An environmental justice group is asking a California court to block the state's carbon market regulator from implementing changes to the cap-and-invest program, alleging the agency failed to follow state procedures.
The group, Communities for a Better Environment (CBE), filed its lawsuit on 1 July with the Superior Court of California for Los Angeles County. CBE claims the California Air Resources Board (CARB) violated the California Environmental Quality Act (CEQA) when its board adopted a package of cap-and-invest program amendments on 29 May with an "inadequate" environmental impact assessment (EIA).
The group asked the court to issue a temporary stay or a preliminary or permanent injunction preventing CARB from implementing the changes and require the agency to set aside its approval of the regulatory amendments and final EIA.
CARB plans to implement the changes to the program on 1 September, following a review by the state Office of Administrative Law (OAL). OAL is required to evaluate whether agency amendments comply with state laws and procedures for regulations before implementation.
CARB has said it must meet the September date so that it can implement required changes to free allowance levels for state utilities and emissions-intensive, trade-exposed industries for their 2027 allocations. Additionally, the agency plans to begin evaluating a link with Washington's cap-and-invest program in September.
CBE's objections focus on changes CARB made to the manufacturing decarbonization incentive (MDI) from the initial January proposal to the final version issued in April, and the assessments of its environmental impacts.
The MDI program would allocate carbon allowances from a pool of 118.3mn to eligible industrial participants over 2028-2035 for investments in CARB-approved decarbonization projects. The allowances would fall outside the program's annual emissions limits, also known as annual caps.
CARB proposed a different structure in January that would have utilized at minimum 40mn allowances from 2034-45 budgets, which would be under the program's caps, and the agency would separately remove 118.3mn allowances from the program through 2030. This initial proposal excluded energy industries, such as liquid fuels providers, from applying for the MDI allocations, but CARB changed this in April.
CEQA sets essential procedural requirements to review the environmental consequences of rulemakings, including EIAs.
CARB adopted the amendments with an EIA that, the group said, did not accurately describe the MDI and its eligibility requirements, fully reflect the impacts of a larger pool of incentive allowances or provide an adequate baseline of physical environmental conditions at the time of publication, among other claims.
"The final EIA makes no effort to determine whether providing these specific industries the opportunity to utilize 118mn free allowances through the MDI will increase air pollution or greenhouse gas emissions beyond what was analyzed in the draft EIA's analysis of the January proposal," the group said in its court petition.
CARB and the office of state attorney general Rob Bonta (D) did not immediately respond to requests for comment.
CBE is pursuing a similar case against CARB, claiming CEQA violations related to amendments to the state's Low Carbon Fuel Standard. That case, filed in 2024, is ongoing.
