In a mostly-published 95-page opinion filed July 15, 2013, the Fifth District Court of Appeal reversed a trial court’s judgment and directed issuance of a writ of mandate setting aside Resolution 09-31 and two executive orders of the California Air Resource Board (CARB) approving Low Carbon Fuel Standards (LCFS) regulations promulgated to reduce greenhouse gas (GHG) emissions.  (Poet, LLC, et al. v. California Air Resources Board, et al (5th Dist. 7/15/13) 217 Cal.App.4th 1214, as modified on denial of rehearing at 218 Cal.App.4th 681, No. F064045.)  However, despite its finding that CARB’s actions “ran afoul of several procedural requirements imposed by CEQA and the APA” and that “these procedural violations are not trivial,” the Court tailored its remedy to protect the public interest by “allow[ing] the LCFS regulations to remain operative while [C]ARB complies with the procedural requirements it failed to satisfy.”  It stated:  “In other words, we will avoid the irony of violations of an environmental protection statute being used to set aside a regulation that restricts the release of pollutants into the environment.”

The LCFS regulations were issued by CARB, pursuant to the Global Warming Solutions Act of 2006 (the “Act”), to address the State’s single largest source of GHG emissions – transportation fuels – and they require the reduction of the carbon content of transportation fuels sold, supplied or offered for sale in California.  As summarized by the Court, “the Act required the LCFS regulations, as well as other [GHG] measures, to be in place by January 1, 2010” and, hence, “[C]ARB was a given a difficult task and the pressure of a statutory deadline.”

The published portion of the Court’s opinion held CARB committed three CEQA violations:  (1) CARB’s Board prematurely approved the LCFS regulations by resolution at its April 23, 2009 public hearing prior to CARB’s completion of CEQA review; (2) it unlawfully split the authority to approve the project (which CARB’s Board exercised) from its responsibility to complete environmental review (delegated to CARB’s Executive Officer); and (3) it unlawfully deferred formulation of mitigation measures for nitrogen oxide (NOx) emissions from biodiesel without committing to specific performance criteria to judge the efficacy of the future mitigation measures.  (In an unpublished 19-page portion of its lengthy opinion, the Court also upheld plaintiff’s Administrative Procedure Act (APA) claim by ordering that four emails between CARB and its expert consultants be included in its rulemaking file under Government Code § 11347.3(b)(6), as they contained “other factual information” and were “submitted to the agency.”)

Key points of the Court’s substantive CEQA analysis include:

  • CEQA’s exemption of action taken by a state agency under a certified regulatory program from certain of its provisions (Pub. Resources Code, § 21080.5(c)) is limited in scope:  “The practical effect of this exemption is that a state agency acting under a certified regulatory program [such as CARB, which did not prepare an EIR for adoption of its LCFS regulations] need not comply with the requirements for preparing initial studies, negative declarations or EIRs.  [citation]  The agency’s actions, however, remain subject to other provisions of CEQA.  (Guidelines, § 15250.)”  The rule that when a state agency’s certified regulatory program requires preparation of a plan or documentation containing the information required by Public Resources Code § 21080.5, the agency may rely on that plan or documentation in lieu of an EIR, is intended “to avoid the redundancy that would result if environmental issues were addressed in both program-related documents and an EIR.”
  • CARB’s arguments that its certified regulatory program’s procedures were the only ones applicable to its actions, and that the CEQA Guidelines did not directly apply to it, were therefore “unduly narrow” and wrong:  “A certified regulatory program is exempt from [CEQA’s] proceedings regarding the preparation of a negative declaration or EIR, but the ‘certified program remains subject to other provisions in CEQA such as the policy of avoiding significant adverse effects on the environment where feasible.”
  • The standards of judicial review applicable to agency action taken under a certified regulatory program, such as CARB’s, are “determined under the same analysis used in other CEQA contexts, such as those involving preparation of an EIR[.]”  Accordingly, the Court stated that “under the abuse of discretion standard set forth in section 21168.5, we will independently review claims of legal error and apply the substantial evidence standard to claims that [C]ARB committed factual error.”
  • Applying the principle that “[a] certified regulatory program remains subject to the provisions of CEQA outside the scope of the exemption provided by … section 21080.5[(c),]” the Court further held that “certified regulatory programs are subject to CEQA’s broad policy goals and substantive standards[,]” including the fundamental CEQA policy “that an evaluation of environmental issues, such as feasible alternatives and mitigations [sic] measures, should occur before an agency approves a project.”  While CEQA itself does not, the CEQA Guidelines do explicitly address the issue by providing:  “Before granting any approval of a project subject to CEQA, every lead agency or responsible agency shall consider a final EIR or negative declaration or another document authorized by these guidelines to be used in the place of an EIR or negative declaration.  See the definition of ‘approval’ in Section 15352.”  (Citing 14Cal. Code Regs., § 15004(a), emph. added by Court.)  Thus, the Court concluded that Guidelines § 15004(a)’s “timing requirement … applies to the environmental review documents prepared by [C]ARB in this case – that is, the staff reports and written responses to comments that [C]ARB used in lieu of an EIR.”
  • CARB was accordingly subject to the CEQA rule “that a public agency shall not ‘take any action which gives impetus to a planned or foreseeable project in a manner that forecloses alternatives or mitigation measures that would ordinarily be part of CEQA review of that public project.’”  (14 Cal.Code Regs., § 15004(b)(2)(B).)  As summed up by the Court:  “The policy of environmental review of feasible alternatives and mitigation measures makes practical sense only if that review occurs before an agency approves a project.  [citation]  Otherwise, the review is likely to be a post hoc rationalization.”  (Citing Laurel Heights Improvement Assn. v. Regents of Univ. of Cal. (1998) [sic; 1988] 47 Cal.3d 376, 394.)
  • The general principles set forth by the California Supreme Court in its decision in Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116, regarding the definition of project “approval” for CEQA purposes, should be extended to projects undertaken by public agencies under certified regulatory programs, and thus they applied to CARB’s actions in the instant case.  Under these standards “postponement of an EIR until after the project approval constitutes procedural error” subject to independent review by the Court.  According to the Court, “[t]he intended function of the environmental documents prepared under a certified regulatory program in lieu of an EIR is the same as that served by an EIR” and is “[t]o inform and guide decision makers.  These documents must be considered before approval of the project.”
  • Following Save Tara, the Court examined the terms of CARB’s relevant April 23, 2009 LCFS resolution itself, and also the surrounding circumstances, to determine whether CARB improperly “committed itself to the LCFS regulations, or any particular feature of those regulations, at the April 23, 2009, public hearing, so as to effectively ‘preclude any alternatives or mitigation … including the alternative of not going forward with the project ….’”  The surrounding circumstances included the notice of public hearing, which stated CARB was “to consider adoption of [the LCFS] regulation” and a post-hearing press release stating that:  “Today, [CARB] adopted [the LCFS] regulation ….”  Subsequent notices of the decision, as well as the terms of Resolution 09-31, reflected CARB’s “approval” of the LCFS in a manner that committed CARB to particular features of the LCFS regulations from which CARB’s Executive Officer – who subsequently completed the CEQA review – could not deviate.  Under the Board’s grant of authority under its resolution, the Executive Officer could not choose the alternative of not going forward with the project, and could not modify certain controversial additions made by the Board to the carbon intensity value assigned to corn-produced ethanol to account for indirect GHG impacts from land use changes required for that fuel’s production.  Since it was undisputed that environmental review under CARB’s certified regulatory program was not complete by April 23, 2009, the Board’s “preapproval” of the LCFS regulations violated CEQA.
  • CARB also erred in delegating CEQA review responsibilities to its Executive Officer, since CARB’s Board approved the LCFS regulations and CEQA requires the “decisionmaker” exercising approval authority to finalize and consider the environmental review document before approving the project.  According to the Court:  “Based on our reading of the case law, the principle that prohibits the delegation of authority to a person or entity that is not a decision-making body includes a corollary proposition that CEQA is violated when the authority to approve or disapprove the project is separated from the responsibility to complete the environmental review ….  For an environmental review document to serve CEQA’s basic purpose of informing governmental decision makers about environmental issues, that document must be reviewed and considered by the same person or group of persons who make the decision to approve or disapprove the project at issue.  In other words, the separation of the approval function from the review and consideration of the environmental assessment is inconsistent with the purpose served by an environmental assessment as it insulates the person or group approving the project ‘from public awareness and the possible reaction to the individual members’ environmental and economic values.’[citation]”
  • CARB’s impermissible deferral of analysis and mitigation of potential increases in NOx emissions resulting from increased use of biodiesel that will be caused by the LCFS regulations also violated CEQA.  CARB’s staff report and Resolution 09-31 both acknowledged future testing and rulemaking would need to occur “to establish specifications to ensure there is no increase in NOx” from increased biodiesel emissions; yet, despite this unresolved issue, the LCFS regulations included two pathways for biodiesel in the carbon intensity lookup table.  The final report generated by CARB’s biodiesel emissions study was not issued until October 2011 – long after project approval – and it called for still further research to understand biodiesel’s impacts; moreover, as of June 2013, CARB had still not adopted any regulations containing fuel specifications for biodiesel.
  • In surveying the case law on deferred mitigation, the Court observed:  “There is not a single, all-encompassing statement of the judge-made exception to the general rule prohibiting the deferral of the formulation of mitigation measures.”  From the various judicial expressions of the exception, the Court “glean[ed] two principles that are important to this case.  First, the deferral of the formulation of mitigation measures requires the agency to commit itself to specific performance criteria for evaluating the efficacy of the measures implemented.  Second, the “activity” constituting the CEQA project may not be undertaken without mitigation measures being in place ….  In other words, the deferral relates only to the formulation of mitigation measures, not the mitigation itself.  Once the project reaches the point where the activity will have a significant effect on the environment, the mitigation measures must be in place.”  Here, despite its goal of “no increase in NOx,” CARB did not commit to or articulate specific performance standards with “objective criteria for measuring whether the stated goal will be achieved ….  To illustrate this point, it is unclear what tests will be performed and what measures will be taken to determine that biodiesel use is not increasing NOx emissions.”
  • To remedy its “deferral” violations on remand, the Court directed CARB to “make a finding of fact, supported by substantial evidence, on the question whether the project will have a significant adverse effect on the environment as a result of the potential increase in NOx emissions.”  If so, the Court noted, CARB must adopt mitigation measures and, if not, it need not do so.  It noted CARB would have to determine the methodology for this analysis by resolving disputed factual issues in the first instance:  “For example, we cannot define the appropriate geographical area or areas for analyzing the NOx emissions [and] … we cannot determine whether the NOx emissions analysis should be done from the perspective that analyzes the project as a whole, each substitute fuel separate, or some other basis.”
  • In fashioning its remedy for CARB’s CEQA violations, the Court noted that CEQA’s judicial remedies provision (Pub. Resources Code, § 21168.9) “was enacted in 1984 for the purpose of providing courts with some flexibility in tailoring the remedy to the specific CEQA violations” and was “amended [in 1993] to expand the authority of courts to fashion a remedy that permits a part of the project to continue while the agency seeks to correct its CEQA violations.”  While the statute’s required remedial mechanism is a writ of mandate, the court has some discretion in selecting what statutorily-described “mandates” are contained in the writ:  “[T]he statute’s use of ‘shall’ and ‘one or more’ means that a court must choose at least one mandate, but has the discretion to choose (1) which one of the three mandates is appropriate and (2) whether additional types of mandates are included in the writ.”  The statute also limits the court’s authority by providing that its order: (a) “shall include only those mandates which are necessary to achieve compliance with [CEQA] and only those specific project activities in noncompliance with [CEQA]”; (b) “shall be limited to that portion of a determination, finding, or decision or the specific project activity or activities found to be in noncompliance only if [the] court” makes certain findings that “severance” is appropriate; and (c) that a Court may not “direct any public agency to exercise its discretion in any particular way.”  Further, Public Resources Code § 21168.9(c) clearly states that additional limitations on the Court’s remedial powers are not to be implied:  “Except as expressly provided in this section, nothing in this section is intended to limit the equitable powers of the Court.”
  • Applying the statute and its equitable powers, the Court voided the defective CARB approval, yet concluded this did not “automatically suspend[] the operation of the LCFS regulations.”  It reasoned that the “operation and enforcement of the LCFS regulations” are not a “determination, finding, or decision” under the statute, but instead “constitute[] the ‘project activity or activities’”, the suspension of which posed “a separate question from whether to void the approval of the LCFS regulations.”  Thus, “our decision to void the premature approval of the LCFS regulations does not require us to suspend the operation of the regulations.”  The statute contains no express or implied prohibition of “allowing a regulation, ordinance or program to remain in effect pending CEQA compliance” and the courts “retain the inherent equitable power to maintain the status quo pending statutory  compliance, which permits them to allow a regulation, ordinance or program to remain in effect.”  In doing so in this “extraordinary” case, the Court acknowledged the “more common alternative” would be suspension of the regulations’ effect, but it found that allowing their continued operation here would not prejudice consideration or implementation of mitigation measures or alternatives.  Further, although it found “[t]he [required] inquiry into environmental effects is especially complex in this case … [o]n balance we conclude that the environment will be given greater protection if the LCFS regulations are allowed to remain operative pending [C]ARB’s compliance with CEQA.”  The Court stated:  “[T]he LCFS regulations should remain in operation so long as [C]ARB is diligent in taking the action necessary to bring its approval of the project into compliance with CEQA.  This exercise of our discretionary authority, while unusual, does not contravene principles established in other published cases.”

Questions?  Please contact Arthur F. Coon of Miller Starr Regalia.  Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for over forty-five years.  For nearly all that time, the firm also has written Miller & Starr, California Real Estate 3d, a 12-volume treatise on California real estate law.  “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state.  The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, construction, management, title insurance, environmental law, and redevelopment and land use.  For more information, visit www.msrlegal.com.