California’s Low Carbon|Fuel Standard Upheld

(CN) - California's tough emissions standard for fuel producers does not discriminate against out-of-state companies, the 9th Circuit ruled Wednesday.

As part of its ongoing efforts to combat global warming, California established the Low Carbon Fuel Standard (LCFS) to regulate the "carbon intensity" of all transportation fuel used in the state, with the goal of returning 1990-level emissions by 2020.

To determine the intensity of a particular fuel, such as crude oil or ethanol, the program uses a "life-cycle analysis" that measures not just pollution from a vehicle, but the total emissions created from producing, refining and moving the fuel to California.

The American Fuels & Petrochemical Manufacturers Association and various producers of ethanol and oil-based fuel challenged the program in several federal lawsuits that were consolidated for appeal.

They argued that the fuel standards discriminated against out-of-state producers in violation of the Commerce Clause, as the life-cycle analysis and other aspects of the standard make it more difficult for them to compete in California.

U.S. District Judge Lawrence O'Neill ruled for the fuel producers in three decisions in 2011, finding that the fuel standard improperly sought to regulate the national ethanol market and discriminated against out-of-state ethanol and crude-oil producers, among other things.

A divided federal appeals panel reversed on Wednesday in a ruling that noted California's leadership in environmental regulation and its reputation as a national "laboratory" for avant garde policy.

The three-judge panel found that the fuel standard does not obviously discriminate against out-of-state ethanol producers, and does not discriminate against out-of-state crude-oil producers in "purpose or practical effect."

The judges remanded the case for a trial on whether the ethanol standards "discriminate in purpose or in practical effect."

"The California Legislature has determined that the state faces tremendous risks from climate change," Judge Ronald Gould wrote for the panel. "With its long coastlines vulnerable to rising waters, large population that needs food and water, sizable deserts that can expand with sustained increased heat, and vast forests that may become tinderboxes with too little rain, California is uniquely vulnerable to the perils of global warming. The California Legislature determined that [greenhouse gas] emissions from the production and distribution of transportation fuels contribute to this risk, and that those emissions are caused by the in-state consumption of fuels. Whether or not one agrees with the science underlying those views, those determinations are permissible ones for the Legislature to make, and the Supreme Court has recognized that these risks constitute local threats."

He added that California "should be encouraged to continue and to expand its efforts to find a workable solution to lower carbon emissions, or to slow their rise."

"If no such solution is found, California residents and people worldwide will suffer great harm," he wrote. "We will not at the outset block California from developing this innovative, nondiscriminatory regulation to impede global warming. If the Fuel Standard works, encouraging the development of alternative fuels by those who would like to reach the California market, it will help ease California's climate risks and inform other states as they attempt to confront similar challenges."

Writing in dissent, Judge Mary Murguia said the fuel standard facially discriminates against out-of-state ethanol producers.

"The LCFS is the latest chapter in California's long history of innovative solutions to complicated environmental problems," she wrote. "But the current version of the LCFS facially discriminates against interstate commerce and California has failed to meet its onerous burden of demonstrating that a nondiscriminatory version of the regulation could not achieve its legitimate local interest of reducing GHG emissions. For this reason, I respectfully dissent."

American Fuel & Petrochemical Manufacturers President Charles Drevna said Wednesday that the group was disappointed with the ruling.

"The district court explained compellingly why the California Low Carbon Fuel Standard violates the Commerce Clause of the Constitution," Drevna said in a statement. "Although the LCFS is a California law, its broad reach and intended scope means that implementing the LCFS will have adverse consequences throughout the nation's fuel refining facilities and supply chain far beyond California's borders."

He said the company "will be evaluating its options regarding further court proceedings in upcoming weeks."

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