In seeking a stay of the preliminary injunction, ARB will request an order that all requirements of the LCFS in 2011 and 2012 are enforceable for the entire period. Thus, ARB said, to the extent that existing guidance it issued is expiring or stakeholders or the Board has requested modifications to the regulation (earlier post), ARB will continue its stakeholder and rulemaking processes.

The new Supplemental Regulatory Advisory 10-04B (Supplemental Advisory 10 04B), which goes into effect 1 January 2012, to provide further guidance to stakeholders on the Low Carbon Fuel Standard (LCFS) regulation. This Supplemental Advisory 10-04B further elaborates on the guidance provided in Supplemental Advisory 10 04A. This Supplemental Advisory 10-04B will remain in effect through December 31, 2012, unless superseded by a subsequent ARB advisory, notice, or rulemaking.

Rocky Mountain Farmers Union et al v. Goldstene and O’Neill’s rulings

Rocky Mountain Farmers Union et al v. Goldstene is a consolidated action, combining several lawsuits arguing similar points. Plaintiffs in the consolidated action are Rocky Mountain Farmers Union (RMFU); Redwood County Minnesota Corn and Soybean Growers; Penny Newman Grain, Inc.; Growth Energy; Renewable Fuels Association; Red Nederend; Fresno County Farm Bureau; Nisei Farmers League; California Dairy Campaign; National Petrochemical & Refiners Association; American Trucking Association; Center for North American Energy Security; and the Consumer Energy Alliance—essentially the corn ethanol industry, the refining industry, truckers, and supporters.

The defendants in the action were James N. Goldstene, in his official capacity as Executive Director of ARB; Mary D. Nichols, Daniel Sperling, Ken Yeager, Dorene D’Adamo, Barbara Riordan, John R. Balmes, Lydia H. Kennard, Sandra Berg, Ron Roberts, John G. Telles and Ronald O. Loveridge in their official capacities as members of ARB; Arnold Schwarzenegger, in his official capacity as Governor of the State of California, and Edmund G. Brown, Jr., in his official capacity as California Attorney General. Defendant-intervenors were the Natural Resources Defense Council, Sierra Club, and the Conservation Law Foundation.

The plaintiffs basically asserted that the LCFS is prohibited by the dormant Commerce Clause of the US Constitution, and is preempted by federal law. The Commerce Clause gives Congress the power to regulate commerce “among the several States”. The defendants (ARB) moved to seek summary judgment that the LCFS is an authorized control of a motor vehicle fuel that is insulated from preemption and Commerce Clause challenges.

First ruling: ARB not insulated from Commerce Clause scrutiny. In his first ruling, Judge O’Neill addressed the summary judgment motion, as a finding in favor of the defendants would have resolved the entire action. O’Neill found that while the LCFS is an authorized regulation as defined by the federal Clean Air Act, California’s authority “is not unfettered”. California regulations must still be considered according to ordinary conflict preemption principles. In addition, he wrote, contrary to the repeated assertions by ARB, ARB is not insulated from dormant Commerce Clause scrutiny.

Second ruling: LCFS impermissibly discriminates against out-of-state corn ethanol and impermissibly regulates extraterritorially in violation of the Commerce Clause. RMFU et al. argued that the LCFS violates the Commerce Clause of the US and is preempted by federal law. RMFU argued that the LCFS fails as a matter of law because it: (1) impermissibly discriminates against out-of-state corn ethanol; (2) impermissibly regulates commerce and the channels of interstate commerce; (3) excessively burdens interstate commerce without producing local benefits; and (4) is preempted by the Energy Independence and Security Act of 2007 (“EISA”).

The final consideration in the strict scrutiny analysis is whether California has established that the goal of reducing global warming cannot be adequately served by nondiscriminatory alternatives. California has failed to establish this fact. While this Court recognizes that the lifecycle analysis is a widely-accepted approach nationally and internationally to reduce GHG emissions, Defendants have failed to establish that they could not achieve this goal through other nondiscriminatory means.

The Rocky Mountain Plaintiffs suggest several nondiscriminatory alternatives. For example, an LCFS that does not contain the discriminatory components may be effective in reducing GHG emissions. In addition, Defendants’ expert concedes that California could “adopt a tax on fossil fuels” to “reduce greenhouse gas emissions associated with California’s transportation sector.”

Addressing another alternative—regulating only tailpipe GHG emissions in California—Defendants speculate that it “may result in greater emissions overall,” though CARB stated that GHG emissions could be reduced by “increasing vehicle efficiency” or “reducing the number of vehicle miles traveled.” Although these approaches may be less desirable, for a number of reasons, Defendants have failed to establish there are no nondiscriminatory means by which California could serve its purpose of combating global warming through the reduction of GHG emissions.

—Judge O’Neill

In this area, O’Neill found that the LCFS impermissibly discriminates against out-of-state corn ethanol and impermissibly regulates extraterritorially in violation of the dormant Commerce Clause and its jurisprudence. He granted the Rocky Mountain Plaintiffs’ motion for a preliminary injunction and enjoined ARB from further enforcing the LCFS during the pendency of this litigation.

Third ruling: LCFS discriminates against out-of-state and foreign crude oil while giving an economic advantage to California crude oil. The NPRA and its co-plaintiffs contended that the LCFS violates the dormant Commerce Clause because it: (1) impermissibly discriminates in favor of California corn ethanol and against Midwest corn ethanol; (2) impermissibly discriminates in favor of California crude oil and against crude oils from outside of California (specifically that high carbon intensity crude oils—HCICO— from California were preferred to HCICO from out-of-state); and (3) impermissibly regulates interstate and foreign commerce based on a fuel’s “pathway,”—i.e., its production and transport—that occurs outside of California.

The National Petrochemical Plaintiffs explain that there is no dispute that application of the “two factors” identified by Defendants results in the following: (1) California’s HCICO is assigned a CI [carbon intensity] value with less than half of the GHG emissions associated with its production and transport; (2) California’s HCICO is the only HCICO to qualify for this favorable treatment; and (3) All HCICOs from outside of California are required to account for all of the GHG emissions associated with their production and transportation.

Defendants admit that the only “HCICO that qualifies for the default carbon intensity values,” i.e. favorable treatment, “is California crude oil produced using TEOR.” The National Petrochemical Plaintiffs argue that Defendants “gerrymandered the criteria to reach this outcome,” which establishes that the purpose and design of the LCFS is to discriminate against out-of-state and foreign HCICOs.

—Judge O’Neill

ARB opposed this by arguing that the LCFS applies evenhandedly to all ethanol pathways; does not discriminate in the crude oil market; and does not regulate extraterritorial activity directly. In addition, ARB contended that “certain arguments are unripe for adjudication”.

O’Neill ruled that the LCFS discriminates against out-of-state and foreign crude oil while giving an economic advantage to in-state crude oil.

California’s LCFS gives an economic advantage to California TEOR [thermal enhanced oil recovery processes] over foreign HCICOs and assigns a mandatory economic disadvantage to out-of-state and foreign existing crude sources. While regulating GHG emissions to combat global warming may be a legitimate end, California may not do so through the use of invalid legislative means. See Or. Waste Sys. Inc. v. Dep’t of Envtl. Quality of Or., 511 U.S. 93, 100 (1994) (The “purpose of, or justification for, a law has no bearing on whether it is facially discriminatory.”). Moreover, the discrimination implicates foreign commerce, which makes it the subject of a more rigorous scrutiny. Because Defendants have failed to establish that no alternative, nondiscriminatory means exist to address their legitimate purpose, this Court finds that the LCFS violates the dormant Commerce Clause.

—Judge O’Neill

Resources

• Supplemental Regulatory Advisory 10-04B

• Order On Defendants’ Summary Judgment Motion (Doc. 138)

• Order On RMFU Plaintiffs’ Summary Adjudication Motion (Doc. 111); Order On Defendant’s Renewed Fed. R. Civ. P. 56(D) Motion (Doc. 172); Order On RMFU Plaintiffs’ Preliminary Injunction Motion (Doc. 115)

• Order On NPRA Plaintiffs’ Summary Adjudication Motion (Doc. 125)