Will California LCFS ruling affect other state and regional climate initiatives?
On December 29, U.S. District Judge Lawrence O’Neil issued a preliminary injunction against California’s Air Resources Board’s (“CARB”) low carbon fuel standard (“LCFS”). The lawsuit, brought by the ethanol, oil and trucking industries, alleged that California’s LCFS violates the Commerce Clause of the U.S. Constitution and is preempted by federal law. Judge O’Neil held that California’s LCFS violates the Commerce Clause of the U.S. Constitution, because the regulation impermissibly attempts to regulate interstate commerce. The ruling, however, dismissed the plaintiffs’ claim that federal law preempted California’s LCFS. An important question will be the influence that this recent decision will have on other state and regional climate initiatives.
A little bit of background is necessary to understand the issues and potential ramifications associated with the lawsuit over California’s LCFS. In 2009, CARB finalized the LCFS, which would require a 10% reduction in the carbon intensity (“CI”) of the state’s transportation fuels by 2020. The rule defines CI as the amount of lifecycle GHG emissions, per unit of energy of fuel delivered. The rule assessed different CI values for various types of ethanol, including assigning lower CI values to California corn-derived ethanol than to Midwest corn-derived ethanol. In addition, the rule created a CI distinction with regard to conventional and unconventional crude oil, including fuels derived from the Canadian oil sands. CARB does allow for a producer to obtain a customized CI value if it can demonstrate that its energy use data “deviates substantially from that of the pathways” represented in this initial rule.
Judge O’Neil’s ruling held that California’s LCFS violates the Commerce Clause. First, the ruling found that the LCFS facially discriminated against out-of-state ethanol by penalizing Midwest producers for larger lifecycle GHG emissions. Judge O’Neil also agreed with the plaintiffs’ argument that the LCFS is attempting to control commerce wholly outside the state’s border. Finally, Judge O’Neil ruled that CARB failed to demonstrate that reducing climate change could be achieved through other non-discriminatory means. According to Judge O’Neil, there are other non-discriminatory means to reducing GHG emissions from the transportation sector, including adopting a tax on fossil fuels.
If upheld by the Ninth Circuit, Judge O’Neil’s ruling could potentially signal a blow to other state and regional climate initiatives. Several Northeastern states are working on developing a clean fuel standard based in part on California’s LCFS and with the goal of reducing the CI value of transportation fuels by 10% over the next decade. Oregon and Washington State are also considering adopting a LCFS based on California’s model. Judge O’Neil’s ruling could influence these fledgling fuel standard efforts by encouraging states to eliminate CI distinctions between different types of ethanol and conventional and unconventional crude.
It will also be important to monitor the effect of this ruling on other state climate initiatives. In one notable case, North Dakota, electric cooperatives and coal producers are suing Minnesota over its Next Generation Act. Minnesota’s legislation committed the state to reducing GHG emissions 30% by 2023 and 80% by 2050. Specifically, the legislation prohibited utilities from purchasing power from new plants unless the GHG emissions associated with that power are fully offset. The lawsuit contends that Minnesota’s law violates the Commerce Clause by discriminating against North Dakota’s coal interests. North Dakota is home to one of the world’s largest reserves of lignite coal, which provides a majority of the fuel used in Minnesota’s coal-fired power plants. The state’s power plants also export significant amounts of electricity to Minnesota. The plaintiffs are also arguing that exemptions provided in the law for four specific projects favor Minnesota businesses at the expense of North Dakota business interests. Undoubtedly, the plaintiffs will point to Judge O’Neil’s ruling in urging the court to block Minnesota’s Next Generation Act.
Judge O’Neil’s ruling could also spur a proliferation of lawsuits challenging other state climate regulations.
Update on Comer
On Monday, January 10, 2011, the Supreme Court announced that it denied the plaintiffs’ petition for writ of mandamus in In re Comer, No. 10-294. This means that the Supreme Court will not review the procedural issue of whether the Fifth Circuit had a sufficient quorum to dismiss the appeal, and thus that the decision of the U.S. District for the Southern District of Mississippi to dismiss Comer on political question and standing grounds will stand.
The Supreme Court, however, previously had agreed to review political question doctrine and standing issues in the climate change context in AEP v. Connecticut, No. 10-174 (certiorari granted Dec. 6, 2010). A decision in that case is expected this year. The Comer decision also does not prevent plaintiffs from filing new climate change-related tort suits in the Fifth Circuit. The Comer trial court decision is persuasive authority only even in the Southern District of Mississippi.
Decision Expected in Comer
The Supreme Court is scheduled to consider whether to grant a petition for writ of mandamus in one of the first major climate change-related tort cases, In re Comer, No. 10-294, in conference on January 7, 2010. The Court likely will announce a decision by the morning of January 10 unless it decides to hold over the case.
The Comer v. Murphy Oil USA case originated in Mississippi. In the aftermath of Hurricane Katrina, Gulf Coast property owners sued oil companies, coal companies, and chemical manufacturers for property damage alleging that the companies’ greenhouse gas emissions contributed to global warming which in turn contributed to increased sea levels and the ferocity of Hurricane Katrina. The district court dismissed the case on political question doctrine and standing grounds, but the Fifth Circuit originally reversed holding that (1) plaintiffs had standing to bring their nuisance, trespass, and negligence claims; and (2) plaintiffs’ nuisance, trespass, and negligence claims did not present non-justiciable political questions. The Fifth Circuit did not reverse the trial court’s decision that plaintiffs did not have standing to bring their unjust enrichment, fraudulent misrepresentation, and civil conspiracy claims.
The Defendants sought rehearing en banc by the Fifth Circuit. Seven of the sixteen judges recused themselves leaving nine active judges, the minimum quorum needed for en banc review. Six of the nine judges voted to grant rehearing en banc. This grant had the effect, per court local rules, of vacating the initial Fifth Circuit decision. After the briefing began, an additional judge recused herself. The Fifth Circuit concluded (with some judges dissenting) that it no longer had a sufficient en banc quorum for the appeal to continue, and thus dismissed the case. With the original Fifth Circuit decision already vacated, this meant that the original trial court decision dismissing the case was reinstated. Plaintiffs then filed a petition for writ of mandamus.
What happens next? If the Supreme Court decided to grant the petition in Comer, the Court would decide whether the Fifth Circuit should have dismissed the case after determining that it lacked a quorum to proceed with the rehearing en banc. This question is a constitutional and statutory one. Thus, if the Court takes the case, it would not be deciding any of the underlying climate change-related issues. Instead, those will be addressed in AEP v. Connecticut. AEP is one of the other two major climate change-related tort cases. At issue in AEP is whether states can seek redress under federal common law for the effects of climate change allegedly caused by anthropogenic (i.e., man-made) greenhouse gas emissions. The third case—Kivalina v. ExxonMobil, in which an Inupiat Eskimo village sued twenty-four oil, coal, and electric utility companies, alleging that their emissions have contributed to global warming and thereby caused Arctic sea ice to diminish—is still pending on appeal in the Ninth Circuit.
Even though the questions before the Supreme Court do not directly relate to the underlying climate change allegations, a decision to take the case still could have some impact on the future of climate change litigation. If there is a narrow ruling in AEP, it is possible that Comer could still proceed and address additional issues. AEP will address the application of the political question doctrine, displacement of federal common law, and standing as it relates to the allegations of states, cities, and three private groups that six companies’ plants are creating a nuisance and thus their GHG emissions should be capped. Comer, by contrast,is not limited to nuisance. Comer relates to a multitude of sources whereas AEP focuses on a more limited set— this could impact the judicially manageable standards prong of the political question doctrine analysis. Comer has a set of private plaintiffs, potentially differentiating the standing analysis from AEP primarily involving states. Depending on the breadth of any Supreme Court ruling in AEP, a return trip to the Court might be necessary in other cases. If threshold issues are surmounted, AEP and Comer also present different causation scenarios. Comer has the most attenuated chain of events in support of causation of the three pending climate tort cases.
Chairman Waxman's Climate Bill
To paraphrase German Chancellor Otto von Bismarck, don't ask how legislation or pork pies are made.
Think of the House Energy and Commerce Committee's new compromise on climate legislation as freshly baked pork pie.
Let's first consider the US emissions reductions goals. Did the Committee bake a pie small enough to get the US on the track to meeting scientifically defensible emissions reductions targets? No.
The bill would cap emissions 17 percent below 2005 levels by 2020, instead of the original draft’s 20 percent below. Committee chair/chef Henry Waxman essentially promised (again with some poetic license to your author) to bake a smaller pie -- later. He noted the bill retains its original target reductions in the future: 42 percent by 2030 and 83 percent by 2050. We will see -- later.
Let's consider the allocation of the highly valuable rights to emit. These are akin to slices of the pork pie.
The President campaigned on selling slices to fund clean energy and beleaguered consumers. But the Congress would prefer to get the credit for giving away pieces of pie itself.
In fact, this was Chef Waxman's secret ingredient. He bought support for the climate bill by doling out valuable slices for free. The bill gives 35 percent of the allowances to local electric distribution companies -- over a third of the entire pie in one gulp. Another free slice goes to the auto industry for research on new technology. Another one may go to refineries. Still more slices will be given to ailing manufacturing industries such as steel and cement.
That's a lot of pie.
Indeed, the pie is disappearing fast. It's over halfway eaten already.
Once it seemed likely that free slices might go to leaner, fitter wind, solar, biomass, and other green technologies. But did the committee dole out slices to clean energy when it sliced up the pie? If they did, we missed it.
Chef Waxman surely understands what he is doing. But is this the way the pie-baking was supposed to go? Chancellor Bismarck was right: don't ask how legislation or pork pies are made.
The United States Through a Carbon Lens
We wrote earlier this week about the prospect of a national GHG registry that could provide an up-close view of the nation’s carbon emitters. While we’re waiting, a team at Purdue has delivered a fascinating tool that provides a taste of that future. The Vulcan Project is a initiative funded by NASA and DOE that is taking emissions data from 2002 and presenting it in extraordinarily accessible ways.
This week, the Vulcan team released an application for Google Earth that allows everyone to view emissions state by state or county by county across the United States. You can even layer over emissions from power plants and transportation. The team has posted a You Tube video demonstrating their work here.
For the first time, you can fly over emitters and get a visual sense of what pollution is coming from where. I believe tools like this will be crucial to spark entrepreneurial solutions to address climate change.
