The Second District Court of Appeal has rejected the environmental review of an oil refinery project in Wilmington and Carson because the South Coast Air Quality Management District used an improper baseline for measuring impacts. Instead of relying on the refinery's permitted level of nitrogen oxides emissions for the baseline, the air district should have used the actual level of emissions, which was less than half the permitted amount, the court ruled.

The air district and ConocoPhillips relied on the Fairview line of cases, in which courts have allowed lead agencies to use permitted conditions — rather than actual conditions on the ground — as the baseline for environmental review. But the court said that approach was not appropriate because the Fairview line of cases involves projects that underwent prior environmental review, and there was no evidence that the refinery equipment in question "had ever been subject to environmental review."

The project involved modification of ConocoPhillips's Los Angeles Refinery, which spreads across many acres in Wilmington and Carson, so that the company could produce ultra-low sulfur diesel (ULSD) fuel. ConocoPhillips submitted an application in late 2003, and in June 2004, the Air Quality Management District (SCAQMD) issued a negative declaration — meaning the project had no potential to harm the environment — and a permit to construct the project. After workers found unexpected contaminated soil, the air district certified an addendum to the negative determination and issued a modified permit in September 2004.

An environmental group and two trade unions sued, arguing that the air district violated CEQA and failed to apply its own prevention of significant deterioration (PSD) regulation. Los Angeles County Superior Court Judge Andria Richey ruled for the air district. On appeal, the Second District, Division Two, reversed only a portion of the CEQA ruling — which was still a major victory for the environmental group and unions.

Under a 1994 permit issued as part of the air district's Regional Clean Air Initiative Market (RECLAIM) program, the ConocoPhillips refinery may emit up to 8,318 pounds per day (ppd) of nitrogen oxides (NOx). In recent years, the refinery has emitted a declining amount of NOx, down to 3,249 ppd during the 2002-03 reporting period. The district conceded the project could result in increased NOx emissions of 456 ppd. This amount exceeds the district's adopted NOx threshold of significance, which is 55 ppd. Typically, when a project exceeds a threshold of significance, an environmental impact report and mitigations become necessary.

However, the air district determined that any emissions below 8,373 ppd — the permitted 8,318 ppd plus the 55 ppd in the threshold of significance — would be less than significant for CEQA purposes. When adding the additional 456 ppd to existing emissions, the refinery would still produce far less than its permitted NOx emissions.

In court, the air district and oil company cited Fairview Neighbors v. County of Ventura, (1999) 70 Cal.App.4th 283 (see CP&DR Legal Digest, April 1999) and Benton v. Board of Supervisors, (1991) 226 Cal.App.3d 1467. In Fairview, the court ruled that the county could use a sand mine's fully permitted capacity as a baseline for studying a proposed expansion, even though the mine had been operating well below capacity. In Benton, the court found that impacts of a modified proposal for a winery should be measured against a winery that was previously approved and permitted.

But the court said Fairview, Benton and similar cases were inappropriate here because they involved changes to projects that had previously received CEQA scrutiny. Instead, the court relied on a series of cases — including Woodward Park Homeowners Assn., Inc. v. City of Fresno, (2007) 150 Cal.App.4th 683 (see CP&DR Legal Digest, June 2007), and Fat v. County of Sacramento, (2002) 97 Cal.App.4th 1270 (see CP&DR Legal Digest, June 2002) — that say established usage should serve as the baseline.

"[W]e conclude that a project's baseline is normally comprised of the existing environmental setting — not what is hypothetically allowed pursuant to existing zoning or permitted plans," the court ruled. "Where prior environmental review has occurred, though, the existing setting may include what has been approved following CEQA review."

The air district presented two arguments: Because the refinery does not need discretionary approval to increase utilization of equipment, the baseline emissions and the post-project emissions are essentially the same because both are allowed by existing permit. Alternatively, the district argued that even if the increased emissions are not considered part of the baseline, the project would have a less than significant impact because total emissions still would be less than permitted levels.

The court called both arguments flawed. Increased use of existing equipment is part of the project that SCAQMD must evaluate, the court determined. "[E]mploying a baseline figure premised on emissions levels that far exceed the refinery's actual emissions is misleading and subverts full consideration of the actual impacts that will result from the ULSD project," the court ruled.

Considering the alternative argument, the court ruled the air district was essentially creating a categorical exemption to CEQA for any project that remained within its RECLAIM permit emission levels. Neither the district nor the court may create such an exemption, the court ruled.

"In this case, the SCAQMD conceded that the ULSD project would generate a best case of 237 ppd of additional NOx emissions and a worse case of 456 ppd of NOx emissions — figures ranging from approximately 400% to 900% of the CEQA significance threshold of 55 ppd," the court determined. "[W]e must conclude that the record here supported a fair argument that the ULSD project's NOx emissions may have a significant effect on air quality."

The court further found that the air district should evaluate the project's contribution to cumulative air pollution. The court rejected the plaintiffs' other CEQA contentions and arguments concerning PSD regulations.

The Case:
Communities for a Better Environment v. South Coast Air Quality Management District, No. B193500, 08 C.D.O.S. 682, 2008 DJDAR 720. Filed December 18, 2007. Modified and ordered published January 16, 2008.

The Lawyers:
For CBE: Adrienne Bloch, (510) 302-0430.
For SCAQMD: Bradley Hogin, Woodruff, Spradlin & Smart, (714) 558-7000.
For ConocoPhillips: Ward Benshoof, Westin, Benshoof, Rochefort, Rubalcava & MacCuish, (213) 576-1000.