LawFlash

California Air Resources Board Unveils Plan to Achieve Carbon Neutrality by 2045

June 13, 2022

The California Air Resources Board’s proposal to reduce statewide greenhouse gas emissions calls for “squeezing the carbon out of every sector” of California’s economy.

The California Air Resources Board (CARB) is taking public comment on its Draft 2022 Scoping Plan Update that, when final, will describe a broad portfolio of existing and emerging fossil fuel alternatives and clean technologies meant to decarbonize California. According to CARB, the proposed plan is intended to:

  • Transition California to a clean energy economy
  • Reduce the state’s reliance on fossil fuels
  • Attain carbon neutrality by 2045 (or sooner)
  • Improve statewide air quality, particularly for disadvantaged communities

CARB’s proffered path toward a carbon-neutral future builds upon California’s historic leadership in shaping clean air law and policy, and the agency’s draft plan effectively doubles-down on the state’s climate change and zero-emissions goals.

BACKGROUND

The California Global Warming Solutions Act of 2006 (commonly known as Assembly Bill 32 or AB 32) requires CARB to develop, and to update every five years, a scoping plan that sets forth the approach California will take to reduce statewide greenhouse gas (GHG) emissions.

Initially, AB 32 established a goal of reducing GHG emissions to 1990 levels by 2020. In 2016, the California legislature passed Senate Bill 32 (SB 32) which strengthened this emissions reduction target to require the state to achieve a reduction of at least 40% below 1990 levels by 2030. In 2018, then California Governor Jerry Brown issued an executive order establishing a statewide goal to achieve carbon neutrality as soon as possible, and no later than 2045. In 2020, Governor Gavin Newsom issued his own executive order calling for a transition away from fossil fuels, including the phase out of gasoline-powered cars, as part of a statewide effort to address climate change.

Following that order, in July 2021, Governor Newsom directed CARB to accelerate California’s efforts to transition to a low-carbon future and, specifically, to evaluate how to achieve carbon neutrality by 2035, a full decade earlier than the then-existing target of 2045, as part of CARB’s scoping plan update process.

CARB’S PROPOSED SCENARIO

CARB staff used modeling to evaluate four potential scenarios in order to identify what the agency considers the most viable path to achieve California’s climate reduction and clean air goals:

  • Scenario 1: Seeks to achieve carbon neutrality by 2035 with a near-complete elimination of fossil fuel combustion, including early retirement of vehicles, appliances, and industrial equipment, as well as phase out of oil extraction and production operations and combustion-based generation resources for electricity. Directly regulates dairies such that no new digesters or landfill dairy capture would be supported, opting instead to reduce methane emission via reduction in herd size and increased composting. Likely would require some role for carbon capture and sequestration (CCS) and/or engineered carbon dioxide (CO2) removal for certain industry sectors to remain viable.
  • Scenario 2: Seeks to achieve carbon neutrality by 2035 by applying an “all tools” approach largely reliant upon strong consumer preferences, adoption of clean fuels and technologies, and use of CCS and other CO2 removal. Does not phase out all fossil, biomass-derived, or hydrogen combustion and allows for retirement of combustion vehicles, appliances, and industrial equipment at end of life. Similarly contemplates renewable and zero carbon sources for electricity generation and provides for a more measured winding down of oil extraction and production operations to coincide with reduction in demand. Allows for the capture and use of biogas from dairies to achieve methane targets.
  • Scenario 3: Seeks to achieve carbon neutrality by 2045 by deploying a broad portfolio of existing and emerging fossil fuel alternatives and clean technologies across key industry sectors to gradually move toward carbon neutrality in alignment with current legislative and executive mandates.
  • Scenario 4: Seeks to achieve carbon neutrality by 2045 with a less aggressive “all tools” approach, including a more gradual adoption of clean fuels and technologies by consumers and slower rates of clean fuels and technology deployment, as well as increased reliance on CO2 removal.

CARB concluded that Scenario 3 (the Proposed Scenario) is the “best choice to achieve California’s climate and clean air goals while balancing the legislative direction on prioritizing direct emissions reductions, being technologically feasible, and being cost-effective.” According to CARB, the Proposed Scenario allows for a realistic timeline to develop the infrastructure and technology needed to meet California’s air quality goals and comes without some of the higher costs and considerable uncertainties associated with the implementation of emerging technologies called for by the other alternatives.

KEY INDUSTRY SECTORS

The Proposed Scenario outlines specific actions for certain key industries to achieve California’s carbon neutrality goals, focusing primarily on transportation, electricity, buildings, and manufacturing and industry.

Transportation

The Proposed Scenario addresses three aspects of the transportation sector: technology (i.e., vehicles and refueling infrastructure), fuels that power and produce vehicles, and vehicle miles travelled. With respect to technology, the plan calls for “an overwhelming and rapid transition to zero-emission vehicles (ZEV).” Beyond California’s existing 2035 ZEV target for light-duty vehicles and an all-ZEV medium and heavy-duty fleet by 2045, the plan proposes that all medium-duty truck sales would be ZEV by 2040. CARB also plans for 100% of passenger locomotive sales to be ZEV by 2030, while all line haul locomotive sales are to be ZEV by 2035.

The Proposed Scenario recognizes that the transition to 100% ZEV transportation will take some time, so CARB also plans to promote investment in low-carbon liquid fuels as part of its overall strategy to reduce GHG emissions. As a part of this approach, the scoping plan contemplates broadening the scope and stringency of the Low Carbon Fuel Standard (LCFS). This program, established in 2009 as a key component of AB 32’s GHG emissions reduction strategy and amended in 2018 to meet SB 32’s goals, sets a declining limit for carbon intensity (CI) in fuels sold. The LCFS grants credits to fuels sold below CARB’s standard, and deficits if the fuel’s CI is higher than allowed. Fuel sellers must balance any deficits with LCFS credits, which has increased the incentive to produce low-CI fuel.

The Proposed Scenario contemplates several potential changes to the LCFS program. Specifically, CARB will consider accelerating existing pre-2030 CI targets for the LCFS and likewise lowering the post-2030 CI targets tethered to the 2030 levels. The plan also proposes to increase the availability of ZEV refueling infrastructure by offering LCFS infrastructure credits for hydrogen and electricity refueling stations.

Beyond mitigating GHGs emissions from vehicles and fuels, the Proposed Scenario aspires to further limit the transportation sector’s carbon impact by reducing the amount of vehicle travel. CARB states that California is not currently on track to meet the vehicle miles travelled reduction goals it set in 2017 in connection with the prior scoping plan update. Thus, CARB sets new targets to reduce vehicle miles travelled per capita by 12% below 2019 levels by 2030 and 22% below 2019 levels by 2045.

Electricity

The Proposed Scenario describes decarbonizing California’s electricity sector as a “crucial pillar” in achieving its carbon neutrality targets. According to CARB, carbon-based electricity generation will need to be phased out in favor of sources such as solar, wind, energy storage, geothermal, biomass, and hydroelectric power. To that end, the plan requires that all retail sales of electricity be from renewable and zero-carbon resources by 2045.

CARB does not propose any material changes to California’s Cap-and-Trade program, which puts declining limits on the amount of GHGs that can be produced by the state’s top emitters. However, the plan does incorporate and discuss several key changes that went into effect in 2021, including:

  • Doubling the program’s annual cap decrease from 2% to 4% from 2021 to 2030
  • Establishment of a high-demand price ceiling
  • Redesign of a two-tiered price containment reserve to satisfy potential market demand
  • Inclusion of a 100% leakage assistance factor for industry
  • Lowering offset limits from 8% to 4%, with half of the offsets to benefit California

CARB’s status-quo approach to Cap-and-Trade appears to stem from its expectation that the policy will play a reduced role moving forward. According to CARB, “the greater the actual reductions from non-Cap-and-Trade Program measures are, the less reliant the GHG reduction program will be on the need for Cap-and-Trade to ‘fill the gap’ to meet the state’s 2030 reduction target.”

Buildings and Infrastructure

The Proposed Scenario adopts several measures intended to lower emissions in new residential and commercial buildings and reduce GHG emissions from old appliances within existing buildings. To that end, CARB plans to take a multidimensional approach that includes strengthening building standards to support zero-emission new construction and developing building performance standards for existing buildings. Under the Proposed Scenario, all appliances must be electric by 2026 for new residential buildings and by 2029 for new commercial buildings.

The Proposed Scenario also places increased emphasis on replacing existing gas appliances with their electric counterparts. Specifically, by 2035, CARB’s plan calls for all residential home appliance sales to be electric in existing buildings. The plan hopes to see benefits in this sector from improved energy efficiency, adopting the legislature’s goal to double statewide energy efficiency savings in electricity and fossil gas end uses by 2030.

Manufacturing and Industry

California’s industrial sector represents a crucial part of its economy and contains some of its most difficult industries to decarbonize. In particular, heating and combustion emissions contribute greatly to GHG production, so CARB hopes to replace fossil fuels with a mix of electricity, solar thermal heat, biomethane, low or zero-carbon hydrogen, and other low-carbon fuels for these purposes.

For industries where it may be challenging to feasibly electrify, such as cement production facilities and oil refineries, the Proposed Scenario views CCS technology as a key piece in mitigating process emissions. According to CARB, CCS will play an important role in supporting clean power for reliability needs and hydrogen production until such time as sufficient renewable power is available.

CONCLUSION

The Draft 2022 Scoping Plan Update sets forth an ambitious and aggressive roadmap for California to achieve its ultimate goal of statewide carbon neutrality. CARB’s Proposed Scenario is wide-ranging; it will impact not only the transportation and fossil fuel industries, but also nearly all aspects of residential and commercial energy use.

CARB will be accepting comments on the Draft 2022 Scoping Plan Update through June 24, and is scheduled to conduct a public hearing on June 23 to consider the plan. Interested parties should continue to monitor the status of CARB’s plan and any potential future changes, as they may have significant implications to California’s regulation of GHG emissions and will almost certainly affect how California will conduct business moving forward.

For additional information, please visit CARB’s website.

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CONTACTS

If you have questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Los Angeles
Rick R. Rothman
David K. Brown

San Francisco
Ella Foley Gannon
Thomas F. Gede

Summer associate J.C. Gonzalez contributed to this LawFlash.