California: the Vanguard of Environmental Protection

California remains the forerunner for environmental protection.  The Golden State has been in the forefront of efforts to protect the environment from transportation and air quality greenhouse (“GHG”) emissions.  When Congress began implementing federal regulations, the legislature, consciously chose to permit California to blaze its own trail with a minimum of federal oversight, so long as those standards were in the aggregate, at least as protective of public health and welfare as applicable federal standards.  In fact, other states could adopt either the federal standards or California’s, but could not create their own.

 

Low Carbon Fuel Standard

The Low Carbon Fuel Standard (“LCFS”) is administered by the California Air Resource Board (“CARB”), primarily to reduce GHGs to 10% by 2020.  LCFS was adopted to reduce the carbon intensity of motor vehicles sold in California.  It establishes a life cycle analysis (often referred to as “LCFA”) (https://www.youtube.com/watch?v=NQTW7jjXVmE) of the carbon content for each fuel used.  This metric captures the energy used to create each fuel from the initial point of extraction or production—to the point of transporting, refining and distributing it to the final point of sale.  In other words, fuels are assigned so-called carbon-intensity ratings based on emissions that will be caused by their production, distribution and use in a vehicle.  CARB then assigns a cumulative carbon intensity value to an individual fuel lifecycle, referred to as a “pathway,” which defines whether a producer is at risk of exceeding its annual GHG limit.   LCFS also uses a market-based cap and trade approach for lowering GHG emissions from petroleum based transportation fuels like ethanol and diesel. The cap and trade is beneficial because if a supplier is below the GHG annual cap standards, you earn credits—which you can carry over to later years, or sell to industries that don’t meet those standards.

The Case of Rocky Mountain in a Nutshell

In Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070 (2013), (http://cdn.ca9.uscourts.gov/datastore/opinions/2013/09/18/12-15131.pdf) the petitioners, Rocky Mountain Farmers Union, led a multi-party action (“Rocky Mountain”) against CARB, alleging that California’s LCSFS violated the dormant Commerce Clause and was preempted by the Federal Renewable Fuel Standard (“RFS’) section of the Clean Air Act.^[1]  The Ninth Circuit reversed in part the district court’s summary judgment in favor of Rocky Mountain, holding instead that the LCSFS:

 

(1) did not facially discriminate against out-of-state ethanol;

(2) did not impermissibly engage in the extraterritorial regulation of ethanol production;

(3) and did not discriminate in purpose and practical effect against out-of-state crude oil.

 

Accordingly, the case was remanded to the district court for entry of partial summary judgment in favor of CARB on these issues.

 

Framing the Constitutional Issue

The constitutional issue in this case was tricky.  The argument was that the LCFS uses a model that creates a geographical divide.  For example, LCFS assigns preset average carbon intensities to producers in California, the Midwestern United States, and Brazil (which uses sugar cane, rather than corn, for ethanol production). The factors used to determine these average carbon intensities include things such as: (1) the growth and transportation of the feedstock; (2) the type of electricity used to power the plant; (3) the efficiency of production; (4) the milling process used; and (5) transportation of the fuel to the blender in California.

It’s not hard to see that for non-California-based ethanol producers, the Fuel Standard is setting carbon intensity determinations, with financial consequences under the regulation, based largely on admitted extraterritorial conduct (i.e., GHG emissions occurring thousands of miles from California).

 

Unanswered Constitutional Questions Remain Dormant

 

It was no surprise that the Supreme Court decided turned down this case.  As for now a “bad” good seems to be better than a “good” wrong.  Yet, the potential unconstitutional footprint left behind by this decision may redefine interstate federalism, as we know it.

The Ninth Circuit concluded that the Fuel Standard is not discriminatory on its face against interstate commerce.  Outlined are primary issues of contention:

 

• The court assumes, without substantiating, that emissions during the ethanol production and transportation processes in Brazil and in Iowa threaten California’s “long coastlines vulnerable to rising waters, large population that needs food and water, sizable deserts that can expand with sustained increased heat, and vast forests that may become tinderboxes with too little rain” such that they should be included in a calculation of average actual impact to California.

 

• The court accepts CARB’s unaccounted determination that emissions from the production and transportation of fuels thousands of miles from California “are caused by the in-state consumption of fuels,”

 

• LCFS assigns a significantly lower carbon intensity for certain California production and a higher carbon intensity for out-of-state production that represented more than half of California’s crude oil market in the year surveyed (2006), yet glosses over any concern that LCFS may violate the dormant Commerce Clause by pointing to a portion of California crude oil sources that were negatively calculated into the LCFS carbon intensity assignment.

 

Conclusion

To put it mildly, the court appears to have placed its stamp on a broad legal standard that would allow each of the 50 States to regulate all sorts of extraterritorial conduct on the basis that an end product will be consumed within that State.

Without a doubt, LCFS is an important technological advancement.  Moreover, California’s adoption of lifecycle assessment in the transportation sector is a noble and worthwhile experiment.  Certainly, it can help mitigate the risk of the adverse effects caused by GHGs in transportation vehicles.  However, the Supreme Court should reconsider the impact of a potentially unconstitutional footprint left behind by this decision.?  The answer remains TBD.

–Nebyu Retta, Suffolk University Law School, Juris Doctor Candidate, May 2017

^[1] See Cal Code Regs tit. 17, §§ 95480-90 (2011); Section 211(o) of the Clean Air Act, 42 USC § 7545(o).