Appeals court temporarily reinstates California LCFS

By Kris Bevill | April 26, 2012

After having received a respite from California’s controversial Low Carbon Fuel Standard for several months, fuel distributors, ethanol producers and consumers are finding themselves back under the thumb of the policy, following a recent appeals court decision to allow the California Air Resources Board to enforce the LCFS while it considers the case. On Dec. 29, 2011, a district judge ruled in favor of a coalition of ethanol and petroleum interests, declaring the LCFS unconstitutional and forbidding CARB from enforcing the policy. The state appealed the decision and requested an injunction to allow CARB to enforce the LCFS through 2012. On April 23, the 9th U.S. Circuit Court of Appeals granted CARB permission to continue implementing the program while it considers the appeal. The court has set an expedited briefing schedule for the case, which is expected to be complete by mid-July.

The LCFS was established with the intent of reducing greenhouse gas (GHG) emissions from the state’s transportation sector by 16 million metric tons by 2020. To achieve this goal, CARB uses formulas to determine the carbon intensity (CI) of specific fuels. The lower the CI, the more desirable the fuel.

Plaintiffs in the case, which include the Renewable Fuels Association and Growth Energy, claim the high CI ratings for Midwest corn ethanol place it at an unfair disadvantage and that the policy therefore violates the dormant Commerce Clause of the U.S. Constitution, which exists to prevent states from attempting to regulate activities beyond their borders. Federal District Court Judge Lawrence O’Neill agreed, and ruled the policy unlawful in December. CARB continues to argue that the policy can succeed in reducing GHG emissions and will drive investment for next-generation clean fuels.

In a statement released following the appeals court’s decision to allow temporary enforcement of the policy, Growth Energy and the RFA said they look forward to fully briefing the issues before the court. Matt Hartwig, RFA communications director, said the initial ruling issued by Judge O’Neill was based on sound legal precedent and the ethanol industry will “vigorously defend” his ruling. “At its core, we believe the LCFS to be unlawfully written and decidedly punitive against ethanol produced in the United States but outside the borders of the state of California,” he said.

Meanwhile, enforcement of the LCFS is likely to have a negative impact for consumers as fuel prices increase while suppliers compete for limited supplies of ethanol that comply with the program, according to Todd Sneller, executive director of the Nebraska Ethanol Board. “The injunction will likely trigger increased demand for Brazilian ethanol at a time when supplies are below historic levels, thereby forcing supply inefficiencies on the California and U.S. markets,” he said. “Midwest ethanol producers will continue to implement production practices aimed at meeting the LCFS, but this process will be slowed by lack of investment capital resulting from narrow to negative margins that are prevalent in the ethanol sector today.”