Special Topics in Environmental Management

Air District’s RECLAIM Amendment Vacated by CA Judge

A judge with the Los Angeles Superior Court recently ruled in favor of several environmental groups that had sued to prevent the Board of South Coast Air Quality Management District (SCAQMD) from reducing, without soliciting public comment, the number of trading credits in SCAQMD’s air pollution control program by less than what had been previously proposed by staff of the SCAQMD.

Supported by the Western States Petroleum Association (WSPA), the SCAQMD Board took the position that the change in credits was not substantial enough to alter the “meaning” of the proposal, and so public comment was neither required nor necessary. But Judge Amy D. Hogue found nothing insubstantial about the change and, accordingly, termed it a “quasi-legislative decision” subject to an arbitrary and capricious standard that the SCAQMD failed to meet.

RECLAIM—23 years old

While a local case, the ruling affects one of the nation’s oldest and more successful air pollution credit trading programs. Established in 1994, the Regional Clean Air Incentives Market (RECLAIM) requires industrial facilities in the SCAQMD to reduce their emissions of nitrogen oxides (NOx) and sulfur oxides (SOx) either by directly cutting the emissions by use of pollution control equipment or by purchasing RECLAIM trading credits (RTCs) earned by other facilities whose emissions are below the NOx and SOx caps. RECLAIM was largely motivated by the thinking that many facilities faced financial or technical obstacles in installing pollution control equipment that would allow them to meet the emissions limits without obtaining credits. Since RECLAIM’s adoption in 1993, there has been a 69 percent decrease in emissions.

However, also over the years, the difficulties associated with installing pollution control equipment have diminished.  In other words, it has become easier for facilities to generate RTCs, which have consequently gone down in price. As a result, facilities can spend less (to purchase RTCs) to emit more NOx and SOx. The SCAQMD came under pressure to stop allowing facilities to pollute provided they obtained RTCs. In early 2017, the SCAQMD Board members responded by voting 7 to 6 to sunset RECLAIM and revert to command-and-control emissions requirements. But a phaseout schedule has yet to be developed, and hence, the superior court ruling remains highly relevant.

Background on amendment

In 2012, the SCAQMD determined that NOx RTCs available for trading exceeded actual NOx emissions and that an adjustment to RECLAIM was needed. In October 2015, SCAQMD staff issued a proposal to reduce NOx RTCs by 14 tons per day (tpd) by December 2022. But in a December 2015 hearing, the SCAQMD Board decided to reduce the reduction to 12 tpd, a move endorsed by industry and the WSPA.  The WSPA still regarded the 12 tpd cut to be a “dramatic reduction.” The environmental coalition asserted that the 2-tpd change effectively allowed facilities to delay installing pollution control equipment in one of the worst air quality regions in the country.

Public comment requirement

In her ruling, Hogue notes that an Agency’s action must be upheld unless upon review it constitutes an abuse of discretion. Hogue cites a 2005 opinion by a California appellate court that stated that while a court may not substitute its judgment for that of an agency, the court must ensure that the agency has adequately considered all relevant factors and has demonstrated a rational connection between those factors, the choice made, and the purposes of the enabling statute.

The SCAQMD action under review is whether the change from an RTC reduction of 14 tpd to 12 tpd did not necessitate a prior public comment period because it was not, as the SCAQMD contended, “so substantial as to affect the meaning of the proposed rule or regulation.”

SCAQMD’s administrative code indicates that in determining if a change is substantial enough to affect the meaning of an amendment, the Board must consider four factors: (a) impact of the change on emission reductions; (b) impact of the change on sources regulated by the rule; (c) the contents of the public notice; and (d) the range of project alternatives described in the California Environmental Quality Act (CEQA) document.

Factors not considered

In its resolution to change the tons-per-day amendment, the Board stated that it considered these four factors. However, Hogue writes that there is no evidence that such consideration actually occurred.

“For example, there is no evidence the Board evaluated the content of the Notice of [the December 2015] Hearing as required under factor (c),” wrote Hogue. “Because the Notice of Hearing did not include a copy of the 12 tpd amendment or a summary of the effect of that amendment as required under [California Health and Safety Code] Section 40725, this factor arguably weighs in favor of conducting a further hearing. There is likewise no evidence the Board evaluated the impact of the adopted resolution on emissions as required under factor (a).”

Furthermore, wrote Hogue, the CEQA analysis attached to the Notice of Hearing addressed five alternatives that had been discussed by the SCAQMD staff, but none of these alternatives proposed a 12-tpd reduction or evaluated the impact of such a proposal, and none were endorsed by the SCAQMD staff.

“Finally, there is no evidence the Board considered the effect of the 12 tpd reduction on the regulated facilities when it determined there was no need for further proceedings as required under factor (b),” wrote Hogue.

Hogue concluded:

“The Air District’s application of an incorrect standard and its failure to weigh and consider the relevant factors undermined the purposes of Section 40726. The mandatory language in this provision (the Air district ‘shall not take action on a changed text’ when it includes changes ‘so substantial as to significantly affect the meaning of the proposed rule or regulation’) underscores the Legislative purpose of ensuring that the public has 30 days notice and a bona fide opportunity to comment before the District adopts or amends a regulation with changes that significantly affect the meaning of the proposal presented in the Notice of Hearing.”

This provision is mirrored in SCAQMD’s Administrative Code.

‘Halfway’ defense

In its defense, the SCAQMD argued that the 12-tpd shave was “very close to halfway” between alternatives considered in the SCAQMD staff’s report. This argument did not appeal to Hogue.

“The District fails to cite authority for the proposition that the statutory notice requirements do not apply so long as the Board’s change in text is a number ‘halfway’ between the alternatives identified in the staff report,” wrote Hogue.

Hogue’s ruling is here.

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