Tuesday, February 9, 2010

NPRA Sues Air Resources Board over Biofuels

A key lawsuit was filed last week in the California Eastern District Court in Fresno, California, one of the US District Courts in the Ninth Circuit. The lawsuit is NPRA v Goldstene, with the National Petrochemical and Refiners Association (NPRA) as lead plaintiff, and James Goldstene, Executive Officer of California’s Air Resources Board (ARB) as one of the defendants. This lawsuit seeks to overturn California’s Low Carbon Fuels Standard law, a part of AB 32 that requires gasoline and diesel fuel sold in California to contain not only much more biofuel than that required under a federal law, but the biofuel must be produced locally. Other defendants include the other ARB board members, California’s Governor Schwarzenegger, and California Attorney General Jerry Brown. (see this link for more on LCFS). (The complaint can be seen here.)

The two legal grounds asserted in the complaint are that the LCFS (the California law) violates 1) the Commerce Clause of the United States Constitution, and 2) the Supremacy Clause of the United States Constitution. The lawsuit seeks a declaratory judgment declaring the law unconstitutional and unenforceable, and a temporary and prohibitory injunction to prevent the law from being enforced. Plaintiffs demand a jury trial, and seek court costs plus attorneys fees.

This lawsuit is a crucial event in the battle to restore government to producing laws based on good public policy, which in turn is created by following sound science. AB 32 was passed in 2006, and was based on bad science – the mistaken belief that CO2 (a product from burning fossil fuels such as natural gas, oil, coal, charcoal, wood, and petroleum coke) creates runaway global warming. Earlier, a crucial event in the battle was the US Supreme Court’s decision in Massachusetts vs EPA, in which the Court held that the US EPA had the authority to include CO2 in the list of air pollutants, if in EPA’s opinion, arrived at by the usual and proper procedures, CO2 had or has a harmful effect on the environment. Note that the Court did not declare CO2 to be a pollutant, as many writers have wrongly asserted. They left that determination up to the EPA. The EPA, in fact, did not declare CO2 to be a pollutant under the George W. Bush presidency, but did so declare as one of the first acts taken by President Obama.

This case, NPRA v Goldstene, will likely conclude in NPRA’s favor, as it is indisputable that the LCFS violates the Commerce Clause. It is not as clear that the Supremacy Clause is also violated, and more on that in a moment.

The Commerce Clause Issue

The Commerce Clause of the US Constitution (Article I, Section 8) has many aspects, but its primary effect is to prohibit states from passing any law that interferes with the flow of goods in interstate commerce. The Commerce Clause may reach any economic activity “if [that activity] exerts a substantial economic effect on interstate commerce.” (WICKARD v. FILBURN, 317 U.S. 111 (1942)) There are some limits to the reach of the Commerce Clause, but this case is not one of them. To set the stage, ethanol is produced in a few key states, primarily from converting corn to ethanol in a corn refinery, then that ethanol is moved by rail car in trains to many other states where the ethanol is blended into gasoline. The ethanol-producing states that ship ethanol to other states include Iowa, Minnesota, Indiana, Nebraska, Kansas, and a few others. California produces some ethanol from corn, but imports most of the ethanol that is blended into gasoline. That ethanol importation is the subject of the LCFS, as LCFS would prohibit, or penalize, importing ethanol into California and have the effect of forcing the ethanol to be produced in California.

As an aside, as this will likely not come up in the lawsuit, a key distinction of the states that grow corn and sell ethanol to other states is that they have great quantities of rain, and large rivers to provide irrigation water. In stark contrast, California has a chronic water shortage, yet LCFS requires the ethanol to be produced in California. To be fair, the law does contemplate that non-corn-based ethanol will be provided at some point, very likely from cellulosic processes. The idea is that no additional water is required to grow the cellulosic raw material, but that is yet to be proven in practice.

Thus, it is clear that the LCFS interferes with the existing mechanisms of interstate commerce related to corn growing in the Midwest, refining the corn into ethanol, and shipping the ethanol across state lines. The LCFS therefore violates the Commerce Clause, and must be found to be unconstitutional.

The Supremacy Clause Issue

The Supremacy Clause of the US Constitution requires that no state may pass a law that violates a federal law or the US Constitution. In practice, this allows states to pass some laws that are more restrictive than a federal law. This is quite common in the environmental context. Where this case may succeed or fail is in showing that the federal government intended to “occupy the field” with the federal law, and no state may pass a law either more or less restrictive. If it can be shown that the federal law that mandates a certain amount of ethanol to be blended into gasoline was indeed intended to occupy the field, then the LCFS may be struck down on Supremacy Clause grounds. If the federal law was not intended to occupy the field, then the LCFS will likely not violate the Supremacy Clause, as the LCFS simply requires more ethanol in a gallon of gasoline, compared to the federal law.

Following the Case

As a California attorney with a degree in chemical engineering, plus decades of experience in refining and blending gasoline, I will be following this case closely and blogging about key developments from time to time.

Roger E. Sowell, Esq.
Marina del Rey, California

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