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Ninth Circuit Upholds California's Low Carbon Fuel Standard


On September 18, 2013, the U.S. Court of Appeals for the Ninth Circuit issued a decision upholding the constitutionality of California's Low Carbon Fuel Standard (Fuel Standard), part of a comprehensive set of California regulations implemented by the California Air Resources Board (CARB) to reduce the state's economy-wide greenhouse gas emissions. In Rocky Mountain Farmers Union v. Corey, the court considered whether the Fuel Standard discriminates against non-California fuels in violation of the Commerce Clause by assigning them less favorable carbon emissions values and, reversing the district court's rulings, found that it is not unconstitutionally discriminatory. This recent decision means that the Fuel Standard will likely remain effective for the immediate future and that, unless and until reversed, California's aggressive efforts to regulate carbon emissions from the state's fuels "trumps" the program's effect on interstate commerce.


California's Fuel Standard regulates greenhouse gas emissions from transportation fuels by requiring fuel providers to reduce greenhouse gas emissions associated with transportation fuels sold in the state. A "carbon intensity" is estimated for different transportation fuels and, to comply with the Fuel Standard, fuel providers in California must keep the average carbon intensity of their total volume of fuel sold within the state under the Fuel Standard's annual limit. This carbon intensity is estimated by assessing the greenhouse gas emissions for all stages of a fuel's lifecycle, from fuel and feedstock production and distribution to combustion of the finished fuel.

The lifecycle analysis approach to regulating transportation fuels has been controversial, and constitutional challenges were brought alleging that the Fuel Standard discriminates against non-California fuels in violation of the Commerce Clause by assigning carbon intensity values in such a way as to favor California fuels, and regulates the production of fuels outside of California (called "regulation of extraterritorial conduct" in Commerce Clause case law). The District Court found that the Fuel Standard discriminates in violation of the Commerce Clause against non-California fuels and found that the Fuel Standard regulates extraterritorial conduct, also in violation of the Commerce Clause. The state appealed.

The Ninth Circuit Decision

Last week, the Ninth Circuit reversed the District Court's findings that the Fuel Standard discriminates against non-California fuels in violation of the Commerce Clause. While the Fuel Standard differentiates on its face between carbon intensity values assigned to certain California fuels and those assigned to certain non-California fuels, the court found that this disparate treatment was not based on whether the fuel originated out of state, but on the carbon intensity of the fuel, and therefore could survive a dormant Commerce Clause challenge. Focusing on the methodology and reasons underlying the facially dissimilar values, the court determined that the underlying methodology was applied evenly to California and non-California fuels and was, therefore, not facially discriminatory.

The court also declined to find that the lifecycle analysis, which often accounts for lifecycle stages occurring outside California, constitutes impermissible extraterritorial regulation. Instead, the Ninth Circuit reversed the District Court, holding that states are free to regulate commerce within their boundaries with the goal of "influencing" the out-of-state choices of market participants without in fact "regulating" extraterritorial conduct.


State environmental initiatives, from renewable portfolio requirements to greenhouse gas reduction regimes, are increasingly being challenged under the dormant Commerce Clause. Many of these questions may ultimately be addressed by the United States Supreme Court, some of whose members have in recent years challenged earlier Commerce Clause precedents that have restricted state initiatives with interstate commerce impacts. The dormant Commerce Clause analysis set out in the Ninth Circuit's decision increases the importance of a state's purpose in enacting or adopting a law. Facial discrimination is often a determination made with reference only to the plain words of the statute or regulation, but in upholding the constitutionality of the Fuel Standard the court here looked past the language of the regulation to the state's underlying reasons and methods. While this may represent a shift in the evolution of Commerce Clause analysis, it may also be the subject of further judicial proceedings. Nevertheless, with the district court's previous rulings reversed, the Fuel Standard will likely remain effective for the immediate future.

To read a copy of the court's opinion, click here.

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