COMMUNITIES FOR A BETTER ENVIRONMENT v. SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT

Filed 12/18/07 Modified and Certified for Partial Publication 1/16/08 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of Los Angeles County.

Andria K. Richey, Judge. Affirmed in part and reversed in part and remanded.

Communities for a Better Environment, Adrienne L. Bloch and Shana Lazerow for Plaintiffs and Appellants Communities for a Better Environment.

Adams Broadwell Joseph & Cardozo, Marc D. Joseph, Richard T. Drury for Plaintiffs and Appellants Carlos Valdez et al.

Woodruff, Spradlin & Smart, Bradley R. Hogin, Edward L. Bertrand; South Coast AQMD, Kurt R. Wiese and Barbara Baird for Defendant and Respondent South Coast Air Quality Management District.

Weston Benshoof Rochefort Rubalcava & MacCuish, Ward L. Benshoof, Jocelyn D. Thompson; Cox Castle & Nicholson and Michael H. Zischke for Real Party in Interest and Respondent.

Center on Race Poverty and the Environment and Luke Cole for Amici Curiae, in support of Plaintiffs and Appellants Communities for a Better Environment and Carlos Valdez et al.

Bill Lockyer and Edmund G. Brown, Jr., Attorneys General, Dane R. Gillette, Chief Assistant Attorney General, Pamela C. Hamanaka, Assistant Attorney General, Sally Magnani Knox, Lisa Trankley and Susan L. Durbin, Deputy Attorneys General, for Amicus Curiae State of California, in support of Defendant and Respondent South Coast Air Quality Management District.

* * * * * *

Plaintiffs and appellants Communities for a Better Environment, Carlos Valdez, Southern California Pipe Trades District Council No. 16 and Steamfitters and Pipefitters Local 250 appeal from a judgment entered against them in their actions against defendant and respondent the South Coast Air Quality Management District (SCAQMD) and real party in interest and respondent ConocoPhillips Company (ConocoPhillips). The dispute concerned the potential environmental impacts resulting from a project enabling ConocoPhillips to produce ultra low sulfur diesel. Appellants primary contentions are that the SCAQMD abused its discretion in allowing a permit for the project to be issued without the preparation of an environmental impact report and without review pursuant to a regulation implementing a federal level of review.

We affirm in part and reverse in part. We conclude that the SCAQMD abused its discretion in issuing a negative declaration for the diesel fuel manufacturing project at issue because appellants offered substantial evidence supporting a fair argument that the projects nitrogen dioxide emissions may have a significant effect on the environment. In finding no significant effect, the SCAQMD improperly relied on a baseline level of permitted emissions which did not reflect existing physical conditions. In all other respects, the SCAQMD properly exercised its discretion in concluding that the project would not have a significant adverse environmental impact. The SCAQMD also properly declined to apply a local regulation to evaluate the projects permit, as the regulation was ineffective at the time the SCAQMD issued its permit.

FACTUAL AND PROCEDURAL BACKGROUND

The Parties.

Appellant Carlos Valdez resides in Wilmington near the ConocoPhillips refinery. Appellants the Southern California Pipe Trades District Council 16 and the Steamfitters & Pipefitters Local 250 are labor organizations who have many members who live and/or work in Wilmington and throughout the South Coast Air Basin. Appellant Communities for a Better Environment is a nonprofit membership organization with two offices in California. For approximately 25 years, it has been active in California air quality issues; its goals include protecting and enhancing the environment and public health by reducing air pollution in Californias urban areas.

Respondent the SCAQMD is the agency principally responsible for comprehensive, non-vehicular air pollution control in the South Coast Air Basin, an area that includes Orange County and the non-desert portions of Los Angeles, Riverside and San Bernardino Counties. (Health & Saf. Code, 40000, 40410; Cal. Code Regs., tit. 17, 60104.) Pursuant to federal and state law, the SCAQMD is responsible for adopting an air quality management plan (AQMP) that identifies the air pollution control measures and emission reductions from existing sources that are necessary for compliance with federal and state ambient air quality standards. (See 42 U.S.C. 7410; Health & Saf. Code, 40460.) The SCAQMD is authorized to adopt rules and regulations to carry out the AQMP. (Health & Saf. Code, 40440.)

Respondent and real party in interest ConocoPhillips is the largest petroleum refiner in the United States. ConocoPhillips Los Angeles Refinery (Refinery) operates at two different sites in the South Coast Air Basinthe Wilmington plant and the Carson plant. The Wilmington plant consists of approximately 400 acres bordering commercial, recreational and residential areas. It produces a variety of products including gasoline, jet fuel, diesel fuel, petroleum gases, sulfuric acid and sulfur.

Diesel Fuel Regulations.

In January 2001, the United States Environmental Protection Agency (EPA) published rules on diesel fuels standards requiring that by June 1, 2006 refiners must begin selling highway diesel fuel meeting a maximum sulfur standard of 15 parts per million by weight (ppmw). (40 C.F.R. 80.) This deadline corresponded with the EPA requirement that by 2007 all on-road, diesel-fueled vehicles be equipped to run on Ultra-Low Sulfur Diesel (ULSD) fuel. Before the adoption of these rules, most California diesel fuel contained an average of 140 ppmw of sulfur.

Even before the adoption of the EPA rule, the SCAQMDs Rule 431.2 (Sulfur Content of Liquid Fuels) was amended on September 15, 2000 to require a reduction in diesel fuel sulfur content to 15 ppmw by mid-2006.^[1] Subsequently, in 2003 the CARB amended Californias diesel fuel regulations to comport with the low sulfur limit imposed by federal and local rules. The 15 ppmw requirement was also reflected in the states AQMP. The diesel fuel sulfur content changes were designed to reduce the harmful environmental effects resulting from emissions of sulfur oxides (SOx), particulate matter (PM), nitrogen oxides (NOx) and other toxins from diesel-fueled motor vehicles.

The Project.

In order to comply with federally and state mandated ULSD specifications, the Refinery proposed to modify its existing Diesel Hydrotreating Unit U-90 at the Wilmington plant (ULSD project). The ULSD project involved physical modifications primarily to the process facility at the Wilmington plant, which already produced low sulfur diesel, and minor control system improvements at the Carson plant. The two major components of the ULSD project were to: (1) revamp the Mid-barrel Hydrotreater Unit 90 [(hydrotreater)] to decrease the hydrotreating reaction space velocity to meet the required diesel sulfur level; and (2) modify the mid-barrel handling and logistics to segregate diesel from higher sulfur jet fuel.^[2] The proposed modifications did not increase the Refinerys diesel production.

Refinery Permit.

Beginning in 1994, the SCAQMD developed the Regional Clean Air Initiative Market (RECLAIM) program, a market-based system of controlling the emission of NOx and SOx, and the Refinery has operated pursuant to a RECLAIM permit since that time. (See Health & Saf. Code, 39616.) In contrast to traditional command-and-control regulations which set specific limits on each piece of equipment and each process emitting air pollution, the RECLAIM program set a factory-wide pollution limit for each business and permitted the business to determine what equipment, processes and materials it would employ to meet that limit. (See generally Alliance of Small Emitters/Metals Industry v. South Coast Air Quality Management Dist. (1997) 60 Cal.App.4th 55, 5760 [describing the RECLAIM program].) The RECLAIM program also permitted businesses that reduced emissions more than required to sell their excess emissions reductions to other businesses. Importantly, the RECLAIM program required that allowable emissions from all participating businesses be reduced each year.

The Refinerys RECLAIM permit specified annual allocations of NOx and SOx that were established on the basis of actual historical emissions and thereafter declined each year. It covered the combined emissions from the hundreds of pieces of Refinery equipment that emitted or had the potential to emit or control air contaminants. Issued in 1994, the Refinerys RECLAIM permit allowed the Refinery to emit up to 8,318 pounds per day (ppd) of NOxa figure based on the Refinerys 1994 emission level. As of 2003, the Refinerys NOx emission allocation had declined to 2,343 ppd. But under the RECLAIM program, the Refinery was still allowed to emit up to its initial allocation of 8,318 ppd so long as it purchased a corresponding amount of RECLAIM trading credits from another facility that had reduced its emissions below its permitted RECLAIM level.

The SCAQMDs Environmental Review of the Project.

Negative Declaration.

As required by law, in December 2003, ConocoPhillips submitted its application for a permit to the SCAQMD. It requested that the permit be handled in accordance with a rule providing for express permit processing to enable a permit to be issued by August 2004. As required by the California Environmental Quality Act (CEQA), after receiving the permit application the SCAQMD undertook an initial study to determine the environmental impacts of the ULSD project. (Pub. Resources Code, 21080(a).)

In January 2004, the SCAQMD, as the lead agency for the ULSD project,^[3]issued a draft negative declaration for the project, finding that it would have no significant impact on the environment and that mitigation measures were not required. The document was circulated for public comment. Appellants and others asserted there was a fair argument that the ULSD project may have adverse environmental impacts and that an environmental impact report (EIR) was required. Appellants submitted extensive comments prepared by environmental engineer J. Phyllis Fox, Ph.D., and hydrologist Matthew Hagemann in support of their position. The Los Angeles City Attorney also expressed concern about whether an EIR was necessary to analyze the ULSD project, given that the negative declaration uses the level of emissions that ConocoPhillips is allowed to emit under existing permits as the baseline, even though ConocoPhillips may not have released that level of emissions in the past.

Concluding that there was no substantial evidence that the ULSD project would have a significant effect on the environment, the SCAQMD issued its final negative declaration (FND) in June 2004. Responding to specific public comments, the FND indicated that the baselinethe existing physical environmental conditionsutilized for the ULSD project was appropriate, as it took into account emission levels allowed by existing permits. Thus, [f]or the ULSD proposed project, the emissions associated with increased utilization of this existing equipment were considered baseline as opposed to proposed project because the Refinery holds valid permits to operate this equipment, and the equipment will continue to operate within their existing permit conditions and limits. The existing equipment operation, as well as increased utilization of the equipment (e.g., for increased steam generation) could, therefore, occur even if the proposed project did not commence (exist).

Applying this baseline, the FND further concluded that the increased NOx emissions were less than significant. The SCAQMD calculated that during operation the ULSD project would cause an increase in NOx emissions of 8.9 ppd, which was below the CEQA significance threshold of 55 ppd. Appellants estimated the emission increases associated with increased utilization of steam generating equipment for the ULSD project at 237 to 456 ppd. This increase, too, was found to be less than significant when measured against the thresholds set by a combination of the RECLAIM programs initial emission allocation limit for the Refinery (8,318 ppd of NOx) and CEQA (55 ppd of NOx). Applying these thresholds, the FND provided that even emissions from increased capacity utilization from existing permitted equipment would remain less than significant at 2,799 ppd of NOx.

Further, the FND found that the ULSD project had no significant cumulative impact when considered together with emissions resulting from the Selective Catalytic Reduction (SCR) project at the Carson plant and other refineries in the South Bay area. In view of these conclusions, on June 18, 2004, the SCAQMD issued a notice of determination for a permit to construct the ULSD project.

On July 14, 2004, appellants filed petitions for hearing before the SCAQMDs Governing Board (Governing Board) and submitted additional comments from Dr. Fox and Mr. Hagemann in support of their request. The Governing Board declined to hold a hearing on the issuance of a permit.

Addendum to the Final Negative Declaration.

In July and August 2004, Refinery workers participating in the excavation and site preparation work for the cooling tower replacement encountered petroleum-impacted soils on two occasions. Although the levels of benzene in the impacted areas did not by law require any special health and safety protections or procedures, the Refinery responded in accordance with applicable Occupational Health and Safety Administration (OSHA) regulations; the SCAQMDs approved Rule 1166, which is the soil mitigation plan governing the excavation, grading, handling and treatment of soil contaminated by petroleum and other volatile organic compounds; and its internal Industrial Hygiene Management Plan. As an additional protection, the Refinery employed the procedures required when contamination exceeds a certain safety threshold, requiring that workers use organic vapor respirators (gas masks) as a precaution within the sites perimeter.

On September 21, 2004, the SCAQMD certified an Addendum to the FND (Addendum) to present updated fugitive component counts.^[4] The updated figures (17.2 ppd of VOCs) remained below the CEQA level of significance (55 ppd of VOCs). With respect to the discovery of contaminated soil, the Addendum concluded that the Refinerys compliance with OSHA regulations and its internal institutional controls rendered the contamination insignificant. The Addendum also responded to issues raised in two petitions filed before the Governing Board, including whether the RECLAIM program emission allocation should be used as the baseline for measuring emission significance, whether increased utilization of existing permitted steam generation equipment should be included as part of the ULSD project rather than the baseline and whether the cumulative impacts from the ULSD project would be significant. Concurrently with the Addendum certification, the SCAQMDs executive officer (Executive Officer) issued a notice of determination approving a permit for the ULSD project as revised.

Phase I Proceedings.

Pleadings.

On July 16, 2004, appellants filed two verified petitions for writ of mandate against the SCAQMD which alleged causes of action for violation of CEQA for the failure to prepare an EIR, the adoption of an illegal CEQA significance threshold, illegal approval of a negative declaration and issuance of findings, and illegal issuance of notice determination prior to project approval. Each petition sought a writ of mandate setting aside the SCAQMDs approval of a negative declaration for the project and directing the SCAQMD to comply with CEQA. The trial court consolidated the actions.

The SCAQMD answered in September 2004. Appellants filed amended petitions and complaints in September 2004 and again in October 2004 adding allegations pertaining to the level of permit review, contaminated soil and additional CEQA violations. In January 2005, appellants moved for a peremptory writ of mandate to direct the SCAQMD to set aside its decision approving the FND and all other permits relating to the ULSD project and to enjoin the Refinery from taking further action on the ULSD project until the SCAQMD fully complied with CEQA. Also in January 2005, the trial court denied appellants motions for stay and issuance of a preliminary injunction. The Refinery answered the amended petitions in March 2005.

Trial Court Ruling.

The trial court held a bifurcated trial on the matter in March 2005 and March 2006. The March 2005 trial involved the alleged CEQA violations, while the March 2006 proceedings involved the non-CEQA issues that were a part of the original litigation.

On August 1, 2005, the trial court filed a statement of decision and order adjudicating the first phase. It ruled that the SCAQMD properly determined there was no substantial evidence supporting a fair argument of significant adverse impacts stemming from the ULSD project. It concluded that appellants estimates of NOx emissions during construction failed to demonstrate a significant impact because they were improperly premised on emissions from off-road vehicles, not the on-road vehicles that would actually be used during construction. With respect to the significance of NOx emissions during operation, the trial court framed the question as to whether emissions from preexisting and already permitted equipment should be attributed to the existing environmental settingi.e., the baselineor should be characterized as project increases. The trial court ruled that SCAQMD properly calculated the baseline for the ULSD project as including emissions from existing equipment, so long as those emissions remained within previously permitted levels. It found that the SCAQMD properly applied the significance threshold 55 ppd of NOx emissions to levels above the baseline emissions allowed by the Refinerys RECLAIM permit. Utilizing the same baseline, the trial court further concluded that the impact of the NOx emissions was not a cumulatively considerable contribution. Addressing soil contamination, the trial court found no evidence that the level of contamination found at the ULSD project site may cause any significant adverse impacts. Finally, the trial court ruled that the Addenduma document which does not require the same level of public review as an EIR or a negative declarationwas the proper means to address certain clarifications to the ULSD project.

Phase II Proceedings.

Regulation XVII.

The Prevention of Significant Deterioration (PSD) program, created under the federal Clean Air Act, required preconstruction review and permitting for major air pollution sources that had attained federal ambient air quality standards. (42 U.S.C.  7475.) The programs goal was to ensure that new or modified sources of air pollution not cause areas with relatively clean air to degrade in quality. The EPA adopted regulations allowing states to adopt their own PSD programs. (40 C.F.R. 52.21.) Though not specifically listed in the regulations, NOx was among the criteria pollutants subject to the federal PSD program. (40 C.F.R. 52.21(b)(23)(i); see also 40 C.F.R.  81.305.) Those regulations further enabled the EPA to delegate its permit review authority to the states. (40 C.F.R. 52.21(u).)

In 1988, the SCAQMD adopted Regulation XVII, entitled Prevention of Significant Deterioration, to obtain a delegation from the EPA to administer the PSD program. According to Rule 1701(b) contained within Regulation XVII, the Regulation was effective upon delegation from the EPA. The EPA did not delegate PSD authority to the SCAQMD until January 1997, when it determined that Regulation XVII met the requirements of the federal program and signed a written delegation agreement with the SCAQMD delegating authority from the EPA to the SCAQMD to implement the provisions of the federal PSD program.

In 2002, the EPA amended its New Source Review (NSR) rules for the PSD programs, which provided a number of elements that tended to relax the applicability requirements and thereby excluded from review some major modifications to large sources with potentially significant emission increases. (67 Fed.Reg. 80186-80289 (Dec. 31, 2002).) The EPA set March 3, 2003, as the deadline for permitting agencies to implement the revised PSD rules.

At a February 7, 2003 meeting, the Governing Board authorized the Executive Officer to request from the EPA recognition that Regulation XVII was as stringent and therefore equivalent to the EPAs revised PSD regulations; alternatively, in the event that the EPA failed to recognize equivalency, the Governing Board authorized the Executive Officer not to request any further delegation and to allow the EPA to terminate the delegation agreement and become the permitting agency for PSD sources otherwise governed by the SCAQMD. The EPA declined to construe Regulation XVII as equivalent to the amended federal regulations and determined that the SCAQMD could not continue to administer its PSD program without amending its own Regulation XVII to conform to the EPA amendments. (67 Fed. Reg. at pp. 80240-80241.)

The Governing Board declined to amend Regulation XVII. Consequently, on March 3, 2003, the EPA notified the SCAQMD that it was revoking and rescinding its authority to implement the PSD program for issuing and modifying federal permits for new and modified major sources of attainment pollutants. According to the EPA, the delegation agreement was premised on the EPAs determination that Regulation XVII met the requirements of 40 Code of Federal Regulations part 52.21. The EPA stated that, following the amendment of the PSD program, it had determined that your Regulation XVII may no longer generally meet the requirements of 40 Code of Federal Regulations part 52.21 (as revised), and that we cannot ensure District permits issued pursuant to Regulation XVII will fully implement our regulations as revised. According to the federal register, in the area covered by the SCAQMDas well as areas governed by other permitting agencies whose regulations were inconsistent with 40 Code of Federal Regulations part 52.21 as revisedRegion 9 [of the EPA] will resume issuing federal PSD permits as of the date the revisions to 40 C.F.R.  52.21 take effect. (68 Fed.Reg. 19371 (Apr. 21, 2003).)

Thereafter, the California Legislature introduced Senate Bill No. 288 (Sen. Bill No. 288), later codified as the Protect California Air Act of 2003, effective January 1, 2004. (Health & Saf. Code, 42500-42507; Veh. Code, 9250.11.) In order to carry out Sen. Bill No. 288s expressed purpose of preventing federal reforms from exacerbating air pollution challenges, Health and Safety Code section 42504, subdivision (a), provided: No air quality management district or air pollution control district may amend or revise its new source review rules or regulations to be less stringent than those that existed on December 30, 2002. (See also Health & Saf. Code,  42502, subd. (g).)

According to bill analyses of Sen. Bill No. 288, the bill [p]rohibits an air district from changing its new source review rules or regulations that existed on December 30, 2002, if the amendments or revisions would exempt, relax, or reduce the obligations of a stationary source to meet specific requirements. (Sen. Nat. Resources Com., 3d reading analysis of Sen. Bill No. 288 (2003-2004 Reg. Sess.) as amended Sept. 4, 2003, p. 1; accord, Assem. Nat. Resources. Com., analysis of Sen. Bill No. 288 (2003-2004 Reg. Sess.) as amended June 27, 2003, p. 1.) A Senate Rules Committee report further explained: SB 288 would enact the federal program that was repealed by the Administration as a state law. SB 288 will restore the clean air law to [the] same status as existed for 25 years until the end of last year. Section 116 of the Clean Air Act expressly allows the states to adopt clean air requirements more stringent than the federal government. If the federal government will not safeguard Californias air quality, then the state must take this duty upon itself. (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 288 (2003-2004 Reg. Sess.) as amended April 10, 2003, p. 6.) The Governor approved Sen. Bill No. 288 in September 2003 and it became effective on January 1, 2004. (Stats. 2003, c. 476 (S.B. 288), 1.)

On September 21, 2004, the Executive Officer issued the first permit for the ULSD project. Acting in accordance with the Governing Boards earlier decision and determining that Regulation XVII was ineffective following the EPAs delegation revocation, the Executive Officer did not conduct any PSD review pursuant to Regulation XVII.^[5] In April 2005, the Governing Board confirmed that the EPA had withdrawn its PSD delegation, thereby rendering the state unable to enforce Regulation XVII. It reaffirmed its previous action to relinquish PSD analysis back to the federal government and render Regulation XVII inactive unless the SCAQMD received a new delegation from the EPA or amended Regulation XVII to make it currently effective. It further opined that a PSD review would have had no effect on the ULSD project because it did not involve modifications to any equipment emitting PSD pollutants.

Subsequent Negative Declaration.

In June 2005, the SCAQMD prepared a subsequent negative declaration (SND) to evaluate the additional effects of the installation and operation of SCR technology to a replacement heater. While the FND had evaluated the impacts from installing and operating ultra low NOx burners to control NOx emissions from the heater, the SCAQMD determined during the permit process that the best available control technology (BACT) would instead be SCR technology. The SND concluded that the modification would not have any significant environmental impacts. Appellants submitted comments to the SND, asserting that the SCR technology would have significant impactsparticularly from the use, storage and transport of ammoniaand that the SCAQMD had improperly piecemealed the ULSD project. In October 2005, the SCAQMD certified the final SND and approved the project as revised.

Pleadings.

During the pendency of the superior court action, appellants separately appealed the SCAQMDs issuance of a permit for the ULSD project to the SCAQMDs Hearing Board (Hearing Board), specifically challenging the SCAQMDs failure to apply Regulation XVII. Following a hearing lasting several days and spanning November 2004 to April 2005, the Hearing Board issued a written decision ruling that Regulation XVII was effective only so long as the PSD delegation by the EPA to the SCAQMD was valid; that Regulation XVII became ineffective on March 3, 2003 when the EPA withdrew its delegation of PSD permitting authority from the SCAQMD; and that the SCAQMD did not violate Sen. Bill No. 288 by allowing Regulation XVII to become ineffective upon the withdrawal of the delegation. The Hearing Board found, as a matter of law, that Regulation XVII did not apply to the SCAQMDs permit decisions relating to the ULSD project. One Hearing Board member issued a written dissent, concluding that nothing rendered Regulation XVII inactive at the time of permitting and that the EPAs withdrawal of delegation to implement the federal PSD program did not inactivate Regulation XVII as a matter of local law.

Following the issuance of the trial courts ruling in Phase I, appellants filed third amended petitions challenging both the Hearing Boards decision denying their administrative appeal on the PSD issue and SCAQMDs failure to prepare an EIR to address the impact of the SCR technology.^[6] Pursuant to a stipulation and order, appellants filed verified fourth amended petitions in November 2005.

Trial Court Ruling.

Following a March 2006 trial, the trial court issued an order denying appellants petition for peremptory writ of mandate and a statement of decision in June 2006. Addressing Regulation XVII, it concluded that the Hearing Board did not abuse its discretion in upholding the Executive Officers decision that Regulation XVII was ineffective when he issued the ULSD project permit in September 2004. It further found that a determination that Regulation XVII became ineffective upon the EPAs delegation revocation was not contrary to Sen. Bill No. 288, as the revocation occurred before Sen. Bill No. 288 became effective in January 2004 and the revocation did not violate Sen. Bill No. 288s prohibition against amending or revising new source review rules and regulations. (See Health & Saf. Code, 42504, subd. (a).) With respect to the propriety of the SCAQMDs preparation of the SND as opposed to an EIR, the trial court ruled that substantial evidence supported the conclusion that there would be no significant impacts from the modified ULSD project and, specifically, from the addition of SCR technology. The trial court also found that the ULSD project had not been improperly segmented because the SCAQMD prepared multiple CEQA documents to analyze the project.

The trial court entered judgment on June 29, 2006. This appeal followed.

DISCUSSION

Appellants two primary contentions are: (1) An EIR was required to evaluate the ULSD project because substantial evidence supported a fair argument that the project would have significant environmental impacts; and (2) the SCAQMD should have applied Regulation XVII in evaluating the ULSD project. We agree with appellants that the FND did not adequately analyze the potential significant impacts stemming from the ULSD projects NOx emissions, but conclude that the SCAQMD properly evaluated other potential impacts and properly declined to apply Regulation XVII in issuing a permit for the ULSD project.

I. The SCAQMD Abused Its Discretion in Concluding There Was No Substantial Evidence to Support a Fair Argument That the ULSD Project Would Have a Significant Environmental Impact.

A. CEQA Requirements and Standard of Review.

CEQA is a comprehensive scheme designed to provide long-term protection to the environment. [Citation.] In enacting CEQA, the Legislature declared its intention that all public agencies responsible for regulating activities affecting the environment give prime consideration to preventing environmental damage when carrying out their duties. [Citations.] CEQA is tobe interpreted to afford the fullest possible protection to the environment within the reasonable scope of the statutory language. [Citation.] (Mountain Lion Foundation v. Fish & Game Com. (1997) 16 Cal.4th 105, 112.)

The heart of CEQA is the EIR, whose purpose is to inform the public and government officials of the environmental consequences of decisions before they are made. [Citations.] In general, an EIR must be prepared on any project a public agency intends to approve or carry out which may have a significant effect on the environment. [Citations.] (San Franciscans Upholding the Downtown Plan v. City and County of San Francisco (2002) 102 Cal.App.4th 656, 687688, fn. omitted.) As opposed to an EIR, [a] negative declaration is a written statement that briefly explains why a project will not have a significant environmental impact and therefore will not require an EIR. [Citation.] A negative declaration is proper only if the agency determines based on an initial study that there is no substantial evidence that the project may have a significant effect on the environment. [Citations.] (Mejia v. City of Los Angeles (2005) 130 Cal.App.4th 322, 330 (Mejia); see also Snarled Traffic Obstructs Progress v. City and County of San Francisco (1999) 74 Cal.App.4th 793, 797 [In an obvious sense, an EIR and a negative declaration are the two sides of the same coin, the either/or options available to a public agency considering a project].)

Under CEQA and its related administrative regulationsgenerally referred to as Guidelines (Guidelines) (Cal. Code Regs., tit. 14, 15001 et seq.)a significant effect on the environment means a substantial, or potentially substantial, adverse change in the environment. (Pocket Protectors v. City of Sacramento(2004) 124 Cal.App.4th 903, 927 & fn. 17 (Pocket Protectors); Pub. Resources Code, 21068; see Guidelines,  15382.) The determination of whether a project may have a significant effect on the environment calls for careful judgment on the part of the public agency involved, based to the extent possible on scientific and factual data. An ironclad definition of significant effect is not always possible because the significance of an activity may vary with the setting. For example, an activity which may not be significant in an urban area may be significant in a rural area. (Guidelines, 15064, subd. (b).)

Story continues as Part II .

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^[1] Health and Safety Code section 40447.6 authorizes the SCAQMD to regulate the composition of diesel fuel manufactured for sale in the South Coast Air Basin, subject to approval by the California Air Resources Board (CARB), which promulgates statewide clean air standards. (See Health & Saf. Code, 39606, subd. (a)(2).)

^[2] A hydrotreater is a machine that treats hydrocarbons; a hydrocarbon is an organic compound containing hydrogen and carbon commonly occurring in petroleum, natural gas and coal.

^[3] The lead agency is the public agency which has the principal responsibility for carrying out or approving a project which may have a significant effect upon the environment. (Pub. Resources Code, 21067.)

^[4] Fugitive components include project components such as valves, flanges and pumps that may produce leaked or fugitive emissions of volatile organic compounds (VOCs) when in operation.

^[5] In October 2004, the EPA determined that the ULSD project was not subject to its PSD permitting requirements set forth in 40 Code of Federal Regulations part 52.21(a)(2).

^[6] Appellants initially filed an appeal before the Hearing Board, but later consented to a dismissal of their claims with prejudice by reason of their pursuing the same claims in superior court.