National Petrochemical & Refiners Association v. Goldstene
Industry groups attempt to block California's Low Carbon Fuel Standard as a "burden on interstate commerce” under the dormant Commerce Clause
Status: Complaint filed February 2, 2010 seeking preliminary and permanent injunction against the new standard
Discussion & Analysis: In 2006, California passed the Global Warming Solutions Act (“Assembly Bill 32” or “AB32”) with the goal of reducing the state’s emissions of carbon dioxide and other greenhouse gases to 1990 levels by 2020 and to 80% below 1990 levels by 2050. The first state to pass such comprehensive legislation, California envisioned a multi-part approach to reaching those targets, using eighteen specific measures including a cap-and-trade system of emissions control. One of the measures is a “Low Carbon Fuel Standard” (LCFS), created by executive order, that became operational on January 12, 2010. The LCFS requires a ten-percent reduction in the carbon intensity of transportation fuels by 2020.
A key component of the LCFS is the requirement to calculate carbon intensity based on a “life-cycle” analysis. The carbon emissions associated with a fuel must include not only those caused by its use in California, but also emissions associated with its extraction or production, indirect emissions from land-use change, and the distance the fuel travels to market. While California and environmentalists generally support life-cycle analysis as a more accurate method of calculating carbon emissions, industry claims that states can wield it as an economic protectionist measure, in violation of the Constitution’s “dormant” Commerce Clause.
In February 2010, industry trade associations filed a federal lawsuit seeking to block California’s implementation of the LCFS. They allege that the LCFS is “inherently” discriminatory against out-of-state commerce, pointing, for example, to high carbon-intensity measurements for Midwestern ethanol based on emissions associated with transporting that fuel to market in California. By reducing the attractiveness of fuels produced and transported from out of state, industry argues, California will boost in-state economic activity and isolate itself from the national fuel market. Industry points to statements from California’s political leaders that the LCFS will create thousands of new jobs in-state and lead to the construction of 25 new biofuel facilities in California.
Industry argues that California’s LCFS violates the dormant Commerce Clause because: (1) the LCFS impermissibly regulates conduct outside the state of California; (2) the LCFS imposes burdens on interstate commerce that are unreasonable and excessive compared to the local benefits of reduced carbon emissions; and (3) the LCFS is an impermissibly protectionist measure designed to discriminate against out-of-state commerce. Industry also claims that the LCFS is preempted by the federal Renewable Fuels Standard.
California will deploy equally strong legal arguments that the LCFS is constitutional under the courts’ dormant Commerce Clause cases. With respect to the claim that the LCFS is “inherently” discriminatory, the state will likely respond that its scientific approach to calculating carbon intensity has nothing to do with which state a fuel comes from, but is based on the uncontroverted fact that the way in which a fuel is produced and how far it travels matters as much for the environment as how it is combusted. California will also likely argue that it has not forced regulation on any out-of-state activity, but rather set an environmental standard for fuel types used in-state—a valid exercise of states’ sovereign power preserved under the federal Constitution.
If the LCFS is not facially discriminatory, then the courts use a more permissive balancing test set out in the Supreme Court decision in Pike v. Bruce Church. Under this approach, state laws that have only the incidental effect of burdening interstate commerce will be upheld unless the burden on interstate commerce is “clearly excessive” compared to the local benefit. The question of whether the LCFS reduces or increases overall emissions will likely become a highly contested factual point in this analysis. However, the state will likely defend its analysis of emissions reductions and also point to the fact that the LCFS is just one of a suite of policies it is implementing to reach the 2020 and 2050 targets. When viewing one piece of a larger regulatory framework, courts may be less willing to strike down an individual measure like the LCFS. And given industry’s equally adamant criticism of the economic costs of climate legislation, it seems unlikely that California enacted the AB32 mandate as a protectionist measure.
Commentators have long expected a suit like this, testing a state-level climate law on dormant Commerce Clause grounds. Depending on how it is decided, either on the merits or at the preliminary injunction stage (which usually signals how the court will ultimately rule), this case could have enormous repercussions for other state and regional efforts, such as the Regional Greenhouse Gas Initiative in the Northeast, Minnesota’s carbon tax, and other programs that may indirectly impact out-of-state economic interests by imposing new costs on greenhouse pollutants. (On the other hand, should enough states enact similar or concerted measures, then industry’s “discrimination” claims may lose some of their force.) If the federal courts were to rule that states cannot set limits on their carbon dioxide emissions even in the absence of comprehensive federal legislation, the United States’ overall effort to combat climate change would be severely hampered.
Key Opinion: None yet issued. See National Petrochemical & Refiners Association v. Goldstene, No. 10-163 (E.D. Cal. filed Feb. 2, 2010).
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