Association of Irritated Residents v. California Air Resources Board Summary and Status Update California Cap and Trade Workshop Climate Action Reserve Houston, TX Jean-Philippe Brisson, Senior Counsel Head, Environment and Climate Change Practice Linklaters LLP June 14, 2011

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2 AIR v. CARB: Why is it Relevant? 1. Will the courts preempt entry into force of cap-and-trade? No, not under this lawsuit 2. Will the start of cap-and-trade program be delayed? Possible, but unlikely Issue is whether stay will remain in effect while CARB fixes the FED 3. Will the lawsuit be a drain on limited CARB resources? Yes, but to what extent? Paragraph 9, Edith Chang’s Declaration

3 California Environmental Quality Act (“CEQA”) Purpose: requires government agencies to consider environmental consequences before approving plans and policies or committing to a course of action on a project Procedural Requirement: agencies must identify environmental effects, mitigation measures and alternatives to the proposed project in an Environmental Impact Report (“EIR”) Certified Regulatory Program >Certain agencies, such as the California Air Resources Board (“CARB”), are “Certified Regulatory Programs” and file functionally equivalent documents (“FEDs”) instead “Tiering”: allows agencies to conduct EIRs or FEDs in two steps >Program EIR/FED is prepared for a series of actions that may be considered one large project >Project EIR/FED examines the impact of a specific development project and may incorporate by reference earlier EIRs or FEDs

4 Global Warming Solutions Act of 2006 (“AB 32”) AB32 Adopted and signed into law in 2006 >Sets 2020 reduction goal into law >Directs CARB to prepare a scoping plan (the “Scoping Plan”) to identify how best to achieve the 2020 limit Scoping Plan >Approved December 12, 2008 >CARB conducted a first-tier, program FED for the Scoping Plan >Appendix J of the Scoping Plan: 119-page program FED >Program FED assessed a number of options, including no source-specific regulatory requirements without cap-and-trade component, carbon fee, no action, a variation of the proposed measures in the Scoping Plan Cap-and-Trade Draft Regulations >Approved December 16, 2010 >Appendix O contains the project FED

5 California Climate Programs

6 AIR v. CARB: Parties, Action and Posture Petitioners: a collection of concerned citizens and nonprofit organizations Respondents: CARB, the Chairman of CARB, and members of CARB Nature of Action: Petition for Writ of Mandate, filed June 10, 2009 Court: Superior Court of California, County of San Francisco, Judge Goldsmith

7 Timeline of Events June 10 th, 2009 January 24 th, 2011 March 18 th, 2011 May 20 th, 2011June 1 st, 2011 Initial Filing of Petition Interim Decision Final Decision Judgment and Writ CARB files appeal June 3, 2011Court of Appeal issues temporary stay June 13, 2011 CARB publishes amended FED June 20, 2011 AIR needs to file its response

8 AIR v. CARB: Arguments AIR makes arguments in two general categories 1.CARB improperly interpreted and failed to comply with AB 32 2.CARB violated CEQA and its Certified Regulatory Program because of inadequate FED CARB argues that it complied with AB 32 and CEQA, and that AIR disagrees with its policy decisions

9 AIR v. CARB: Court Decision 1.CARB did not improperly interpret or fail to comply with AB 32 2.CARB did violate CEQA because it >failed to adequately analyze alternatives to cap-and-trade in the program FED (e.g., no source-specific regulatory requirements without cap-and-trade component, carbon fee, no action, a variation of the proposed measures) >improperly approved the Scoping Plan prior to FED completion

10 AIR v. CARB: Judgment and Writ Limited to cap-and trade program only (recent development) 1.Order to set aside the Program FED 2.Enjoining “further implementation” of Scoping Plan >No further “rulemaking” activites >What is that? >notice and comments >finalize regulations >hold public workshops? Upper hand?

11 Recent Developments? May 23ARB files an appeal Issue: Is the Superior Court order automatically stayed? Thurs. June 2ARB petitions for writ of Supersedeas (1) argues that there is an automatic stay (2) if there is no automatic stay, asks for one Frid., June 3Ex-parte application by AIR with Superior Court Frid., June 3Court of Appeals issues temporary stay – asks AIR to file documents by June 20, 2011 Mon. June 6Superior Court finds CARB in violation of the writ

12 Is Everyone Confused Now? Even the courts are confused! What happened? >CARB claims AIR knew about the Court of Appeals stay but did not tell the Superior Court on June 3, 2011 >Who has the upper hand now? What next? >CARB is proceeding as if the Superior Court June 6, 2011 decision is “inoperative” >Superior Court cancelled hearing where Mary Nichols and James Goldstene were ordered to testify >AIR is asking Court of Appeals to cla

13 Bottom Line? AIR is probably right So what is CARB’s strategy? >Get a stay >Fix FED before appeal process concludes What’s the risk? >The stay is not granted