Alert: Governor Orders Cal/EPA and Air Board to Begin Developing Market-Based Trading System under California’s Groundbreaking Climate Change Law
October 25, 2006
In a bold move, this past week, Governor Schwarzenegger signed a controversial executive order (S-20-06, October 17, 2006), paving the way for use of market-based mechanisms to achieve the greenhouse gas emissions reduction goals imposed by the groundbreaking law he signed on September 27, 2006, the "California Global Warming Solutions Act of 2006" (Assembly Bill ("AB") 32). This landmark legislation requires the California Air Resources Board ("ARB") to take the lead in development of regulatory measures that will, by 2020, achieve reductions in statewide greenhouse emissions to 1990 levels.
Use of Market Systems Allowed, but not Mandated, by AB-32
In a hard-won concession, the Governor had pressed to include express provisions in AB 32 allowing ARB to use market-based compliance mechanisms to achieve emissions reductions. However, because of concerns expressed by the environmental justice community, these provisions do not mandate such market-based mechanisms, only that ARB "may include" them as part of the regulations it issues under AB 32. Additionally, these provisions also require that, before ARB may adopt such market-based mechanisms, it must consider their potential impacts on communities already impacted by air pollution and must design them to prevent any increase in toxic air contaminants or criteria pollutants. The environmental justice community has long been concerned that market-based emissions trading systems may result in the creation of toxic "hot spots" primarily within low-income and racially and ethnically diverse communities.
Executive Order Sets Goal of Linking California GHG Trading System with Trading Systems in Eastern U.S. and Europe
Last week, by executive order, the Governor ordered the Secretary of the California Environmental Protection Agency ("Cal/EPA") to convene a "Market Advisory Committee" comprised of national and international experts to make recommendations on the design of a market-based compliance program by June 30, 2007. In addition, he also ordered ARB to consider the resulting recommendations and collaborate with the Secretary of Cal/EPA and Cal/EPA's Climate Action Team to develop such a market-based program.
Notably, the Governor's executive order sets forth an express "goal" of creating a market-based program that will allow trading, not only among California companies, but also with participants in other jurisdictions' programs, including the carbon dioxide (CO2) emissions "cap-and-trade" program currently under development by a group of nine northeastern states (the Northeastern and Mid-Atlantic state's Regional Greenhouse Gas Initiative or "RGGI", pronounced "ReGGIe"), and the program that the European Union began implementing last year (the European Union Emissions Trading Scheme or "EU ETS").
In recent days, political opponents of the Governor, including State Senate President Pro Tem Don Perata and AB 32's chief author, State Assembly Speaker Fabian Núñez, have urged the Governor to rescind his executive order, saying that it conflicts with the provisions of AB 32, particularly with respect to the timing and process for development of market-based mechanisms, and the prominence of Cal/EPA's role in the process. The Governor's office has, however, rejected their request. This disagreement suggests that much of the heated debate that had preceded passage of AB 32 concerning the efficacy, enforceability and equity of market-based trading systems will continue throughout ARB's forthcoming rulemaking and implementation process.
Farella Braun + Martel's Environmental Department has extensive experience advising clients on air quality compliance, including development and participation in innovative emission reduction trading systems and inventories, such as the California Climate Action Registry. Its attorneys will be closely monitoring developments under AB 32 and advising clients in a broad array of industries on compliance with the requirements imposed pursuant to this groundbreaking law. For questions about AB 32 or for additional information about Farella Braun + Martel's Air Quality and Climate Change practice, please contact Sky Stanfield at 415.954.4991.