Judge upholds California’s low-carbon fuel standards

Source: By By Bob Egelko, San Fransisco Chronicle • Posted: Thursday, June 22, 2017

A federal judge has upheld most of California’s pioneering low-carbon fuel standard but allowed oil companies and other fuel suppliers to challenge rules that may favor California ethanol producers over their Midwest competitors.

The standard, part of a 2006 state law intended to reduce air pollution that causes global warming, requires suppliers of transportation fuel sold in California to achieve a 10 percent reduction by 2020 in the amount of carbon released from their products.

Ruling in lawsuits originally filed in 2009 by oil refiners and ethanol producers, U.S. District Judge Lawrence O’Neillof Fresno rejected their broadest arguments: that the California rules conflicted with milder federal clean-air laws and were an unconstitutional attempt to shield the state’s energy producers from competition.

Federal law expressly “preserves the right of the states to enact their own legislation that is more restrictive,” O’Neill said in a 48-page decision Thursday.

In 2011, O’Neill had blocked enforcement of the low-carbon standard, saying it appeared to establish a preference for California-produced biofuels. The Ninth U.S. Circuit Court of Appeals in San Francisco quickly allowed the state to resume enforcement of the rules and later overturned O’Neill’s decision, in language he quoted in his latest ruling.

“There was no protectionist purpose, no aim to insulate California from out-of-state competition,” he said, citing the appeals court’s findings.

But he said ethanol companies in the Midwest, where nearly all of the nation’s supplies of the fuel are produced, could proceed with their claim that the California rules, though neutral in purpose, had a discriminatory effect.

The California Air Resources Board assigns “carbon intensity” scores to ethanol sold in the state, ratings that determine the price that producers can charge. Although some California-produced ethanol has been given a higher score — and thus a lower value — than out-of-state products, many producers from other states have contended their fuels are assigned higher scores than identical ethanol from California, O’Neill said.

“It is plausible that Midwestern ethanol producers will be disproportionately burdened by the (low-carbon standard) compared to their California counterparts,” the judge said.

Because state officials have conceded that the carbon standard, by itself, will not significantly reduce global climate change, he said, the Midwestern producers “plausibly have alleged” that the ethanol standard “imposes burdens on interstate commerce that outweigh the local benefits it provides.”

Air Resources Board spokesman David Clegern said Tuesday the board was still evaluating O’Neill’s order. But overall, he said, the ruling “closely tracked” the earlier appeals court decision in the state’s favor.

Lawyers for the fuel companies could not be reached for comment.