Cal. Low Carbon Fuel Standard Trips Over CEQA

By Professor Alan Ramo

[1.7.14 UPDATE, the Supreme Court has decided not to take this case and has rejected CARB’s petition for depublication]

We have been following the legal battle over the California Low Carbon Fuel Standard, initially in the Ninth Circuit Federal Court of Appeals, see our prior blog here.  The battle is also taking place in state court.

In the case of Poet, LLC v. State Air Resources Bd. (2013) 218 CA4th 681, the plaintiffs argued that that California Air Resources Board failed to follow procedures under the state California Environmental Quality Act (CEQA) and the Administrative Procedure Act (APA) in adopting regulations implementing the standards.  The appellate court agreed, but is allowing the regulations to be implemented while the ARB corrects the CEQA issues.

Plaintiffs challenged low carbon fuel standards (LCFS) regulations adopted by the California Air Resources Board (ARB), claiming that ARB violated the Administrative Procedure Act (APA) (Govt C §§11340-11529) and the California Environmental Quality Act (CEQA) (Pub Res C §§21000-21178) during the adoption process. The trial court denied plaintiffs’ petition for a writ of mandate and entered judgment in favor of ARB.

Repeating the problem it had with its AB 32 scoping plan, the ARB rushed to approval before completing its environmental review.  It also mixed up who made the decision on environmental review and delayed determining mitigation without adequate criteria for how to shape mitigation once the regulations were in effect.  Finally the ARB failed to include key consultant emails in its record.

I discussed this case in a question and answer format for the CEB Real Property Law Reporter September 2013 issue, Volume 36, Number 5.  Here is that excerpt:

“Q. What is the essential CEQA problem here?

A. In a nutshell, the ARB approved the LCFS regulations before it considered its final environmental impact assessment document, inappropriately deferred certain mitigation analysis without sufficient performance standards, and left some key documents out of the administrative record.

Q. Why did they make those mistakes?

A. As the court put it, “ARB was given a difficult task and under the pressure of a statutory deadline.” One of the first deadlines in AB 32 was for the adoption of “early action” items and the ARB had listed LCFS as one of them. As the deadline approached they tried to approve the regulations and deferred consideration of environmental impacts to its executive officer.

Q. What are the key CEQA takeaways here?

A. First, although the concept of approval after consideration of environmental analysis is fundamental to CEQA, there seems to be a dearth of authority on exactly how this applies to agencies that have a Certified Regulatory Program, which allows shortcuts in CEQA review. In this case, the court is unequivocal that approval comes after environmental analysis for agencies with these abbreviated CEQA procedures. Second, the court applies CEQA Guideline 15352’s definition of approval: “the decision by a public agency which commits the agency to a definite course of action in regard to a project . . . .” It then follows the California Supreme Court’s decision in Save Tara v City of West Hollywood (2008) 45 C4th 116, which requires a case-by-case analysis. While not ruling out a CEQA compliance condition that delays effective approval, the court finds that the facts in this case demonstrated that the ARB had effectively committed itself to the LCFS and considered it an approval only subject to some modification. Further, once the Board approved the project, it was inappropriate to delegate the review of the environmental assessment to its Executive Officer, as the decision-makers must be the ones to sign off on the environmental review.

Q. What went wrong with the mitigation deferral?

A. One problem with biofuels that are fostered by the LCFS to replace gasoline is that they may emit more of the air pollutant Nitrogen Oxide (“NOx”), an ingredient of smog. The ARB committed to further rulemaking to ensure that there is no increase in NOx from the LCFS. The court, after an extensive review of mitigation deferral cases, found that mitigation may not be deferred unless there are specific performance criteria that a future mitigation measure must meet and that it must be in place before the significant adverse effect to be mitigated occurs. With the NOx problem, the court said it needed specifics as to how NOx emissions would be tested and what measurements would be taken. In sum, the promise of no increase in NOx was just too general. And as the LCFS is now in place, the mitigation measure should have already been adopted.

Q. Finally, what was the problem with the record under the APA?

A. The ARB kept confidential emails from their consultants concerning the operation of the model used to determine how indirect land use impacts affected the carbon emissions from various biofuels. When an agency adopts regulations, the APA requires that a complete decision-making file be maintained and publicly available. The opinion has an interesting discussion of whether the court needed to defer to the ARB’s interpretation that the APA did not require matters opinions from its own consultants to be in the file, but the court rejects deference and sides with the public interest in transparency in administrative proceedings.

Q. What is your bottom line on the importance of this case and its lessons for practitioners?

A. Projects being reviewed under a Certified Regulatory Program do not escape CEQA’s fundamental principles. Environmental assessment must be evaluated before a project decision. Deferring environmental analysis and mitigation are hazardous, and for mitigation in particular, any deference must be specific and implemented before the project’s impacts are realized.

Q. For those watching California’s experiment in greenhouse gas regulation, how important is the subject matter of this case to California’s Global Warming Solution Act regulatory program?

A. California’s largest source of greenhouse gas emissions is transportation fuel. Two-third’s of the program’s anticipated reductions from transportation fuel comes from automobile engine requirements. About one-third are from the LCFS regulations that regulate the carbon content of transportation fuels and are the subject of this case. Together, these two sets of regulations (automobile engines and the LCFS) amount to more than one quarter of the entire program’s anticipated reductions in greenhouse gases.

Q. Will the decision actually stop or at least jeopardize the program?

A. Probably not. The court allowed the program to continue because of its public interest importance as long as the ARB diligently reconsiders its approval and complies with CEQA. The ARB faced a similar problem with its entire so-called “Scoping Plan” to address global warming when the San Francisco Superior Court reversed its approval. Eventually, the ARB reconsidered the Plan, corrected its CEQA errors, and implemented the program in a timely manner.

Q. Is there another challenge to the LCFS pending?

Yes. This program is also being challenged in the Ninth Circuit on commerce clause grounds, and that court may uphold a District Court decision that threatens the program. See Rocky Mountain Farmers Union v Goldstene (2011) 843 F Supp 2d 1042.

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