News & Events / California's Sweeping New Climate Change Law
California's Sweeping New Climate Change Law
Beveridge & Diamond, P.C., October 24, 2006
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On September 27, 2006, California Governor Arnold Schwarzenegger signed into law the Global Warming Solutions Act of 2006, better known in California by its Assembly bill number, AB 32. At Schwarzenegger’s side was a bipartisan coalition of California leaders (AB 32 was sponsored by Assembly Speaker Fabian Nuñez, D-Los Angeles, and Assemblywoman Fran Pavley, D-Agoura Hills), as well as Governor George Pataki of New York and U.K. Prime Minister Tony Blair via live video link. The signing ceremony was particularly symbolic, as the states, led by California, are taking the lead on addressing the international problem of global warming in a manner similar to that taken by the U.K. and much of the rest of the developed world with the Kyoto Protocol. AB 32 is likely to become the model for similar legislation in states across the country, and will put pressure on the federal government to adopt a uniform program that would bring the country into closer alignment with developed countries that are parties to the Kyoto Protocol. Thus, the importance of AB 32 cannot be underestimated - not only to companies doing business in California that will be directly affected, but also to those that operate throughout the country.
The Key Elements of California’s Global Warming Solutions Act
AB 32’s major features are well known. The law:
Just as important is what AB 32 does not do:
CARB’s Broad Authority and Aggressive Timetable
AB 32 grants broad authority to CARB to implement the law, and it establishes an aggressive series of deadlines by which its objectives must be met. Thus, to a great extent, AB 32 did not establish a new climate change regulatory regime so much as it fired the starting gun announcing CARB’s race to develop such a regime. The new regulatory regime now being created will be sweeping in its scope, sweeping in its grant of authority to CARB, and sweeping in its likely influence beyond California.
Thus, the action has now shifted to CARB. Those with a significant stake in the regulation of carbon dioxide emissions should get involved now so as to have a say in what sort of regulatory regime is created. There is little time to waste, for the deadlines by which CARB must implement the various aspects of AB 32 are aggressive:
AB 32 does provide one “out” from this aggressive schedule: the Governor may extend the deadlines up to one year “in the event of extraordinary circumstances.” (See id. at §38599.)
CARB’s Rulemaking Process and What Will be at Issue
In the next eight to fourteen months, CARB will be developing the key documents that will shape the climate change regulatory regime. This process will begin in November 2006 with the first workshops. In California, workshops are not merely discussion groups, but are the core mechanism of the rulemaking process. Regulations developed in workshops rarely change when later promulgated for notice and comment. Participating in these early workshops is critical if one wishes to have a role in shaping the development of the regulations, for it is there that one has a voice.
The key issues to be determined in the rulemaking process include the following:
Clearly, there is much to be done.
Preparing for California’s New Climate Change Regulatory Regime
There are two major things that companies can do to prepare for California’s new climate change regulatory regime.
First, companies should consider documenting their voluntary reductions in GHG emissions, as CARB is required to give “credit for early voluntary reductions.” (See id. at § 38562(b)(3).) One way to do that is to register with the California Climate Action Registry by the end of this year. Companies that enroll by December 31, 2006 and develop a GHG emission reporting program with the Registry “shall not be required to significantly alter their reporting or verification program” when later complying with the monitoring requirements that CARB establishes. (See id. at § 38530(b)(3).) While AB 32’s language gives CARB discretion to overrule this waiver, it is likely that those with voluntary GHG emissions reporting programs approved by the Registry will have those programs grandfathered, which could be a significant advantage. One potential advantage is that it may enable a company to establish its baseline GHG emissions in advance of the regulatory regime.
Second, companies should consider getting involved in the rulemaking process by which CARB develops the new climate change regulatory regime. That process is now underway.
Engagement in these programs and rulemaking processes as they are developing offers the best chance to preserve and enhance a company’s competitive posture. Doing so also offers the best chance to increase the options available for ensuring compliance with a minimum of cost and disruption. For example, under a cap-and-trade program, a company’s initial baseline allocation is often the critical factor in determining success. And early engagement in the rulemaking process can be even more important, given the large number of key issues that are to be resolved in that process.
For further information, please contact: Nicholas W. van Aelstyn, David M. Friedland, Madeleine B. Kadas, K. Russell LaMotte, Thomas Richichi,
 Greenhouse gases include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Cal Health & Safety Code § 38505(g).
 AB 32 is thus far broader than any other climate change initiative in the country; it could apply to a vast swath of GHG emission sources and source categories in the state. By contrast, the best-known effort to date, the Northeast states’ Regional Greenhouse Gas Initiative (“RGGI”) carbon emission cap-and-trade system, applies only to emissions from fossil-fuel power plants.
 This is not to say that the legislative and judicial arenas are moot. There is talk of possible “clean-up” legislation, and certain aspects of AB 32 may be subject to challenge in court, much as AB 1493’s auto emission limits are now being litigated. See footnote 5, infra. In addition, the U.S. Supreme Court’s upcoming decision in Massachusetts v. EPA, No. 03-1361, may have an impact.
 In separate legislation known as AB 1803 adopted a few months before AB 32, the CEC’s responsibility to develop a statewide inventory of GHG emissions was transferred to CARB. (AB 1803 at §§ 43 & 53.) The CEC is presently updating its inventory and will conduct a workshop in November 2006. This will be the CEC’s last inventory before passing the baton to CARB on January 1, 2007.
 AB 1493 placed caps on GHG emissions from cars and has been followed by ten other states; it is being challenged in court. See Central Valley Chrysler-Jeep, et al. v. Catherine E. Witherspoon, et al., CV F 04-6663 AWI LJO (E.D. Cal.). Two days before AB 32 was signed into law, the court issued an order denying the State’s motion for judgment on the pleadings. The court’s opinion suggests that AB 1493 may be invalidated on preemption grounds.
 AB 1803 also provides that the Climate Action Registry, which is not now a branch of the State government, is to “be transitioned” to the Government if AB 32 is passed. (See AB 1803 §44.)