Poet LLC Asks Court to Overturn California Low-Carbon Fuel Rule

Source: By Karen Gullo & Robert Burnson, Bloomberg • Posted: Monday, June 3, 2013

Poet LLC, the second-biggest U.S. ethanol producer, will try to persuade a California appeals court the state’s low-carbon fuel standard should be thrown out because its environmental effects weren’t adequately studied.

Poet, based in Sioux Falls, South Dakota, lost its lower-court challenge to the California Air Resources Board’s requirement that companies selling transportation fuel in the state reduce their product’s “carbon intensity” by 10 percent in the next seven years.

The rules, which classify out-of-state corn-based fuels as more polluting than those produced in the state, could jeopardize Poet’s ability to tap California’s billion-dollar vehicle fuel market. Scuttling the standard would complicate California’s efforts to reduce greenhouse gas emissions to 1990 levels by 2020 and push the state to place stricter caps on carbon emissions for businesses.

The three-judge panel in Fresno, California, hearing Poet’s request today to overturn the trial court’s decision has indicated it’s considering whether to rule that California air-quality regulators violated state law by approving the fuel standard in 2009 before completing an environmental review.

Poet says the standard should no longer be enforced, an outcome that state lawyers allege would hurt the environment and disrupt California’s first-in-the-nation economy-wide cap-and-trade program.

State regulators “put the proverbial ‘cart before the horse,’” Poet said in a court filing. Leaving the regulation in place pending review “would only serve to leave the cart in front of the horse.”

Annual Emissions

The low-carbon fuel standard is projected to reduce annual carbon emissions in California by 16 million metric tons by 2020, and is a critical component of California’s 2006 global warming law, which aims to reduce emissions to 1990 levels by 2020.

Fuel sales generate credits or deficits for companies, depending on the carbon intensity of their product. Companies subject to the carbon regulations can use credits to comply with standards or sell them to other companies, and those with deficits must purchase credits to meet standards.

Fuel providers have been complying with the standard since January 2011, introducing more low-carbon fuel into the market, attracting a price premium for their low-carbon fuel, and accumulating and trading credits, California Deputy Attorney General Mark Poole said in court filings.

“Disruption of this well established market and smoothly functioning state program is a powerful consideration in favor of preserving the status quo,” Poole wrote.

Ethanol Producers

The Fresno court isn’t expected to issue a ruling today. The Poet lawsuit is one of two by ethanol producers challenging the California regulation, which complements the state’s cap-and-trade program.

The standards assign a higher carbon intensity score to ethanol produced in the Midwest, because while the fuel is chemically and physically identical to ethanol produced in California, corn farming, transportation and processing produces more emissions, California officials say.

Ethanol producers won a federal judge’s ruling striking down portions of the standard on grounds that they’re unfair to out-of-state producers and illegally regulate businesses outside of California. The air resources board is seeking to reverse the decision. The federal appeals court hasn’t yet ruled.

Archer-Daniels-Midland Co. (ADM) is the leading ethanol producer.

The Fresno case is Poet LLC v. California Air Resources Board, F064045, California Court of Appeal, Fifth Appellate District, Fresno.