The Global Warming Solutions Act of 2006 (AB 32) established the goal of reducing greenhouse gas emissions (GHGs) statewide to 1990 levels by the year 2020 and charged the California Air Resources Board (CARB) with monitoring and regulating the state's sources of GHGs. In December of 2010, a lawsuit was filed against CARB alleging that the board failed to follow statutory requirements of AB 32 and the California Environmental Quality Act (CEQA) in the development of CARB’s proposed cap-and-trade regulation. In its statement of decision, the lower court found that, because CARB failed to adequately describe and analyze cap-and-trade alternatives, it failed to proceed in the manner prescribed by law. In its final ruling, the court enjoined CARB from engaging in any cap-and-trade-related project activity until CARB has come into complete compliance with CEQA. CARB has stated that it is currently conducting further analysis, as required by the courts, but that it intends to file an appeal. CARB intends to proceed with the development of its cap-and-trade program during the appeal process.

The focus of the AB 32 program has begun to shift from regulatory development to implementation and enforcement. As such, the Legislature included provisions in the 2010 budget requiring a zero-based budget be submitted by April 1, 2011, for all AB 32 expenditures across state government in order to reevaluate funding requirements of the AB 32 program implementation. On May 4, 2011, more than one month after it was due, the Administration submitted the AB 32 zero-based budget to the Legislature. Upon review, the non-partisan Legislative Analyst (LAO) found that the report generally lacked adequate workload analysis to justify the level of staffing and contract resources requested for the various AB 32-related activities across state government. This makes it difficult, if not impossible, for the Legislature to properly evaluate the AB 32 budget.

The LAO now recommends that the Legislature direct CARB to cease all work on the cap-and-trade program until it has completed the required analysis of potential alternatives and has presented the results. It further recommends that the Legislature reduce funding included in the budget for cap-and-trade development and implementation by $8 million. Once the analysis has been completed and evaluated by the Legislature, the Administration can then submit a revised budget proposal for cap-and-trade development and implementation that reflects the findings from its alternative analysis and that is consistent with any policy direction that the Legislature has provided.