Draft Scoping Plan Released For Reducing California’s Greenhouse Gas Emissions

Plan to Implement State's Landmark Law AB 32

Yesterday, the staff of the California Air Resources Board ("CARB") released a much anticipated Draft Scoping Plan for implementing the state's landmark law on reducing greenhouse gas emissions, Assembly Bill 32 (the Global Warming Solutions Act of 2006, or AB 32). CARB's Chairman, Mary D. Nichols, identified the draft as the most significant step taken to date towards "unprecedented" and "sweeping" regulation of the California economy's impact on global warming, and characterized the draft as "filling a void" left by the federal government's inaction. For businesses, the draft provides details on emerging regulatory and related enforcement efforts in an entirely new field of law and regulation.

AB 32 requires the state to reduce its overall greenhouse gas (GHG) emissions to 1990 levels by the year 2020, and Executive Order S-3-05 requires reductions of 80% by 2050. Emissions that will be regulated by AB 32 go beyond just carbon dioxide and include other gases with global warming potential, such as chlorinated fluorocarbons common to refrigerants and foam insulation and methane. Because state-wide GHG emissions are presently increasing, AB 32 effectively requires a 30% reduction in emissions under a "business as usual scenario," or a 10% reduction from current emissions.

To ensure these aggressive reductions are met, AB 32 authorizes CARB to devise and implement regulations and outlines a series of milestones that must be met. The Draft Scoping Plan, which must be finalized by January 1, 2009, outlines how the state will achieve the "maximum technologically feasible and cost-effective reductions in greenhouse gas emissions" that are required by the statute. It is the most comprehensive outline to date of what those regulations will look like and what sectors of the economy they will affect first. 

The Scoping Plan's key preliminary recommendations include:

• Expanding and strengthening already successful energy efficiency programs for buildings and appliances;
• Requiring regulated utilities to obtain 33% of their power from renewable energy sources;
• Implementing a "cap and trade," or market-based program, linked to a regional market comprised of seven states and three Canadian provinces;
• Implementing low GHG emission standards for light-duty vehicles, as required under AB 1493 (the "Pavely Bill");
• Implementing existing state laws and policies, such as the Low Carbon Fuel Standard; and,
• Collecting fees to fund programs.

Cap-and-Trade Program

While the Scoping Plan's appendix detailing the proposed cap-and-trade program has not been released, the draft does explain that CARB will "implement a broad-based cap-and-trade program" linked into the Western Climate Initiative to help create a regional market and that electricity, transportation fuels, natural gas and large industrial sectors will be included. The cap-and-trade system is anticipated to account for approximately 20% of economy-wide reductions in GHG. The design and elements of that program must be finalized by January 1, 2011, with full implementation beginning a year later.

New Residential and Commercial Development

An additional area identified to help achieve reduction targets is coordination with local and regional governments to reduce the carbon footprint of new development. Thanks in part to some recent lawsuits and amendments to CEQA, many local and regional governments are already beginning to incorporate climate change into their land use planning. The Draft Scoping Plan does outline certain measures for achieving reductions by 2020 from new residential and commercial development, but theses measures are more limited than those proposed for other sectors. However, given the importance of this component, it is very possible that the final plan could include much more significant measures to encourage smart growth in the suburban setting.

Vehicle Emission Standards

The Scoping Plan identifies many other possible means for achieving GHG reductions, such as a "carbon fee" or low emissions standards for vehicles. The latter is intended to reduce transportation related emissions - the largest single emitting sector of the state's economy - but implementation hinges on whether the United States Environmental Protection Agency grants the state a waiver under the Federal Clean Air Act to implement the Pavely Bill. In December, 2007 the EPA rejected the state's request for a waiver, and the state has sued to have that denial overturned. Ultimately, however, if the state is unable to implement the Pavely Bill, the Draft Scoping Plan proposes that a "feebate" program - whereby purchasers of high GHG emitting vehicles pay fees that are returned as rebates to purchasers of low GHG emitting vehicles - might be used to achieve similar reductions in the transportation sector.

Public Comment Period

As noted, the Scoping Plan is currently in draft. It remains open for public comment for 45 days and CARB staff will hold numerous workshops in several state-wide locations throughout the summer to solicit input from stakeholders. The draft provides businesses with a more concrete, albeit far from final, understanding of how they are likely to be regulated under AB 32. The comment period is therefore an important opportunity to make concerns and ideas known before the regulatory path is set in stone.

A final Scoping Plan will be released in October 2008 and will be presented to CARB for approval at its November 2008 meeting. Assuming CARB adopts the Scoping Plan, it will then have two years to undertake rulemaking, a process that will also be open to stakeholders. Given the far-reaching implications AB 32, Farella Braun + Martel will continue to keep its clients and friends informed through further client advisories.