They are dead wrong. The California Environmental Quality Act "does not apply to projects which a public agency rejects or disapproves" (CEQA Guidelines Sec. 15270). In other words, a public agency has the authority to reject a proposal and forego an environmental review when a project is inconsistent with existing land-use policies and ordinances.
Redwood City has the legal right and a clear justification to reject the Saltworks proposal at any time, because the project directly violates the city's existing general plan and the goals set forth by the Bay Conservation and Development Commission and the Environmental Protection Agency to improve sustainability of the bay.
Cargill is asking Redwood City to amend the general plan and rezone their property, and also requests that the city abort its own general plan update process. The council agreed, thus stifling the best approach for revising land-use decisions. An environmental impact report is no substitute for a city-run general plan process that fully engages public input. Such EIRs are intended to inform agencies about potential environmental impacts from proposed projects, not to justify changing land-use laws.
The Redwood City Council has shown that they not only believe that Cargill is entitled to develop the site, but that they are comfortable with the concept of building a new city in the bay. This proposal is not like "any other application." That is why concerned citizens all across the Bay Area are insisting that Redwood City reinstate its general plan update for the salt ponds before considering any development proposals.