Legal ruling could force California to rethink CO2 plan
Credit: Thomson Reuters News & Insight, newsandinsight.thomsonreuters.com 19 January 2012 ~~
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A legal ruling by a U.S. federal judge has left a big hole in California’s plan to cut emissions and could force the cash-strapped and politically-gridlocked state to consider new strategies if it is to meet its domestic goal to cut greenhouse gas emissions.
On December 29, a federal court ruled that California’s plan to cut the carbon content of transport fuels by 15 million tonnes of carbon dioxide violates the U.S. Constitution as it discriminates against out-of-state fuel sources.
The state is appealing the ruling, but if unsuccessful the decision would put a dent in California’s plan to return its emissions of heat-trapping gases to 1990 levels by the end of the decade through saving 169 million tonnes of carbon dioxide equivalent.
Officials say a wide variety of alternative policies could be considered to plug the gap, including adjusting plans to increase renewable energy, levying a carbon tax or adjusting its emissions trading scheme.
“Everything would be on the table,” said state senator Fran Pavley, the author of the state’s landmark 2006 emissions reduction law, AB 32, and a key player in California’s environmental policy.
In his December ruling, U.S. District Judge Lawrence O’Neill suggested the state consider a carbon tax instead of the low carbon fuel standard (LCFS) that he deemed unconstitutional, but Pavley has little enthusiasm for that idea.
A tax has not been discussed, she said, noting that Californian law makes it politically difficult to levy fees or taxes.
A two-thirds majority vote in the state legislature or a majority vote by California voters is needed to raise taxes or fees in the state – a political hurdle experts believe may be insurmountable.
Carbon taxes also would not guarantee a specific amount of GHG reductions; as they would merely raise the price of burning fossil fuels.
Consequently, the state would not know for certain that it would achieve the additional 15 million tonnes needed to meet its 2020 goal.
Another way of making up the shortfall is to require more GHG reductions to come from its cap-and-trade program, which is currently only responsible for achieving about 20 percent of the reductions in the 2020 goal.
The compliance market is scheduled to start in 2013 and will eventually grow to cover 85 percent of the state’s emissions.
Oil refineries and manufacturers will begin bidding for carbon permits offered by the state at an auction on August 15, but compliance doesn’t begin until next year and the first allowances won’t have to be surrendered to the state until 2014.
A larger and more liquid market would certainly appeal to carbon traders and brokers who profit from market activity, but making policy changes to the program’s complicated rules could be a heavy lift as the plan has already been subject to legal challenges.
California currently has a goal to source one-third of its electricity from renewable sources by 2020 and upping that to 40 percent is another option on the table.
But the target was just raised from 20 percent last year after a drawn-out political battle, and there may not be much of an appetite to increase it again anytime soon.
The current target is the most aggressive in the nation, and some analysts and utility company officials believe it’s already unfeasible.
“We’re still striving for the 20 (percent),” Pavley said.
Like a carbon tax, a higher clean electricity requirement couldn’t guarantee the state would fill the 15 million tonne gap, but it would push the state in that direction.
State Governor Jerry Brown in a speech on Wednesday said California was on track to “meet that goal and substantially exceed” the 33 percent target.
The goal requires 20,000 MW of renewable energy in the state by 2020.
In the last two years alone, California has permitted over 16,000 megawatts of solar, wind and geothermal energy projects, Brown said.
Nancy Ryan, head of the California Public Utilities Commission (PUC), said she isn’t surprised the state has had to work with setbacks in its efforts to addresses climate change.
“We’ve always understood that around every corner would be another road block, but we’re committed to navigating that path,” she said.
Failing to achieve the 2020 target because of legal and political setbacks could serve as a warning to other states that only a national program can address climate change in the U.S.
But state officials remain optimistic they will reach the target.
“California has a track record of moving forward, even if we have to move sideways first,” Ryan said.
The case is Rocky Mountain Farmers Union et al v. Goldstene et al, U.S. District Court, Eastern District of California, No. 09-02234.
Counsel for plaintiffs include: Rogert Martella and Paul Zidlicky of Sidley Austin.
For Goldstene, et al: Kamala Harris, Attorney General of California. (Reporting by Rory Carroll)
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