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California’s framework for growth rests in rules set by AB 32

Long before the dramatic shift in Washington that came with last year's presidential election, the State of California made itself a global leader in climate change with the passage of Assembly Bill 32, the Global Warming Solutions Act of 2006. The law required a reduction in greenhouse gas emissions ("GHGs") to 1990 levels by 2020 through regulations to be implemented by the California Air Resource Board ("CARB").  While some oppose AB 32 based on the costs they think it will impose, climate change regulation is now inevitable at the federal level, and not responding to climate change will cost far more than doing so. 

Late last year, CARB released an ambitious Scoping Plan to cut approximately 30 percent from business-as-usual emissions levels projected for 2020, or about 10 percent from today's levels.  The new Administration in Washington is poised to do the same, if not more.

The Scoping Plan deploys a variety of market mechanisms to reduce emissions, ranging from a government cap and trade policy, direct regulation fees, voluntary measures and more to achieve the steep emissions cuts starting in the year 2012.  The cap and trade program is a central component of the plan.  It is designed to cap emissions from electrical generation, transportation, as well as commercial, industrial, and residential sources to a predetermined level of emissions. Sources within the cap and trade program will need to meet regulatory requirements, but will then have the flexibility to reduce emissions further or purchase allowances to cover their compliance obligations.  CARB is working with the Western Climate Initiative ("WCI"), a coalition of western states, Canadian provinces, and Mexican states to prevent "leakage" - the shifting of emissions from California to sources outside the State.

Without a doubt, AB 32 poses a huge challenge for California businesses, public utilities, and local government entities.  It is already having a direct impact on land use decisions as climate change now must be considered in Environmental Impact Reports ("EIRs") required under the California Environmental Quality Act ("CEQA").  Cities, counties, and redevelopment agencies are likely to focus on transit-oriented development and urban in-fill projects.  Indeed, newly enacted SB 375, the Sustainable Communities law, provides incentives to local governments to reduce Vehicle Miles Travelled ("VMTs"), a significant culprit in GHGs, by encouraging transit-oriented development, increased density, and mixed use in land use planning. 

Many in industry and the public utility sector have also contended that the Scoping Plan has excessive command and control measures and that the cap and trade system will impose regulations that are likely to raise compliance and operating costs on many manufacturing inputs.  The electric energy sector will bear a significant burden and utilities have contended that the consumer will bear the ultimate cost.  These stakeholders may challenge AB 32 or regulations to enforce it, but laws in this area appear to be inevitable and unavoidable.  Climate change laws will require adjustments to be made and companies with planning and forethought will come out ahead of those still in denial. 

In addition to putting California at the forefront of addressing climate change, CARB's Scoping Plan will also provide a wide range of public health and environmental benefits anticipated from reducing greenhouse gases upwards of $2 billion in 2020, including fewer premature deaths, fewer asthma-related symptoms, fewer work days lost, and far fewer restricted activity days.  And corporate investments in responding to climate change will translate directly into job growth: A recent UC Berkeley study found that investments in green technologies produce jobs and a higher rate of return than investments in comparable conventional technologies.

AB 32 is here to stay.  Businesses that take leadership roles to address climate change will reap benefits later. Companies now have stronger incentives for investment in technologies and environmental efficiency, and as California improves its environmental record, this trend will continue. While there will certainly be significant costs in implementing and enforcing climate change in California, doing nothing is not an option.

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