The California regulator could amend a secondary carbon programme rather than lumping the lost CO2 reductions into the cap-and-trade system if the US Supreme Court rules against it, an official said.
The low-carbon fuel standard (LCFS) aims to reduce emissions from the life cycle of fuels by 10% by 2020 compared with 2010 levels. The programme calculates the carbon emissions based on numerous factors, including the distance the fuel must travel to the California market.
But a lawsuit – Rocky Mountain Farmers Union versus Richard W. Corey – claims LCFS discriminates against out-of-state ethanol, and that the regulation violates the dormant commerce clause, which prevent states from regulating commerce across state lines. Fuel trade groups petitioned the Supreme Court to hear the case, and a court may decide by May or June whether it intends to hear the case ( see EDCM 21 March 2014 ).
Traders previously polled by ICIS said a ruling against the scheme could force regulator Air Resources Board (ARB) to make up for the lost emission reductions through the cap-and-trade, which could encourage a more bullish sentiment for California carbon allowances.
But Richard Corey, executive officer at the ARB, said last week at the Navigating the American Carbon World conference in San Francisco that any court ruling against the LCFS may be dealt relatively easily by altering or removing the location factor in the life cycle of the calculation. A minor change, he said, could allow the LCFS to continue to exist without impact the cap-and-trade market.
Corey said the lawsuit has cast some uncertainty into the market, but the regulator is confident about its legal basis. “We have weathered the storm over several lawsuits, and we going to continue to do that,” the official said. Dan X. McGraw