A California appellate court signaled on February 26, 2013, that it might find that California’s low carbon fuel standard (LCFS) was improperly adopted.  The court sent a request for supplemental briefing in POET, LLC et al. v. Goldstene, et al. indicating that the California Air Resources Board (CARB) may have violated the California Environmental Quality Act (CEQA) in adopting the LCFS.  Although the court has not yet issued its decision, if the court were to find that CARB violated CEQA, the court could suspend the LCFS until the violation is remedied.

This would not be the first time that CEQA, which requires state and local agencies to analyze and mitigate the environmental impacts of their projects, has been a roadblock to implementation of California’s climate change laws.  In 2011, a court found that CARB failed to comply with CEQA in approving the scoping plan which serves as a map for implementing California’s landmark climate change law.  The court enjoined California’s greenhouse gas cap and trade rulemaking pending the performance of an updated CEQA analysis.  Shortly following the court’s ruling, CARB delayed by a year the start of compliance obligations under the cap and trade program.

The LCFS requires fuel suppliers to reduce the carbon intensity of certain fuels to 10 percent below 2010 levels by 2020.  The ethanol company POET challenged the LCFS on CEQA grounds in 2009.  POET alleged that the CEQA process associated with CARB’s LCFS rulemaking failed to disclose significant environmental impacts, evaluate alternatives, and follow CEQA’s procedural rules, among other deficiencies.  The Fresno County Superior Court ruled against POET in November 2011, and POET appealed. 

In the recent request for supplemental briefing, the appellate court asked the parties to assume that CARB violated CEQA by:

  1. Approving the LCFS before environmental review was completed;
  2. Separating the authority to approve the LCFS from the responsibility for completing environmental review;
  3. Deferring the formulation of mitigation measures for NOx emissions from increased biodiesel use; and
  4. Omitting documents from the rulemaking file.

The request also instructed the parties to assume that the court will not declare the LCFS invalid but instead issue a writ of mandate specifying the actions CARB would need to take to bring the adoption of the LCFS into compliance with CEQA. 

Having set forth the assumptions above, the court requested supplemental briefing from the parties addressing whether the LCFS should remain in effect while CARB takes any required corrective actions to remedy the alleged CEQA violations.  The court also asks the parties to discuss what the specific terms of any writ of mandate should be (i.e., what CARB should be required to do to bring its adoption of the LCFS and formulation of the NOx mitigation measures into compliance with CEQA).

The court set a briefing deadline of March 18 for POET and April 2 for CARB.  The court may also ask the parties to present oral argument prior to ruling on the matter.  Based on the assumptions incorporated into the court’s request for supplemental briefing, it appears likely but not certain that the court will decide that the LCFS adoption process violated CEQA.  What is less clear is exactly how the court might require CARB to remedy the alleged deficiencies, and whether parts or the entirety of the LCFS would be enjoined while CARB remedies the alleged deficiencies (which could take a month or longer).  Presumably, CARB is already working to update the CEQA documents in the event they are found deficient.   

In the meantime, the LCFS faces a challenge in federal court.  In December 2011, the United States District Court for the Eastern District of California held that the LCFS violates the dormant Commerce Clause of the United States Constitution.  The court further granted a preliminary injunction that prohibits enforcement of the LCFS until the conclusion of the litigation, which the Ninth Circuit stayed upon CARB’s appeal.  The Ninth Circuit heard oral argument in October 2012 but has not yet issued a decision.