California cap-and-trade offsets challenge rejected

Breaking: California has successfully weathered (at least in the lower court) another challenge to its cap-and-trade program.  A state court has affirmed ARB’s significant discretion to design offsets protocols that rely on standardized additionality mechanisms, denying a petition that had sought to invalidate those protocols.  Argus has the first story on this that I’ve seen. Court opinion here.

At the heart of the case is the contention that ARB’s offsets protocols violate the requirement in AB 32 that all offset reductions be, among other things, “additional” to reductions that would have been made anyway.  Alan Ramo has a good analysis of the claims and underlying criticisms of ARB’s offsets protocols here.  The court summarizes the dispute this way:

The standards-based approach [to determining additionality] creates additionality thresholds for particular categories of projects instead of determining additionality individually for each project.  This Court must determine whether the Legislature forcelosed Respondent’s use of these mechanisms because they permit non-additional reductions to receive credit. Petitioners demand a perfect additionality determination that precisely delineates between additional and non-additional reductions. Respondent contents that additionality is inherently uncertain and it is impossible to design a perfect additionality mechanism.

When a court characterizes your argument as one demanding perfection, you tend to be in trouble. And sure enough, the court goes on to rely on the messiness of all additionality determination (see: CDM) to conclude that perfection could not have been the bar the Legislature intended to set here:

Determining additionality is difficult, and it is impossible to precisely delineate between additional and non-additional projects. All additionality determinations suffer from this limitation, not just standards-based approaches.  Petitioners ignore this reality and insist Respondent must use a perfect additionality mechanism or none at all. This argument is inconsistent with the science behind additionality . . . . Petitioners request the Court to do something it does not have the power to do. Rewrite the statute to forbid the use of offsets.

In other words, offsets can’t be known to be additional, ever, and therefore this regulatory approach is within ARB’s discretion.  Interesting outcome, and certainly one that will add to ARB’s momentum in getting cap-and-trade succesfully off the ground.  Not an outcome, however, likely to give comfort to those who fear that low-quality offsets may undermine the integrity of the cap.

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Reader Comments

4 Replies to “California cap-and-trade offsets challenge rejected”

  1. Our story is also out: http://www.pointcarbon.com/news/1.2157286
    Court sides with California in carbon offset case
    28 Jan 2013 10:37 AM
    WASHINGTON, Jan 28 (Reuters Point Carbon) – California’s carbon market won another key battle in the courts late Friday when the state superior court upheld the offset program designed by state regulators to give companies another option to comply with mandatory greenhouse gas emission caps.

    Judge Ernest Goldsmith of the Superior Court of San Francisco said the agency implementing the state’s carbon market, the Air Resources Board (ARB), used its “best judgment” to design program rules that the state legislature has directed it do issue.

    Green groups the Citizens’ Climate Lobby and Our Children’s Earth Foundation challenged the ARB last summer, arguing that the state legislature never intended to allow the market to allow for the use of offset credits, which they argued do not yield “additional” emissions reductions beyond what is already required by state law.

    They argued that the ARB’s tests to determine whether an offset is additional were inherently subjective and uncertain.

    Goldsmith, who has ruled in favor of the ARB in an earlier challenge to its carbon market rules, said the regulator “has used its experience, expertise, and judgment in arriving at the appropriate methodology to determine additionality within the cap-and-trade program.”

    The ruling will provide greater certainty to carbon market participants, who have been hesitant to buy carbon offsets or invest in new offset projects because of the legal challenge.

    “Today’s decision… provides a bright green light for further investment in pollution reduction projects,” said Tim O’Connor, a lawyer with the Environmental Defense Fund.

    The ARB should now have the confidence to allow projects that reward changes in rice cultivation or nutrient management to count for compliance with the program as well, O’Connor said.

    PERFORMANCE STANDARD

    Unlike the U.N.’s global offset program, the Clean Development Mechanism, California uses a “performance standard” to determine whether projects are “additional.”

    While the petitioners argued that the approach is flawed because “it recognizes offset activities that are ‘significantly better than average’ and thus includes activities that already exist,” according to law firm Jones Day.

    But Goldsmith found the ARB’s decision not to adopt the costly and bureaucratic CDM approach of approving offset projects “was justified programmatically and consistent with its legislative grant of discretion.”

    The Climate Action Reserve, a Los Angeles-based organization that developed the four offset standards approved so far by the ARB, applauded Goldsmith’s decision on Monday.

    “It is tremendously gratifying that we can proceed in addressing the serious threat of global climate change with a full-fledged state program. Let us now fully focus on moving forward,” said Gary Gero, president of the Climate Action Reserve.

    By Valerie Volcovici – [email protected]; Additional reporting by Rory Carroll

  2. Our story is also out: http://www.pointcarbon.com/news/1.2157286
    Court sides with California in carbon offset case
    28 Jan 2013 10:37 AM
    WASHINGTON, Jan 28 (Reuters Point Carbon) – California’s carbon market won another key battle in the courts late Friday when the state superior court upheld the offset program designed by state regulators to give companies another option to comply with mandatory greenhouse gas emission caps.

    Judge Ernest Goldsmith of the Superior Court of San Francisco said the agency implementing the state’s carbon market, the Air Resources Board (ARB), used its “best judgment” to design program rules that the state legislature has directed it do issue.

    Green groups the Citizens’ Climate Lobby and Our Children’s Earth Foundation challenged the ARB last summer, arguing that the state legislature never intended to allow the market to allow for the use of offset credits, which they argued do not yield “additional” emissions reductions beyond what is already required by state law.

    They argued that the ARB’s tests to determine whether an offset is additional were inherently subjective and uncertain.

    Goldsmith, who has ruled in favor of the ARB in an earlier challenge to its carbon market rules, said the regulator “has used its experience, expertise, and judgment in arriving at the appropriate methodology to determine additionality within the cap-and-trade program.”

    The ruling will provide greater certainty to carbon market participants, who have been hesitant to buy carbon offsets or invest in new offset projects because of the legal challenge.

    “Today’s decision… provides a bright green light for further investment in pollution reduction projects,” said Tim O’Connor, a lawyer with the Environmental Defense Fund.

    The ARB should now have the confidence to allow projects that reward changes in rice cultivation or nutrient management to count for compliance with the program as well, O’Connor said.

    PERFORMANCE STANDARD

    Unlike the U.N.’s global offset program, the Clean Development Mechanism, California uses a “performance standard” to determine whether projects are “additional.”

    While the petitioners argued that the approach is flawed because “it recognizes offset activities that are ‘significantly better than average’ and thus includes activities that already exist,” according to law firm Jones Day.

    But Goldsmith found the ARB’s decision not to adopt the costly and bureaucratic CDM approach of approving offset projects “was justified programmatically and consistent with its legislative grant of discretion.”

    The Climate Action Reserve, a Los Angeles-based organization that developed the four offset standards approved so far by the ARB, applauded Goldsmith’s decision on Monday.

    “It is tremendously gratifying that we can proceed in addressing the serious threat of global climate change with a full-fledged state program. Let us now fully focus on moving forward,” said Gary Gero, president of the Climate Action Reserve.

    By Valerie Volcovici – [email protected]; Additional reporting by Rory Carroll

  3. Or, in other words, offsets can never be known to be non-additional.
    But I’m not sure that’s really true.
    The decision is about uncertainty not certainty.
    So let’s say, currently not enough can be known about the additionality of offsets, so the regulatory regime need not be precise on that point.

  4. Or, in other words, offsets can never be known to be non-additional.
    But I’m not sure that’s really true.
    The decision is about uncertainty not certainty.
    So let’s say, currently not enough can be known about the additionality of offsets, so the regulatory regime need not be precise on that point.

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About Cara

Cara Horowitz

Cara Horowitz is the co-executive director of the Emmett Institute on Climate Change and the Environment at UCLA School of Law. The Emmett Institute was founded as the f…

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