September 17, 2017 by Ronjoy Bezbarua
California’s cap and trade extension bill uses odd language to require offsets to come from California, stipulating that “no more than one-half may be sourced from projects that do not provide direct environmental benefits in the state.” If the legislature wanted to promote California projects, why use this indirect language about environmental benefits?
A significant number of Ozone Depleting Substances projects remove refrigerants from California but destroy them in facilities out of state. At first, we believed this “direct environmental benefits” requirement may be a reference to including these as in-state projects. Yet, this environmental benefit language can also be seen as a defense against challenges that the in-state provision violates the Dormant Commerce Clause. By focusing on California environmental benefits, the legislation makes the case that the intent of this provision is to benefit the California environment; not the California economy, at the expense of out-of-state actors.
California’s Renewable Portfolio Standard has an existing example that may be instructive here. To generate Renewable Energy Certificates to comply with the standard, the California Energy Commission requires power plants purchasing biomethane to demonstrate that biomethane has environmental benefits in California. The RPS Eligibility Guidebook sets a series of specific tests to determine if the fuel has an air, water or odor benefit within California—foreshadowing how the California environmental benefits of offsets could be assessed.
Whether or not this argument will survive a legal challenge will depend on a court’s assessment of the true intent of the California offset requirement.