New Environmental Review Process Delays California’s LCFS Readoption

Source: By Curt Barry, Inside EPA • Posted: Monday, February 23, 2015

SACRAMENTO, CA — California air board officials have delayed formal readoption of their low-carbon fuel standard (LCFS) because they have incorporated a new environmental-impact review process into their regulatory adoption schedule due to court rulings that found they had violated review requirements.

Rather than formally adopt the LCFS and other rules as they have previously, California Air Resources Board (CARB) officials have now implemented a “two-step process” where proposed rules are presented to the board, returned to staff for environmental analysis and then rescheduled for final board votes months later.

The new process was on display at the board’s Feb. 19 meeting, where CARB Chairwoman Mary Nichols clarified that the board would not be voting to approve the LCFS — as many had previously expected — but would instead hold a hearing on the proposal and then act on a resolution instructing staff on how to proceed.

“The board today will not be voting on the actual proposal,” she said. “We will be listening and paying attention to comments . . . and acting on a resolution to direct the staff to make any additional changes needed and bring them back for a formal vote” in a few months, she added.

While some stakeholders say the regulatory adoption delays are troubling because they heighten uncertainty about final rules, others say the additional time is valuable to ensure the measures are legally sound and fully vetted.

CARB officials have scrambled to incorporate the new environmental-impact review process for the adoption of new regulations and regulatory amendments under the California Environmental Quality Act (CEQA) ever since a state appellate court ruled in 2013 that the LCFS was illegally adopted in 2009 for failure to satisfy CEQA and the Administrative Procedure Act.

In that case, POET LLC, et al., v. CARB, ethanol companies used CEQA to challenge the LCFS based on allegations that the environmental review was illegally approved and that it failed to adequately calculate the potential release of smog-forming pollutants, among other environmental effects. One part of the ruling held that ARB violated a fundamental policy of CEQA by improperly delegating responsibility for completing the environmental review process to its executive officer

.As a result of the decision, CARB was forced to freeze its 2013 LCFS requirement — a 1 percent reduction in carbon intensity — through 2015. Clean fuel researchers recently found that CARB’s action contributed to a reduction in estimated production capacity for low-carbon advanced biofuels in 2014 and increased uncertainty for the industry, which has now been pushing for formal readoption of the standard.

Many leading biofuel and alternative fuel industry representatives met here Feb. 3 for the “Clean, Low-Carbon Fuels Summit,” focusing discussion on CARB’S expected re-adoption of the LCFS and the importance of the regulation in continuing investment in alternative fuels.

The rule is considered crucial for the industry because it requires fuel providers to reduce the carbon intensity of gasoline and diesel 10 percent by the end of 2020, compared with a 2010 baseline. Companies can comply by blending cleaner fuels, such as ethanol and biodiesel, into gasoline and diesel and by purchasing credits generated by utilities and other companies that provide natural gas, electricity or hydrogen for transportation purposes.

The state rule’s re-adoption is especially significant for the industry given continuing uncertainty over the fate of EPA’s renewable fuel standard, since the federal agency has yet to set blend targets for 2014.

But the formal adoption of the LCFS and other CARB regulations has been delayed because of the newly realized CEQA obligations, including the adoption of a greenhouse gas offset protocol for rice harvesting previously scheduled for approval last year.
Two-Step Process

CARB officials have not clearly stated during board meetings over the past year that these delays were caused by their CEQA obligations, but individual officials have provided indications to that effect in recent months. “Unfortunately, it took losing a case or two on CEQA . . . to educate us about the fact that, yes, we are subject to this law and we have to follow the procedures precisely, even when what we are doing is adopting rules that are beneficial to the environment,” Nichols told Bloomberg BNA recently.

If “anyone has a beef with any aspect of the rule, they can find some issue where you might possibly cause, even though it’s unlikely, an adverse impact in some area. You’ve got to dispose it, you’ve got to say how you’re planning to deal with it. And we had not always been doing that prior to the board actually adopting the rule,” Nichols said.

Nichols told the Feb. 19 meeting that the board has now adopted a “two-step process as a result of the procedural requirements which we are now fully implementing. And so we will be listening, learning . . . and directing staff via a resolution. But the actual final adoption of the rule will not happen until we have an opportunity for one more hearing.”

CARB had originally scheduled to re-adopt the LCFS last year. On numerous occasions last year, officials said that the re-adoption had been rescheduled for February 2015, with all indications that the standard and amendments were to be formally voted on at the meeting this week.

A CARB spokesman now says that the board will not actually vote on the LCFS re-adoption and regulatory amendments until May or June. However, several stakeholders said during the CARB meeting this week that they had heard the re-adoption likely not occur until July.

Some stakeholders say they are uncomfortable with the process and the uncertainty that it brings. “I think all the stakeholders and even CARB staff are still trying to figure out how this new process should work,” says an alternative-fuel industry source. “My primary concern is how CARB will handle any significant changes to their [LCFS] proposal which are made after the February board meeting, and how we will be able to engage the board on these changes before they vote on this item this summer.”

Specifically, “mostly I am concerned about the unknown; what changes might another group call for and ARB staff agree to that will impact [certain fuels] or the LCFS program as a whole,” the source adds.

An environmentalist says CARB’s new CEQA-compliance process “definitely slows the process down.” However, “the upside may be that any mistakes can be corrected before a regulation is approved,” the source says.

Other stakeholders are generally supportive of CARB taking more time to adopt regulations or regulatory amendments. A spokesman for the Western States Petroleum Association (WSPA) says CARB’s “recent practice of holding multiple hearings on these important, and complex, issues seems to us appropriate. It gives the board and stakeholders more time to identify issues and problems and work out solutions that are acceptable to all parties. It is a much better approach than forcing the board into a decision before members are fully apprised of all of the issues involved in a regulation.”

However, in terms of the re-adoption of the LCFS, “the downside is stakeholders don’t know with surety what the compliance schedule and other changes will be until late 2015 and will then face 2016 requirements soon after,” the WSPA spokesman says.

A second CARB spokesman declined this week to elaborate on the new CEQA compliance process and its impact on board regulatory decisions. “Nothing further,” the spokesman says. “We are following the requirements of California law.”