Business groups take low-carbon fuel standard objections to Supreme Court

Source: Debra Kahn, E&E reporter • Posted: Monday, March 24, 2014

California regulators expressed confidence yesterday in their low-carbon fuel standard, as ethanol and conventional fuel producers alike said they would petition the Supreme Court to review the program.
The Renewable Fuels Association and Growth Energy asked the nation’s highest court yesterday to rule on the constitutionality of California’s program, which assigns carbon scores to various fuels and requires fuel producers and importers to lower the average carbon content of their supplies (E&ENews PM, March 20).They were joined later in the day by trade groups American Fuel & Petrochemical Manufacturers Association, American Trucking Associations Inc. and Consumer Energy Alliance. Both petitions cited the U.S. Constitution’s “dormant” Commerce Clause, which prohibits states from discriminating against interstate trade.”[I]f California may penalize transportation fuels based on their carbon intensity, it may likewise penalize every other imported product, whether it be peaches from Georgia, cars from Michigan, milk from Vermont, or wine from France,” the AFPM petition says.

“The State of California, in the name of combatting global warming, has violated the basic norms of interstate federalism,” the ethanol groups said in their petition. “The LCFS program is a costly attempt by California to appear that it is doing something about global warming, perhaps in hopes of inspiring action elsewhere, without actually reducing emissions.”

California officials responded with a defense of the program, which is aimed at reducing the carbon content of transportation fuels by 10 percent by 2020.

“The low-carbon fuel standard is a carefully designed, even-handed regulation to reduce greenhouse gas emissions,” said Dave Clegern, a spokesman for the California Air Resources Board, which created the program in 2009. “We are confident it will continue to withstand legal challenges.”

The 9th U.S. Circuit Court of Appeals declined in January to rehear a challenge to the standard, a key component of California’s suite of greenhouse gas-cutting policies. Industry groups had asked for a rehearing after a 9th Circuit panel reversed a lower court decision against the program.

In order to comply with the regulation, a fuel blender must keep an average carbon intensity in its total volume produced below the board’s annual limit.

The industry groups have claimed that the measurement discriminates against out-of-state fuel makers by including transportation. That provision, they charged, violated the “dormant” Commerce Clause, which is generally interpreted to mean that while the clause gives Congress the authority to regulate interstate commerce, the inverse is also true — states may not restrict or discriminate against interstate economic activity.

In a 2-1 ruling, the court dismissed that argument in September (Greenwire, Jan. 22).

Tinkering with a pioneering rule

Observers had expected fuel producers to petition the Supreme Court to take up the lawsuit. But the case’s procedurally complex history could sway the court against agreeing to hear it.

Sean Donahue, an attorney with Donahue & Goldberg who argued the case in front of the 9th Circuit panel for the Environmental Defense Fund and other environmental intervenor-defendants, said that the Supreme Court prefers to hear issues that have produced conflicting opinions in circuit courts that need resolution.

“There’s no decision of any other circuit or the Supreme Court that is inconsistent with the 9th Circuit’s ruling,” he said.

He added that the role of states as laboratories for social and economic experimentation should be respected.

“We think this policy is a sort of classic example of the kind of state policy experimentation that our Constitution is intended to allow and is a key benefit of our system,” he said. “This is really an effort to squelch a very promising policy on one of our greatest, most serious problems that we face. It’s troubling that the claim is the state doesn’t have the power to do this.”

The Air Resources Board is also in the middle of making changes that could change the way it implements the program. Earlier this month, the agency introduced several proposed revisions in response to a state court decision from last year. Some of the proposals would give oil companies credit for upgrading refineries to reduce greenhouse gas pollution, adjust the rate of emissions reductions required through 2020 and give fuel suppliers a more flexible compliance schedule.

The state and environmental groups have 30 days to respond to the initial petition.