All businesses will be affected by AB 32,
known as the California Global Warming Solutions Act of 2006, especially with rising electricity and fuel prices. The
only unknown is the extent of the fiscal
impact and whether efficiencies will offset
the increased costs. AB 32 is considered to be
the most aggressive mandatory global warming program in the world, so the earlier CEOs
develop an understanding of it, the better off
they will be.
It is possible to forecast AB 32’s final emission-cutting strategy by reviewing the 2007
ARB (Air Resources Board) draft recommendations, according to John J. Lormon,
partner and chair of the Environmental, Land
Use and Governmental Affairs Practice
Group with Procopio, Cory, Hargreaves &
Savitch LLP.
“California intends to publish its final scoping plan to reduce greenhouse gas emissions
(GGE) through regulations, market mechanisms and other actions by Jan. 1, 2009,”
Lormon says. “CEOs should pay attention
because the first draft of the scoping plan
was released in June 2008, and the final strategy will be adopted by the end of 2010. The
law includes fines up to $1 million for corporations and criminal sanctions of up to one
year in jail for individual offenders.”
Smart Business spoke with Lormon about
the likely final regulations under AB 32 and
what CEOs should do to prepare.
What areas are targeted by AB 32?
AB 32 targets a return to 1990 emissions
levels by 2020 (as much as a 30 percent
reduction from what the 2020 emissions
would otherwise be). There are many AB 32
effects, including the following: increases in
electricity, fuel, construction and manufacturing cost; land use and forestry conservation impacts; and consumer lifestyle
changes.
What were the early recommendations, and
how will they impact energy and fuel?
Electrical utilities must triple their investment in renewable energy sources, and automobile manufacturers will have to produce
more efficient light duty vehicles (if the U.S.
EPA grants California a waiver), which may
cost more to buy but should cost less to operate. Buildings, both new and retrofitted, will
have to be more energy efficient, so property
and leasehold acquisitions must consider
these requirements and costs.
Regulations similar to those required for
vehicle smog checks will apply to mobile air
conditioning units and make it illegal to self-repair a motor vehicle air conditioning unit.
Tire pressure monitoring system will be
installed in all vehicles sold in California to
increase mileage and reduce emissions.
What recommendations apply to manufacturers?
Appliance manufacturers will be impacted
by regulations both directly and through their
supply chains. Reduction of ozone-depleting
substances used in consumer products will
require reformulation of everything from
cleaning products to paint and other coating
materials; perfluorocarbons emissions in
semiconductor manufacturing will be
reduced or phased out. Regulation of the
cement industry will impact all aspects of the
building industry and its customers.
Are there any other recommendations that
will impact businesses?
The Governor’s Office of Planning and
Research (OPR) issued a new technical advisory on the California Environmental Quality
Act (CEQA) and Climate Change. All projects subject to CEQA review must consider
significant effects caused by GGE. California’s clean car standards, goods movement
measures, low-carbon fuel requirements and
movement of water (which uses 20 percent
of the electricity in the state) will all be subject to GGE regulation and price increases.
What should CEOs do to prepare?
Educate yourself. The effects of AB 32 will
be significant and broad. AB 32 will change
permit and recordkeeping requirements and
purchasing decisions and practices; corporate disclosure requirements will be expanded to include GGE; due diligence in mergers
and acquisitions will change, as will budget
and financial planning. Risk analysis for D&O
and CGL insurance should be reviewed for
appropriate coverage. CEOs should set up
AB 32 news alerts to track new developments and attend science, law and policy
workshops to stay informed. The EPA
Climate Change Business Guide can be
found at: www.epa.gov/partners.
Document baseline emissions. On Jan. 1,
2008, certain large California emission
sources were required to report their 1990
baseline emissions. Early action to reduce
emissions is great, but to get credit for early
action, inventory and document your company’s emission baseline before making improvements or purchasing new equipment.
Take advantage of emerging opportunities.
AB 32 will use market-based mechanisms
like a cap-and-trade program, where companies can sell emission credits at a market
price. So if your company converts its vehicles to natural gas, for instance, you’ll have
available credits you can use or sell. Also,
new regulation frequently opens the door for
new products, services and investments, but
CEOs need to be educated to spot these new
opportunities.
JOHN J. LORMON is a partner and chair of the Environmental, Land Use and Governmental Affairs Practice Group at Procopio, Cory,
Hargreaves & Savitch LLP. Reach him at [email protected] or (619) 515-3217.
