Alerts and Updates

Carbon Policy: In the Absence of Federal Legislation, California Announces Aggressive State-Level Carbon Strategy

June 30, 2008

Summer has arrived in the United States and brought with it strong reminders that climate change directly impacts life in this country and around the globe. From torrential rains in the Midwest, tornados in the Great Lakes region and floods on the Mississippi River to drought and rampant wildfires in California, the relationship between climate change and natural disasters seems clearer by the day. Even those most resistant to accept climate change as a serious problem have acknowledged (sometimes begrudgingly) that there is a problem which must be addressed.

But how much action and by whom? What are we doing as a nation, regions or states to address our country's enormous carbon footprint? And how do these actions fit into an integrated global solution? This Alert provides an overview of the inaction at the federal level as compared to the plans of states, particularly California, and regions to move ahead on dealing with the U.S. carbon emissions problem. In particular, it highlights the major step forward by the California Air Resources Board with the release of its Climate Change Draft Scoping Plan on June 26, 2008, which sets forth a framework to implement AB 32, the California Global Warming Solutions Act of 2006.

Federal Inaction: In Washington, D.C., from the perspectives of many, the federal government has been caught in a political morass for most of this year, ending in the recent unsuccessful debate on the Lieberman-Warner bill. After months of political maneuvering (and an "only in the Beltway" procedural oddity requiring a reading out loud of the nearly 500-page bill), Senate Democrats ultimately could not obtain cloture necessary to move forward on climate change legislation, and the bill was withdrawn. With that, it is highly unlikely that any major federal climate-related legislation will pass this year. Instead, climate change legislation is likely to be a high-priority item for Congress and either the Obama or McCain administration in 2009. With an expected increase in the Democratic majority in Congress and a more receptive White House, proponents of climate change legislation expect that legislation will finally be enacted next year and that more aggressive measures may be on the table.

As a related matter, the soon-to-expire renewable energy and energy efficiency tax credits continue to be held up in Congress despite efforts to extend the sunset dates beyond December 31, 2008. After a dozen or so tries to include the tax credits in major bills introduced this year, the latest effort by Senators Cantwell (D-Wash.) and Ensign (R-Nev.) to include the tax credit extensions in the housing bill failed when such provisions were removed from the bill to expedite action on housing issues. Most Capitol and industry insiders believe that the credits will be extended by year-end, but with only five months left, the renewable energy industry faces and fears the boom/bust cycle caused in the past when the tax credit provisions ended due to the absence of a timely extension.

Filling the Void by State and Regional Efforts: In view of the lack of a consistent federal climate change policy, regional efforts such as the Regional Greenhouse Gas Initiative (RGGI) and the Western Climate Initiative (WCI) are underway.

RGGI is a multistate effort in the Northeast United States to reduce carbon emissions from coal-fired plants. RGGI is now scheduled to launch its regional auction of carbon allowances in early September 2008 and again in mid-December 2008.

Similarly, WCI is a broad coalition of several Western states, Canadian provinces and Mexican states with the objective of reducing greenhouse gas (GHG) emissions by 15 percent below 2005 levels by 2020. WCI recently issued its final recommendations on a regional cap-and-trade mechanism and addressed the scope of coverage, emissions reporting and verification, emissions allowances and allocation, use of offsets from non-covered entities, and an overall compliance period.

California is pursuing even more ambitious goals. California's economy - if it were its own country - would be in the top 10 nations on Earth and the state has taken a leadership role in tackling the climate change problem, even while federal policy languishes. California is the 15th-largest emitter of greenhouse gases and represents two percent of worldwide emissions. On June 26, the California Air Resources Board (CARB) issued the long-awaited Climate Change Draft Scoping Plan. The release of this document - still a discussion piece - is the next significant step in the State of California's ambitious carbon strategy adopted in AB 32, the California Global Warning Solutions Act of 2006, to reduce California's greenhouse gas emissions to 1990 levels by 2020 and to reduce 1990 emission levels by 80 percent by 2050. In efforts leading up to this release, CARB received input and recommendations from numerous stakeholders and formal recommendations from the California Public Utilities Commission and the California Energy Commission. That process will now continue all summer, leading to a projected release of a Final Scoping Plan in October 2008 for consideration and action by CARB in November 2008. For the next three years, implementation of the adopted plan should continue and should be in place by 2012.

The Draft Scoping Plan shows a stark picture of what must be done to meet the mandated reductions. Based on an emissions inventory process required by AB 32, California's 1990 level of emissions was approximately 427 MMTCO2E (million metric tons carbon dioxide equivalent), with projected emissions for 2020 of 596 MMTCO2E. To meet the AB 32 goals, the Scoping Plan needs to reduce 2020 emissions by 169 MMTCO2E. Even more striking, to meet the 2050 goal, California will need to reduce its emissions from the 1990 level by 341 MMTCO2E.

The CARB plan adopts a mixed approach to carbon reductions. Significant efforts are focused on the electric generation and transportation sectors, which together create more than one half of total emissions. Reductions in the transportation sector rely heavily on vehicular emission standards mandated by California law but thwarted to date by actions by the federal Environmental Protection Agency, increased reliance on mass transit and creation of high-speed rail systems. The energy and industrial sectors will be subject to a California cap-and-trade program linked to the WCI program referenced above. The plan also promotes energy efficiency, renewable energy, more stringent building codes and governmental changes in energy consumption.

In addition, the plan looks at significant emissions from uncapped sectors with high emissions, such as refrigerators, air conditioners and insulating foam, and identifies possible approaches to deal with the more potent greenhouse gas emissions. Similarly, the plan identifies approaches to deal with landfill waste, agricultural waste and power usage.

CARB clearly recognizes that some key issues are left unresolved in the Draft Scoping Plan. The critical issues of allocation of allowances and use of auctions, the use of offsets and the economic impact of the plan are a few of the significant items on the "to-do" list for this summer. While public response during the CARB June 26th meeting generally applauded the significant step forward by the CARB Draft Scoping Plan, a strong undertone of "this is just the start" placed a reality check on the overall celebratory mood. As in all ventures, the devil is in the details where there remains much to work out.

Remember when summertime meant that "the livin' is easy"? Now summertime may mean more concerns about global warming, workshops and drafting sessions in hot and sunny Sacramento and concerted efforts by California and regional organizations to lead the way toward a strong carbon policy. In 2009, federal policy may finally take shape, but Congress may find that it is following the lead of state-level pioneers. At that point, Congress will have the opportunity to move ahead and provide national leadership while respecting the hard work and experience gained at the state and regional levels.

For Further Information

If you have any questions about this Alert or would like more information, please contact James W. McTarnaghan or any of the members of the Energy, Environment and Resources Practice Group or the attorney in the firm with whom you are regularly in contact.

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