Temporary Stay Allows California's GHG Cap and Trade Program to Continue for Now

Posted on June 30, 2011 by Robert Wyman

By:  Bob Wyman and Aron Potash, Latham & Watkins LLP

The ultimate fate of California's greenhouse gas (GHG) cap and trade program is firmly in the hands of the judiciary and, for now, the program may continue. On June 3, 2011, the California Court of Appeal for the First Appellate District temporarily stayed a writ of mandate enjoining California from further work on its program until the State more fully analyzes the environmental impacts of alternatives to cap and trade. The writ of mandate was first issued in Association of Irritated Residents v. California Air Resources Board following the California Air Resources Board's (CARB) petition to the court for a writ of supersedeas. CARB's petition asks the court to both declare the trial court's writ of mandate automatically stayed upon CARB's June 1 appeal and, failing that, to issue a discretionary stay of the writ of mandate pending CARB's appeal. The June 3 ruling granted CARB a stay, although only a temporary one. The Association of Irritated Residents and other appellees have until June 20 to file a brief opposing CARB's petition for a writ of supersedeas. Perhaps unaware that the writ of mandate had been temporarily stayed, the court that issued the writ issued another order on June 6 declaring both that the writ was not automatically stayed upon CARB's appeal and that CARB violated the writ by continuing cap and trade implementation activities. Nonetheless, given the temporary stay, CARB is in the clear to continue implementation activities for now. For how much longer is a question that will be resolved as CARB's appeal and petition for a writ of supersedeas wind their way through the appellate court.

New Flow Control Decision in New York Examines Constitutionality of Ordinance

Posted on June 28, 2011 by Karen Aldridge Crawford

The United States District Court for the Northern District of New York recently took at least a small bite out of the legacy established by the 2007 U. S. Supreme Court decision in United Haulers Association v. United Herkimer Solid Waste Management Authority which first allowed flow control by a county under the unique circumstances set forth in that case.

Emboldened by the 2007 decision, several counties in various states have enacted flow control ordinances that require solid waste to be disposed only at county owned facilities. Not surprisingly, private waste management companies have systematically challenged those laws. In JWJ Industries, Inc. and Jeffrey Holbrook v. Oswego County, 5:09-CV-0740 (NPM/DEP) (N.D.N.Y. June 13, 2011), the district court addressed the narrow question of whether the flow control ordinance adoped by Oswego County was unconstitutionally vague and overbroad, both on its face and as applied. As an initial matter, the court, citing to United Haulers, noted that "the County was unquestionably within its right to implement a flow control ordinance directly affecting the operation of [Plaintiffs' facility]." However, after subjecting the ordinance to the two-pronged analysis set forth in Thibodeau v. Portuondo, 486 F. 3rd 61 (2d Cir. 2007), the court determined that the ordinance was unconstitutionally vague.

The Second Circuit in Thibodeau set forth two independent grounds recognized by the U.S. Supreme Court to determine whether a law is so vague as to deny due process of law:

 

  1. Fails to provide people of ordinary intelligence a reasonable opportunity to understand what conduct the law prohibits.
  2. Authorizes or even encourages arbitrary and discriminatory enforcement.


Applying this two-pronged analysis, the court in JWJ Industries determined that the ordinance at issue failed both prongs. As to the first prong, the court found specifically that portions of the ordinance were contradictory and could be read to both require and prohibit the same exact actions, while also prohibiting inaction. As to the second prong, the court determined that the ordinance failed to take JWJ’s status or prior existence into account, providing no explicit standards on how it would treat existing private transfer facilities or processing facilities within the county; that scrutiny of letters and directives from the County and its director of solid wastes revealed that the flow control ordinance in question authorized and encouraged arbitrary and discriminatory enforcement; and that such arbitrary enforcement was manifest. Accordingly, the Court granted Plaintiffs' motion for judgment on the pleadings, set aside the ordinance as unconstitutionally vague and otherwise dismissed the case.

Of note, the court also admonished the county, stating that, if the county government was basing its ordinance on a template obtained from elsewhere or was adopting an ordinance from another municipality (which often is done), it needed to at least try to conform the law to the conditions in that specific county.

Birds, Butterflies, and the Doctrine of Standing

Posted on June 22, 2011 by Susan Cooke

A recent Seventh Circuit decision authored by Judge Richard Posner provides a useful review of the doctrine of standing in the context of an alleged environmental injury. In American Bottom Conservancy v. U.S. Army Corps of Engineers (No. 09-cv-603-GPM) issued on June 14, the Seventh Circuit concluded that the plaintiff conservation organization had standing to appeal the U.S. Army Corps of Engineers’ issuance of a Section 404 permit. Members of the Conservancy had offered sufficient evidence to support their allegation that destruction of the wetlands near a state park would diminish the wildlife population (including birds and butterflies) visible to them, and thus their enjoyment of the wildlife.


The Army Corps permit authorized Waste Management of Illinois, Inc. (WMI) to remove soil from wetlands which it owned near the park and to use that soil as cover for its neighboring landfill. Once it completed the excavation of those wetlands and adjacent acreage, WMI intended to convert the area into a new landfill. WMI agreed to configure compensating wetlands of even greater size in the immediate vicinity and next to the state park.


After casting a critical eye at several grounds articulated in the past to support the doctrine of standing, Judge Posner identified the “solidest grounds” as being “practical” ones. Those included “preventing the federal courts from being overwhelmed by cases” and ensuring that “the legal remedies of primary victims of wrongful conduct will not be usurped by persons trivially or not at all harmed by the wrong complained of.”

Based on his finding that the wetlands to be destroyed were close enough to the park to impact birds and butterflies that could fly into or over the park or be seen from it, Judge Posner concluded that there was sufficient proximity to demonstrate the probability of harm to the park’s wildlife. He then rejected the district court’s conclusion that members of the conservation organization must show that they would no longer visit the state park. Instead, he declared that it was only necessary to show that their “pleasure is diminished”.

Judge Posner also disagreed with the district court’s finding that the injury was “merely speculative” because about 30% of the wetlands would be preserved and compensating wetlands of twice the size would be built. Judge Posner found it more significant that more than two-thirds of the existing wetlands would be eliminated, that the compensating wetlands would not be built until after all soil removal had occurred, and that the time for the new wetlands to reach maturity would exceed the short lifespan of at least some species (such as the six week lifespan of a butterfly), Judge Posner found the probability of injury, even if small, to be real.

In sum, Judge Posner concluded that the plaintiff had met its burden of alleging a probable harm to its members (the “injury in fact” which consisted of being deprived of the pleasure of watching wildlife) and of seeking relief that would address such injury (retraction of the Army Corps permit). He noted that for standing purposes plaintiff need not show the magnitude of the injury, as distinct from its directness. Consequently, the Seventh Circuit reinstated the Conservancy’s lawsuit. The Seventh Circuit also denied WMI’s request that the district court’s dismissal be upheld on the merits because WMI had not filed a cross appeal seeking to dismiss the case with prejudice.

Judge Posner’s analysis of the case law and commentary on the standing issue reveals his concern about conflating the “zone of interests” for standing and the merits of a case. As he noted in Harzewski v. Guidant Corp., 489 F.3d 799 (7th Cir. 2007), involving an ERISA class action, interpreting standing requirements too broadly would merge the standard of proof for standing with the standard of proof on the merits. His latest effort to address the issue should provide helpful guidance in an area where the prerequisites for establishing standing have been a matter of serious debate.

 

John C. Cruden Named President of Environmental Law Institute

Posted on June 22, 2011 by Rachael Bunday

 

Respected DOJ Attorney Will Focus on Building Consensus,

Preserving the Rule of Law

 

 

The Board of Directors of the Environmental Law Institute (ELI) announced on June 13th, that John C. Cruden has been selected as the organization’s fourth President. Mr. Cruden will join ELI from the U.S. Department of Justice (DOJ), where he serves as the Deputy Assistant Attorney General for the Environment and Natural Resources Division. 

 

In his tenure at DOJ, Mr. Cruden helped shape comprehensive solutions to some of our nation’s most complex and controversial environmental disasters including Love Canal, Exxon Valdez and, most recently, Deepwater Horizon. Known for his negotiating and problem-solving skills as well as his expertise in the courtroom, Mr. Cruden has earned broad respect for his ability to work with diverse parties and his focus on preserving what works best in our nation’s laws.

 

ELI Board Chairman William Eichbaum, Vice President of Marine and Arctic Policy for the World Wildlife Fund, praised Mr. Cruden for his leadership, integrity and ability to build consensus around highly charged issues.

 

“The increasingly contentious and partisan conversations about the environment undermine the effective application of law and environmental policies, and, with them, decades of environmental progress,” said Eichbaum. “John has been enormously effective at changing that dynamic. He has an unmatched track record of bringing people together and creating real, meaningful solutions to today’s toughest environmental challenges. He has the deep respect and admiration of environmentalists, corporate CEOs, the legal community, and policymakers, and he brings that proven experience and intense commitment to ELI. Together, we will redouble our efforts to make sure the law works for the environment.”  

 

“The nation and the world are at an important crossroads,” said Cruden. “For 40 years, the U.S. has been among the world leaders in developing a legal framework to control pollution and manage our natural resources. Republican and Democratic presidents passed historic laws with broad bi-partisan support from Congress that benefit our nation, our people and our economy.  That legacy—the essential framework of an efficient system of governance and level playing field grounded in the rule of law, sound science and public participation—is in jeopardy. 

ELI plays a critical role promoting sound law and policy solutions to tough environmental problems. I am truly honored to join this extraordinary organization, and I look forward to doing great things together.”

 

At the Department of Justice, Mr. Cruden has been in senior leadership positions for over two decades, leading the Department in environmental civil litigation. Before joining the Department, he held a number of important positions including Chief Legislative Counsel of the Army, General Counsel of the Defense Nuclear Agency, and a Staff Judge Advocate in Europe. Mr. Cruden has also served as the President of the District of Columbia Bar – the first government attorney to be elected to and serve in that position – and is currently the Immediate Past Chairman of the ABA Section of Environment, Energy and Resources and a Fellow of the American Bar Foundation. A graduate of West Point, he served in airborne, ranger and special forces units in Germany and Vietnam before attending Santa Clara Law School. Mr. Cruden is also a swim coach for the Special Olympics and a past recipient of Fairfax County’s Volunteer of the Year award for his work with mentally handicapped children. 

 

ELI's third president, Leslie Carothers, is retiring after eight years of service.  She will be a scholar-in-residence and teach a research seminar at Pace University Law School in the 2011-2012 academic year.  Pace offers one of the nation's leading environmental law programs as part of its curriculum.  “ELI is profoundly grateful for Leslie’s leadership and stewardship,” said Eichbaum. “The next generation of environmental lawyers coming out of Pace will benefit enormously from her insights and practical experiences.”

 

For more information on ELI and John Cruden, please click here

 

You may also view a video of John discussing his new role as ELI President by clicking here.

 

 

 

ELI fosters innovative, just, and practical law and policy solutions to enable leaders across borders and sectors to make environmental, economic, and social progress. ELI delivers timely, insightful, impartial analysis to opinionmakers, including government officials, environmental and business leaders, and journalists. ELI is a clearinghouse and a town hall, providing common ground for debate on important environmental issues.

 

For more information, please contact Brett Kitchen at kitchen@eli.org.

 

Environmental Law Institute

2000 L St. NW Suite 620

Washington, DC 20036

www.eli.org

Supreme Court Rejects Common Law Climate Change Suits

Posted on June 20, 2011 by Theodore Garrett

Reversing the Second Circuit, the U.S. Supreme Court held that the Clean Air Act displaces any federal common-law right to seek abatement of carbon dioxide emissions from fossil-fuel fired power plants. American Electric Power Co., Inc., et al. v. Connecticut et al., (No. 10–174, June 20, 2011).

Two groups of plaintiffs including eight states filed complaints in a Federal District Court against five major electric power companies. The complaints alleged that the defendants are the largest emitters of carbon dioxide in the U.S. and that the defendants’ emissions substantially and unreasonably interfered with public rights by contributing to global warming, in violation of the federal common law of interstate nuisance. Plaintiffs sought for a decree setting carbon-dioxide emissions for each defendant. The District Court dismissed both suits as presenting nonjusticiable political questions, but the Second Circuit reversed and held that the plaintiffs had stated a claim under the “federal common law of nuisance” and that the Clean Air Act did not “displace” federal common law.

In a decision announced on June 20, 2011, the Supreme Court reversed. The court started from the proposition that, since Erie R. Co. v. Tompkins, a new federal common law has emerged for subjects of national concern, citing Milwaukee I. But recognition that a subject is proper to be governed by federal law does not necessarily mean that federal courts should create the controlling law.

The test for preemption by Federal legislation, the court held, is whether the statute “speak[s] directly to [the] question” at issue. Here, Massachusetts v. EPA made plain that emissions of carbon dioxide qualify as air pollution subject to regulation under the Clean Air Act. The Act directs EPA to establish emissions standards for categories of stationary sources that, “in [the Administrator’s] judgment,” “caus[e], or contribut[e] significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.” Once EPA lists a category, it must establish performance standards for emission of pollutants from new or modified sources and existing sources within that category. The Act itself thus provides a means to impose the same relief plaintiffs seek by invoking federal common law.

The Court rejected the Second Circuit’s holding that federal common law is not displaced until EPA actually exercises its regulatory authority by setting emissions standards for the defendants’ plants. The relevant question for displacement purposes is “whether the field has been occupied, not whether it has been occupied in a particular manner.” Here, Congress delegated to EPA the decision whether and how to regulate carbon dioxide emissions from power plants.

Finally, the court stated that the Act’s prescribed order of decision making—first by the expert agency, and then by federal judges—is another reason to resist setting emissions standards by judicial decree under federal tort law. Echoing some of the comments during oral argument, the opinion states that the appropriate amount of regulation in a particular greenhouse gas producing sector requires informed assessment of competing interests. The expert agency is surely better equipped to do the job than federal judges, who lack the scientific, economic, and technological resources an agency can utilize in coping with such issues.

The Second Circuit did not decide plaintiffs’ claims under state nuisance law. Because none of the parties have briefed preemption or the availability of a claim under state nuisance law, the Supreme Court left that issue for consideration on remand.

Ginsburg, J., delivered the opinion of the Court, in which Roberts, J., and Scalia, Kennedy, Breyer, and Kagan, JJ., joined. Alito, J., filed an opinion concurring in part and concurring in the judgment, in which Thomas, J., joined. Sotomayor, J., took no part in the consideration or decision of the case.

Germany's Bold Move: Ousting Nuclear Energy by 2022

Posted on June 16, 2011 by Stephen M. Bruckner

In the wake of Fukushima's nuclear emergency, Germany has decided to end its use of nuclear energy. Germany announced on May 30 that it plans to shut down all of the country’s nuclear power plants by 2022. This decision to close the source of over 25% of its electric power has major economic implications. Why did the Fukushima incident cause Germany to reverse the decision that it made only last September to extend plant licenses an additional 8 to 14 years?  In light of its history of few natural disasters and a sound nuclear plant safety record, Germany’s response to the Fukushima incident is surprising and confounding.  Whatever the motivation of the German government, the salient question is whether this planned phase-out is even feasible.

 

Germany certainly is turning its back on the prayer of that famed nuclear plant worker, Homer Simpson: "And Lord, we are especially thankful for nuclear power, the cleanest, safest energy source there is. Except for solar, which is just a pipe dream." Currently, nuclear energy provides the United States with over 20% of its power and provides France with over 75% of its energy needs. Nuclear energy has been both praised as a successful alternative to fossil-fuel energy and condemned for its riskiness and generation of radioactive waste. Many policy makers and some environmental organizations tout the benefit of nuclear energy in reducing our carbon dioxide emissions.

 

Germany, however, has already taken the first steps to oust nuclear from its energy mix by shutting down seven of the older plants. It plans to boost the use of renewable energy, accelerate the expansion of the “smart” electricity grid, and make buildings more energy efficient. Bloomberg estimates that Germany will spend €10 billion to expand its electricity grid to avoid stunting economic growth. Boosting renewable energy won't be much easier.  German nuclear power plants currently pay a tax to help subsidize renewable energy sources like hydro and wind power. Without the nuclear power plants, the German government must find the funds elsewhere. It will likely cost the government €235 million to replace this loss of revenue in the next three months alone.

 

The closing of Germany’s nuclear power plants complicates its efforts to reduce its carbon dioxide emissions by 40% by 2020. Assuming that Germany does not increase its fossil-fuel energy production, one can predict the rest of this story: To avoid looming energy shortages and economic instability, Germany will need to buckle down and develop new-and-improved environment-friendly energy sources. If successful, these efforts will pave the way for a worldwide boom in renewable energy development. But it is also possible that Germany will return to pre-Fukushima nuclear energy production — that or purchase nuclear energy generated in France. In the meantime, with Germany's solar manufacturing already up 7.6%, Homer Simpson (with the rest of the world anxiously waiting) will continue to eat his sprinkled donuts from the comfort of his nuclear power plant job, waiting to see if his “pipe dream” is real.

 

Bold move, Germany. Now pass the donuts.

Contract Fails To Protect Seller From CERCLA Liability After Expiration Of Indemnity For Environmental Claims

Posted on June 14, 2011 by Jose R. Allen

Since the passage of CERCLA, practitioners have been keenly aware of the necessity to negotiate contractual provisions allocating responsibility for environmental liabilities in the purchase and sale of industrial facilities. Such agreements typically include provisions aimed at protecting the buyer from liability for pre-purchase environmental claims and limiting the length of time that the seller may be obligated to indemnify the buyer for such claims.

A recent federal district court decision, Stimson Lumber Co. v. Int'l Paper Co., CV 10-79-M-DWM-JCL (D. Mont. 2011), illustrates the importance of not only including provisions in purchase and sale agreements for indemnity as to pre-closing conditions, but ensuring that such provisions unambiguously reflect the parties’ intentions regarding CERCLA statutory liability. On April 22, the court in Stimson Lumber held that the buyer of a lumber mill could sue the seller of the mill for costs incurred under CERCLA even though the period of seller's contractual indemnity for environmental claims had expired under the terms of the sale contract.

A 1993 asset purchase agreement (the "APA") pursuant to which Stimson Lumber Company bought a lumber mill from Champion International provided an indemnity for environmental claims relating to pre-closing conditions for a period of ten years. In 2008, after the indemnity had expired, Stimson filed suit against Champion's successor, International Paper, for costs incurred to clean up contamination at the mill. International Paper argued that the lawsuit was barred under the terms of the APA because the contractual period for indemnity for environmental claims had run. The court disagreed, finding that a provision setting forth the purchase price could have signaled the parties' intention that statutory CERCLA liability remains with the seller. The court found that the wording of the provision created an ambiguity regarding whether the parties intended for the buyer to assume the seller's statutory liabilities after the contractual indemnification obligations expired.

The court distinguished Armotek Industries, Inc. v. Freedman, 790 F. Supp. 383 (D. Conn. 1992), in which the purchase agreement had included a proviso that after the expiration of the indemnity period, "no claim for indemnification for losses . . . shall be made against Seller." The court in Aromtek found that this provision reflected the parties' unambiguous agreement that the seller's CERCLA liability had shifted to the buyer after the indemnity period expired. In reviewing the Stimson Lumber agreement, the court found no similar bar to claims after the expiry of the indemnity period, and held that the ambiguity in the terms of the APA precluded summary judgment for the seller.

The Stimson Lumber decision serves as a useful reminder that in drafting environmental provisions, the words must be either very broad and quite absolute in the allocation of future liabilities or very specific and complete in reflecting sometimes subtle distinctions between indemnity for and assumption of liability. Years after the fact, when the participants in the initial transaction are long gone and the cold words on a sheet of paper are the only guide to the parties’ intentions, only truly unambiguous language will protect against the revival of old liabilities thought extinguished long ago.

Oregon Poised to Adopt Nation's Strictest Water Quality Standards for Toxic Chemicals

Posted on June 10, 2011 by Rick Glick

By: Rick Glick and Michael Gelardi

On June 14, the Oregon Environmental Quality Commission is likely to adopt stringent new water quality standards for toxics. After years of planning and debate, the Oregon Environmental Quality Commission (EQC) next week will likely adopt a proposal by the Department of Environmental Quality (DEQ) to tighten human health-based water quality criteria for a broad range of toxic pollutants. The proposed rules are driven by a fish consumption rate that is ten times higher than assumed in previous rules.

Once adopted by the EQC and approved by the EPA, the new rules will result in stricter limits on water discharge permits and new programs to control agricultural and forestry runoff. The proposed rules are controversial and set Oregon apart as having the strictest water quality standards in the country. For more information, please click here.

California's Greenhouse Gas Cap and Trade Program Enjoined

Posted on June 8, 2011 by Robert Wyman

By: Bob Wyman and Aron Potash, Latham & Watkins LLP


A San Francisco Superior Court ruling on May 20, 2011, enjoins California from undertaking any further work to implement a greenhouse gas (GHG) cap and trade program until the California Air Resources Board (CARB) comes into compliance with the California Environmental Quality Act (CEQA) by more fully analyzing alternatives to cap and trade. While a setback to CARB, which had been planning to conduct spring workshops and summer rulemaking to finalize important unresolved aspects of its planned cap and trade program, the ruling in Association of Irritated Residents v. California Air Resources Board is less damaging than it could have been to CARB’s efforts to achieve the GHG emission reductions required by the Global Warming Solutions Act of 2006 (AB 32). The court’s earlier March 18 statement of decision threatened to put the brakes on not just the cap and trade program but also CARB’s entire suite of GHG reduction measures, including the low carbon fuel standard, the renewable electricity standard and other initiatives. So the court’s final order is significantly narrower in scope. Nonetheless, the cap and trade scheme is the centerpiece of the first economy-wide program in the United States to limit GHG emissions, and it is unclear whether that part of CARB’s program can commence as originally planned on January 1, 2012. While it works to complete a new CEQA alternatives analysis, CARB will almost certainly also appeal the judgment and seek a stay to keep cap and trade implementation on track.


This roadblock to California’s cap and trade plan was brought about when the Association of Irritated Residents (AIR) and others filed a petition for a writ of mandate alleging that CARB substantively and procedurally failed to comply with CEQA in approving the Scoping Plan, CARB’s detailed roadmap for reducing GHG emissions under AB 32. AB 32 was enacted in 2006 and requires the state to reduce GHG emissions to 1990 levels by 2020. CARB was charged with implementing AB 32 and approved the Scoping Plan in December 2008. Since that time, CARB approved a number of regulations contemplated by the Scoping Plan, including the GHG cap and trade program in December 2010. Many significant aspects of the cap and trade program remain unresolved, however, and CARB workshops and rulemakings were planned for this spring and summer with the intention of finalizing such critical program components matters as the allocation of free GHG allowances, the use of auction revenue, the generation and use of offsets, and the designation of GHG intensity benchmarks for regulated sectors.


In its March 18 statement of decision, the court found that CARB violated CEQA by failing fully to evaluate possible alternatives to the measures described in the Scoping Plan. Focusing on the cap and trade program, the court wrote: “ARB’s extensive evaluation of the proposed cap and trade program…provides the public with information about cap and trade only. CEQA requires that ARB undertake a similar analysis of the impacts of each alternative so that the public may know not only why cap and trade was chosen, but also why the alternatives were not.” The March 18 decision specifically criticized the Scoping Plan CEQA analysis for failing to discuss in detail a carbon fee alternative to cap and trade. Cap and trade is not a “fait accompli,” the court wrote.


The court set forth its remedy in the new May 20 ruling, ordering that its writ “shall specifically enjoin ARB from engaging in any cap and trade-related Project activity that could result in an adverse change to the physical environment until ARB has comes [sic] into complete compliance with ARB’s obligations under its certified regulatory program and CEQA, consistent with the Court’s Order. This includes any further rulemaking and implementation of cap and trade…” The Court also ordered CARB both to take no action in reliance upon the Scoping Plan as it relates to cap and trade and to set aside the executive order approving and certifying the CEQA analysis of the Scoping Plan. Although the intent of the ruling appears to be to halt work only on the cap and trade component of the AB32 program, this second portion of the court’s order potentially opens the court’s decision and the validity of the other Scoping Plan measures to attack on the ground that a court may only have the authority either to invalidate a CEQA approval in its entirety or not to invalidate any portion at all. The court’s path of partially invalidating a CEQA action remains an uncertain area of California law.


CARB will almost certainly appeal the decision and seek a stay of the judgment during the course of the appeal. The next battle in this case will likely involve CARB arguing that its appeal of the court’s writ automatically stays the judgment—allowing cap and trade rulemaking to continue apace—and AIR arguing that CARB will have to obtain a writ of supersedeas in order to stay the judgment. This battle will hinge in part on how the reviewing court characterizes the lower court’s writ (e.g., whether it is prohibitory or mandatory in nature) and on the whether the reviewing court sees the lower court order as overbroad in its limitations on CARB’s rulemaking activities.

Iqbal and Twombly Revisited

Posted on June 3, 2011 by John Barkett

By: Bob Wyman and Aron Potash, Latham & Watkins LLP


A San Francisco Superior Court ruling on May 20, 2011, enjoins California from undertaking any further work to implement a greenhouse gas (GHG) cap and trade program until the California Air Resources Board (CARB) comes into compliance with the California Environmental Quality Act (CEQA) by more fully analyzing alternatives to cap and trade. While a setback to CARB, which had been planning to conduct spring workshops and summer rulemaking to finalize important unresolved aspects of its planned cap and trade program, the ruling in Association of Irritated Residents v. California Air Resources Board is less damaging than it could have been to CARB’s efforts to achieve the GHG emission reductions required by the Global Warming Solutions Act of 2006 (AB 32). The court’s earlier March 18 statement of decision threatened to put the brakes on not just the cap and trade program but also CARB’s entire suite of GHG reduction measures, including the low carbon fuel standard, the renewable electricity standard and other initiatives. So the court’s final order is significantly narrower in scope. Nonetheless, the cap and trade scheme is the centerpiece of the first economy-wide program in the United States to limit GHG emissions, and it is unclear whether that part of CARB’s program can commence as originally planned on January 1, 2012. While it works to complete a new CEQA alternatives analysis, CARB will almost certainly also appeal the judgment and seek a stay to keep cap and trade implementation on track.


This roadblock to California’s cap and trade plan was brought about when the Association of Irritated Residents (AIR) and others filed a petition for a writ of mandate alleging that CARB substantively and procedurally failed to comply with CEQA in approving the Scoping Plan, CARB’s detailed roadmap for reducing GHG emissions under AB 32. AB 32 was enacted in 2006 and requires the state to reduce GHG emissions to 1990 levels by 2020. CARB was charged with implementing AB 32 and approved the Scoping Plan in December 2008. Since that time, CARB approved a number of regulations contemplated by the Scoping Plan, including the GHG cap and trade program in December 2010. Many significant aspects of the cap and trade program remain unresolved, however, and CARB workshops and rulemakings were planned for this spring and summer with the intention of finalizing such critical program components matters as the allocation of free GHG allowances, the use of auction revenue, the generation and use of offsets, and the designation of GHG intensity benchmarks for regulated sectors.


In its March 18 statement of decision, the court found that CARB violated CEQA by failing fully to evaluate possible alternatives to the measures described in the Scoping Plan. Focusing on the cap and trade program, the court wrote: “ARB’s extensive evaluation of the proposed cap and trade program…provides the public with information about cap and trade only. CEQA requires that ARB undertake a similar analysis of the impacts of each alternative so that the public may know not only why cap and trade was chosen, but also why the alternatives were not.” The March 18 decision specifically criticized the Scoping Plan CEQA analysis for failing to discuss in detail a carbon fee alternative to cap and trade. Cap and trade is not a “fait accompli,” the court wrote.


The court set forth its remedy in the new May 20 ruling, ordering that its writ “shall specifically enjoin ARB from engaging in any cap and trade-related Project activity that could result in an adverse change to the physical environment until ARB has comes [sic] into complete compliance with ARB’s obligations under its certified regulatory program and CEQA, consistent with the Court’s Order. This includes any further rulemaking and implementation of cap and trade…” The Court also ordered CARB both to take no action in reliance upon the Scoping Plan as it relates to cap and trade and to set aside the executive order approving and certifying the CEQA analysis of the Scoping Plan. Although the intent of the ruling appears to be to halt work only on the cap and trade component of the AB32 program, this second portion of the court’s order potentially opens the court’s decision and the validity of the other Scoping Plan measures to attack on the ground that a court may only have the authority either to invalidate a CEQA approval in its entirety or not to invalidate any portion at all. The court’s path of partially invalidating a CEQA action remains an uncertain area of California law.


CARB will almost certainly appeal the decision and seek a stay of the judgment during the course of the appeal. The next battle in this case will likely involve CARB arguing that its appeal of the court’s writ automatically stays the judgment—allowing cap and trade rulemaking to continue apace—and AIR arguing that CARB will have to obtain a writ of supersedeas in order to stay the judgment. This battle will hinge in part on how the reviewing court characterizes the lower court’s writ (e.g., whether it is prohibitory or mandatory in nature) and on the whether the reviewing court sees the lower court order as overbroad in its limitations on CARB’s rulemaking activities.