By Olivier F. Theard and Bram Hanono

In a significant step towards achieving required reductions in greenhouse gas (GHG) emissions, the California Air Resources Board (CARB) approved the AB 32 Climate Change Scoping Plan on December 11, 2008 (Res. 08-47).  CARB Chairperson Mary Nichols described the Scoping Plan as "California’s prospectus for a more secure and sustainable economy."

Under AB 32, California must reduce greenhouse gas emissions to 1990 levels by 2020.  The Scoping Plan is CARB’s regulatory roadmap for implementing AB 32 and is a major milestone under AB 32’s regulatory process.  The Scoping Plan outlines the regulations that will eventually follow, and it is CARB’s plan to achieve "the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions by 2020."  The Scoping Plan will have broad implications that will eventually affect almost all areas of the California economy.

In 2006, Governor Schwarzenegger signed Assembly Bill 32 (AB 32), the California Global Warming Solutions Act of 2006 (Nunez, Chapter 488, Statues of 2006), which established the first comprehensive mandatory GHG cap in the country, and will likely become the model for other states (or even the federal government) to follow.  AB 32 requires that statewide emissions be reduced to 1990 levels by 2020.  This requires reducing approximately 30% from business-as-usual emissions levels projected for 2020, or about 15% from today’s levels.  The goals of AB 32 are to improve California’s environment, reduce California’s dependence on oil, diversify its energy sources, save energy, create new jobs, and enhance the public health.  AB 32 designates CARB as the State agency charged with monitoring and regulating sources of GHG emissions, and requires that CARB prepare a Scoping Plan outlining the State’s strategy to achieve the 2020 GHG limit.

The culmination of CARB’s approval of the Scoping Plan is the product of an 18-month-long public process which included workshops, public meetings, and an extraordinary amount of public participation, which included approximately 43,000 individual comments altogether.  In June of this year CARB released the initial Draft Scoping Plan and following additional studies and public input CARB released the Proposed Scoping Plan in October, 2008.  The Scoping Plan approved today is substantially similar to the Proposed Scoping plan that was released in October.

Key Elements

CARB has divided California’s economic sectors into "capped sectors" and "uncapped sectors" and describes some 18 recommended emission reduction measures in the Scoping Plan.  The capped sectors –  electricity, transportation fuels, natural gas, and industrial sources of GHG – are projected to account for 85% of the State’s total GHG emissions.  The key elements of the Scoping Plan include:

Energy Efficiency:  The expansion and strengthening of existing energy efficiency programs as well as green building and appliance standards to reduce electricity demand by 32,000 GWh and natural gas consumption by 800 million therms.  Proposed measures to achieve such goals include: a "Zero Net Energy" buildings program; more stringent codes and standards; strategies for existing buildings, including whole-building retrofits; expansion of utilities programs; and providing real-time energy information to help consumers better manage their energy use.

Renewable Portfolio Standard:  The achievement of a statewide renewable energy mix of 33% (up from 20% currently required), by ensuring that the benefits of wind, solar, biomass, and geothermal energy continue to be recognized and encouraged by the electricity markets.

Cap-and-Trade:  The development and implementation of a broad-based California cap-and-trade program to provide firm limits on emissions.  The program will link with other Western Climate Initiative (WCI) partner programs to create a regional market system, however auction percentages in California are likely to be much greater than those in other WCI partner programs.  CARB "expects that California will auction significantly more than WCI minimum levels and will transition to 100 percent auctions," however, CARB does not specify when California will reach 100 percent.

Regional Transportation-Related Reductions:  The establishment of targets for transportation-related GHG emissions for regions throughout California, and the pursuit of policies and incentives to achieve those targets.  CARB has proposed a reduction target of 5 million metric tons, however this is not the Senate Bill 375 (SB 375) target, and only represents CARB’s estimate of what may be achieved from local land use changes.  SB 375 establishes mechanisms for the development of regional targets for reducing passenger vehicle GHG emissions.  (see our previous blog entry on SB 375) As required under SB 375, CARB will establish regional targets for each region following the input of the Regional Targets Advisory Committee and a public consultation process per SB 375.

Vehicle Efficiency and Low Carbon Fuel Standard:  In addition to the implementation of existing State laws and polices, including California’s Clean Car Law (the Pavley regulations), the Scoping Plan proposes Implementation of a Low Carbon Fuel Standard (LCFS) as established by Executive Order S-01-07, which is set to reduce the carbon intensity of California’s transportation fuels by at least 10% by 2020.

Additional Measures.  In addition to the key measures described above, CARB proposes several other programs and policies to help California achieve the 2020 GHG limit.  Additional recommendations include:

  • Goods Movement – improve efficiency of goods movement and adopt regulations to decrease emissions from ships at port;
  • Million Solar Roofs Program – install at least 3,000 megawatts of solar-electric capacity under California’s existing solar programs;
  • Recycling and Waste – encourage methane capture at landfills, mandate commercial recycling, and move towards zero-waste; and
  • Creation of Targeted Fees – public goods charge on water use, fees on high global warming potential gases, and a fee to fund the administrative costs for the State’s long term commitment to AB 32 implementation.

The above measures provide guidance and direction for California’s GHG emissions reduction program and will be developed into regulations over the next two years.  However, the process is dynamic and regulatory proposals will be updated and adjusted as necessary to ensure that they reflect new information, additional analyses, and new technologies.

Viewpoints – The Economic Impact of the Scoping Plan

CARB’s Scoping Plan has received praise by environmentalists and many politicians.  Mary Nichols stated that "[The Scoping Plan] will guide capital investments into energy efficiency to save us money, into renewable energy to break our dependence on oil, and promote a new generation of green jobs for hundreds of thousands of Californians."  Many proponents who share her view point out that the Scoping Plan delineates how investments in building a new and clean technology sector will "translate directly into job growth."  According to the Scoping Plan’s Economic Analysis, the Scoping Plan’s benefits in 2020 compared to business-as-usual would include: an increase of economic production of $33 billion; an increase of overall state product of $7 billion; an increase of overall personal income of $16 billion; an increase of per capita income of $200; and the creation of 100,000 jobs.

While CARB touts the economic benefits of AB 32, there remains opposition to the Scoping Plan from sectors concerned about adverse economic impacts, especially in light of the current recession.  The development community is concerned, for example, that the recommendation to use indirect source rules (ISR’s) as a way to reduce GHG emissions by passenger vehicles, associated with new development, will significantly increase the cost of development in greenfield areas, which will further reduce affordable housing in California since most affordable housing is developed in greenfields.  The development community was relieved, however, that a last minute attempt by environmental groups to increase the targeted reduction of 5 million metric tons from Regional Transportation Targets did not succeed.  Similarly, other opponents argue that the Scoping Plan will likely cause Californian’s to pay more for electricity, natural gas, housing, transportation fuel, and consumer products.  Such opponents point to the Legislative Analysis Office’s (LAO) critique of the Proposed Scoping Plan’s Economic Analysis.  For instance, LAO asserted, that:

1) the scoping plan’s overall emissions reductions and purported net economic benefit are highly reliant on one measure – the so-called Pavley regulations, which are intended to reduce greenhouse gas emissions from vehicles, but which have been stalled by legal challenges by the Automotive Industry and the U.S. Environmental Protection Agency’s refusal to grant an implementation waiver (though a waiver is expected soon from the Obama Administration);

2) the plan’s evaluation of the costs and savings of some recommended measures is inconsistent and incomplete;

3) macroeconomic modeling results show a slight net economic benefit to the plan, but CARB failed to demonstrate the analytical rigor of its findings;

4) economic analysis played a limited role in the development of the plan; and

5) despite its prediction of eventual net economic benefit, the plan fails to lay out an investment pathway to reach its goals for GHG emissions levels in 2020.

What’s Next

The Scoping Plan has been adopted; however, now begins the task of drafting and eventually adopting the regulations proposed within the Scoping Plan.  Throughout 2009, CARB staff will draft rule language and host a series of public workshops on each reduction measure.  The recommended measures must be in place by 2011, to become effective in 2012.  Proponents and opponents will continue to lobby their positions and seek to wield influence on the actual regulations passed.  Whether the Scoping Plan acts as an economic stimulus awaits to be seen, and although the path to reducing GHG emissions has been paved by the Scoping Plan, the pursuit to cut GHG emissions is far from over.

Authored by:

Olivier F. Theard

(213) 614-5427


Bram Hanono

(858) 720-7461

Mr. Theard practices in the Business Trial Practice Group and Environmental Litigation Practice Group in the Los Angeles office of Sheppard, Mullin, Richter and Hampton LLP. Mr. Hanono is an associate in the Real Estate, Land Use, and Environmental Practice Group in Sheppard Mullin’s Del Mar and San Diego offices.