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April 2012Vol. 15, No. 2

MESSAGE FROM THE CHAIRS

Mary Ellen Ternes andRobert B. McKinstry Jr.

Happy early spring 2012 to everyone, adaptationissues aside. The committee wound up 2011 finishingits The Year in Review 2011 report and finalizing pageproofs in early March 2012. You should have yourissue in your mailbox at about the time you receive thisnewsletter; however, future YIR publications will go theway of newsletters and be distributed electronically.Thanks to everyone for your contributions, andparticularly Vice Chairs Marianne Tyrrell and DianneCallan, who did a great job of managing the process. On March 1, 2012, the committee cosponsored theEnvironmental Law Institute’s webinar, “Debrief of theD.C. Circuit’s Oral Arguments on EPA’s GHGRulemakings.” See http://www.eli.org/Seminars/event.cfm?eventid=682, available for download inpodcast. This is a great summary of the arguments, andreally gives you an “in the room” perspective. Thanksto our former SEER chair, now ELI President JohnCruden, ELI’s Chandra Middleton, and all thepanelists, for such a great webinar! We hope you enjoyed the committee panels at theABA SEER Annual Conference on Environmental Lawin Salt Lake City, March 22–24, 2012. Specifically,the session Robert McKinstry moderated, “LettingMother Nature Do the Work: The Role of EcosystemServices in Satisfying Environmental Legal

Requirements,” with Randy Hayman, general counsel,District of Columbia Water and Sewer Authority,Margaret Peloso, Vinson & Elkins, and SarahStevenson, assistant city solicitor, Philadelphia, Pa.Also, the Saturday Plenary, “Federal Air Regulation ofthe Energy Sector: What to Expect for Oil, NaturalGas, and Coal,” moderated by Richard Alonso,Bracewell & Guiliana, with Joel Beauvais, EPA Officeof General Counsel, Janet Henry, American ElectricPower, and Amy Trojecki, Exelon Corp. June 20–22, 2012, will be Rio+20, to be held in Riode Janeiro. The ABA has asked SEER to help puttogether an ABA delegation to Rio+20. SEER has along history of working on sustainability initiatives; inaddition to the fine work of this committee, the Sectionhas also introduced sustainability-oriented resolutionsbefore the House of Delegates, has adopted the LawOffice Sustainability Initiative (with the hard work offormer committee co-chair, now Vice Chair, BillBlackburn), its work with the World Justice Project,the Million Trees project, and more. Current SEERChair Irma Russell has appointed Lee DeHihns, formerSEER chair, to chair the SEER delegation to Rio. Coming up October 10–13, 2012, will be the ABASEER’s 20th Section Fall Meeting in Austin, Texas.This will be a great meeting at the Hilton Austin, with anational energy policy theme. Committee panelsinclude “Greenhouse Gas Update: EPA RuleChallenges, Cap and Trade, LCFS, Common Law

continued on page 3

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Climate Change, SustainableDevelopment, and EcosystemsCommittee NewsletterVol. 15, No. 2, April 2012Gabriel Calvo and Alan S. Miller,Co-Editors

In this issue:

Message from the ChairsMary Ellen Ternes andRobert B. McKinstry Jr. .......................... 1

Regulatory Developments by the U.S.Environmental Protection AgencyLeslie A. Griffith ....................................... 4

Judicial DevelopmentsJ. Cullen Howe ........................................ 5

California’s Climate Change Program ComesTogether in 2012—or Does It?Kevin Haroff ............................................ 9

California Air Agency Adopts ControversialNew Cap-and-Trade RulesRobert F. Lawrence and Dustin T. Till ... 13

Canada Exercises Legal Right to Withdrawfrom Kyoto ProtocolJosephine Yam ..................................... 16

Copyright © 2012. American Bar Association.All rights reserved. No part of this publicationmay be reproduced, stored in a retrievalsystem, or transmitted in any form or by anymeans, electronic, mechanical,photocopying, recording, or otherwise,without the prior written permission of thepublisher. Send requests to Manager,Copyrights and Licensing, at the ABA, e-mail:copyright@americanbar.org.

Any opinions expressed are those of thecontributors and shall not be construed torepresent the policies of the American BarAssociation or the Section of Environment,Energy, and Resources.

Upcoming SectionPrograms—

For full details, pleasevisit

www.ambar.org/EnvironCalendar

May 3, 2012Wetlands Law and RegulationPrimary Sponsor: ALI-ABAWashington, DC

May 3, 2012Recent Decisions, Trends and Developments inData Compensation under FIFRABrown Bag

May 4, 2012Species Protection: Critical Legal IssuesPrimary Sponsor: ALI-ABAWashington, DC

May 9, 2012The Natural Gas Boom: What Lawyers Should KnowCLE Webinar

May 10, 2012Counseling the Local Food Movement: What aPractitioner Should KnowPrimary Sponsor: General Practice, Solo and SmallFirm DivisionWebinar/Teleconference

May 15, 2012Suspension and Debarment—An AdministrativeTool for Addressing Non Compliance: Perspectivefrom EPABrown Bag

May 31, 2012The Sustainability Debate Over Biomass as aRenewable Energy ResourceQuick Teleconference

June 1, 20122012 National Spring Conference on theEnvironmentBaltimore, MD

Past program materials and podcasts are available

for purchase. Click on the Section Calendar

Archive page from here:

www.ambar.org/EnvironCalendar

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carbon fuel standard, and the cap-and-trade program.He concludes that the complexity and broad scope andimpact of the program almost assure more litigationchallenging the program. The second article, by RobertLawrence and Dustin Till, focuses more specifically onthe cap-and-trade regulations and severalimplementation challenges including the potential fordifferential impacts on utilities and large industrialemitters, and the administrative complexity and legalityof rules relating to retention of some funds in the statetreasury while rebating the remainder. They argue thatthe ongoing revision of rules with expected futuremodification is inconsistent with the certainty requiredfor investment decisions. Like Haroff, they foresee“political, legislative and judicial attacks in the comingmonths” worth watching closely. (An additional articlewith a distinctly different view of the regulations isplanned for the next issue.) The third article, byJosephine Yam, discusses the legal context andramifications of the decision by the government ofCanada last December to withdraw from the KyotoProtocol. As Yam notes, this decision was the latest ina history of major swings in Canadian climate policyand largely driven by the reality that the growth of thecountry’s GHG emissions made it impossible to meetits reduction target barring a politically unrealisticcommitment to a multibillion dollar purchase ofreduction credits. Yam describes the legalconsequences of the decision, which did not cause theKyoto Protocol to lose effectiveness, and considersthe government’s potential options going forward.

Litigation and Public Trust,” as well as “Developmentsin EPA Regulation of Electric Generation,”and panels covering national energy policy and legalauthority, Electric Reliablity Council of Texas and theU.S. grid, next generation environmental complianceand enforcement, the water and energy nexus,endangered species and wind farm development, shaledevelopment, pipelines, and more. This conference willcover it all. And that weekend in Austin is the AustinCity Limits Music Festival in beautiful Zilker Park, withmore than 100 bands playing on eight stages. Lastyear, Stevie Wonder, Coldplay, Kanye West, RandyNewman, and Foster the People were among theperformers. Check it out at www.ambar.org/EnvironFM. Please join us in all this, post something on the listserv,write for our newsletter, send us ideas for programplanning! Hope to see you in Austin! This issue includes our two regular features, a reviewof recent EPA regulatory announcements by LeslieGriffith and a summary of judicial developmentsprepared by Cullen Howe, as well as three articles.Recent regulatory announcements include NationalEmission Standards for Hazardous Air Pollutants andperformance standards for coal and oil-fired electricpower plants. Judicial developments include ongoinglitigation related to a California low carbon fuelstandard (see two articles this issue related to thistopic), a district court decision holding that a state airquality standard should consider greenhouse gases(GHGs) from oil refineries, and two settlementsresolving Sierra Club challenges to coal plants inArkansas and Texas.

This issue features three articles addressed to two ofthe most significant legal and regulatory developmentsin climate change policy. The first two offer insight intothe implementation of the California Global WarmingSolutions Act of 2006, commonly referred to by itslegislative reference, Assembly Bill (AB) 32. The firstarticle, by Kevin Haroff, provides a brief history andoverview of three of the most consequential elementsof the program — emission reduction targets, a low

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Trends: Section newsletter now innew electronic format

The Section’s newsletter Trends can befound in a new electronic format atwww.ambar.org/EnvironTrends.

Individual articles are now being posted in html formatand contain hyperlinks to important cases and other

resources cited in the text.

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REGULATORY DEVELOPMENTS BY THEU.S. ENVIRONMENTAL PROTECTION

AGENCY

Leslie A. Griffith

New Source Performance Standard for CO2

Emissions from New Fossil Fuel-FiredPower Plants

On March 27, 2012, the Environmental ProtectionAgency (EPA) announced a proposed rule that wouldrequire new fossil fuel-fired electric generating units(EGUs) greater than 25 megawatt electric (MWe) tomeet an output-based standard of 1000 pounds ofCO

2 per megawatt hour (lb CO

2/MWh), based on the

performance of widely used natural gas combinedcycle (NGCC) technology. Existing sources or facilitiesthat will begin construction within 12 months are notsubject to the proposed rule. The public commentperiod will extend for 60 days after the publication ofthe proposed rule in the Federal Register. Thisnewsletter will provide analysis of the proposed rule inits next issue.

MACT Rule for Mercury and Air ToxicsEmissions from Electric Utilities

On December 21, 2011, the Environmental ProtectionAgency (EPA) announced a rule establishing NationalEmission Standards for Hazardous Air Pollutants(NESHAP) and performance standards for coal andoil-fired electric utility plants. The rule requires coaland oil-fired power plants to use the maximumachievable control technology (MACT) to achievesignificant reductions in emissions of mercury and otherair toxics such as arsenic. EPA estimates the rule willresult in more than $25 billion in net benefits. Therulemaking, which received more than 900,000 publiccomments, marks the first time EPA has regulatedmercury emissions from electric utility plants undersection 112 of the Clean Air Act. EPA first found itappropriate and necessary to regulate these emissionsunder section 112 in December 2000.

Secondary Lead Smelters NESHAPResidual Risk and Technology Review

EPA published a final rule amending its NESHAP forsecondary lead smelters on January 5, 2012, aftercompleting the residual risk and technology review.EPA issued its initial NESHAP for secondary lead

smelters in 1997, and the MACT standard coverssixteen facilities engaged in recycling lead scrap metal.The new rule revises requirements for metal HAPemissions and work practice standards for mercury,and it finalizes emission limits for dioxin, furan, and totalhydrocarbon. It also revises NESHAP requirementsfor emissions during start-up, shutdown, andmalfunction. 77 Fed. Reg. 558.

Proposed Reconsideration for Area Sourceand Major Source NESHAP for Industrial,Commercial, and Institutional Boilers

On December 23, 2011, EPA issued a proposedreconsideration of its NESHAP for industrial,commercial, and institutional boilers and processheaters, which was promulgated on March 21, 2011.The March 21 rule set MACT standards for mercuryand polycyclic organic matter and generally availablecontrol technology (GACT) standards for otheremissions. EPA is now reconsidering, among otherissues, the application of GACT to biomass and oil-fired area source boilers. For major sources, EPA’sreconsiderations include revisions to carbon dioxidemonitoring requirements and dioxin emissions limits. 76Fed. Reg. 80,532 (area sources), 80,598 (majorsources).

Reconsideration of Heat ExchangeNESHAP for Petroleum Refineries andUniform Standards

On January 6, 2012, in response to a petition forreconsideration from the American Petroleum Institute,EPA proposed amendments to the heat exchangerequirements of the petroleum refinery NESHAP. EPAis also proposing national uniform standards for heatexchange systems based on the standards forpetroleum refineries. The proposal would amend thepetroleum refinery NESHAP to allow an alternative,less burdensome compliance option by cross-referenceto the proposed uniform standards. The uniformstandards, if finalized, would initially apply only topetroleum refineries, but EPA expects to extend themto other sources through future rulemaking to createconsistent standards. Comments must be received byMarch 6, 2012. 77 Fed. Reg. 960.

Leslie Griffith is a second-year student at HarvardLaw School and an editor on the Harvard LawReview.

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JUDICIAL DEVELOPMENTS

J. Cullen Howe

Court and Agency Decisions

Northern Plains Resources Council, Inc. v. SurfaceTransportation Board (9th Cir. Dec. 29, 2011): TheNinth Circuit reversed in part a decision by the SurfaceTransportation Board approving an application from arailroad company to build a 130-mile railroad line insouthwestern Montana to haul coal, holding that theagency failed to take the requisite “hard look” atseveral environmental issues raised by the project.Specifically, the court held that the agency’senvironmental impact statement (EIS) concerning theproposed line adequately considered the cumulativeeffect of the coal bed methane wells and the railroadon air quality and wildlife. However, the court held thatthe EIS ignored the combined impacts of future welldevelopment and coal mining projects in the area,improperly relying on a five-year timeline, whichresulted in a faulty analysis. The court also held that theEIS did not provide baseline data for many wildlife andsensitive plant species.

Portland Cement Association v. EPA (D.C. Cir.Dec. 9, 2011): The D.C. Circuit held that EPA issuedemissions standards for cement kilns withoutconsidering the effects of a related ongoing rulemakingto define solid waste incinerators. In particular, thecourt held that the rulemaking could have led to somekilns being classified as incinerators, which would meanthat they would have different emissions limits. Thecourt also dismissed arguments raised byenvironmental groups that the standards should includelimits on greenhouse gases (GHGs), holding that EPAis continuing to collect this information and thus thecourt did not have jurisdiction until the agency issues afinal rule.

Greater Yellowstone Coalition v. Servheen (9th Cir.Nov. 22, 2011): The 9th Circuit held that the U.S. Fishand Wildlife Service failed to justify its EndangeredSpecies Act (ESA) delisting of the grizzly bears in theYellowstone region because it did not consider theimpact of climate change on a key source of the bear’sfood supply. The court reversed the agency’s 2007ruling to remove the bear’s “threatened” status underthe ESA. The decision affirms a lower court ruling that

FWS did not adequately consider the impacts ofclimate change on white bark pine nuts, a major sourceof food for the bears. The decision stated that FWS’sdelisting decision did not articulate a rationalconnection between the data before it and itsconclusion that white bark pine declines were not likelyto threaten the Yellowstone grizzly bear.

Rocky Mountain Farmers Union v. Goldstene (E.D.Cal. Dec. 29, 2011): A federal district court inCalifornia temporarily enjoined California fromenforcing its low carbon fuel standard. The CaliforniaAir Resources Board (CARB) adopted the standard inApril 2009. It measures the level of greenhouse gasemissions associated with the production, distribution,and consumption of gasoline and diesel fuels and theiralternatives. It is designed to cut the average carbonintensity of fuels by 10 percent over 11 years. Ethanolproducers filed suit, alleging that the standard violatesthe dormant Commerce Clause because itdiscriminates against out-of-state ethanol producers onits face. The court agreed and granted the preliminaryinjunction, holding that because the standard assignsmore favorable carbon intensity values to corn-derivedethanol in California than to ethanol derived inCalifornia, it impermissibly discriminates against out-of-state entities. In addition, the court held that thestandard impermissibly regulates channels of interstatecommerce. The court further held that although thestandard serves a legitimate local purpose, thatpurpose could be accomplished through othernondiscriminatory means. In addition, the court heldthat the plaintiffs’ preemption claim raises a seriousquestion as to whether the standard is preempted bythe Clean Air Act (CAA).

Washington Environmental Council v. Sturdevant(W.D. Wash. Dec. 1, 2011): Two environmentalnonprofit groups filed a lawsuit alleging that theWashington State Department of Ecology, NorthwestClean Air Agency, and the Puget Sound Clean AirAgency violated the CAA by failing to implementmandatory provisions of Washington’s stateimplementation plan relating to the control of GHGsfrom oil refineries. The complaint alleged that four ofthe five companies that operate oil refineries in the stateare operating under expired title V permits, and noneof the permits contain requirements for controllingGHG emissions. Both sides moved for summaryjudgment. The district court granted the plaintiffs’

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motion, holding that the law was clear that the stateagencies were required to establish reasonablyavailable control technologies (RACT) for GHGs andto apply the RACT standards to oil refineries.

Sierra Club v. U.S. Dept. of Energy (D.D.C. Nov.18, 2011): A district court denied the Sierra Club’smotion to preliminarily enjoin the Department ofEnergy (DOE) from providing funding assistance forthe construction and operation of a coal-fired powerplant in Mississippi on the grounds that the agency’sEIS was legally insufficient. The court held that allegedharm is not from DOE’s disbursement of funds, butfrom the power company’s construction and operationof the plant. In addition, the court held that although theSierra Club produced evidence that the project wasunlikely to have commenced without federal funding, itdid not make such a showing regarding the continuedviability of the project without federal funding.Moreover, the company provided a sworn affidavitindicating that it will proceed with the project with orwithout federal assistance or a loan guarantee. Hence,the group failed to meet its burden of showing that itwill likely succeed on the merits of its claims.

Sierra Club v. U.S. Army Corps of Engineers (W.D.Ark. Nov. 16, 2011): The Sierra Club and threechapters of the Audubon Society filed suit against theU.S. Army Corps of Engineers and related parties,seeking an injunction to halt construction of a planned600-megawatt power plant in Hempstead County,Arkansas. The plaintiffs allege that the Corps violatedthe National Environmental Policy Act (NEPA) and theClean Water Act when it issued the permit allowing thecompany to take water from the Little River and fillwetlands during project construction. After the plaintiffssettled with several defendants, the owner of thepower plant moved to dismiss on standing andmootness grounds. The district court denied themotion, holding that the plaintiffs had standing toproceed with their case and that the case was not mooteven though the construction of the plant was nearlycomplete. Save Strawberry Canyon v. U.S. Department ofEnergy (N.D. Cal. Nov. 14, 2011): A district courtheld that DOE complied with NEPA when itdetermined that the construction of a “supercomputer”project on a college campus would have no significant

environmental impact and did not require anenvironmental impact statement. Specifically, the courtheld that the environmental assessment (EA) took ahard look at direct and indirect GHG emissions,adequately analyzed the impacts of the project’s GHGemissions, and made a reasonable determination thatthe GHG emissions did not significantly impact theenvironment. The court also held that the EAadequately described the methodology DOE used toreach its GHG emissions conclusions.

WildEarth Guardians v. U.S. Forest Service (D.Colo. Oct. 31, 2011): Environmental groups sued theU.S. Forest Service, alleging that in a final EISconcerning a coal mine, it failed to identify a reasonablerange of alternatives to methane venting, as well asfailing to identify measures such as flaring that wouldmitigate the effects of the release of the methane andfailing to analyze the climate change impacts ofmethane venting. The district court, after finding thatWildEarth had standing to maintain the action, upheldthe Final Environmental Impact Statement, holding thatthe agency’s decision not to flare or otherwise capturethe methane gas was not arbitrary or capricious. Inaddition, the court held that the FEIS adequatelyaddressed the climate change-related impacts of thisdecision.

Town of Babylon v. Fed. Housing Finance Agency(E.D.N.Y. June 13, 2011): A town commenced alawsuit against the Federal Housing Finance Agency(FHFA) and several other related governmentagencies, seeking a declaration that the defendants’actions with respect to the town’s Property AssessedClean Energy (PACE) program on properties that hadPACE liens violated several federal statutes, includingNEPA. The town’s PACE program allowed residentialbuilding owners to take out a low interest loan forenergy efficiency upgrades and then repay these loansover time via an annual property tax assessment.Defendants moved to dismiss. The district courtgranted the motion, holding that it was withoutjurisdiction to review FHFA’s actions in its role as aconservator and that the town lacked article IIIstanding because it could not demonstrateredressability.

Association of Irritated Residents v. California AirResources Board (Cal. Super. Ct. Dec. 6, 2011): A

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California state court approved an expandedenvironmental analysis of alternatives to a cap-and-trade program for implementing the California GlobalWarming Solutions Act, otherwise known as AB 32. Intheir lawsuit, plaintiffs alleged that the program fails tominimize GHG emissions and protect vulnerablecommunities as required by AB 32. Plaintiffs alsoalleged that the agency violated the CaliforniaEnvironmental Quality Act (CEQA) in approving theprogram. In March 2011, the court issued an orderenjoining the state from implementing the program,holding that CARB had not adequately weighedalternatives to the cap-and-trade system. In June 2011,a state appellate court lifted the stay pending appeal.This stay was affirmed by the California SupremeCourt in September 2011.

NRDC v. California Dept. of Transportation (Cal.Ct. App. Nov. 22, 2011): Several environmentalgroups filed a lawsuit challenging CaliforniaDepartment of Transportation’s approval of a newdiesel truck expressway serving the ports of LongBeach and Los Angeles, alleging that the finalenvironmental impact review (EIR) pursuant to theCalifornia Environmental Quality Act did not, amongother things, sufficiently address GHG emissions andassociated climate change. The trial court denied thepetition. On appeal, the appellate court affirmed,holding that the EIR adequately investigated anddiscussed the GHG impacts from the project, that theagency’s conclusion that the impacts would be “lessthan significant” was supported by substantialevidence, and that the agency was not required tomake a quantitative analysis of GHG emissions in theEIR.

Drewry v. Town Council for the Town of Dendron,Virginia (Va. Cir. Ct. Nov. 21, 2011): A Virginia statecourt held that a Virginia town council unlawfullyrezoned land to make way for a proposed coal-firedpower plant. The lawsuit alleged that the DendronTown Council failed to properly notify the publicbefore it voted to approve four land use applicationsfrom the owner of the plant and amend the town’szoning plan in February 2010. The court held that therezoning was unlawful because the notice circulated bythe town before the meeting said it would receivepublic comments, but made no mention of a vote.

Ballona Wetlands Land Trust v. City of Los Angeles(Cal. Ct. App. Nov. 9, 2011): A land trust and several

other parties challenged the certification of a revisedEIR under CEQA concerning a proposed mixed-usereal estate development. Among other things, thelawsuit challenged the EIR’s analysis of sea level risefrom climate change. A state trial court dismissed thechallenge. On appeal, the state appellate courtaffirmed, holding that the EIR adequately discussed theimpacts of sea level rise from climate change.

American Tradition Institute v. Rector and Visitorsof the University of Virginia (Va. Cir. Ct. Nov. 1,2011): A Virginia state court ruled that climate scientistMichael Mann can intervene in a lawsuit seeking e-mails and other documents he authored while aprofessor at the University of Virginia. In May 2011, aconservative legal organization filed a lawsuit under theVirginia Freedom of Information Act seekingdocuments related to the work of Professor Mann,who was involved in the so-called Climategate e-mailcontroversy.

Settlements

Sierra Club v. U.S. Army Corps of Engineers (W.D.Ark., consent decree filed Dec. 22, 2011): A powercompany and environmental groups reached asettlement that resolves a lawsuit challenging theconstruction of a 600-megawatt coal-fired power plantin Arkansas. Among other things, the company agreedto build no other generating units at the site and noother power plants within 30 miles of the facility. Thecompany also agreed to construct or secure 400megawatts of renewable energy resources by the endof 2014, use low-sulfur coal at the plant, and conductadditional stack testing at the plant to determinewhether it could comply with more stringent emissionslimits for coarse particulate matter. The groups filed thelawsuit in 2010, alleging that the preconstructionreview of the proposed facility failed to comply withNEPA, the Clean Water Act, and the EndangeredSpecies Act.

Sierra Club v. Sandy Creek Energy Associates LP(W.D. Texas, settled Dec. 9, 2011): The owner of acoal-fired power plant in Texas agreed to reducemercury and particulate matter emissions in return forenvironmental groups dropping their challenge to its airpermit. In a November 2010 decision, the Fifth Circuitheld that the plant violated the Clean Air Act because,as a major source of a hazardous air pollutant, it

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lacked a determination by a regulatory authority onrequired emissions control technology. According tothe court, because the plant will emit more than 10 tonsof mercury per year, it falls under the constructionrequirements of section 112(g) of the CAA, whichgoverns hazardous air pollutants. This section prohibitsconstruction of any major source of hazardous airpollutants unless a state or federal authority hasdetermined that the source will meet maximumachievable control technology (MACT) emissionslimits for new sources.

WildEarth Guardians v. Jackson (D.N.M.,settlement order dated Nov. 9, 2011): A federal courtapproved a settlement between EPA and WildEarth,requiring the agency to act on the group’s petition toblock an air pollution permit for a 1800-megawatt coalplant in New Mexico. The New Mexico EnvironmentalDepartment issued the permit in August 2010.Subsequently, WildEarth filed a petition with EPAurging the agency to reject the permit on the groundsthat it did not comply with the Clean Air Act. Thegroup then sued EPA after the agency missed theClean Air Act’s 60-day deadline to take final action onthe petition.

New Cases and Court Filings

Center for Biological Diversity v. Bureau of LandManagement (N.D. Cal., filed Dec. 8, 2011): Severalenvironmental groups filed a lawsuit challenging thefederal government’s leasing of nearly 2,600 acres ofpublic land in California to oil and gas developers,alleging that BLM failed to fully analyze theenvironmental impacts of high-pressure hydraulicfracturing, otherwise known as “fracking.” In June2011, BLM issued a final environmental assessmentfinding no significant environmental impact for the leasesale. The lawsuit alleges that the agency ignored ordownplayed the impacts of the lease sale onendangered or sensitive species in the area and failedto address the impacts of fracking on water quality andother resources.

WildEarth Guardians v. U.S. Forest Service (D.Colo., filed Dec. 6, 2011): Three environmental groupssued the U.S. Forest Service (USFS) concerning theagency’s consent to lease nearly 2,000 acres in the

Thunder Basin National Grassland in Wyoming for coalmining, alleging violations of NEPA, the AdministrativeProcedure Act, the Surface Mining Control andReclamation Act, and the National Forest ManagementAct. Under federal law, coal mining is prohibited onnational grasslands without permission from USFS.The complaint alleges that the Bureau of LandManagement’s environmental impact statementconcerning the coal leases was legally inadequate.

Texas v. EPA (D.C. Cir. Dec. 1, 2011): Texas filedsuit against EPA, challenging a final rule issued by theagency extending its takeover of the state’s GHGpermitting authority under the Clean Air Act (CAA).The lawsuit challenges an EPA final rule under section110 of the CAA that removed the agency’s priorapproval of Texas’s state implementation plan for theprevention of significant deterioration after the statesaid that it would not implement a GHG permittingprogram. The lawsuit alleges that EPA’s rule is arbitraryand capricious, an abuse of discretion, and contrary tothe CAA. The final rule allows the state to continueissuing permits for other pollutants such as sulfurdioxide and nitrogen oxides. After asking the parties tobrief whether the case should be held in abeyancewhile challenges to EPA’s endangerment finding,emissions standards for cars and trucks, and a rulinglimiting GHG permitting to the largest industrial sourceswere resolved, the court held that this case couldproceed.

Poet, LLC v. California Air Resources Board (Cal.Super. Ct., filed Jan. 22, 2010): In a companion caseto several lawsuits filed in federal court attacking thestate’s low carbon fuel standard (see above), a cornethanol producer filed a lawsuit in California state courtchallenging the state’s low carbon fuel standard.Among other things, the lawsuit alleges that CaliforniaAir Resources Board violated CEQA and theCalifornia Health and Safety Code in establishing thestandard.

Cullen Howe is an environmental law specialist inArnold & Porter’s environmental practice group,where he focuses on climate change, greenbuildings, and other environmental issues.

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CALIFORNIA’S CLIMATE CHANGEPROGRAM COMES TOGETHER IN 2012—

OR DOES IT?

Kevin Haroff

After years of planning and regulatory development,many of the key elements of California’s landmarkprogram to control greenhouse gas (GHG) emissionsmay finally be lining up.

The legislative parameters of the state’s climateprogram initially were put into place with the adoptionof the California Global Warming Solutions Act of2006, more commonly known as Assembly Bill (AB)32. AB 32 required the California Air ResourcesBoard (CARB) to develop a comprehensive plan toreduce GHG emissions on a statewide basis to 1990levels by the year 2020. The law also directed CARBto conduct major rulemaking activities to implement theplan and to have its approved rules and market-oriented control mechanisms ready to take effect byJanuary 1, 2012. Although CARB may not have metthis deadline for all program elements, a number ofessential details have now been largely worked out andcould go into effect as the year progresses.

The most significant, and controversial, of CARB’s AB32 implementation program is its now-approved GHGemissions cap-and-trade regulation. Onceimplemented, the cap-and-trade regulation will providea fixed limit on sources responsible for approximately85 percent of the state’s total GHG emissions. This isin addition to emissions reductions that may beachievable through further measures and standardsadopted by CARB and other state and federalgovernment agencies such as more stringent fueleconomy standards for cars and trucks. The cap-and-trade regulation became effective on January 1, 2012,although full compliance with regulatory obligations willnot be enforceable until January 2013.

That does not mean CARB is sure to fulfill its mandateto push forward the nation’s most ambitious effort toconfront the challenges of climate change on ajurisdiction-wide basis. Opponents of AB 32 havevigorously resisted the law’s implementation at several

levels, and they have achieved some recent successesin at least delaying important elements of CARB’sGHG regulatory efforts (including cap-and-trade).

AB 32 Emissions Levels and ReductionStrategies

As a first step toward implementation of AB 32,CARB approved a GHG emissions target for 2020 inDecember 2007 of 427 million metric tonnes (MMT)of CO

2 and CO

2 equivalents (CO

2e). Meeting this

target was expected to require an initial reduction of169 MMTCO

2e, or approximately 30 percent, from

the state’s projected 2020 baseline emissions level of596 MMTCO

2e (in the absence of reduction measures

adopted under AB 32). Since 2007, CARB hasrevised its 2020 baseline level downward to 507MMTCO

2e, to reflect lowered projected emissions

associated with the state’s ongoing economicdownturn, consideration of emissions reduction effortsoutside the scope of the program, and betterinformation developed in the course of CARB’sassessment of potential regulatory strategies.

CARB’s AB 32 emissions reduction strategies werefirst described in a December 2008 climate changescoping plan that included regulatory and nonregulatorycomponents, such as:

• Expanding and strengthening existing energyefficiency programs along with building andappliance standards;

• Achieving a statewide renewable electricityportfolio standard (mandatory purchaseobligation for utilities) of 33 percent;

• Developing a California cap-and-tradeprogram that could be integrated with similarmarket-oriented programs from neighboringjurisdictions on a regional basis;

• Establishing targets for transportation-relatedGHG emissions;

• Implementing measures under other state laws,including California’s clean car and low carbonfuel standards; and

• Creating targeted fees for GHG emissions-related activities.

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Almost from the beginning, however, AB 32 andCARB’s proposals to carry it out were criticized insome parts of California’s business community for theirpotential costs and possible negative impacts on thestate’s already depressed economy. In 2010, thosecriticisms manifested through inclusion on the state’sNovember electoral ballot of Proposition 23, the so-called California Jobs Initiative. If approved, theinitiative would have suspended the implementation ofAB 32 until California’s unemployment rate dropped to5.5 percent or below for four consecutive quarters.Because the state’s unemployment rate then exceeded12 percent, with no sign of going down in theforeseeable future, Proposition 23 was seen by manyas an attempt to forestall implementation of the lawindefinitely. It also was viewed by some as an uninvitedattempt by business interests outside California (mostlyin the oil and gas refining sector) to meddle with thestate’s long-standing support for progressiveenvironmental policies. For these and other reasons,California voters rejected Proposition 23 by a large(23 percent) margin.

The defeat cleared the way for CARB to take the nextsteps toward full AB 32 implementation, includingadoption of its statewide cap-and-trade regulation.Elements of CARB’s regulatory program already havebeen attacked in court, however, and more litigation isalmost certainly yet to come.

Challenging California’s Low Carbon FuelStandard

The most recent court challenge to CARB’s effortsinvolves California’s low carbon fuel standard, Cal.Code Regs. tit. 17, §§ 95480–90 (LCFS), which theagency adopted in April 2010 as a result of anexecutive order (S-01-07) signed in 2007 by then-Governor Arnold Schwarzenegger. The order set astatewide goal to “reduce the carbon intensity ofCalifornia’s transportation fuels by at least 10 percentby 2020,” and directed CARB initially to determinewhere such a standard could be adopted as an “earlyaction measure” to implement AB 32 (which it did).The LCFS focuses on the “carbon intensity” of fuels toestimate GHG emissions related to a given fuel’s “lifecycle,” including GHGs emitted when the fuel isextracted, refined, and transported to California. The

LCFS established different standards for gasoline anddiesel fuels and provided for gradual implementation ofeach standard to meet the 2020 goal set by thegovernor.

A collection of corn growers, corn ethanol industrygroups, and associations representing petrochemicalrefining and transportation interests have challenged theLCFS in two separate federal court actions(subsequently consolidated) brought in the EasternDistrict of California. Plaintiffs contend, among otherthings, that the LCFS violates the Commerce Clause ofthe U.S. Constitution because it discriminates againstMidwest producers of corn ethanol sold for use as afuel in California. (Under the LCFS, ethanol sourcedfrom the Midwest is assigned a higher carbon intensityvalue because of relatively higher transportation costs,which make it less economically attractive as a fuelfeedstock.) Plaintiffs also contend that the LCSF ispreempted by the federal Energy Independence andSecurity Act of 2007 (EISA), which Congress passedto encourage the use of corn ethanol from biofuelrefineries outside California, and in existence when thelaw was enacted.

In December, the court granted plaintiffs’ motion forsummary adjudication on Commerce Clause grounds,finding that the LCFS does impermissibly discriminateagainst out-of-state ethanol producers andimpermissibly regulates extra-territorial conduct outsideCARB’s jurisdiction. The court denied on technicalgrounds a separate motion based on the EISA.Because it found both the Commerce Clause andEISA arguments to have sufficient merit substantively,however, it granted plaintiffs’ motion for a preliminaryinjunction and enjoined enforcement of the LCFSduring the pendency of the litigation. See RockyMountain Farmers Union, et al./Nat’l Petrochem.& Refiners Ass’n, et al. v. Goldstene, Nos. CV-F-09-2234CV-F-10-163 (E.D. Cal., Dec. 29, 2011).

The federal court’s reliance on the Commerce Clauseto invalidate the LCFS, which is a key component ofCARB’s overall AB 32 implementation plan, raisesquestions about whether similar arguments may beasserted to attack other parts of the plan, including theCalifornia cap-and-trade regulation that will take effectover the course of 2012. That regulation, which is the

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core of CARB’s GHG emissions reduction program,already has survived one state court challenge. CARBhas filed a notice of appeal to obtain review of theLCFS decision in the Ninth Circuit Court of Appeals.If the appeal is unsuccessful, opponents of AB 32 maybe tempted to pursue constitutional law challenges overcap-and-trade in a more receptive federal judicialvenue.

Cap-and-Trade—Where Things StandCurrently

CARB adopted its comprehensive regulation toimplement California’s GHG cap-and-trade programon October 20, 2011. The program establishes a totalamount of GHG emissions that covered sources will beallowed to emit in a given year. Under the program,CARB will distribute emission allowances, with thetotal number of allowances created to be equal to anaggregate cap applied to cumulative emissions from allcovered entities. Covered entities will include majorGHG emitting sources, such as electricity generationfacilities and other sources (refineries, cementproduction facilities, oil and gas production facilities,glass manufacturing plants, and food processingfacilities) that emit more than 25,000 million metrictonnes of CO

2 equivalent (MMTCO

2e) per year (along

with natural gas, propane, and transportation fuelproviders).

CARB’s adoption of the October 2011 regulationfollowed the California Supreme Court September 28decision allowing the agency to proceednotwithstanding a lower court’s ruling earlier in the yearto block further development of the rule. On May 20,2011, a San Francisco superior court judge issued aperemptory writ of mandate sought by anenvironmental justice group. The group claimed that amarket-oriented approach to reducing state GHGemissions would have an adverse impact on poor andminority communities and that CARB had failed toproperly consider alternatives to that approachconsistent with the California Environmental QualityAct (CEQA). CARB filed an appeal from the superiorcourt’s decision and, requested an appellate writ ofsupersedeas to stay enforcement of the decision whilethe appeal was pending. That request was granted inlate June (see Ass’n of Irritated Residents v. CARB,

No. A132165 (Cal. Ct. App. 1st Dist., June 24,2011)). Delays and regulatory uncertainty caused bythe litigation, however, prompted CARB to push backthe deadline for covered entity compliance with theproposed regulation from January 2012 to January2013.

As adopted, the regulation requires establishing a GHGcompliance cap at a level that will allow California tomeet its AB 32 emissions target for 2020. (CARB staffestimated that implementation of the regulation willreduce GHG emissions by 18–27 MMTCO

2e in

2020.) The cap is divided into annual budgets thatspecify the quantity of emissions allowances availableannually from 2013 through 2020, with fewerallowances issued each year beginning in 2014.Importantly, allowances will be distributed under theregulation through a combination of free allocation andsale at auction, with the first auction to be held inAugust 2012. Proceeds from the sale of allowances inthis first year have been estimated to range up toapproximately $1 billion, although the actual amountwill depend on market demand and supply and will notbe known until after the auctions are completed. Inaddition to allowances, the regulation will allowcovered entities to meet their GHG complianceobligations through use of offset credits representingmeasured, quantified, and verified reductions orremoval of GHGs as a result of an activity not coveredby the overall emissions cap. Offset credits could becreated using CARB-approved offset protocols, e.g.,for livestock manure (digester) projects, ozone-depleting projects, and forestry projects.

The Next Battleground

As noted, the revenue that may be raised by auctionsales of GHG emissions allowances under theCalifornia cap-and-trade program is expected to besubstantial right from the start and could growsignificantly over time. Less clear is what the state maydo with all that money. According to Governor JerryBrown’s recently released 2012–2013 budgetsummary, proceeds from the sale of allowances initiallywould be earmarked “to create jobs and deliver publichealth, economic and environmental benefits” as part ofthe state’s overall effort to combat climate changeunder AB 32. A few groups representing business

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interests that will be required to purchase allowances atauction, however, say that the money will simply gointo the state’s general fund and be used to helpaddress California’s larger budget deficit problems.

Some have suggested that if payments for allowancesare treated as a general revenue source the effectwould be equivalent to a tax which, under theCalifornia Constitution, can only be imposed by two-thirds supermajority vote by the combined houses ofthe California legislature (not by an administrativeagency under earlier legislation that did not actuallymandate—but only encouraged—adoption of CARB’scap-and-trade program). The issue is complicated byCalifornia voters’ approval in 2010 of Proposition 26,the so-called Stop Hidden Taxes Initiative. Proposition26 provides that fees and levies that are assessed forspecific governmental services, and that previouslywere not considered taxes under the two-thirdsmajority approval requirement of the constitution,would be treated as such going forward. An argumentcould be made that payments for allowances madeunder the cap-and-trade program are exactly the kindof fees/taxes to which Proposition 26 was intended to

apply. (The counterargument is that even if that weretrue, Proposition 26 was not intended to be retroactiveand apply to fees assessed under legislation—in thiscase AB 32—adopted years before the initiative wasapproved.)

In sum, interests opposed to cap-and-trade, and to AB32 generally, already are lining up for more litigationchallenging California’s climate change program. Forthat reason, despite the very considerable effort CARBand other agencies have made to implement AB 32over the last five years, it still is unclear how much ofthe program will endure. The answer will take stillmore time and the inevitable involvement of the judicialbranch. Stay tuned.

Kevin Haroff is a San Francisco-based attorneyspecializing in environmental litigation and climatechange issues. He was one of the lawyers filing anamicus brief in Ass’n of Irritated Residents v. Cal.Air Resources Board, opposing efforts to delay theadministrative process leading to adoption ofCalifornia’s cap-and-trade regulation.

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CALIFORNIA AIR AGENCY ADOPTSCONTROVERSIAL NEW CAP-AND-TRADE

RULES

Robert F. Lawrence and Dustin T. Till

On October 20, 2011, the California Air ResourcesBoard (CARB) approved controversial new “cap-and-trade” regulations on greenhouse gas (GHG)emissions from electric utilities and large industrialsources after more than five years of debate. The newregulations—the most comprehensive climate changelimits in the country—are likely to generate significantcontroversy when implemented. They are beingenacted at a time when many other states—andCongress—have turned away from GHG regulations,citing the burden they place on a struggling economy.CARB, however, had little choice but to act, in light ofimpending deadlines established by AB 32—California’s 2006 climate change legislation. AB 32requires California to reduce its GHG emissions to1990 levels by 2020. The new CARB rules imposecompliance obligations commencing January 1, 2013,although this date may be ambitious in light of thecurrent status of regulatory developments. Cap-and-trade is a market-based framework under whichaggregate emissions are capped and regulatedbusinesses must obtain (through governmentallocations, auctions, or secondary trades) anallowance for each ton of GHGs they emit. In theory,the opportunity for trading reduces total compliancecosts and the cost of allowances incentivizesbusinesses to adopt more efficient methods ofproduction or find alternative technologies for resourceuse.

Cap-and-trade regulations have been successfullyimplemented before, but only in limited programs thatregulate either one pollutant or one economic sector.EPA implemented a cap-and-trade program for sulfurdioxide (SO

2) created by the 1990 Clean Air Act

amendments. Several Northeastern states haveadopted cap-and-trade regulations limiting carbondioxide emissions from power plants (that system isknown as the Regional Greenhouse Gas Initiative orRGGI). Each famously achieved its objectives beforestatutory deadlines.

California’s program reaches much further than anymarket-based emissions program ever tried before. Itattempts to regulate nearly all economic sectors inCalifornia, and applies not just to carbon dioxideemissions but to emissions of methane and other heat-trapping gases. In 2015, the program will expand toinclude producers and distributors of fossil fuels.California’s approach creates enormous complexity, asCARB must attempt to equalize economic impactsacross diverse economic sectors. The program pitsinvestor-owned utilities (IOUs) against industrialsources, as they both must bid for the same limitedemission allowances. While IOUs can pass the coststhrough to ratepayers, industries compete ininternational markets where cost pass-through is by nomeans assured.

Perhaps the most difficult problem California faces inenacting emissions limitations alone, without a federalprogram, is that at least some industrial users may shiftproduction to out-of-state facilities to minimizecompliance costs. The migration of GHG emissionssources from one state to another is known as“leakage.” CARB has attempted to combat leakage byimposing allowance surrender obligations on importedelectricity. Publicly owned utilities will receive freeallocations of allowances for electricity they distribute,while investor-owned utilities and importers will haveto bid for the allowances assigned to importedelectricity.

CARB’s anti-leakage approach for industries involvesfree allocations of allowances to a limited group ofindustries in the first compliance period (2013–2014).Beginning in 2015, the program will expand to includemany new industries and will be modified to requirebidding for some of the allowances allocated toindustry. The number of allowances distributed will bebased on CARB’s view of what the level thoseindustries’ emissions should be, based on theiroperations during the 2008–2010 recession, not whatthey are or would be under normal circumstances. Tokeep operating at historical levels, the affectedindustries may need to modify their operations tomatch governmentally mandated “benchmarks” forGHG emissions per unit of output. Some industries,most notably petroleum refining, will receive fewer

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allowances than they need to operate—even at recentrecessionary levels.

There are likely to be many other provisions of theCARB rules that could come under attack, eitherpolitically or in the courts:

· Cap: CARB established the cap at emissionslevels that are consistent with recessionaryemissions rates and are a few percent belowemissions in California in 2008. CARB’s capwill enforce limits that do not permitCalifornia’s economy to recover to pre-recession levels.

· Phase-In: Other successful cap-and-tradeprograms established their caps up to fiveyears in advance of enforcing them, soregulated entities had sufficient time to makeinvestments in alternative compliancestrategies. But CARB’s program begins in lessthan one year, so business must either close,move, or reduce operations rather than achievecompliance by investment.

· Resource Shuffling: The regulations includea requirement that regulated parties avoid“resource shuffling.” The CARB staff hasexplained that resource shuffling occurs when aregulated person switches from a high GHG-emitting source to a low-emitting source (likefrom coal-fired power to wind energy), but isnot effective in shutting down the source fromwhich it is switching. To comply with theresource shuffling prohibition, an electricitypurchaser that switches from a high- to a low-emitting electricity source must ensure that theformer source does not find new customers orcontinue emitting at prior rates.

· Allowances Auctions: The theory ofauctioning allowances is that an auction“recovers the value of emissions rights” for thebenefit of the public. This concept overlooksthe problems that arise when companies needto invest to reduce emissions. In an auctionsituation, regulated entities pay for allowancesto continue operating, and then must findadditional sources of capital to make emission-reduction upgrades or operational changes.With free distribution of allowances, capital

that would otherwise be spent on allowancescan be directed to achieving the environmentalgoal of reducing emissions.

· Rebate of Auction Proceeds: The auction ofallowances will raise an estimated minimum of$650 million in revenues. CARB originallystated that these revenues would be rebated toinvestor-owned utility ratepayers who had paidthe fees. Since then, the California PublicUtilities Commission has been working on arebate program that would partially accomplishthat objective. In the interim, Governor Brownhas earmarked the majority of the estimaterevenues for the general state fund to coverclimate change-related costs to the state andreserved the remainder for rebates and otherprograms designed to benefit ratepayers. Theplan raises the question of whether the auctionis really a tax, and whether it was imposedwithout complying with California law(including Proposition 26) governing theimposition of taxes. In addition, there areconsiderable political uncertainties associatedwith plans to spend or rebate the proceeds ofthe auctions that are far from being resolved.

At its final hearing on the regulations, CARB membersexpressed confusion about two fundamental concepts.One is the disruption of existing energy contracts.CARB stated that they had not taken any action toaddress sales of electricity by independent electricitygenerators under pre-AB 32 contracts. Some of thosecontracts do not allow generators to pass through tothe utilities the costs of GHG allowances. The result isthat independent generators must purchase allowancesat auction or from other regulated entities, but cannotrecover the cost of such purchases in the electricitysold to the utilities. CARB has indicated that it hopesthis issue can be worked out voluntarily between theparties to those agreements. The California PublicUtilities Commission has also indicated it is reviewingthis issue but has not issued a decision or rulesresolving it.

CARB identified a host of other major issues that itagreed in its approving resolution required revisions tothe just-approved regulations. One example is the

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possibility of offsetting the compliance obligations ofthe University of California by its investment inresearch or alternative energy facilities. Anotherexample was an agreement to study whether there is aninequitable transfer of funds from certain state waterauthorities, which will pay significant GHG costs, toutility ratepayers under the rebate program. CARBalso agreed that its resolution of issues relating towaste-derived fuels may need additional work.

All of this adds up to a cap-and-trade program that isvery much a “work in progress” subject to ongoingmodifications and considerable additional thought anddiscussion. Cap-and-trade programs do not work wellunder such circumstances. Regulated entities need toknow what the future holds in order to react rationally.Rapid changes in direction simply mean that anyinvestment in California is at risk.

Because the rules are still unsettled—and some wouldsay, flawed—there are likely to be political, legislative,and judicial attacks in the coming months. Given thestakes, it will be important for affected industrial andpower-generating entities to keep a close eye on thesedevelopments.

Robert F. Lawrence is a partner in the SanFrancisco office of Marten Law, and Dustin T. Tillis an associate in the firm’s Portland, Oregon,office.

ABA SECTION OF ENVIRONMENT, ENERGY, AND RESOURCES

CALL FOR NOMINATIONS

ENVIRONMENT, ENERGY, AND RESOURCES

GOVERNMENT ATTORNEY OF THE YEAR AWARD

The Environment, Energy, and Resources GovernmentAttorney of the Year Award will recognize exceptionalachievement by federal, state, tribal, or localgovernment attorneys who have worked or are workingin the field of environment, energy, or natural resourceslaw and are esteemed by their peers and viewed ashaving consistently achieved distinction in anexemplary way. The Award will be for sustained careerachievement, not simply individual projects or recentaccomplishments. Nominees are likely to be currentlyserving, or recently retired, career attorneys for federal,state, tribal, or local governmental entities.Nomination deadlines: May 14, 2012

LAW STUDENT ENVIRONMENT, ENERGY, AND

RESOURCES PROGRAM OF THE YEAR AWARD

The Law Student Environment, Energy, and ResourcesProgram of the Year Award will be given in recognitionof the best student-organized educational program orpublic service project of the year addressing on issuesin the field of environmental, energy, or naturalresources law. The program or project must haveoccurred during the 2011 calendar year [considerationmay be given to allowing projects that occurred in the2010-2011 or 2011-2012 academic years]. Nominees arelikely to be law student societies, groups, or committeesfocused on environmental, energy, and naturalresources issues.Nomination deadlines: May 14, 2012

STATE OR LOCAL BAR ENVIRONMENT, ENERGY,AND RESOURCES PROGRAM OF THE YEAR AWARD

The State or Local Bar Environment, Energy, andResources Program of the Year Award will be given inrecognition of the best CLE program or public serviceproject of the year focused on issues in the field ofenvironmental, energy, or natural resources law. Theprogram or project must have occurred during the 2011calendar year. Nominees are likely to be state or localbar sections or committees focused on environmental,energy, and natural resources issues.Nomination deadlines: May 14, 2012

These Awards will be presented at the ABA AnnualMeeting in Chicago in August 2012.

FOR FURTHER DETAILS, PLEASE VISIT

THE SECTION’S WEBSITE:www.ambar.org/EnvironAwards/

Order online atwww.ShopABA.org

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CANADA EXERCISES LEGAL RIGHT TOWITHDRAW FROM KYOTO PROTOCOL

Josephine Yam

Introduction

On December 12, 2011, Canadian EnvironmentMinister Peter Kent announced: “Kyoto, for Canada,is in the past. As such, we are invoking our legal rightto withdraw from Kyoto.” Kent had just arrived inOttawa, Canada, from the United Nations climateconference that concluded the day before in Durban,South Africa.

This makes Canada the first of 191 signatories to theKyoto Protocol to annul its emissions-reductionobligation. By formally withdrawing from this climateaccord, Canada will no longer have an enforceablegreenhouse gas (GHG) emissions-reduction obligationof 6 percent below 1990 levels by 2012.Nevertheless, Canada still remains a party to theUnited Nations Framework Convention on ClimateChange (UNFCCC) and thus, will continue toparticipate in negotiations under that international treatyto collaboratively discuss the impacts of global climatechange.

This article reviews the background and implications ofthis decision.

Canada’s Emissions Profile

The evolution of Canada’s GHG emissions profilereflects its emerging stature as a global producer andconsumer of carbon-concentrated fossil fuels. Althoughits GHG emissions only contribute about 2 percent ofannual global emissions, Canada’s total emissions on aper-capita basis have consistently ranked among theworld’s top 10 emitters over the past 10 years.

In 1990, Canada’s total GHG emissions were about592 megatonnes (Mt) of carbon dioxide equivalent. In2000, its GHG emissions increased to 717 Mt, due inpart to the rapid growth of the domestic oil and gasindustry—Canada has the world’s third-largest provencrude oil reserves. In 2004, its GHG emissions

increased further to 741 Mt, more than 20 percentabove 1990 levels. Canada’s emissions continuedgrowing and reached 747 Mt, more than 26 percentabove 1990 levels in 2007.

This significant growth in GHG emissions from 1990 to2007 is attributable mainly to the 217 percent growthin emissions from the mining sector, which, in turn, wasprincipally due to the rapid development of the oilsands in Alberta. By 2012, Environment Canadaforecasts that GHG emissions will increase to between770 Mt and 790 Mt due to increased emissions fromthe oil and gas and transportation sectors—an increaseof about 30 percent above the country’s Kyotocommitment.

Canada’s History with the Kyoto Protocol

The Kyoto Protocol is a 1997 international agreementmade in Kyoto, Japan, that amends the UNFCCC. Itobligates developed countries, such as Canada, to cutGHG emissions by an average of 5.2 percent below1990 levels. The first commitment period of the KyotoProtocol began on January 1, 2008, and ends onDecember 31, 2012. Developing countries, includingChina, India, Brazil, and South Africa, were asked toset only voluntary GHG reduction targets. The UnitedStates is not a party to the Kyoto Protocol, havingrefused to ratify it because of the asymmetricalobligations between industrialized and developingcountries.

In 1990, prior to the Kyoto Protocol, ConservativePrime Minister Brian Mulroney’s government issuedCanada’s Green Plan for a Healthy Environment(the Green Plan). The Green Plan was intended toserve as the grand scheme of Canada’s environmentalpolicy over the next five years. Although its target wasto stabilize Canada’s total GHG emissions at 1990levels by 2000, the Green Plan provided very littleguidance on the specific measures Canada should taketo attain this target. In 1993, Liberal Prime MinisterJean Chrétien jettisoned the Green Plan. Instead, hisgovernment launched various voluntary emissionreduction initiatives with private industry, particularlylarge industrial emitters, though with limited success.

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In 1997, Chrétien announced that Canada wouldcommit to stabilizing its total emissions at 1990 levelsby 2012 at the upcoming Kyoto climate conference.However, a day before departing for Kyoto, Chrétiensurprisingly announced that Canada would commititself to an emissions reduction target of 3 percentbelow 1990 levels by 2010. This shocked theCanadian provinces because the federal governmentmade the announcement without consulting them.Moreover, it was unlikely that, given the expectedgrowth in the energy sector, Canada would evenstabilize its emissions at 1990 levels by 2010, muchless reduce them by 3 percent below 1990 levels.

At Kyoto, Chrétien’s delegation eventually committedCanada to reduce its GHG emissions by 6 percentbelow 1990 levels by the five-year commitment periodof 2008–2012. Thereafter, Canada signed the KyotoProtocol in 1998 and formally ratified it in 2002.During that period, the federal government released itsClimate Change Plan for Canada (the ClimateChange Plan), which aimed to meet only 180 Mt totalemissions reduction out of Canada’s 280 Mt Kyotoobligation. The Climate Change Plan sought to achievethis by introducing an emissions trading system forlarge industrial emitters in Canada for the very firsttime.

In 2005, under the leadership of Liberal Prime MinisterPaul Martin, the federal government issued ProjectGreen: Moving Forward on Climate Change(Project Green), which introduced an emissionsintensity cap-and-trade system for large industrialemitters. Like the Climate Change Plan, Project Greenseverely fell short of achieving Canada’s Kyotoobligations, targeting a mere 13 percent of Canada’srequired emissions reduction obligation.

Upon taking office in 2006, Conservative PrimeMinister Stephen Harper stated unequivocally that hewould not implement the Kyoto Protocol. He arguedthat Canada’s targets, which were established by theprevious Liberal government, were unrealistic andunachievable. Instead, the federal government issuedthe Regulatory Framework for Air Emissions in2006 and the Turning the Corner strategy in 2008

with more modest aims for controlling industrialemissions.

In 2009, the Harper government agreed to anonbinding commitment at the United Nations talks inCopenhagen, Denmark, to reduce its emissions by 17percent by 2020 from 2005 levels. This commitment isin lockstep with the pledge of the United States,Canada’s largest trading partner, which it also made inCopenhagen. Canada’s commitment was formallyreiterated in the Cancun Agreement adopted in 2010.In 2011, Canada officially withdrew from the KyotoProtocol at the most recent meetings of the parties tothe UNFCCC in Durban, South Africa.

Reasons for Canada’s Withdrawal

Minister Kent justified Canada’s withdrawal from theKyoto Protocol because it did not cover the world’slargest emitters, China and the United States. Thus,even if Canada took action to comply with its Kyotocommitment, global emissions were still expected torise due to growth in these two countries. BecauseCanada only produces 2 percent of overall globalGHG emissions, any efforts on its part to reduceemissions would contribute very little to stem the rise ofglobal emissions.

Moreover, if Canada tried to comply with its Kyotocommitment, it would be obligated to purchase largequantities of emission reduction permits through thetrading mechanism authorized by the protocol,estimated to cost about $14 billion. This woulddetrimentally affect its economic competitiveness.

Kent described this “Kyoto cost to Canadians” as theequivalent of the “transfer of $14 billion from Canadiantaxpayers to other countries” or “the equivalent of$1,600 from every Canadian family, with no impact onemissions or the environment.” It would also beanalogous to either “removing every vehicle of everykind from Canadian roads,” or “closing down theentire farming and agricultural sector and cutting heat toevery home, office, hospital, factory and building inCanada.”

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By withdrawing from the Kyoto Protocol, Canada alsoavoided being officially declared as noncompliantunder the climate accord and thus, being subjected topotential penalties for noncompliance.

Legal Basis for Canada’s Withdrawal

Canada exercised its legal right to formally withdrawfrom the Kyoto Protocol as specifically embodied inArticle 27 (http://unfccc.int/essential_background/kyoto_Protocol/items/1678.php), which provides that:

1. At any time after three years from the date onwhich this Protocol has entered into force for aParty, that Party may withdraw from thisProtocol by giving written notification to theDepositary.

2. Any such withdrawal shall take effect uponexpiry of one year from the date of receipt bythe Depositary of the notification ofwithdrawal, or on such later date as may bespecified in the notification of withdrawal.

3. Any Party that withdraws from the Conventionshall be considered as also having withdrawnfrom this Protocol.

This means that a country can withdraw after threeyears from the date the Kyoto Protocol came intoforce, which is February 2005. A country that wants towithdraw from the Kyoto Protocol has to provide one-year prior written notice before such withdrawal iseffective.

Canada’s Kyoto obligations span the first commitmentperiod of 2008–2012. Thus, to avoid being declaredas noncompliant with the Kyoto Protocol, Canadaneeded to provide its withdrawal notice beforeDecember 31, 2011, in time to be officially out of theKyoto Protocol before December 31, 2012. AlthoughCanada has withdrawn from the Kyoto Protocol, it stillremains a party to the UNFCCC.

Global Reaction to Canada’s Withdrawal

International censure of Canada’s withdrawal wasstrong and vehement at the Durban negotiations.Chinese media called Canada’s decision as“preposterous and irresponsible action that will scar

global climate-change efforts.” India’s representativeswarned that such decision would “jeopardize any gainsthat might flow from the talks in Durban, South Africatoward a new agreement.” Tuvalu, a low-lying islandnation that is most vulnerable to rising sea levels,labeled Canada’s withdrawal “a reckless and totallyirresponsible act” that has become “an act of sabotageon our future.”

Christiana Figueres, executive secretary of theUNFCCC, called Canada’s withdrawal “regrettable”and “surprising.” She added, “Whether or not Canadais a Party to the Kyoto Protocol, it has a legalobligation under the Convention to reduce itsemissions, and a moral obligation to itself and futuregenerations to lead in the global effort.”

There was also vigorous disapproval from Harper’spolitical opposition and various environmentalorganizations within Canada. The Green Party ofCanada said that Canada’s withdrawal “would hurt thenew agreements from Durban before the ink is dry.”

On the other hand, there was also strong internationalsupport for Canada’s withdrawal from some quarters.Australian representatives to Durban said that thewithdrawal “should not be used to suggest Canadadoes not intend to play its part in global efforts totackle climate change.” Likewise, some German mediasaid that Canada’s withdrawal “represents a victory ofreason. It shows that protecting the environmentproduces costs that, given concern over jobs, noteveryone is willing to pay, particularly when importantcountries refuse to be pressured into joiningenvironmental protection treaties. The government inOttawa thus deserves our praise.”As was expected, many Canadian corporations,especially those in the oil and gas sector, expressedsolid support for Canada’s withdrawal. Commentatorsnoted that “technology improvements will have a biggerimpact on Canada’s greenhouse gas input than aninternational climate change treaty” especially because“Kyoto hasn’t been a strong treaty.”

Canada Looks Ahead

At the recent climate conference in Durban, SouthAfrica, delegates from 194 countries reached an

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agreement entitled “Durban Platform for EnhancedAction” (the Durban Platform). It commits allUNFCCC parties, including China, the United States,Brazil and India, to establish a process to negotiate anew climate change treaty by 2015 that would comeinto force in 2020. Also, thirty-five countries havecommitted to taking on binding emissions-reductionobligations after the Kyoto Protocol expires inDecember 2012. This second commitment period,which will begin on January 1, 2013, will have anexpiration date of either December 31, 2017, orDecember 31, 2020.

“The Durban Platform is a way forward that builds onour work at Copenhagen and Cancun,” Kent said,

“Although these negotiations will be difficult, we arecautiously optimistic that we will reach a newagreement by 2015.”

Whether or not Canada has paved the way for othercountries to exit the Kyoto Protocol remains to beseen.

Josephine Yam is senior legal counsel at theAlberta government’s Department of Energy inCanada. She practices in the areas of energy,climate change, carbon finance, and projectfinance. She can be reached atJosephine.Yam@gov.ab.ca. The views expressed inthis article are solely those of the author.

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