not impose any significant

liability on CA

Linkage to Quebec January 2014

19

What Lies Ahead

2013 amendments to LCFS 2013 five year update to Scoping Plan2015 C&T expands to include

transportation sectorAdvanced Clean Cars in 2017

20

Mark W. PooleDeputy Attorney General

California Dept. of Justice

455 Golden Gate Avenue

San Francisco, CA 94102

mark.poole@doj.ca.gov

(415) 703-5582