Business & Real Estate

California low-carbon rule survives big legal challenge

California’s Low Carbon Fuel Standard, one of the centerpieces of the state’s fight against global warming, survived a significant legal challenge Monday when the U.S. Supreme Court declined to hear a lawsuit brought by oil-industry and out-of-state farm groups.

The court let stand a 2013 decision by the 9th U.S. Circuit Court of Appeals upholding the state’s low-carbon fuel standard. But opponents of the law said there will be more litigation against the standard under different legal theories. “I don’t think this closes the door,” said Anthony Francois of the Pacific Legal Foundation, a conservative Sacramento group that filed court briefs on behalf of the plaintiffs.

The standard became law in 2007 by executive order of then-Gov. Arnold Schwarzenegger. It requires fuel producers to reduce the “carbon intensity” of their products by 10 percent by 2020.

The fuel standard is one of the two key components of California’s effort to curtail greenhouse gases. The other is AB 32, signed into law by Schwarzenegger in 2006, which established a cap-and-trade program requiring hundreds of big industrial firms to purchase credits in order to release carbon into the air. Refineries have been exempt from the requirement so far, but their emissions will come under the program’s regulations beginning next January. Analysts have said it could mean gas prices at the pump could rise 10 to 20 cents.

The Low Carbon Fuel Standard takes the issue one step further. It doesn’t just measure the carbon in tailpipe emissions; it takes into account the entire process of creating the fuel and bringing it to market. That includes everything from shipping fuel to California to the process of growing corn for ethanol.

Environmentalists hailed the Supreme Court’s decision to keep the fuel standard in place. It “is welcome news for the millions of Californians at risk from the clear and present danger of climate change,” said Tim O’Connor of the Environmental Defense Fund in a prepared statement. The standard “will protect the health of Californians while strengthening our clean energy economy.”

Mary Nichols, chairwoman of the California Air Resources Board, issued a statement calling the Supreme Court decision “a victory for everyone committed to taking meaningful action to tackle climate change.”

“It sends a clear message that the time for delay is over and the time to clean up and diversify transportation fuels is now,” Nichols said.

Besides the oil industry, the standard was also attacked in court by Midwest farmers and ethanol producers. They argued that the standard discriminated against their corn-based ethanol because they had to transport their product into California. The process of shipping raised their ethanol’s “carbon intensity,” which they said represented unconstitutional discrimination against products made out of state.

“California’s efforts to dictate how fuel is produced outside of its borders ignores constitutional safeguards that have long protected against one state controlling the conduct of private parties beyond their borders,” said Richard Moskowitz of the American Fuel & Petrol Chemical Manufacturers in a prepared statement. The trade association fought to have the California standard struck down.

Although Midwest ethanol producers fought the standard, a Sacramento-based ethanol maker supported it. “We’re staunch defenders of the Low Carbon Fuel Standard,” said Neil Koehler, president of Pacific Ethanol Inc., in a recent interview. He acknowledged that the company has a “competitive advantage” from being able to serve West Coast markets from a string of nearby production facilities, which reduces the carbon intensity of the fuel his company makes.

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