New Green Plan Could Increase Cost of New Greenfield Housing

Despite the fact that AB 32 and SB 375 make no reference to indirect source rules ("ISRs") and despite assurances from Chairman Mary Nichols of the California Air Resources Board ("CARB") that the scoping plan implementing AB 32 (the "Scoping Plan") would not include ISRs, the recently released Proposed Scoping Plan that CARB will likely adopt at its December 11, 2008 meeting includes ISRs.

Based on experiences with ISRs, the development community is concerned that the use of ISRs will significantly increase the cost of development in greenfield areas, further reducing the supply of affordable housing in California.

On September 27, 2006, Governor Schwarzenegger signed the Global Warming Solution Act of 2006 ("AB 32"). AB 32 requires California to reduce its greenhouse gas emissions to 1990 levels by 2020. Two years later, on September 30, 2008, Governor Schwarzenegger signed Senate Bill 375 ("SB 375") to further implement AB 32. SB 375 purports to intertwine planning for transportation and housing, provide more certainty in rezoning to accommodate residential development, and streamline project approvals, including the CEQA process, for certain types of development.

AB 32 requires CARB to approve, on or before January 1, 2009, the Scoping Plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions by 2020. CARB recently released the Proposed Scoping Plan, which it intends to adopt at its December 11, 2008 meeting. The Proposed Scoping Plan includes ISRs as a potential measure to meet the regional target-setting and sustainable community processes required by the Proposed Scoping Plan.

ISRs require developers to (i) calculate indirect source pollution associated with a proposed development and either (ii) reduce pollution through on-site engineering or (iii) mitigate the pollution off-site, typically through the payment of fees to the local air resource board. As ISRs generally favor infill development, the costs and fees of ISRs primarily impact greenfield development in outlying areas. As greenfield development produces much of California's most affordable housing, ISRs could reduce both the availability and affordability of California housing. While the use of ISRs under the Proposed Scoping Plan is not mandatory, it is doubtful that any local air resources board would not implement this potentially lucrative revenue stream.

Neither AB 32 or SB 375 contains any reference to ISRs. Although the Draft Scoping Plan released by CARB in June of 2008 lists ISRs as one of several potential measures to achieve the goals of AB 32, Chairman Nichols later assured the development community that the Scoping Plan would not include ISRs. As such, many were surprised to find ISRs included in the list of suggested measures in the Proposed Scoping Plan. Comments on the Proposed Scoping Plan are due by December 10, 2008, the day before CARB will likely adopt the Scoping Plan in its near present form at its December 11, 2008 meeting. Please contact us to discuss how AB 32, SB 375 and the Scoping Plan will impact your proposed developments.