California electric utilities and environmental groups are teaming up to fight a lawsuit challenging the use of carbon offsets in the state's landmark cap-and-trade system for greenhouse gases.

Pacific Gas and Electric Co., Southern California Edison, NRG Energy Inc., World Oil Corp. and the Environmental Defense Fund are among those intervening in the suit, filed in March by environmental groups that say offsets are not capable of delivering real emissions reductions (E&ENews PM, March 28).

If companies aren't allowed to use offsets, which under current rules can constitute up to 85 percent of total required reductions under the cap, prices would be much higher, EDF said in its filing Monday. The trading system will begin in January 2013 with auctions of emissions permits to be held quarterly through 2020.

"[E]ven in limited quantities the inclusion of emission reductions from uncapped sectors will significantly reduce the overall cost of the program," attorneys wrote.

Among the interveners are companies and nonprofits that create and trade in offsets, including the Climate Action Reserve, the International Emissions Trading Association and the Carbon Offset Providers Coalition.

George Hays, an attorney for the plaintiffs, the Citizens Climate Lobby and Our Children's Earth Foundation, said he wasn't fazed by the opposition.

"We're right. It doesn't matter how many of them there are," he said.

But the Natural Resources Defense Council also sided with the interveners, releasing a statement in support of offsets. NRDC said it did not formally intervene because of other potential challenges to the global warming law, A.B. 32.

"We are anticipating a lot of litigation on A.B. 32 this year and next, and we have limited capacity," said Kristin Eberhard, the group's legal director for Western energy and climate. "Our views are very similar to EDF's, so we wanted to try to conserve our resources to make sure we have enough to go around."

The court also set hearing and briefing schedules for the suit. The plaintiffs' opening brief is due Monday, with the state's due Aug. 1 and the interveners' on Aug. 15. Oral arguments are scheduled for Nov. 6.