US: Fuel trade groups petition Supreme Court on LCFS lawsuit

21 March 2014 16:27 Source:ICIS

Three fuel trade groups petitioned the US Supreme Court to hear a pending lawsuit against California’s low-carbon fuel standard (LCFS) scheme, which if repealed could make the California carbon market more bullish.

The LCFS, a secondary carbon programme, 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.

The 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.

The Ninth District Court of Appeal rejected the lawsuit last year, and in January, it declined to rehear the case, saying the LCFS did not discriminate against out-of-state ethanol producers. The plaintiffs had 90 days to petition the Supreme Court to hear the case ( see EDCM 24 January 2014 ).

The Renewable Fuel Association (RFA), Growth Energy and the American Fuel and Petrochemical Manufacturer petitioned the court this week to hear the case. “LCFS not only discriminates against out-of-state commerce, but it seeks to regulate conduct in other states in direct contravention of our constitutional structure and at the direct expense of midwestern farmers and ethanol producers,” RFA, a trade group representing the ethanol industry, said in a statement Thursday.

Impact on cap-and-trade

Traders said a ruling against the LCFS would likely force California’s cap-and-trade to make up for the lost emission reductions, and as a result, it could encourage a more bullish market for California carbon allowances.

It is unclear how the Air Resources Board, the governing body of the two schemes, would make up for lost emission reductions from the LCFS. Market participants said the ARB could either tighten the cap-and-trade cap or could opt for revising the LCFS to adhere to any court ruling.

Legal experts have been expecting a petition to the Supreme Court because of the complexity of the issues and the parties involved. Lawyers polled by ICIS believe the curt could decide to hear the case, mainly because the suit pits California against midwestern states.

If the body grants the petition, it could take up to a year to make a final ruling. Lawyers said a decision from the court could be a tight vote. Dan X. McGraw

By Dan X. McGraw