Divided Ninth Circuit Denies Rehearing En Banc in Cal. Low Carbon Fuel Standard Case — A Closer Look at Dormant Commerce Clause and Carbon Regulation

By Joseph Lounsbury, GGU 3rd Year Law Student

As this Blog discussed in an October, 2013 posting, the recent Ninth Circuit Appeal Court Case, Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070 (C.A.9 (Cal.),2013), “virtually vindicated the California Air Resources Board’s (CARB) Low Carbon Fuel Standard (LCFS)” a key state global warming strategy. The Ninth Circuit panel rejected the district court’s notion that the LCFS was facially discriminatory under the doctrine of the constitutional Dormant Commerce Clause, and remanded back to the District Court to determine if in fact there was a discriminatory purpose and effect of this regulation.

The full Ninth Circuit, voting on a petition for rehearing en banc, on January 22, 2014, sustained the panel’s decision. Rocky Mt. Farmers Union v. Corey, 12-15135, 2014 WL 223797 (9th Cir. 2014)(Denial of Request for Rehearing). However, the denial was opposed by seven judges who authored a vigorous dissent. Judge Ronald M. Gould, the writer of the panel’s majority opinion, in a concurring opinion rejected the petition and characterized the dissent as “riddled with overstatements” and “alarmist rhetoric.” Notwithstanding these charges, the dissent is heated and Judge Gould conjectured that the dissent is aimed directly at getting the US Supreme Court to take the case. The dispute is primarily around the correct application of the dormant Commerce Clause, specifically in determining whether facial discrimination exists. Judge Gould in his concurrence with the majority of the Ninth Circuit, defends his panel decision stating, “[t]he geographic distinctions made by California,[…], are not classifications based on state boundariesper se; rather, they are classifications based on the carbon impact of fuels as calculated under a rubric that considers transportation-related emissions.” Rocky Mountain Farmers Union v. Corey, Denial of Request for Rehearingat page 10.

Gould further explains as he did in his panel opinion that the key factor in weighing out of state ethanol to be more intensive was not the transportation costs, but the use of more carbon intensive electricity in those states as compared to California’s. Id. This approach is the essence of a life cycle analysis used by all climate scientists in analyzing biofuels.Judge Milan Smith authored the Denial of Rehearing dissent. Id. Smith starts by declaiming the history and significance of the dormant Commerce Clause. Id at 17.  Smith quotes Supreme Court precedent stating: “The dormant Commerce Clause promotes economic integration by ‘significantly limit[ing] the ability of States and localities to regulate or otherwise burden the flow of interstate commerce.’” Id. at 18. (See McBurney v. Young, 133 S. Ct. 1709, 1719 (2013) (quoting Maine v. Taylor, 477 U.S. 131, 151 (1986)).

To Smith, there is no doubt that the law is facially discriminatory, and that “the Constitution forbids such an expansive and discriminatory exercise of state power over interstate commerce.” Id. at 27. Smith’s dissent explains that the majority opinion ignores two major tenets of dormant Commerce Clause jurisprudence. Id at 19. Smith states: “[f]irst, the majority gives short shrift to the principle that ‘[s]tate laws that discriminate against interstate commerce face ‘a virtually per se rule of invalidity.’” Granholm v. Heald, 544 U.S. 460, 476 (2005) (quoting Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978)). “Second, the majority abjures the rule that ‘a state law that has the “practical effect” of regulating commerce occurring wholly outside that State’s borders is invalid . . . .'” Citing Healy v. Beer Inst., 491 U.S. 324, 332 (1989).

Smith’s dissent asserts that the LCFS is facially discriminatory because it “explicitly treats in-state and out-of- state ethanol differently in calculating carbon intensity.” Rocky Mt. Farmers Union, Denial of Request for Rehearing at 15. Again, Smith quotes the US Supreme Court, “[t]he purpose of, or justification for a law has no bearing on whether it is facially discriminatory.” Id. at 20. Smith reduces the majority’s argument to the panel’s statement that “California has ‘some reason, apart from [its] origin, to treat [out-of-state ethanol] differently.” 730 F.3d at 1089. To Smith the justification of a law is not relevant until a determination of whether a law is facially discriminatory is made. Id. at 20.

Smith rejects the District Court’s judgment that even if facial discrimination is present a legitimate justification of the law exists, and in doing so seems to ignore well established Supreme Court precedent. Smith uses Maine v. Taylor to argue that because the Low Carbon Fuel Standard impact on global warming will “not remedy the problem,” by stopping climate change, it does not meet the threshold of legitimate local purpose. Id. at 22.

Gould argues that contrary to Judge Smith’s view, the LCFS does not need to stop global warming in order to have a legitimate local interest. The Supreme Court has stated in Maine v. Taylor, “[A state has a] legitimate interest in guarding against imperfectly understood environmental risks, despite the possibility that they may ultimately prove to be negligible.Maine v. Taylor, (1986) 477 U.S. 131, 148. As Gould points out, “[t]he Supreme Court has reminded us that it is ‘erroneous’ to assume that ‘a small, incremental step, because it is incremental’ is legally—or truly—insignificant.” Denial of Rehearing at 11 (Citing Massachusetts v. EPA, 549 U.S. 497, 524 (2007)).

Whether the use of a label based upon a state’s geography, because it captures its energy mix, is a facial discrimination or not may depend upon whether the US Supreme Court considers the derivation of the label as opposed to a discriminatory motive or purpose for the label to be relevant to discrimination. But quite a fuss has been stirred up and leads to the question, does it really matter if it is facial discrimination if there is a legitimate scientific reason for the label and a legitimate state purpose in addressing global warming.

If the LCFS were facially discriminatory, that does not necessarily mean the end of the LCFS. At that point, strict scrutiny is applied to determine whether a law is invalid. Strict Scrutiny requires that a facially discriminatory law havea legitimate local purpose, and that this purpose could not be served as well by available nondiscriminatory means.” Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 2447 (U.S.Me.,1986)

California has a legitimate local purpose, recognized by both Gould and Judge Murguia, the panel dissenter, “in guarding against imperfectly understood environmental risks, despite the possibility that they may be negligible.” Citing Mass. v. EPA, 549 U.S. 497, 516-521.

However, in finding a nondiscriminatory alternative, one must then judge whether it is the least discriminatory alternative to accomplish the legitimate public purpose, in this case,  California’s purpose in AB 32 to make “the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions from sources or categories of sources of greenhouse gases by 2020. Health and Safety Code (HSC) §38561.” The ultimate goal in AB32 is to achieve 1990 levels of carbon emissions by 2020.

One idea for a nondiscriminatory means for reducing carbon was given by the district court in Rocky Mountain Farmers Union v. Goldestene, the opinion now reversed and remanded by the Ninth Circuit. Judge Lawrence O’Neill opined that “California could ‘adopt a tax on fossil fuels’ to ‘reduce greenhouse gas emissions associated with California’s transportation sector,”” as a nondiscriminatory means to reducing carbon. Rocky Mountain Farmers Union v. Goldestene, 843 F.Supp.2d 1071, 1093-1094. Whether this is a politically feasible alternative and the “maximum technologically feasible and cost-effective” way of achieving reductions is questionable.

Another less discriminatory means might be to leave out the generalization about the midwest being inefficient with its energy usage and look at the carbon intensity of each fuel on a case by case, manufacturer basis, which is currently provided in the California law as an alternative to the default labeling, a point made repeatedly by Gould. This would require California to analyze at each fuel sold in the state or outside the state on a case-by-case basis. It would be more resource intensive for both the state and the manufacturers but would avoid the default labeling issue.

In the end, the state will have its Low Carbon Fuel Standard but at what cost is still up in the air, as is the constitutional doctrine of facial discrimination.

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