An environmental justice group is suing California’s top air regulator for overhauling the state’s carbon market system, saying it illegally rushed through a last-minute incentive for industrial polluters.
I the case from the nonprofit community for a Better Environment alleges that the California Air Resources Board skipped a required environmental review when it approved a major overhaul of the cap-and-investment program at the end of May. CARB violated the California Environmental Quality Act when it failed to reasonably analyze the effects of the changes, according to the lawsuit, filed July 1 in Los Angeles County Superior Court.
It is the first major lawsuit against the state’s signature program since lawmakers agreed last year to extend its life beyond the original expiration date of 2030 to 2045.
Cap-and-invest requires large polluters like power plants, oil refineries and other industrial facilities to buy credits, or allowances, for each ton of carbon they emit, and allows them to buy or sell their unused allowances at quarterly auctions. Each year fewer credits are created, reducing the state’s total annual climate pollution.
The revision approved in May would remove 118 million grants from the market by 2030, and 900 million after 2030, which officials say will keep California on track to become carbon neutral by 2045.
But the air board also introduced a major change six weeks before the vote. This program will now include a new method, i to generate a decarbonization incentivewhich allows polluters to apply for and receive up to $118 million in new grants to invest in carbon reduction projects. Officials said the change is intended to discourage companies from leaving the state.
The lawsuit alleges that this was introduced too quickly and without following proper CEQA regulations. Specifically, it says the draft environmental impact assessment published in January was not updated to address the changes introduced in April. And the final environmental impact assessment wasn’t posted on CARB’s website until May 26, two days before the hearing began.
“The amendments close decades of subsidies to polluting industries, without CARB conducting the necessary comprehensive environmental harm analysis that will provide decision makers with a fully informed decision on the wisdom of these important changes,” the judge said.
It is asking the court to force CARB to withdraw its approval of the program, reevaluate and approve revised regulations.
In a statement, CARB spokeswoman Lindsay Buckley said the agency “follows all applicable laws when adopting or amending regulations and the latest investment and investment regulations are the same.”
“This lawsuit does nothing to advance environmental protection – instead it seeks to undermine the critical climate system and create market uncertainty that harms revenue opportunities for public investment,” Buckley said. “We stand firmly behind our work and are confident in our ability to defend ourselves fully and vigorously.”
Some board members expressed doubts before the vote. The board ultimately agreed to accept the production incentive, but committed to conducting additional workshops and evaluating the program before issuing any of its grants.
“The work does not end here with this vote,” CARB chairwoman Lauren Sanchez said during the meeting, adding that the board is looking forward to “further analysis, and monitoring and proposals regarding [incentive].”
Sadly, the lawsuit also notes that the plan threatens revenue and investment, which is used to finance housing, transportation, and clean air and water projects in the state through the Greenhouse Gas Reduction Fund. An analysis from the Office of the Legislative Analyst found that the new compensation plan would equate to a loss of $2 billion a year in the fund.
The amendments “significantly threaten California’s ability to meet its carbon dioxide reduction goals and the state’s ability to continue to provide the environmentally beneficial programs it has funded through its grant auctions,” the lawsuit said.
The loss is likely to hit low-income communities and communities of color the most, as they are already disproportionately affected by air pollution, extreme heat and poor air quality, the suit says.
Ethan Elkind, director of the Climate Program at UC Berkeley’s Center for Law, Energy and Environment, who is not involved in the lawsuit, said the most difficult question it raises is whether the new incentive program creates significant impacts that have not been analyzed under CEQA’s provisions.
The answer will largely focus on its environmental impact — and whether offering new freebies will lead to fuel pollution or air pollution that otherwise wouldn’t have occurred, Elkind said.
The court may also consider the financial consequences of the change, whether a small fee for transportation, water and other projects will harm the environment.
He was reluctant to predict how the case would play out, noting that he could see the court agree to seek additional facts or choose not to exercise discretion in CARB’s grant decisions.
“It’s a big, crazy, crazy program,” Elkind said of cap-and-invest. “And this is a big change for it, so I wouldn’t be surprised either way.”
This program was successful when it was launched in 2013. It has delivered $35 billion in climate projects in California since its inception.
But it also faced legal challenges from environmental justice groups, business organizations and nonprofits that disputed its CEQA compliance, carbon emissions and overall design in the program’s early days. In those cases, the courts have largely sided with CARB and its authority to design and implement the program.
One 2009 lawsuit, in which Better Place Communities was also a plaintiff, argued in part that the plan would lead to disproportionate pollution in vulnerable communities. In response, the court temporarily halted it in 2011 and forced CARB to rewrite its environmental review before allowing the program to proceed in 2012.
“Environmental justice groups have always been upset about trade because their districts are the communities that built these institutions, and they see trade and commerce as a way for these institutions to buy their way to reducing pollution,” said Elkind.
Lauren Gallagher, associate attorney with NorCal Communities for a Better Environment, said in a statement that CEQA amounts to an “environmental and public health bill of rights” for Californians, and that it requires policymakers to understand major environmental projects before they are approved.
“[W]”If CARB fails to evaluate these changes under CEQA, our communities are losing the strategies and investments we rely on to achieve California’s climate goals, protect health, and promote affordability for working families,” she said.
The case plays out against a backdrop of rising gas prices and concerns about how the cap-and-invest plan will affect gas prices in the state. Two major refiners have announced exit plans in recent years, including Valero’s Benecia refinery and Phillips 66’s Los Angeles refinery, which is slated to close in 2025.
