Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

California’s Global Warming Solutions Act of 2006, also known as AB 32, mandates that California reduce GHG emissions to 1990 levels by 2020. In December 2008, CARB issued a Scoping Plan that outlines California’s strategies for meeting this mandate. Establishing a California cap-and-trade program is a prominent component of the Scoping Plan. Cap-and-trade refers to a system in which production of pollutants is capped, producers receive allowances that give them the right to pollute up to specified amounts, and a market is created for trading allowances among producers. For more background on AB 32, the Scoping Plan, and cap-and-trade programs, please review our earlier postings.

California’s cap-and-trade program will include a stringent declining emissions cap, meaning the amount of emissions allowed will be reduced for each subsequent compliance period. The proposed regulations outline three three-year compliance periods (2012 to 2014, 2015 to 2017, and 2018 and 2020). But CARB is considering shortening the compliance period to one year. 

Sectors subject to the cap-and-trade program include large stationary sources of GHG emissions, electricity deliverers, and fuel deliverers that emit at or above a 25,000 metric ton of carbon dioxide equivalent (MTCO₂e) threshold. In the Scoping Plan, CARB outlined a staggered approach for phasing regulated sectors into the program. Under the staggered approach, certain sectors would be covered by the program starting in the first compliance period (e.g. 2012 to 2014) with additional sectors becoming covered in subsequent periods. The proposed regulations retain the staggered approach, with 600 of California’s largest GHG-emitting stationary sources subject to the program starting January 1, 2012. But CARB has indicated that it is considering abandoning this approach and making all regulated sectors subject to the program starting January 1, 2012.

Once covered by the cap-and-trade program, an entity will hold emission allowances that it can (1) surrender to cover its emissions, (2) bank for future use, (3) trade to another entity, or (4) retire. The preliminary draft outlines the process for each of the options. But the biggest issue left open is how emission allowances will be allocated in the first instance. Options include free allocation, auction, or a mix of the two. CARB has formed a 17-member Economic and Allocation Advisory Committee (EAAC) to advise CARB on allocation and implementation issues. EAAC is expected to issue a report regarding allocation strategies in January 2010 and the recommendations in this report will be addressed in the revised draft regulations to be issued in Spring 2010.

Additional issues addressed by the preliminary draft include offsets and linkage to other trading programs. Offsets are tradable credits that represent GHG emission reductions in areas or sectors outside the scope of the cap-and-trade program. The preliminary draft proposes that covered entities be allowed to use offsets to cover up to four percent of their emissions. Thus, instead of surrendering emission credits to cover those emissions, the entity would use offsets. Emission reductions achieved by offsets must be real, permanent, verifiable, enforceable, and quantifiable. Further, the reduction must be additional to what is required by law or regulation or would otherwise have occurred.

The preliminary draft also outlines how California’s program could be linked with regional or national cap-and-trade programs. Outside of California and the Northeast, however, little is happening with regards to cap-and-trade programs. National cap-and-trade regulations are currently stalled in Congress. Thus, rather than linkage, the issue is really one of preemption. There is concern that a later-enacted national program could conflict with California’s program or that express preemption of California’s program could hamper California’s ability to meet its AB 32 mandate. Aside from a standard severability provision, preemption is not discussed in the preliminary draft but it will remain an issue in the national debate.

The full text of the preliminary draft regulations can be found here. For additional information, including specific applicability questions, please contact the Reed Smith lawyer with whom you regularly work.

The green chemistry law is best described as an umbrella, authorizing and directing California’s Department of Toxic Substances Control (DTSC) to adopt a system of detailed regulations highlighted by the following:

• Creating a process to identify potentially harmful chemicals in consumer products and prioritize them. Factors will include chemical volume, potential for exposure, and potential effects on sensitive receptors, e.g., children and the elderly
• Enumerating steps to evaluate chemicals of concern and their alternatives, to determine the best way to reduce exposure to them or the degree of threat they pose to public health and the environment
• Mandatory multimedia lifecycle evaluations for those consumer products containing chemicals identified as harmful and targeted for regulation – evaluations must analyze the impact of the production, use or disposal of those consumer products
• Specifying a range of possible regulatory responses to each chemical evaluated, including no action, labeling requirements, product access control, restrictions/prohibitions on chemical use in products, mandated funding for research, imposing end-of-life disposal or recycling requirements
• Evaluating numerous aspects of possible chemical alternatives, including product function and performance; useful life, materials and resource consumption; and economic impacts
• Mandatory California Environmental Policy Council review of DTSC’s proposed regulations as a checks-and-balances system
• Establishing a Toxics Information Clearinghouse to collect and disseminate information about chemical hazards, and both environmental and toxicological data for use in risk assessments
• Creating a Green Ribbon Science Panel to advise DTSC on the costs of proposed regulations and to ensure that such regulations are based on sound science

The most prominent feature of California’s green chemistry law is its foundation on science and real-life assessment of chemical usage and exposure risk. The drafters intended to create a regulatory system that balances various interests in tension with one another, such as: (1) A structured yet transparent process, where the factors to be considered are specified, the decision-makers identified, and a checks-and-balances system is utilized; (2) Consideration of the costs and technological feasibility of alternatives, recognizing practical economic realities and societal demands for certain products; and (3) Fostering innovation by regulating the design phase of products and processes, rather than managing and controlling wastes and byproducts.

However, given that the green chemistry law only creates a broad legal framework, the specific regulations to be drafted by DTSC will give life to the system and will directly impact industry. Thus, industry stakeholders must carefully focus their attention on the drafting phase, express their views and voice their concerns. The following areas are worthy of particular focus:

• The lifecycle evaluation process to be performed and/or coordinated by DTSC will involve the identification and evaluation of whether a chemical, as used in consumer products, has a “significant adverse impact on public health or the environment.” How stringently or loosely this phrase is interpreted will determine whether or not particular chemicals are subject to regulation under the green chemistry law, and therefore is critically important.
• The definition of a “consumer product” under the green chemistry law is extremely broad: “a product or part of the product that is used, bought, or leased for use by a person for any purposes.” How the DTSC regulations interpret this term and apply its definition will govern whether specific products or product categories are regulated or exempt under the green chemistry law.
• The degree to which comments by the California Environmental Policy Council, whose role is to advise on DTSC’s proposed regulations, are considered and acted upon by DTSC as the lead agency to implement the green chemistry law, remains to be seen.
• The level of involvement of the Green Ribbon Science Panel in providing advice to DTSC in the regulatory process remains unknown, but is vulnerable in two ways: First, the Panel’s responsibilities are permissive (“the panel may take any of the following actions”) rather than prescriptive. Second, DTSC decides whether the Panel meets more than twice annually and is responsible for providing the Panel with staff and administrative support.

Like all new regulations, those promulgated under the new green chemistry law will impose operational changes and up-front compliance costs on the regulated community. However, change also presents new opportunities. Compliance with California’s green chemistry law will likely reduce the costs of proper hazardous waste management and disposal, and satisfaction of workplace safety and health requirements. New opportunities to market products and processes as eco-friendly will also arise. In the near-term, once the regulations have been drafted, industry will be able to assess the impacts on specific operations and work proactively to satisfy them in as cost-efficient a manner as possible.

Reed Smith attorneys are actively monitoring new developments concerning California’s green chemistry law, focusing on stakeholder participation in the drafting of the law’s implementing regulations. Please contact us for additional information or for assistance in providing comments at upcoming workshops and other public participation forums.