On December 29, 2011, the U.S. District Court for the Eastern District of California (Fresno) issued a series of orders ruling that California’s Low Carbon Fuel Standard (“LCFS”) is unconstitutional as it violates the Commerce Clause in the U.S. Constitution.  The LCFS regulations are a part of California’s attempts to reduce Greenhouse Gas Emissions to 1990 levels by 2020 under AB 32.  In Rocky Mountain Farmers Union v. Goldstene (Case no. CV-F-09-2234), Judge Lawrence O’Neill found that the LCFS violates the dormant Commerce Clause and ordered that the California Air Resources Control Board (“CARB”) be enjoined from enforcing the LCFS rule during the litigation.

These orders ruled on summary judgment motions filed by CARB, plaintiffs representing out-of-state ethanol producers, and out-of-state oil refiners.

The Court ruled against CARB’s summary judgment motion, finding that the LCFS is not exempt from Commerce Clause analysis or federal preemption.

The Court ruled in favor of the out-of-state ethanol producers and the out-of-state petroleum interests finding the LCFS violates the Commerce Clause as it discriminates against the out-of-state entities by assigning a higher “carbon intensity factor” to ethanol or crude oil that must be transported into California.  It also found the LCFS attempts to regulate activity outside the borders of California, an impermissible stretch of jurisdiction.  The State was unable to convince the Court that the LCFS was justified since there were no alternative methods to advance the goals of reducing GHG emissions.  The Court ruled against the ethanol producers’ preemption claim but it may be re-filed upon provision of additional argument.

This dormant commerce clause challenge may arise again by out-of-state challengers to the Cap & Trade program.

CARB intends to appeal the ruling and the injunction on enforcing the LCFS to the Ninth Circuit Court of Appeal.