Ninth Circuit Rejects Constitutional Challenge to California’s Low Carbon Fuel Standard

On September 18, the Ninth Circuit handed a major victory to the California’s program to control greenhouse gas emissions from transportation fuels, turning aside constitutional challenges to the program brought by ethanol and petroleum industry interests in Rocky Mountain Farmers Union v. Corey (No. 12-15131).

The case arose from rulings in two separate actions in the Eastern District of California involving California’s “Low Carbon Fuel Standard.” The Low Carbon Fuel Standard is intended to reduce greenhouse gas emissions attributable to the sale of transportation fuel in California by 10 percent by 2020.  To achieve this goal, the California Air Resources Board (CARB) set “carbon intensity” standards for different fuel feedstocks, which distinguished on a geographic basis among different ethanol sources and different categories of crude oil.  The district court found that the application of Low Carbon Fuel Standards to out-of-state ethanol and crude oil production violated the Dormant Commerce Clause of the U.S. Constitution by (1) facially discriminating against out-of-state ethanol, (2) impermissibly engaging in the extraterritorial regulation of ethanol produced outside of California, and (3) having the purpose and effect of discriminating against out-of-state crude oil production.

By a 2-1 vote, the Ninth Circuit reversed all three of these rulings.  In a strongly worded opinion, Judge Gould recognized California’s authority to “create a market that recognizes the harmful costs of products with high carbon intensity,” observing that “[t]he Commerce Clause does not protect Plaintiffs’ ability to make others pay for the hidden harms of their products merely because those products are shipped across state lines.”

The panel remanded to the district court with instructions to determine whether the Low Carbon Fuel Standard’s ethanol provisions have the purpose and effect of discriminating against interstate commerce, and if not, to apply the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).  The panel also instructed the district court to apply the Pike balancing test to the standard’s crude oil provisions.

The panel affirmed the district court’s holding that the provision of the federal Clean Air Act saving California’s motor vehicle emissions standards from preemption (Section 211(c)(4)(b)) does not authorize the Low Carbon Fuel Standard under the Commerce Clause.

--Chris Jensen and Morgan Gilhuly

For more information, please contact Chris Jensen, cdj@bcltlaw.com, (415) 228-5411, or Morgan Gilhuly, rmg@bcltlaw.com, (415) 228-5460.