July 1, 2017 | Category: Air Quality, California, CEQA, Lawsuit

A California judge has allowed oil companies and agricultural groups to proceed with a lawsuit challenging California’s low carbon fuel standard.  Last week, U.S. District Judge Lawrence O’Neill agreed to let the two groups of plaintiffs bring a dormant Commerce Clause claim, because they have successfully shown that the fuel scheme could have a discriminatory effect on non-California ethanol producers.

In short, the California low carbon fuel standard was part of a 2006 state law intended to reduce air pollution that causes global warming and it requires suppliers of transportation fuel sold in California to achieve a 10 percent reduction by 2020 in the amount of carbon released from their products. More specifically, the plan requires entities that import out-of-state electricity to report the corresponding greenhouse gas emissions and purchase allowances to cover them. The allowance costs are then passed on to out-of-state generators, who must offer higher bids.  As such, the plaintiffs, the American Fuel & Petrochemical Manufacturers, the Redwood County Minnesota Corn and Soybeans Growers and ethanol trade group Growth Energy, argue that the standard could drive out-of-state producers out of the California market because it makes ethanol production in the Midwest, and elsewhere, more expensive.

Judge O’Neill has been presiding over the case since 2009, when he initially rejected the broadest arguments that California rules conflicted with milder federal clean-air laws and were an unconstitutional attempt to shield the state’s energy producers from competition. Then, in 2011, Judge O’Neill blocked enforcement of the low carbon standard, holding that the program’s initial provisions concerning crude oil were discriminatory. However, this decision was then overturned by the Ninth Circuit Court of Appeals in 2013.  While Judge O’Neill has upheld most of the low carbon standard, he now is allowing oil companies and other fuel supplies to challenge rules that may favor California ethanol producers over their Midwest competitors. He noted that Midwestern producers “plausibly have alleged” that the ethanol standard “imposes burdens on interstate commerce that outweigh the local benefits it provides.”

Attorneys on the case have said discovery is likely the next stage in litigation.