SB 7 Breathes New Life into CEQA Streamlining Process

AB 900, a law that provided for speedy resolution of California Environmental Quality Act (CEQA) litigation, was allowed to “sunset” at the end of the 2020 legislative session, without an anticipated legislative extension. On May 20, 2021, Governor Newsom signed SB 7, the Jobs and Economic Improvement Through Environmental Leadership Act of 2021, to reinstate and expand the former AB 900 streamlining process for certain environmental leadership development projects (ELDPs).

SB 7 allows new ELDPs to be certified through 2023 and approved through 2024, and makes a new class of smaller residential projects eligible for certification for the first time. The new law provides clear benefits to projects that were previously certified as ELDPs under AB 900, but that did not receive project approvals by the prior deadline of January 1, 2021. For many new projects seeking the legislation’s CEQA streamlining benefits, the feasibility to achieve ELDP status is uncertain, given onerous new requirements prioritizing on-site and local direct greenhouse gas emissions reductions over offsets, and imposing new geographic requirements for any offsets that remain necessary.

AB 900 Background

Under AB 900, the Jobs and Economic Improvement Through Environmental Leadership Act of 2011, three types of major development projects were eligible for ELDP certification: (1) clean renewable energy projects that generate electricity exclusively through wind or solar; (2) clean energy manufacturing projects; or (3) “residential, retail, commercial, sports, cultural, entertainment, or recreational use projects” on infill sites that would achieve LEED Gold certification and improved transportation efficiency. All ELDPs were required to cause no net additional emissions of greenhouse gases (GHGs) as determined by the California Air Resources Board (CARB), adhere to specific prevailing wage and project labor requirements, and result in at least a $100 million investment in the state, among other requirements.

Once certified by the Governor, ELDPs were entitled to significant litigation streamlining benefits in exchange for their environmental and economic commitments—namely, that all judicial challenges to an EIR certification or related project approvals, including “any potential appeals,” must be resolved, to the extent feasible, within 270 days. Absent such streamlining, CEQA litigation frequently lasts for two years or more with appeals. To facilitate speedy resolution, the schedule for preparation of the administrative record was shortened, running concurrently with the entitlement process, and the lead agency must certify the record within 5 days of its approval of the project (rather than 60 days after filing a petition under the normal CEQA process). However, despite certain news reports that the legislation was intended to speed up environmental review, it in fact only accelerated the timeline for litigation following completion of environmental review.

Reviving AB 900 Certifications

Approximately 20 ELDPs were certified by the Governor between 2012 and the statutory deadline of January 1, 2020, including the 3333 California Street Project in San Francisco and the Inglewood Basketball and Entertainment Center (which proceeded under project-specific legislation). However, under the former act, projects that were certified before January 1, 2020, but not approved by a lead agency before January 1, 2021, were left with expired certifications.

SB 995, an earlier bill aimed at lengthening the runway for certified projects, passed both the California Senate and Assembly but failed to be finalized in the hectic final hours of the last legislative session. SB 7 picks up where SB 995 left off. Under SB 7, previously certified ELDPs are entitled to the same benefits and subject to the same requirements prescribed in the former act, but now have until January 1, 2022 to obtain final approval by a lead agency. The legislation was enacted with an urgency clause, meaning that it is effective immediately.

Expanding Eligibility for Certification

For new projects interested in securing CEQA streamlining, SB 7 offers some good news: ELDPs now may be certified by the Governor before January 1, 2024, and approved by a lead agency before January 1, 2025. Additionally, SB 7 makes a new class of projects eligible for certification—residential infill projects that result in an investment of between $15 million and $100 million, with at least 15% of units affordable to lower income households.

SB 7 also authorizes the Governor, before a lead agency’s approval of an ELDP, to certify a project alternative if the alternative also complies with AB 900’s statutory conditions at the time of the Governor’s original certification. This clarification is intended to ensure that certification remains valid if the lead agency ultimately selects a project alternative under CEQA.

Raising the Bar for GHG Neutrality

At the same time, SB 7 raises the bar for ELDP certification. It adds construction labor requirements to the existing prevailing wage/project labor agreement requirements, requiring eligible projects to use a “skilled and trained” workforce for all construction work, and requires applicants to pay the costs of the trial court (not only the Court of Appeal), in hearing and deciding any case challenging the ELDP’s CEQA certification or project approvals.

Most notably, SB 7 imposes material new barriers to demonstrating that a project will have no net additional GHG emissions, which typically requires use of GHG “offsets” to reduce emissions beyond what would be possible as part of the project itself. Under AB 900, the determination of GHG neutrality was left up to CARB’s discretion, and there were no geographic restrictions on the location of GHG offset programs, which allowed flexibility in completing or funding cost-effective GHG reduction measures to achieve GHG neutrality. Under SB 7, with the exception of the newly eligible housing development projects described above, projects newly seeking certification must first prioritize direct emissions reductions that also reduce other air emissions within the same air district in which the project is located. If those measures are not sufficient, the project must address any unmitigated GHG impacts through offsets within the same air district as the proposed project, or that otherwise have a “specific, quantifiable, and direct environmental and public health benefit to the region in which the project is located.” The market for offsets is quite constrained, particularly for offset projects located in urban areas in California, and is expected to become even more so in the coming years. Given this change, the feasibility of new ELDPs is uncertain.

Coblentz has guided clients through certification, approval, and development of several ELDPs and would be happy to discuss the opportunities and challenges of SB 7.