Takeaways

• An environmental justice group has filed a lawsuit challenging California’s recent carbon market overhaul, claiming regulators failed to complete the required environmental review.
• The case focuses on a new manufacturing decarbonization incentive that could grant additional carbon allowances to industrial facilities in exchange for emissions-reduction investments.
• The lawsuit also raises concerns that the changes could reduce funding for climate and community projects while affecting California’s long-term emissions goals.

An environmental justice organization has taken legal action against California’s air pollution regulator, challenging the state’s recently approved carbon market overhaul. The lawsuit argues that the updated rules were adopted without completing the environmental review required under state law.

The case, filed in Los Angeles County Superior Court by Communities for a Better Environment, targets the California Air Resources Board (CARB) over changes made to the state’s long-running cap-and-invest program. The legal challenge marks the first major court case involving the program since lawmakers extended it from its original 2030 deadline to 2045.

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California’s cap-and-invest program requires major sources of greenhouse gas emissions, including power plants, refineries and industrial facilities, to purchase carbon allowances based on the amount of carbon dioxide they release. Companies that reduce emissions can trade unused allowances through regular state auctions.

Earlier this year, CARB approved revisions designed to strengthen the program by reducing the number of available allowances over time. Officials said the move would help California remain on track to reach carbon neutrality by 2045.

However, shortly before the final vote, the board added a new manufacturing decarbonization incentive. The measure allows eligible manufacturers to receive additional carbon allowances if they invest in projects aimed at lowering emissions. State officials said the incentive is intended to help businesses modernize operations while reducing the risk of companies relocating outside California.

The lawsuit claims the incentive was introduced too late in the rulemaking process and was not properly evaluated under the California Environmental Quality Act (CEQA). According to the complaint, the environmental review released earlier in the year did not assess the effects of the new proposal, while the final assessment became publicly available only days before the board meeting.

Communities for a Better Environment is asking the court to require CARB to withdraw the updated regulations, conduct a fresh environmental review, and reconsider the changes before moving forward.

CARB has rejected the allegations, saying it complied with all legal requirements during the rulemaking process. The agency also argued that delaying or overturning the changes could create uncertainty for California’s climate policies and reduce funding generated through the carbon market.

The lawsuit also questions the financial impact of the new incentive. Revenue from California’s carbon allowance auctions supports the Greenhouse Gas Reduction Fund, which finances housing, public transportation, clean air initiatives and water projects. Critics point to a legislative analysis estimating the incentive could reduce annual funding by around $2 billion.

Supporters of the lawsuit argue that lower revenues could disproportionately affect low-income communities that already face greater exposure to air pollution and climate-related risks.

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Legal experts say the court’s decision will likely depend on whether the new incentive introduced environmental impacts that required additional review under CEQA. The case could also examine whether reduced funding for public climate projects should be considered part of that environmental analysis.

California’s carbon market, launched in 2013, has generated roughly $35 billion for climate-related investments. While the program has survived previous legal challenges, the latest lawsuit could shape how future changes to the state’s climate policies are reviewed and implemented.

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Source: AOL