Energy Law Alert: California Permitted to Enforce Low Carbon Fuel Standard Pending Appeal

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On April 23, 2012, the U.S. Court of Appeals for the Ninth Circuit granted the California Air Resources Board's ("CARB") motion to stay the injunction that has prevented CARB from enforcing California's low carbon fuel standard (the "LCFS") since last December. Thus, although the case is ongoing, CARB is permitted to continue its implementation and enforcement of the LCFS pending the outcome of the appeal.

Background on the Litigation

California's Global Warming Solutions Act of 2006 ("AB 32") set a goal of reducing greenhouse gas emissions in the state to 1990 levels by 2020 and charged CARB with developing and implementing regulations in various areas to achieve that goal. In January 2007, then-Governor Arnold Schwarzenegger issued Executive Order S-01-07 calling on CARB to determine whether an LCFS could be adopted as a standalone measure under AB 32. In April 2010, CARB adopted a final set of regulations for the LCFS that is now codified at Cal. Code Regs. tit. 17, §§ 95480-95490. In short, the regulations set out a comprehensive program for reducing the carbon intensity of California's transportation fuels by at least 10% by 2020. To do this, the program establishes reporting requirements related to the full life-cycle carbon intensity of fuels sold in or imported into California.

On December 29, 2011, Judge Lawrence J. O'Neill of the U.S. District Court for the Eastern District of California, Fresno Division held that the LCFS violates the dormant commerce clause of the U.S. Constitution because it impermissibly discriminates against out-of-state corn ethanol and impermissibly regulates extraterritorial conduct. He also found that the government failed to establish that there are no alternative methods to advance its goal of reducing greenhouse gas emissions. According to Judge O'Neill, the key component of the LCFS that negatively impacts out-of-state producers and, consequently, the dormant commerce clause was the life-cycle transport component. Having found that the LCFS violates the dormant commerce clause, Judge O'Neill enjoined CARB from enforcing the LCFS during the pendency of the litigation. CARB appealed the decision to the Ninth Circuit in January.

CARB's Response to Lifting the Injunction

In response to the Ninth Circuit's ruling last week, CARB published a statement saying that "[w]e appreciate the . . . court's ruling allowing the LCFS to move forward pending a final ruling on the appeal. [The] decision allows the ARB to continue implementation and resume enforcement of this important program to reduce greenhouse gas emissions, driving the investment and innovation that creates new jobs and provides the next generation of clean fuels to all Californians." CARB also wasted no time setting the compliance schedule. According to its statement, because the injunction was in effect when the 2011 fourth quarter reports were due, CARB set a new deadline of April 30, 2012 for those parties that have not yet submitted them.

Scheduling for the Ninth Circuit Appeal

In its order staying the injunction, the Ninth Circuit also granted a motion to expedite the consolidated appeals. Plaintiffs' opening brief in Rocky Mountain Farmers Union v. Goldstene (Case No. 12-15131) is due on May 25, 2012; answering briefs are due June 25, 2012; and an optional consolidated reply brief would be due 14 days later.

For more information on the LCFS and the district court's December 29, 2011 decision, see our earlier Energy Law Alert. If you have questions about the content of this alert or how the LCFS could affect your business, please contact Chad Marriott or your Stoel Rives attorney.

Key Contributors

Chad T. Marriott
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