The National Petrochemical & Refiners Association ("NPRA") is asking a court to strike down California's Low Carbon Fuel Standard ("LCFS"). The LCFS will make it harder to sell certain fuels, including those derived from Alberta's oil sand, in California. NPRA is attacking the LCFS principally on constitutional grounds, arguing that California lacks the jurisdiction to make laws that pertain to inter-state commerce. The case could be one to watch as Canada's provinces and federal government contemplate emissions reduction schemes whose effects will cross jurisdictional boundaries.
The LCFS is intended to achieve at least 10 percent in the carbon intensity of California's transportation fuels by 2020. Under the regulation, every type of fuel is assigned a carbon intensity value (measured in CO2-equivalent gram per unit of energy). Fuel providers must ensure that the mix of fuels they sell into the California market meets, on average, a declining standard for greenhouse gas emissions intensity. The LCFS therefore creates a strong disincentive to buy fuels that have a high carbon intensity.
Under the regulation, the carbon intensity of a fuel is derived with reference to the lifecycle emissions associated with the fuel (coloquially referred to as "well head to wheels" emissions). Fuels derived from Alberta's oil sands, the output of which is deemed to be "high carbon-intensity crude oil" ("HCICO"), are deemed to have particularly high lifecycle emissions, making them much less attractive under the LCFS. In their complaint (at paragraph 61), the NRPA asserts that the LCFS thereby "creates a barrier to the sale of transportation fuel derived from oil extracted by certain processes, and in certain regions, including Canada" and that "the barrier to HCICO oil is designed, as a practical matter, to make it economically infeasible to import HCICO to California."
NRPA takes particular issue with such extra-jurisdictional impacts of the LCFS. Article I, Section 8, Clause 3 of the United States Constitution (the "Commerce Clause") provides that the US Congress has the jurisdiction to "regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." There is a line of cases in the US that stand for the proposition that there exists a converse "dormant Commerce Clause" that prohibits states from passing laws that burden or discriminate against interstate commerce. The NRPA complains that the LCFS does exactly that by making judgments about activities that occur wholly outside of California. The NRPA therefore seeks to have the law struck down as being contrary to the US constitution.
The NRPA's motivation is not earth shattering. It is generally opposed to legislation that burdens its members, which include such oil giants as Shell and BP, both of which have significant oil sands interest, but both of which have also denied supporting the litigation). Their constitutional argument, however, should be much more interesting to Canadian legal observers.
Sections 91 and 92 of Canada's constitution also divide jurisdiction between the federal and provincial governments. Given that the constitution was penned in 1892, it is not surprising that low carbon fuel standards and other environmental matters are not expressly discussed in the division of powers sections. Past cases involving environmental laws, including the Canadian Environmental Protection Act (under which the federal government proposes to enact its pending GHG regulations), have focused on the tension between the federal power with respect to criminal law and the provincial power with respect to property and civil rights. However, the federal government's powers with respect to tax, trade and commerce, and peace, order and good governance could also become relevant to the economic regulation of emissions, as could be the provincial power with respect to direct taxation.
There is therefore ample scope for constitutional litigation in Canada with respect to greenhouse gas emissions regulations, whether enacted provincially or federally. NRPA's complaint could therefore foreshadow similar actions north of the border.