Almost a year after it heard oral argument on the case, today the U.S. Court of Appeals for the Ninth Circuit reversed the District Court’s opinion and held that California’s Low Carbon Fuel Standard (LCFS) does not unconstitutionally facially discriminate against out-of-state commerce in the case of Rocky Mountain Farmers Union v. Goldstene. The case will be remanded to the U.S. District Court for the Eastern District of California for further proceedings to determine whether the case unconstitutionally discriminates in purpose or effect against interstate commerce. Significantly, the LCFS will remain in effect for both the immediate and foreseeable future.
In December 2011, the U.S. District Court for the Eastern District of California struck down the LCFS as violating the Commerce Clause of the U.S. Constitution following a challenge by a number of agricultural, renewable fuel, and petroleum industry groups. The State of California subsequently appealed the decision to the Ninth Circuit. In April 2012, the Ninth Circuit allowed California to enforce the LCFS pending the court’s consideration of the underlying constitutionality of the LCFS.
The LCFS is a set of California regulations intended to reduce greenhouse gas emissions by encouraging the use and production of alternative, low carbon fuels. To effectuate these goals, the LCFS requires producers and importers of transportation fuels in California to meet certain carbon intensity standards. In determining the carbon intensity of a particular fuel, the LCFS requires the consideration of the energy used in transporting the fuel to California and the carbon intensity of the electricity that powers the facility producing the fuel. The District Court found that in considering these factors, the LCFS unconstitutionally regulates the economic activity of another state and discriminates against interstate commerce.
In today’s ruling, the Ninth Circuit held that the ethanol and crude oil provisions that take into account the location of the source of the ethanol and crude oil did not facially discriminate against interstate commerce. Nonetheless, the court remanded the case to the District Court to decide whether the ethanol provisions discriminate in purpose or effect against out-of-state ethanol producers. As a result, the plaintiffs will have a second bite at the apple in arguing that the LCFS is unconstitutional.
It is arguably more likely that the District Court will find that the LCFS has a discriminatory effect on interstate commerce rather than the purpose of the LCFS is to discriminate against interstate commerce. The LCFS is part of a comprehensive effort to lower greenhouse gas emissions, and most of this scheme does not involve protectionist measures. Nonetheless, the effect of the LCFS may be that it puts out-of-state goods at a disadvantage versus in-state goods. If the District Court makes such a finding, the LCFS could once again be held unconstitutional. Similarly, the Ninth Circuit’s decision will likely be appealed to the U.S. Supreme Court, which may decide to take up the case because it involves important constitutional questions, the largest economy in the United States (i.e., California), and an innovative environmental program that is serving as a model for other states and jurisdictions.