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Home » Business News/Analysis, California, Policy

Twin Challenges to LCFS Advance in California Courts

Submitted by on March 8, 2017 – 4:42 pmNo Comment

by Joshua T. Bledsoe and Max Friedman (Latham & Watkins LLP/Biodiesel Magazine)  Two related cases, advancing in parallel, have the potential to upend California’s low carbon fuel standard (LCFS), whether via full suspension of the LCFS or carving out diesel fuels from the deficit and crediting regime.[1]

Both cases involve challenges by POET LLC, a South Dakota-based ethanol producer, against the LCFS rules adopted by the California Air Resources Board.

The Court of Appeal issued a peremptory writ of mandate in this case (POET I), requiring ARB to remedy legal defects in the initial adoption of the regulation, but opting to leave the LCFS in place while ARB reworked its analysis and repeated the necessary procedural steps and substantive analysis. Over the next two years, ARB reviewed and revised the LCFS, before readopting the regulation on Sept. 25, 2015. Shortly thereafter, on Oct. 30, 2015, POET once again brought suit in Fresno County Superior Court to challenge the readopted regulations (POET II), arguing that ARB both failed to comply with the writ issued in POET I and that it violated CEQA, the California Administrative Procedure Act, and the Health & Safety Code.

POET argued, among other things, that ARB had failed to comply with the writ by declining to analyze or mitigate nitrogen oxide (NOx) emissions caused by the original LCFS, opting instead to include those emissions in the CEQA baseline for the readopted LCFS, which ARB deemed to be a new regulation distinct from its predecessor.

However, the Court of Appeal notably characterized the invalidation, suspension or freezing of the entire LCFS regulation as the “the-baby-with-the-bathwater problem.” In other words, the Court of Appeal seems concerned that invalidating, suspending or freezing the operative effect of the LCFS regulations may “cause greater detriments that [sic] allowing the regulations to remain operative pending compliance with the writ….”

This request can be interpreted as a signal from the Court of Appeal that it believes ARB’s CEQA analysis of the biodiesel provisions of the aforementioned rules may not have fully complied with the writ and that the Court of Appeal is seeking guidance from the parties on how to best craft an appropriate remedy.

The Natural Resources Defense Council, an intervenor in the case and ARB’s co-respondent, submitted supplemental comments to the Court of Appeal to clarify the potential environmental and public health consequences if the Court of Appeal were to stay the biodiesel provisions of the LCFS. NRDC argued that biodiesel reduces particulate matter, carbon monoxide, hydrocarbons and volatile organic compounds, benzene, ethyl benzene, and polycyclic aromatic hydrocarbons.

The implications of either the suspension of the LCFS rules or the severance and abrogation of the biodiesel or diesel components of LCFS would be very significant, and extend beyond the public health issues flagged by NRDC. At a minimum, there could be a market reaction, with a concomitant impact on LCFS credit prices. Both ARB and NRDC in their supplemental briefing allude to potential market impact, with both suggesting an overall negative impact on low CI fuel development and deployment should LCFS credit prices fall.

Further, ARB’s efforts to implement the Short-Lived Climate Pollutant Reduction Strategy could be adversely affected as ARB is relying heavily on the LCFS to incentivize the capture of biogas (e.g., from dairy farms) for reuse as transportation fuels. READ MORE / MORE

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