With appeal rejected, industry may ask Supreme Court to review Calif. fuel standard

Source: Jeremy P. Jacobs, E&E reporter • Posted: Thursday, January 23, 2014

Federal judges today declined a request by industry groups to rehear a challenge to California’s low-carbon fuel standard, setting the stage for industry to ask the Supreme Court to review the case.

The 9th U.S. Circuit Court of Appeals last September upheld California’s standard, one of the state’s key programs for reducing greenhouse gas emissions that contribute to climate change.

Several industry groups, led by the Rocky Mountain Farmers Union and the American Fuel and Petrochemical Manufacturers, asked the court to rehear the case en banc, meaning before a larger 9th Circuit panel.

The coalition needed a majority of the San Francisco-based court’s 27 active judges to vote for the rehearing. It appears to have gotten about a handful, and the court’s order included a lengthy dissent from Judge Milan Smith Jr.

California’s Air Resources Board developed the greenhouse gas regulations in order to comply with the state’s landmark 2006 climate change legislation. The rules would cut carbon content in fuels sold in California by 10 percent by 2020.

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

Carbon intensity is measured by the life cycle of the fuel, including where it came from, how it was refined and transportation costs.

The industry groups claimed that the measurement discriminates against out-of-state fuel makers by including transportation. That provision, they charged, violated the U.S. Constitution’s “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.

“We hold that the Fuel Standard’s regulation of ethanol does not facially discriminate against out-of-state commerce, and its initial crude-oil provisions … did not discriminate against out-of-state commerce in purpose or practical effect,” Judge Ronald Gould wrote at the time (E&ENews PM, Sept. 18, 2013).

The case has been closely watched by industry and environmentalists because it is one of the first to challenge a state’s renewable energy program. Similar programs have been challenged across the country, including in Colorado and Minnesota.

In his dissent today, Smith disagreed with the majority’s reasoning, arguing that the program will influence interstate trade.

“In upholding California’s ethanol regulations, the 2-1 majority in this case finds at least facially constitutional a protectionist regulatory scheme that threatens to Balkanize our national economy,” he wrote, adding that the “deleterious effects” of California’s scheme “are not speculative.”

“Our federal system grants states substantial discretion to remedy perceived local problems,” he wrote. “But the Constitution sharply constrains their power to do so at the expense of other states.”

Several legal experts expect industry to petition the Supreme Court to review the case. The high court has heard several environmental cases coming out of the 9th Circuit in recent years, and, if the groups do petition the court, they will point to the multiple dissents to encourage the justices to take up the case.