Climate Change: Low Carbon Fuel Standard in Disarray

By Published On: January 6, 2012

The California Air Resources Board Jan. 3 appealed a federal district court ruling that halted implementation of its low-carbon fuel standard. That standard seeks to reduce vehicular greenhouse gas emissions. The Air Board asks the district court in Fresno “to stay its preliminary injunction order in the shortest time possible,” according to Stanley Young, Air Board spokesperson. An appeal may also be filed in the federal Ninth Circuit Court of Appeals. On Dec. 29, 2011, federal district judge Lawrence O’Neill sided with a group of out-of-state corn ethanol producers that argued California’s alternative fuels standard violated the federal Commerce Clause. He held that the low-carbon fuel rule, enacted pursuant to a 2007 gubernatorial executive order by then-Gov. Arnold Schwarzenegger, failed to pass legal muster because it impermissibly “discriminates” against out-of-state corn and foreign fossil fuel sources. It also, he added, “impermissibly regulates extraterritorial conduct,” in violation of the federal law regulating interstate commerce. Young called the state’s low-carbon fuels standard “an evenhanded standard that encourages the use of cleaner low carbon fuels by regulating fuel-providers in California.” A key issue is the Air Board’s evaluation of emissions produced during the manufacture of ethanol from cradle to grave, that is, from feedstock generation through distribution to end-use in the state. In the Midwest, coal-fired electricity is used to generate corn-based ethanol, giving it a higher carbon intensity than in-state ethanol production. The defendants successfully argued that the state’s life cycle provision clashed with the Commerce Clause because the federal Renewable Fuels Standard exempts corn ethanol from its 20 percent life-cycle carbon reduction mandate. The stated reasons were to enhance “energy security” and reduce reliance on foreign fossil fuels. The Air Board’s fuels standard seeks to reduce the carbon intensity of alternative fuels by 10 percent by 2020. It is part of the state’s greenhouse gas reduction efforts under its 2006 climate protection law, AB 32. The case is Rocky Mountain Farmers Union v. Goldstene, No. CV-F-09-2234 LJO DLB. * * * * * The California Air Resources Board’s carbon cap-and-trade program rules took effect Jan. 1 after the state’s Office of Administrative Law approved them on Dec. 13, 2011. Approval by OAL prompted little excitement in the carbon allowance market, with carbon trading in the $15-$16/ton range last month, according to Evolution Markets, and offsets trading in the $10-$11/ton range. With the rules for the program now in place, the Air Board is aiming for its first full-fledged auction of carbon emissions allowances on Aug. 15. * * * * * Western it’s not, but Quebec last month became the second member of the Western Climate Initiative to adopt a carbon cap-and-trade program behind California. The rules took effect Jan. 1, but the Canadian province does not plan to enforce emissions caps under the program until 2013. Similar to California’s program, Quebec’s first covers industrial facilities--like power plants--that emit 25,000 tons or more of greenhouse gases/year. Then in 2015 the program expands to cover companies that import or distribute fuels used in transportation and buildings. The Western Climate Initiative is a group of western states and Canadian provinces that pledged in 2007 to develop programs--including cap-and-trade markets--to address climate change. Since then, only California and Quebec have gone ahead with carbon markets.

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