First California Cap-and-Trade Auction Delayed, Lawsuit Filed to Challenge Offset Protocols

From Allison C. Smith and Lee N. Smith:

Last week was busy for the California Cap-and-Trade Program, adopted by the California Air Resources Board (CARB) last December under A.B. 32. First, last Tuesday, CARB Chairman Mary Nichols announced at a Senate hearing that the first scheduled Cap-and-Trade allowance auction, scheduled for August 2012, will be a “practice” auction rather than a “real” auction for the purchase of actual allowances. Reportedly, the delay is to allow industry to gain an understanding of how actual, future auctions will work. The first “real” auction is still scheduled for November 1, 2012.

On Wednesday, March 28, two environmental groups, the Citizens Climate Lobby and Our Children's Earth Foundation filed suit in San Francisco Superior Court challenging the use of greenhouse gas emission offsets by entities regulated under Cap-and-Trade to meet their Cap-and-Trade compliance obligations. Although the suit will not necessarily delay implementation of Cap-and-Trade and the offset program, if the lawsuit ultimately invalidates the offset protocols and eliminates the use of offsets to meet Cap-and-Trade obligations, the cost of compliance for industry could be substantially increased. Plaintiffs are alleging that the offset program, with its four adopted offset protocols, are reductions that would have occurred in the normal course of business, and are therefore not "additional” greenhouse gas reductions and threaten the overarching integrity of the Cap-and-Trade Program. The plaintiffs request a repeal of the four offset protocols approved in December 2011 and a prohibition on using offsets in place of greenhouse gas allowances to meet Cap-and-Trade obligations.

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