(CN) - California must face claims that its regulation of ethanol under the Low Carbon Fuel Standard "in purpose and effect" discriminates against out-of-state fuel producers, a federal judge ruled.
In 2009, the American Fuels & Petrochemical Manufacturers Association sued the California Air Resources Board, challenging the constitutionality of the Golden State's Low Carbon Fuel Standard - rules drafted under the state's Global Warming Solutions Act of 2006.
U.S. District Judge Lawrence J. O'Neill found that the state standard "discriminated against out-of-state and foreign crude oil while giving an economic advantage to in-state crude oil."
Under the new standards, the state assigned an "artificially favorable and lower carbon-intensity value" to state oil companies, while handing higher carbon intensity values than was accurate to "all other existing crude sources," O'Neill wrote.
O'Neill found the standard unconstitutional because the rules were "related to economic protectionism" and that state could achieve its goals of reducing global warming through nondiscriminatory means.
California appealed to the Ninth Circuit, which reversed O'Neill's ruling by finding the rules had "no protectionist purpose, no aim to insulate California firms from out-of-state competition."
The appeals court found the association had not shown any evidence that the rules had an actual adverse effect, leaving O'Neill to "speculate and infer" that the rules were discriminatory.
Instead, the rules were a "genuine" attempt to "direct innovation toward the development of alternative fuels rather than the search for more efficient methods of crude-oil extraction," the Ninth Circuit wrote, sending the case back to O'Neill with directions to rule in favor of the California Air Resources Board on the association's claim that the rules have a discriminatory purpose and effect.
On remand, O'Neill dismissed the association's claims that the crude oil provisions of the rules are discriminatory, finding that the rules did not single out out-of-state oil producers.
"The provisions do not confer an across-the-board benefit to California crude oils at the expense of foreign crude oils," O'Neill wrote. "Nor do they burden only foreign crude oils; they also burden California crude oils."
"In the context of the Commerce Clause, impermissible 'discrimination simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter,'" the judge wrote.
O'Neill dismissed the association's claim that the rules governing ethanol are "facially discriminatory," but let stand its claims that the ethanol rules "discriminate in purpose and effect."
The judge took issue with the association's lack of supporting evidence.
"In spite of being granted leave to amend, filing the 17-page first amended complaint, and filing three briefs totaling approximately 40 pages, plaintiffs have failed to point to a single piece of the Low Carbon Fuel Standard or its legislative history that indicates the regulation was passed for discriminatory purposes," O'Neill wrote. "Further, the court has spent an inordinate amount of time scouring the pertinent record, namely, the two primary documents that explain the purposes and reasoning underlying the rules - and cannot locate anything that suggests a discriminatory purpose behind the regulation."
O'Neill also had sharp words regarding the association's future moves in the case.
"A tremendous amount of judicial resource has been provided in this order," O'Neil wrote. "The court expects that counsel for both sides will invest at least as much resource into reading the order, following its directives, and making wise and prudent decisions when providing an amended pleading, and thereafter in determining whether it is necessary to attack that next pleading. The court has provided sufficient law for counsel to arrive at a satisfactory pleading that all counsel can understand and not attack. Should the unfortunate circumstance occur that the court is again called upon to rewrite pleadings, the subsequent order will be substantially shorter and lighter on research and detail."
The association did not respond to requests for comment.
Dave Clegern, spokesman for the California Air Resources Board, applauded O'Neill's ruling.
"We believe the court acted appropriately Thursday in dismissing several of the constitutional challenges filed last year by the American Fuels & Petrochemical Manufactures Association against the Low Carbon Fuel Standard," Clegern said. "We believe that the Low Carbon Fuel Standard is a fair and evenhanded regulatory tool, and we believe it will continue to withstand any industry-led legal challenges."
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