Does California�s Low Carbon Fuel Standard Discriminate Against Fuel Producers in Other States?

California's Low-Carbon Standards
On January 18, 2007, executive order S-1-07, referred to as the Low Carbon Fuel Standard (LCFS), was issued in the state of California. The executive order called for a ten percent reduction in the carbon intensity of transportation fuels, including gasoline and diesel, by the year 2020, explains a lawyer. The objective of the legislation was to prevent the injurious consequences of high greenhouse gas emissions on clean air and on each citizen�s personal health. Fuel producers outside of California, however, claimed that the LCFS was discriminatory and brought legal actions against the state.
Under the California law, California has a "life-cycle" analysis in place for measuring carbon emission. This standard looks at the total amount of greenhouse gases created by all aspects of producing and transporting a fuel in order to determine the fuel's total "carbon intensity." Under the California rules, those producers with lower overall emissions are rewarded with marketable credits, while those who have higher missions have to buy credits, which makes their fuel more costly.
Following the issuance of the California rules, several lawsuits were brought by industry trade organizations representing ethanol producers, refiners and truckers. The lawsuits alleged that California acted in violation of the U.S. Constitution. California, on the other hand, indicates that provisions found within the Clean Air Act provide the authority to control air pollution and that its regulation is a permissible act of state sovereignty. The judge, however, agreed with the plaintiffs and issued an injunction against California preventing the enforcement of the California rules.
The Constitutional Violation
The injunction against enforcement of the LCFS was issued based on the judge's belief that the low-carbon standards are in violation of the Commerce Clause. The Commerce Clause is found in Article I, Section 8, Clause 3 of the United States Constitution and gives Congress the power "to regulate commerce with foreign nations, and among the several states, and with the Indian tribes." Courts have also read into the commerce clause a "dormant" commerce clause, restricting states from passing legislation that discriminates against or burdens interstate commerce.
According to the lawsuit filed by industry trade associations, California's low carbon standards are inherently discriminatory against commerce taking place outside of the state of California, as it will always require more carbon emission to transport fuels from the Midwest or other distant areas into the state of California. Fuel producers in California who do not have to transport their fuel long distances would thus benefit from lower carbon emission rates and in-state economic activity would be boosted. Further, the lawsuit also indicated that California was making an attempt to impermissibly regulate conduct outside of the state and contended that California's LCFS should be preempted by Renewable Fuel Standards passed on the federal level.
California, on the other hand, can counter these arguments by indicating that a scientific approach is taken to calculating carbon emissions and that this approach is not intended to discriminate based on what state the fuel is transported from. Instead, it is simply a recognition of the true fact that how far fuel travels has an environmental impact. The state can also argue that they are setting in-state environmental standards only, which is a permissible exercise of sovereign power.
The Court's Ruling
The court agreed with the industry trade associations allegations that California had behaved in an unconstitutional manner, holding that the LCFS offended the dormant commerce clause doctrine. As such, an injunction was issued preventing the state from punishing fuel wholesalers or refineries selling gasoline or biofuels with a carbon footprint that exceeds state defined limits.
The court did not invalidate the low-carbon fuel program established by the LCFS, nor did it make any changes to the reporting requirements put in place by the regulation. However, by removing the state's ability to punish those who do not comply, there is no way for California officials to force compliance and the program to reduce the injurious consequences of carbon fuel emissions, explains a lawyer.
A spokesman for the Air Board personally indicated that the LCFS are not discriminatory and that the Air Board will be appealing the judge's decision. If California is successful in demonstrating that the LCFS is not discriminatory on its face, then the court must use a more permissive standard to determine if the law is unconstitutional. The test, established in Pike v. Bruce Church, allows for state laws to be upheld if they create only an incidental, rather than an intentional, burden on interstate commerce unless the burden is clearly excessive when compared with the benefits achieved locally by the laws.
While it seems clear that the lifecycle method of determining carbon emissions is inherently going to discriminate against those who must bring their fuel longer distances, it is possible that the appellate Court will agree that the injunction was not appropriate and that California may have the authority to pass its LCFS after all.
ABOUT THE AUTHOR: Jim Ballidis
For over 35 years, lawyer James Ballidis and the staff at Allen, Flatt, Ballidis, and Leslie have been helping California residents through the personal injury claims process. During this time, Mr. Ballidis has written several books and articles on the subject.