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State's Cap and Trade Program Survives Court Challenge

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California's landmark carbon emission credit trading program won a round in state court late last week, as Judge Ernest Goldsmith tossed out a suit against the California Air Resources Board (CARB) that would have sent the cap and trade program back to the drawing board. The lawsuit, filed in March 2012 by two environmental groups, charged that the emissions trading program would have given credit to corporations for making cuts in emissions that were already required by law.

The plaintiffs, Citizens Climate Lobby and Our Children's Earth Foundation, also claimed that CARB's plan to allow corporations to use carbon emission offset credits to comply with the emissions reduction provisions of California's climate law AB 32 constituted a loophole firms could use to avoid making real reductions in greenhouse gas pollution.

Under AB 32, also known as the Global Warming Solutions Act of 2006, California's largest emitters of greenhouse gases must buy "allowances" to emit carbon dioxide and other substances with the power to affect the planet's climate. Auctions of such allowances will be held four times a year; most of the allowances are being given free to polluters at first, but those gratis credits will decrease as the years pass.

Under CARB's program, firms can use carbon offset credits as "compliance instruments" to make a portion of their greenhouse gas emissions legal. Such credits represent potential greenhouse gas emissions that were either prevented or reduced, from projects that aren't currently covered by CARB's authority under AB 32. (These could include reductions in landfill gas emission, industrial energy efficiency, and other such projects.) Though CARB has systems in place to evaluate the validity of such outside carbon offsets, it admits that any evaluation standard will be somewhat subjective. The plaintiffs' argument was that CARB's evaluation of those offsets was too subjective to prevent companies from "double-dipping," reducing their emissions as ordered to by a different law and then claiming those reductions for credit under AB 32.

The groups asked the court to issue a permanent injunction against CARB to prevent the agency from accepting offset credits in lieu of emissions reductions.

Judge Goldsmith refused to do so. "Petitioners request the court to do something it does not have the power to do. Rewrite the statute to forbid the use of offsets," Goldsmith said.

Not all environmental groups sided with the plaintiffs. "The court's decision is welcome news for one of California's most important clean energy and clean environment regulations, and provides a bright green light for further investment in pollution reduction projects," said Timothy O'Connor of the Environmental Defense Fund, which sided with CARB in the suit.

Environmental groups can still challenge individual offset programs they feel are inappropriate for credit toward emission reduction requirements.

Last week's dismissal doesn't clear the legal decks for CARB's emissions credit auction program: a last-minute suit filed against the auction by the California Chamber of Commerce is still pending in a court in Sacramento. The Chamber claims that the auction constitues a tax that CARB has no authority to levy. Most observers suspect that case will fail as well, and the auction has been proceeding on schedule. The first round of emissions credits were auctioned in November, and a second round is slated for February 19.

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