Use It or Lose It: California Supreme Court Limits Reliance on Permitted Conditions as Baseline for Evaluating Environmental Impacts Under CEQA
Sedgwick News Flash
In overturning an agency's reliance on fully permitted operational levels as the "baseline," a recent California Supreme Court decision rewrites the rules on how environmental review of California-based projects involving existing facilities is conducted and may lead to increased time and costs to prepare environmental documents for such projects.
In accordance with the California Environmental Quality Act (CEQA), analysis of a proposed development's environmental impacts is required before a government agency may issue permits for that project. To conduct such a review, the project's impacts are normally compared to the existing environmental conditions at the time environmental review of the project is commenced, known in CEQA parlance as the baseline. There has been confusion among practitioners as to whether to assume within the baseline full operations of an existing permitted facility even if such levels have never been reached. In Communities for a Better Environment v. South Coast Air Quality Management District, 2010 DJDAR 3872, a case involving modifications to an existing refinery, the California Supreme Court ruled that an agency failed to comply with CEQA in using maximum permitted operational levels as the baseline instead of the actual physical conditions (less than permitted levels) at the time of the analysis.
The case involved a proposal by ConcocoPhillips (CP) to modify its existing petroleum refinery to comply with regulations requiring a reduction in the sulfur content of motor vehicle diesel fuel. CP applied to the South Coast Air Quality Management District for a permit to construct the project. The project entailed replacing or modifying various refinery infrastructure, including substantially increasing operation of four boilers that provide steam for refinery operations. The boilers were subject to prior permits that specified a maximum rate of heat production for each piece of equipment. While acknowledging that the project would result in increased emissions of nitrogen oxide (NOx) that exceeded the air district's significance threshold of 55 pounds per day, the district nonetheless concluded that there would be no significant impact since even the worst case increased emissions (estimated to be approximately 420 pounds per day) were within the maximum permitted capacities for the existing boilers.
The court ruled that the district should have compared the project's NOx emissions to existing conditions on the ground rather than to the hypothetical simultaneous operation of the boilers at their maximum permitted capacities. The court first observed that operation of the boilers simultaneously at their collective maximum levels was not the norm and thus not a realistic description of existing environmental conditions. The court then went on to state that "[b]y comparing the proposed project to what could happen, rather than to what was actually happening, the district set the baseline not according to established levels of a particular use, but by merely hypothetical conditions allowable under the permits." 2010 DJDAR at 3875. In the court's view, apparently not disputed by the parties, CP's proposal consisted of an entirely new project and not a change to an existing project. Based on this distinction, the court seemed to establish a new bright-line rule that the baseline includes fully permitted operations only in the context of supplemental environmental review where an existing project is altered or new approvals extend an allowed use.
The court also ruled that use of the correct baseline would not infringe on CP's vested rights to operate the existing refinery and would not abrogate any applicable statutes of limitations pertaining to prior refinery approvals. On a more positive note for the regulated community, the court left open the possibility of finding mitigation measures limiting boiler operations infeasible due to vested rights to fully operate the boilers or long past statutes of limitation on the boiler permits. However, such findings could only be made after full evaluation and consideration of the environmental effects of increased boiler operations.
The court concluded that using what it deemed to be the correct baseline and applying the relatively low "fair argument" standard applicable to the adoption of a negative declaration (i.e., requiring preparation of an environmental impact report (EIR) whenever it can be fairly argued that a project may have a significant effect on the environment), the district should have prepared an EIR to analyze the project's impacts. The court's ruling illustrates that when dealing with a controversial or complex project, the agency and applicant may be better served by preparing an EIR instead of a negative declaration because of the more deferential standard of review that applies to an EIR (i.e., an agency's actions concerning an EIR must generally be upheld if they are supported by substantial evidence in the record).
In sum, the case underscores that even if existing equipment is permitted and could operate at its full capacity without any further environmental review (such as the boilers at issue in Communities for Better Environment), if the equipment is not used to its fullest capacity prior to commencement of environmental review of a new project involving the facility, the permitted capacity does not count for purposes of establishing the baseline. Instead, the actual levels of emissions at the time environmental review is commenced will be used for the baseline. On the whole, this means that environmental impacts will likely be greater since the baseline will be set at a lower level. The case will also result in increased costs to quantify the baseline operating levels (instead of straight-forward reliance on permitted levels) and to perform additional (and possibly duplicative) CEQA analysis to allow fuller use of already permitted facilities. This could impact many projects, including those where existing air permits, stormwater pollution control permits and conditional use permits pertain, to name but a few. As a result of this decision, it will be important, whenever possible, to emphasize that a project is merely a change to an existing project if true and feasible so as to be able to rely on permitted levels as the baseline. If the project is instead characterized as a new project, an applicant may get caught in the seemingly endless loop of CEQA review notwithstanding the fact that it is trying to take an action to benefit the environment, as was the case in Communities for Better Environment.