AB 32: Challenges on the Road to 2020

1. AB 32: Challenges on the Road to 2020 Litigation under AB 32: Implementation of the Low Carbon Fuel Standard and Cap and Trade September 24, 2013 RADER/RECTCC Program * The opinions contained in this presentation are those of the presenter and do not represent the views of the Office of the Attorney General or the California Air Resources Board.

2. California Climate Impacts 1.7 ºF higher temperatures since 1895 ~7 inch sea level rise 12% decrease in runoff between April and July Snowmelt and spring blooms advanced 2 days/decade since 1955 4-fold increase in wildfire frequency in past three decades 11°F 10 9 8 7 6 5 4 3 2 1 0 ºF “Our Changing Climate 2012,” www.climatechange.ca.gov/adaptation/third_assessment/ Westerling et al., “Warming and Earlier Spring Increase Western U.S. Forest Wildfire Activity”, Science (2006)

3. Climate Change Hotspots in U.S.

4. AB 32 – Global Warming Solutions Act • Codified goal of reducing California’s GHG emissions to 1990 levels by 2020 • Applies to Kyoto pollutants CO2, CH4, N2O, HFC, PFC, and SF6 • Directed ARB to develop regulations by 2012 to achieve “maximum technologically feasible and cost-effective GHG reductions” • ARB established statewide emissions limit in 2007 at 427 MMTCO2E • Includes consideration of market measures

5. AB 32 Implementation 2012 2011 2010 2008 2009 2020 2007 Identification/ implementation of 2050 emission reduction strategies List of early actions 2020 limit set 427 MMTCO2E Cap and Trade adopted Mandatory reporting Scoping plan adopted C&T Auction Link to Quebec LCFS and other early actions in effect Reduce GHG emissions to 1990 levels

6. AB 32 - Emission Reductions Needed to Meet 2020 Goal Revised baseline = 507 MMTCO2E (includes Pavley I and original RFS) 80 MMTCO2E needed MMT

7. Low Carbon Fuel Standard • Executive Order S-01-07 directed ARB to consider rule to reduce carbon intensity of fuel by 10% by 2020 • LCFS phased in over 10 year period (2011-20) • Applies to most transportation fuels • Regulated parties fuel producers/importers

8. LCFS (cont’d) • Based on “well-to-wheels” or “field-to-wheels” lifecycle emissions approach • Carbon intensity includes emissions from production, transportation, use • Land use changes incorporated • Fuels below the requirement generate credits which can be banked or sold

9. Federal Challenges to LCFS • Corn ethanol and refiner trade groups allege LCFS preempted by RFS2 and violates dormant Commerce Clause • Dormant Commerce Clause claims: • discriminates against Midwest corn ethanol and out of state crude oil • extraterritorial regulation; controls out-of-state fuel production in “practical effect” • Burdens on commerce outweigh benefits

10. Dormant Commerce Clause • Bars economic protectionism • Three prongs: • Discrimination against out-of-state commerce = strict scrutiny • Extraterritorial regulation: direct control of out-of-state conduct = per se violation • Burdens on interstate commerce that outweigh in-state benefits = Pike balancing

11. LCFS Legal Basis • Non-discriminatory purpose = reduce GHG emissions • State police power + CAA §211(c)(4)(B): CA can regulate fuels for the purpose of motor vehicle emission control • Congress authorized CA to regulate fuels despite burdens on commerce

12. District Court Decision843 F.Supp.2d 1071 • District Court found the LCFS: • Facially discriminates against corn ethanol on the basis of origin • Impermissibly regulates extraterritorially by lifecycle analysis • Discriminates in purpose and effect as to crude oil • Despite legitimate purpose of emission control, LCFS not exempt from Commerce Clause and does not pass strict scrutiny

13. Argument on Appeal • LCFS regulates only fuel sold in CA • No discrimination: regulates on basis of carbon intensity, not origin • Not economic protectionism; incentive-based • LCFS does not regulate conduct “wholly outside” state • Lifecycle analysis is scientifically justified and is geographically and fuel neutral • No “less discriminatory” alternatives

14. 9th Circuit Decision Upholding LCFS • Lifecycle approach not facially discriminatory against out-of-state fuel • LCFS does not regulate conduct occurring wholly outside CA • LCFS is not discriminatory in purpose or practical effect with respect to crude • Remanded for Pike balancing

15. Cap and Trade Rulemaking • Adopted in December 2011 • Cap covers 85% of CA GHGs, in concert with direct regulations • ARB chose cap with guaranteed reductions over uncertainty of carbon tax/fee • Allowance auctions held in November 2012; February, May, August 2013

16. Offsets • Offset credits limited to 8% of compliance obligation • 4 offset protocols adopted to date: livestock, forest practices, urban forests, ozone-depleting substances • Reductions must be “real, permanent, quantifiable, verifiable, enforceable” • H&SC § 38562(d)((2) “reduction is in addition to” any other GHG reduction • CCR, Title 17, § 95802(a)(4): additional to reductions in “conservative business-as-usual scenario”

17. Challenge to Offsets:Citizens Climate Initiative v. ARB • Alleged reductions from offsets not additional • Court denied petition, holding that ARB’s four offset protocols are consistent with the requirement for additionality in AB 32 • Appellant’s opening brief filed August 30; opposition due September 30

18. Chamber and Morning Star Cases • Challenges to ARB authority under AB 32 to implement allowance auction and that auction is an unconstitutional tax under State Constitution (Prop 13) • Procedural Status: • Court tentative ruling rejected authority argument; matter under submission following August 28 hearing

19. SB 1018: Linkage • Prior to linking, Govt. C § 12894(f) requires Governor to find: • Linked jurisdiction program requirements are equivalent or stricter than CA’s • Linkage allows CA to enforce its regulatory requirements • Linkage shall not impose any significant liability on CA • Linkage to Quebec January 2014

20. What Lies Ahead • 2013 amendments to LCFS • 2013 five year update to Scoping Plan • 2015 C&T expands to include transportation sector • Advanced Clean Cars in 2017

21. Mark W. Poole Deputy Attorney General California Dept. of Justice 455 Golden Gate Avenue San Francisco, CA 94102 mark.poole@doj.ca.gov (415) 703-5582