09.15.2016

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Updates

California Governor Jerry Brown signed into law last week two controversial anti-climate change bills that will tighten greenhouse gas (GHG) limits by 40% and increase legislative supervision of the California Air Resources Board (CARB)—the agency responsible for reducing GHG emissions. The California Legislature passed both bills, Senate Bill (SB) 32 and the closely related Assembly Bill (AB) 197, on August 24, 2016. The new legislation will likely trigger heightened CEQA thresholds for new projects and new regulations, which in turn may increase costs and risks for developers, utilities, transportation companies and manufacturers.

SB 32 Requires 40% Reduction of GHG Emissions by 2030

SB 32 is considered the successor to the California Global Warming Solutions Act of 2006, also known as AB 32, which required California to reduce emissions to 1990 levels by 2020. AB 32 identified CARB as the main agency responsible for implementing the emissions reductions.

SB 32 extends AB 32 by requiring CARB to reduce statewide GHG emissions to 40% below the 1990 level by 2030. SB 32 also requires CARB to update its implementation plan, known as the Scoping Plan, to address the 2030 target and ensure GHG reductions will benefit the state's most disadvantaged communities.

AB 197 Requires Direct GHG Emission Reductions and Public Reporting of Facilities Emitting GHG

AB 197 and SB 32 both required that the other bill also be enacted. AB 197 increases legislative oversight of CARB by subjecting the agency to supervision by a new Joint Legislative Committee on Climate Change Policies and adding two legislators as ex-officio, nonvoting members. CARB must also publish data on GHG emissions, air pollutants and environmental toxins on its website, including emissions for “each facility” that reports such information. AB 197 also requires CARB to limit SB 32’s economic impact on disadvantaged communities.

Impact on Cap-and-Trade and Consequences for Industry

Both bills create some doubt over the future of cap-and-trade. Cap-and-trade is California’s system of auctioning the right to emit GHGs. It limits the total amount of GHG emissions that may be emitted by all applicable sources and then auctions off the rights to emit portions of that total. Market forces determine the most cost-effective way to achieve emissions limits. However, cap-and-trade does not require polluters to actually reduce their GHG emissions in California. GHG emissions may be reduced elsewhere because climate change is considered to be affected by global emissions rather than localized emissions of GHGs.

SB 32 did not extend cap-and-trade beyond 2020. Further, under AB 197, CARB must “prioritize . . . direct emission reductions at large stationary sources.” This provision is intended to decrease CARB’s reliance on indirect emissions reductions through cap-and-trade to achieve GHG reductions and instead focus CARB on direct reductions at large emitters like power plants and refineries. It is not clear, though, what it means for CARB to “prioritize” direct reductions at stationary sources.

Impacts on CEQA Compliance

Consistency with AB 32’s 2020 GHG reduction goals has been accepted by the courts, including the Supreme Court of California, as an acceptable standard for determining whether a project’s GHG emissions would be cumulatively considerable under CEQA. See Center for Biological Diversity v. Dep’t of Fish & Wildlife, 62 Cal. 4th 204 (2015).

However, the Supreme Court of California also has granted review in Cleveland National Forest Foundation v. San Diego Association of Governments. There, the court will determine whether an EIR for a regional transportation plan can limit its analysis to consistency with the 2020 GHG reduction goals in AB 32 or whether the analysis must extend beyond 2020 to reflect the longer term goals identified in the executive order that preceded AB 32. Recently, in Center for Biological Diversity v. Dep’t of Fish & Wildlife, 62 Cal. 4th at 223, the supreme court appeared to tip its hand by stating: “An EIR taking a goal-consistency approach to CEQA significance may in the near future need to consider the project’s effects on meeting longer term emissions reduction targets.” In a footnote, the court cited both the executive order and the pendency of SB 32.

As has occurred with AB 32, regardless of the outcome of the court’s decision in Cleveland National Forest Foundation v. San Diego Association of Governments, SB 32 will likely be used to establish new significance thresholds based on compliance with the new, longer term goal.

Impacts on Utilities and Renewable Energy Companies

In June 2016, CARB released a draft Scoping Plan Update for 2030 as required by Executive Order B-30-15. It singles out the electric, manufacturing and transportation industries as California’s largest contributors to GHG emissions. At the same time, the Governor’s Executive Order B-32-15 directs state agencies to transition transportation fleets to zero-emission technologies.

Electrification of the transportation fleet could benefit electric utilities as the increased number of electric vehicles would offset the loss of base load to energy efficiency measures and distributed generation assets like residential solar. Moreover, these electric vehicles will require an expansion of California’s vehicle charging infrastructure. These chargers might offer an additional source of utility revenue if, for example, utilities include chargers in rate base.

Electric utilities may not need to procure additional renewables to satisfy SB 32 because of SB 350 (2015, De Leon), which modified California’s Renewables Portfolio Standards (RPS) Program. As modified, the RPS Program requires that the amount of electricity generated and sold to retail customers from renewable energy sources be increased to 50% by 2030.

On the other hand, the GHG reductions necessary to meet SB 32’s goal may require CARB to impose additional restrictions on fossil-fuel plants, especially if the Diablo Canyon nuclear plant is closed and no new nuclear facilities are constructed. Utilities should closely monitor developments at CARB, given that the extension of the agency’s statutory mandate to 2030 authorizes it to implement more aggressive GHG reduction measures.

New Challenges for Manufacturing and Transportation as Targets for Emission Reductions

CARB has recognized manufacturing as one of the largest contributors to California’s GHG emissions. AB 197 provides CARB a statutory basis to target manufacturing facilities by requiring direct reductions. Emission reduction measures might include policies that, for example, increase the deployment of combined heat and power facilities, require waste diversion, reduce water consumption and mandate energy efficiency retrofits. Manufacturers will also face greater public scrutiny, as CARB will publish emissions data at the more granular level of individual facilities.  

Additional GHG reduction measures will also likely apply to the transportation industry, such as increased fuel efficiency requirements. Implementing CARB policies may require significant investment by transportation companies.  

© 2016 Perkins Coie LLP


 

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