With an opinion that could have significant ramifications for Midwest biofuel producers, the Ninth Circuit, on September 18, 2013, vacated a lower court injunction and rejected multiple challenges to California’s Low Carbon Fuel Standard (LCFS). Rocky Mountain Farmers Union v. Corey, No. 12-15131 (9th Cir., Sept. 18, 2013).

Source: Ethanol Producer Magazine

Source: Ethanol Producer Magazine

The LCFS is part of California’s pioneering efforts to address greenhouse gas (GHG) emissions associated with fuel production, refining and transportation. California fuel blenders are required to keep the average “carbon intensity” of their total fuel volume below annual limits established by the California Air Resources Board (“CARB”). The Plaintiffs in Rocky Mountain Farmers objected to the LCFS process for calculating a particular fuel’s carbon intensity. CARB instituted a “life cycle” analysis in the LCFS regulation, which considers GHGs from all aspects of the production, refining, and transportation of a fuel. Based on this process, CARB developed various “default” carbon intensity values (or “pathways”) for categories of fuel and offered a process for developing individualized pathways as well.

Of particular dispute in Rocky Mountain Farmers were various factors and assumptions in the LCFS carbon-intensity process related to the geographic origin of ethanol. The district court sided with the Plaintiffs, concluding that the LCFS facially discriminated against out-of-state corn ethanol, including Midwest ethanol, by differentiating between ethanol pathways based on origin and thereby impermissibly engaged in the extraterritorial regulation of ethanol production.

The Ninth Circuit, noting that the LCFS default pathways were scientifically based and that CARB’s carbon-intensity methodology penalized in-state as well as out-of-state producers, held that the LCFS’s regulation of ethanol does not facially discriminate against out-of-state commerce and does not violate the dormant Commerce Clause’s prohibition on extraterritorial regulation. The Court vacated the district court’s preliminary injunction and remanded to the district court to consider whether the LCFS’s ethanol provisions discriminate in purpose or in practical effect.