Cap and Trade Legal Issues

California's state global warming law, AB 32, presents a number of potential legal issues with respect to the Cap and Trade provisions. Many of these same issues will apply to the federal legislation, once that effort results in a law.

In no particular order, then, the legal issues include Early Action Credit; Conflict of Laws wherein AB 32 requires a company to install a project, yet a local Air District permit is refused; Influencing Cap and Trade regulations through appropriate advocacy; Cap and Trade strategies; Review and guidance on Compliance Plans; and Legal Challenges to specific regulations.

Early Action Credit

This refers to the time at which improvements to a facility that result in GHG reductions shall be credited. Some facilities have installed improvements before the AB 32 rules were or will be implemented. However, it is not yet clear which improvements, and how far back in time, the credits for this will be allowed. A knowledgeable attorney can advocate effectively for appropriate credits.

Conflict – AB 32 requires project, AQMD permit refused

A conflict between state agencies arises where AB 32 requires a project to be installed, yet a local air district such as the AQMD refuses to issue a permit for its construction.

Cap and Trade Advocacy

During the rules formulation period that is presently in progress, entities have the opportunity via the public participation process to make comments, meet with committees and ARB board members, and generally make their views known in an effort to influence the regulations.

Cap and Trade Strategies

When the final regulations for cap and trade are in place, there will exist several strategies to employ for compliance, and maximizing profits. As an example, does one spend capital to reduce GHG emissions, or purchase carbon credits? If one elects to spend the capital and generate carbon credits, does one sell those credits into the market, or hold them (bank them) for future use? If one is allowed to, and has the resources, should one purchase carbon credits as an investment? Should a facility that emits GHG speculate in the carbon credit market?

Compliance Plan Guidance

An entity should develop a compliance plan that may be integrated with other corporate plans, such as capital spending plan. The AB 32 compliance plan will vary from one entity to another.

Legal Challenge to Requirements

There may be some requirements under AB 32 that may be challenged legally on a number of bases. Each part of AB 32 requirements must comply with the legislative requirements.