Rocky Mountain Farmers Union v. Corey

United States Court of Appeals for the Ninth Circuit
D.C. Nos. 1:09-cv-02234-LJO-GSA, 1:10-cv-00163-LJO-DLB (2013)

ELI5:

Rule of Law:

A state regulation that assigns different values to products based on a comprehensive lifecycle analysis of their environmental impact does not facially discriminate against interstate commerce or regulate extraterritorially, provided the distinctions are based on legitimate, non-protectionist reasons such as scientifically-measured differences in greenhouse gas emissions.

Facts:

In 2006, California enacted the Global Warming Solutions Act, directing the California Air Resources Board (CARB) to create regulations to reduce greenhouse gas (GHG) emissions.
CARB adopted the Low Carbon Fuel Standard (Fuel Standard), requiring a 10% reduction in the average carbon intensity of transportation fuels sold in California by 2020.
The Fuel Standard uses a 'lifecycle analysis' to calculate a fuel's carbon intensity, measuring GHG emissions from its production and transportation to its final consumption ('well-to-wheel').
For ethanol, CARB established default 'pathways' with carbon intensity scores based on regional averages for factors like electricity grid composition and transportation of feedstock. This resulted in different default scores for ethanol from the Midwest, California, and Brazil.
The regulation allows producers to apply for individualized carbon intensity scores if they can demonstrate their specific process is cleaner than the regional default.
For crude oil, the initial 2011 provisions assigned values based on whether a source was 'existing' or 'emerging' and a high-carbon-intensity crude oil (HCICO), resulting in a major in-state HCICO source receiving a more favorable average value.
Rocky Mountain Farmers Union, representing Midwest ethanol producers, and American Fuels & Petrochemical Manufacturers Association, representing oil producers, challenged the Fuel Standard.

Procedural Posture:

Rocky Mountain Farmers Union and American Fuels & Petrochemical Manufacturers Association filed separate lawsuits against the California Air Resources Board (CARB) in the U.S. District Court for the Eastern District of California, a federal trial court.
The plaintiffs alleged the Fuel Standard violated the dormant Commerce Clause and was preempted by federal law.
The district court granted summary judgment to American Fuels and a preliminary injunction to Rocky Mountain on their Commerce Clause claims.
The district court ruled that the Fuel Standard facially discriminated against out-of-state ethanol, impermissibly regulated extraterritorial conduct, and discriminated against out-of-state crude oil.
CARB, as the appellant, appealed the district court's rulings to the U.S. Court of Appeals for the Ninth Circuit.

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Issue:

Does California's Low Carbon Fuel Standard, which assigns carbon intensity scores to fuels based on a 'lifecycle analysis' that includes out-of-state production and transportation factors, violate the dormant Commerce Clause by facially discriminating against out-of-state fuels or by regulating extraterritorial conduct?

Opinions:

Majority - Judge Gould

The Fuel Standard does not violate the dormant Commerce Clause. California's regulation does not facially discriminate against out-of-state commerce because it is based on the fuel's actual carbon intensity, not its geographic origin. Any differential treatment reflects genuine, scientifically-measured differences in greenhouse gas emissions attributable to factors like electricity sources and transportation methods. The standard does not control conduct wholly outside California's borders; rather, it regulates the characteristics of fuels sold within California, creating permissible market incentives for producers who wish to access that market. The availability of individualized pathways provides a 'safety valve' for producers whose carbon intensity is lower than the regional average, ensuring the system is not unfairly rigid. For the crude oil provisions, the court found no discriminatory purpose or effect, as some in-state producers were burdened while others were benefited, which acts as a safeguard against pure economic protectionism.

Dissenting - Judge Murgia

The ethanol provisions of the Fuel Standard violate the dormant Commerce Clause through facial discrimination. The analysis of facial discrimination should end with the regulation's plain text, which explicitly uses geographic labels ('Midwest,' 'California') and assigns less favorable carbon intensity scores to out-of-state ethanol producers using the same production processes as their in-state counterparts. The majority improperly considers California's justifications for this differential treatment at the facial discrimination stage, when such justifications should only be evaluated under the subsequent strict scrutiny analysis. The existence of an individualized pathway is not a cure for the facial discrimination; instead, it demonstrates that a reasonable, nondiscriminatory alternative exists, which means California failed to meet its burden under strict scrutiny to show the discriminatory scheme was necessary.

Analysis:

This decision validates the use of 'lifecycle analysis' in state environmental regulations, significantly impacting how states can address climate change. It establishes that states may regulate products sold in-state by accounting for their entire environmental footprint, including out-of-state production and transportation, as long as the regulation is scientifically grounded and not a pretext for economic protectionism. This ruling provides a legal framework for states to tackle global environmental problems with local consequences, potentially encouraging a patchwork of state-level carbon regulations in the absence of federal action. The case carefully distinguishes between impermissibly controlling out-of-state conduct and permissibly influencing the choices of producers who voluntarily participate in the state's market.

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