Two recent developments in the interrelated legal challenges commonly known as POET I and POET II may create additional uncertainty for the future of the Low Carbon Fuel Standard Program (LCFS).

Earlier this year, the California Court of Appeal for the Fifth Appellate District (Court of Appeal) issued two opinions in the POET I case, both of which were adverse to the California Air Resources Board (ARB). As we have discussed in previous posts, the POET I case arises from petitioner POET, LLC’s challenges to the original LCFS regulation adopted by ARB in 2009. On April 10, 2017, the Court of Appeal ruled that ARB had failed to faithfully execute a writ of peremptory mandate (the Writ) requiring it to remedy violations of the California Environmental Quality Act (CEQA) that occurred during adoption of the original LCFS. In the opinion, the Court of Appeal largely agreed with petitioner POET, LLC, finding that ARB failed to comply with CEQA’s requirement that it analyze the degree to which nitrogen oxide (NOx) emissions would be impacted by implementation of the LCFS.

In response to ARB’s petition for a rehearing, the Court of Appeal reissued its opinion on May 30, 2017. The revised opinion narrows the holding to focus more squarely on the facts of the case, but does not substantively alter the April 10, 2017 opinion. In the revised opinion, the Court of Appeal assigned continuing jurisdiction to the Fresno County Superior Court (Superior Court) over POET I pending ARB’s completion of the revised NOx analysis and discharge of a reissued writ.

In POET II, where petitioner POET, LLC has challenged the LCFS and Alternative Diesel Standard (ADF) regulations adopted by ARB in 2015, a hearing on the merits was scheduled for July 26, 2017 in the same Superior Court. The Superior Court has now continued that hearing via a Minute Order (issued July 6, 2017) to December 21, 2017 in an apparent compromise between ARB’s attempts to indefinitely delay resolution of the case and POET, LLC’s attempt to preserve the July 26, 2017 hearing date.

ARB Sought Indefinite Continuance of POET II Until POET I Was Fully Resolved

On July 5, 2017 ARB filed an ex parte application for an indefinite continuance of proceedings in POET II pending resolution of POET I. ARB indicated in a declaration accompanying the application that it is “working diligently to complete the POET I corrective action,” but that the analysis required by the Writ will not be completed before the July 26, 2017 POET II merits hearing. According to ARB, the outcome of POET I likely is to affect the claims at issue in POET II. Given the interrelated nature of the two cases, ARB contends that it would be premature to hold a hearing on the merits of POET II prior to the resolution of POET I.

POET, LLC opposed the ex parte application for continuance, noting in a July 6, 2017 response that the POET II case has been fully briefed for seven months, and arguing that only one of the sixteen causes of action in POET II reasonably could be construed as overlapping with the “narrow” remaining issue in POET I. POET, LLC also raised a number of legal and procedural reasons for which a continuance should be denied. Specifically, petitioners argue that CEQA cases are entitled to preference, and that under California Rules of Court, Rule 3.1332, the proximate trial date, indefinite length of the requested continuance, and potential prejudice to POET, LLC (a result of ARB’s continuing implementation of the LCFS and ADF) all militate against approving the continuance.

ARB Seeks Depublication of Court of Appeal’s Opinion and, in the Alternative, California Supreme Court Review in POET I

In a declaration accompanying the application for continuance of the POET II proceedings, ARB indicated that it would be seeking California Supreme Court review of the May 30, 2017 opinion in POET I. Indeed, on July 10, 2017, ARB filed a petition for review with the California Supreme Court. In the petition, ARB argues that the Court should clarify whether discharge of a writ of mandate is required “when the requirements and purposes of CEQA are met, even if the Court’s particularized expectations are not.” In other words, ARB seeks clarification regarding the standards by which compliance with a CEQA-related writ should be measured. ARB’s framing of the “issue presented” to the Supreme Court is somewhat presumptuous by implying that the Court of Appeal refused to discharge the Writ even though it knew or should have known ARB “exercise[d] its discretion in a manner that satisfies CEQA’s requirements and its fundamental purposes of public disclosure, informed decision making, and environmental protection….” ARB further contends that review would allow the Court to clarify how basic CEQA concepts apply in complex contexts, particularly those involving rulemaking. ARB asserts that such projects often have complex procedural histories, which make it difficult to determine how the principles of CEQA apply. The Supreme Court has until September 8, 2017 to decide whether to take the case, but potentially could extend that deadline to October 8, 2017.

If Supreme Court review is granted, then the POET I proceeding would be lengthened by months or even years, potentially leading to even further delay in the resolution of POET II (i.e., in addition to the aforementioned continuance approved by the Superior Court).

However, Supreme Court review is not ARB’s favored outcome. Rather, ARB indicates that it prefers depublication of the Court of Appeals’ May 30, 2017 opinion. California Court of Appeals opinions originally designated for publication can become uncitable based on actions taken by the California Supreme Court. In its request for depublication, ARB first argues that the decision could be taken out of context and create unnecessary uncertainty regarding core CEQA concepts, particularly for agencies engaged in rulemakings. ARB specifically points to language regarding what constitutes the CEQA baseline, “the whole of an action,” and statements addressing when two projects are “related to each other” for the purpose of defining a CEQA project as particularly likely to cause confusion. Next, ARB asserts that the decision creates unnecessary confusion about how agencies and courts should address uncertainty under CEQA. According to the agency, the POET I decision “effectively penalized ARB for being candid about the uncertainty involved” in determining the cause of increased biodiesel use, a precedent which ARB argues could discourage other agencies from being similarly forthright in CEQA documents. Finally, ARB contends that the “wide-ranging” decision could create unnecessary confusion regarding other CEQA issues, such as proper application of CEQA’s remedy provisions, noting that “[d]epublication would prevent any mischief from the opinion’s ‘bad faith’ dictum.” If the Supreme Court orders depublication, the Court of Appeals’ May 30, 2017 opinion would not be citable in subsequent legal proceedings.

Taken together, ARB’s request for depublication and petition for review constitute a biting assessment of the POET I opinion. The filings suggest that the Court of Appeal was unreasonable in measuring ARB’s compliance with the Writ by requiring ARB “to discern the Court of Appeal’s very specific conception of its desired environmental document” and to “anticipate … the specific analytical path the court expected ARB to follow.” ARB also states that the POET I opinion, should it remain published precedent, may result in “real mischief.” Further, ARB suggests that the Court of Appeal “unnecessarily impugn[ed] the integrity of” the agency. While critiquing the POET I opinion is an inherent aspect of seeking Supreme Court review and/or requesting depublication, the rather unique procedural posture of these cases means that ARB in the near future may again find itself before the same Court of Appeal, this time in POET II.

Further delay in the resolution of POET I and POET II could prolong uncertainty for LCFS market participants, particularly if future ARB administrative proceedings (if any) undertaken in response to the Writ, or future writs of mandate flowing from POET II (if any), intersect with ARB’s planned 2018 rulemaking to increase the LCFS’s carbon intensity (CI) reductions and extend the Program to 2030. A lack of regulatory certainty vis-à-vis the LCFS Program’s implementation, stringency of CI reduction requirements (both pre- and post-2020), and the associated impact on LCFS credit prices collectively would impede the primary policy objective of the LCFS – increased investment in low-CI fuel production and deployment.