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Will lawsuits plague, or just be speed bumps for, California's new cap-and-trade program?

Groups lobby—and sue—the California Air Resources Board to ensure that the cap-and-trade program results in actual emissions and pollution reduction.

Groups lobby—and sue—the California Air Resources Board to ensure that the cap-and-trade program results in actual emissions and pollution reduction.

Here’s what we know so far about California’s spanking-new cap-and-trade program.

For starters, it’s popular. At a special auction in November, companies snapped up all 23 million carbon credits sold by the California Air Resources Board. And most of the buyers were companies, not speculators who could skew the price.

On the surface, everything seemed like good news for ARB. The auction seemingly went off without a hitch.

Well, not so fast. Now the ARB is facing criticism and court battles over the program that could bog down the whole thing.

Earlier this year, two Bay Area activist groups sued ARB over the board’s emissions-offset program, which allows polluters to buy cheaper credits from conservation projects that keep carbon out of the atmosphere. Companies can use those credits to offset up to 8 percent of their greenhouse-gas emissions while buying the rest through ARB’s credit auctions.

Activists from Citizens Climate Lobby and Our Children’s Earth Foundation believe this offset plan won’t actually reduce pollution. Offsets will only reward existing conservation projects, they argue, without creating additional forms of carbon reduction. Those offsets could potentially make up 85 percent of all emission-reduction efforts if demand is high enough.

Laurie Williams, an attorney and volunteer with Citizens Climate Lobby, said this problem undermines the state’s cap-and-trade market. The case starts this week on December 7, with a hearing in San Francisco, and Williams said eventually the two groups want ARB to reform the offset system.

“It’s about an attempt to prevent a loophole from swallowing the rule and basically making this a bad example for how to proceed,” she said.

Citing the pending lawsuit, the ARB refused to address specifics about the offset program or the issue over whether it actually reduces pollution. Dave Clegern, an ARB spokesman, would only say the board disagreed with Citizens Climate Lobby.

“We will defend the program and the offset portion of it vigorously,” Clegern said.

There’s another legal dustup facing the board. On November 13, the California Chamber of Commerce filed a lawsuit challenging ARB’s carbon-credits auction, scheduled to take place four times a year through 2020. In a statement, the chamber claimed ARB didn’t have the authority to charge for the credits and wants future auctions shut down.

“The business community has repeatedly underscored the fact that the auction will raise energy costs significantly in the state, harm the economy and impact California’s competitiveness without providing any additional environmental benefits,” the chamber said in the statement.

In addition to these lawsuits, a new report also questioned the offset program’s effectiveness, asking whether the program would offer enough carbon offsets to satisfy demand. According to the American Carbon Registry, a voluntary offset program that published the report, the ARB needs to approve more conservation projects to sell carbon credits.

Currently, ARB has approved four categories, or “protocols,” including “dairy digesters,” “urban forests,” “rural forests” and “ozone depleting substances.” The board is considering two additional protocols next year.

Belinda Morris, the registry’s California director, said even with six types of protocols, the approved conservation projects would only meet half of the expected demand for offset credits. She said the board needs at least eight protocols to meet demand.

“We feel like the program as a whole [is] going to be a better program as more protocols are adopted by ARB,” Morris said.

ARB spokesman Clegern had a different take, arguing that a cautious approach is needed before considering more protocols.

“We must have genuine emission reductions,” he said. “That’s our first priority. There may be folks out there in the market who have a timetable, but we have to make sure these are actual reductions.”