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U.S. Supreme Court Denies Review of California Low-Carbon Fuel Standard

June 30, 2014

The U.S. Supreme Court today denied several petitions seeking review of the Ninth Circuit's decision upholding California's Low-Carbon Fuel Standard ("LCFS") against claims that the LCFS violates the Commerce Clause of the U.S. Constitution. While today's decision makes the Ninth Circuit's decision final, the underlying issue -- how far individual states can go to regulate greenhouse gases and promote renewable energy without violating the Commerce Clause -- will remain the subject of intense litigation. For example, recent lower-court decisions from Colorado and Minnesota, reaching apparently opposite conclusions on the constitutionality of state renewable portfolio requirements, suggest that the Supreme Court may ultimately have to step into the fray.

As we've previously reported here and here, California's LCFS requires petroleum distributors in the state to reduce the carbon intensity of motor fuels they sell by blending them with biofuels or other lower-carbon alternatives. The LCFS contains a complex mechanism which uses a life-cycle analysis to assign carbon intensity scores to different biofuels production processes, providing a significant economic advantage to fuels with lower carbon intensity scores. This mechanism was challenged by a coalition of out-of-state alcohol fuels producers and trade groups, who argued that California's mechanism discriminates against them on its face by assigning higher carbon intensity scores to out-of-state producers than in-state producers. California rebutted these claims by asserting that its life-cycle analysis model is location-neutral and reflects the reality that production of alcohol fuels in some areas has a greater carbon footprint than fuels produced within California. Alcohol fuels produced in the Midwest, for example, generally have a higher carbon footprint than fuels produced within California because Midwest biofuels are produced using electricity from a grid that relies more heavily on coal-fired plants and because of the lengthy transportation routes required to deliver Midwest fuels into California add to the out-of-state fuel's carbon intensity.

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U.S. District Court Rejects Broad Commerce Clause Attack on Colorado's Renewable Portfolio Standard

May 13, 2014

On May 9, the Judge William J. Martinez of the U.S. District Court for the District of Colorado summarily dismissed a broad-based challenge to the Colorado Renewable Portfolio Standard ("RPS"), which argued that the RPS per se violates the "dormant" Commerce Clause of the United States Constitution. The decision supports the view that a RPS will pass muster under the Commerce Clause as long as it regulates in-state and out-of-state generators in an even-handed way, and does not impose restrictions on RPS eligibility that favor in-state generators over out-of-state generators. Energy & Environmental Legal Inst. v. Epel et al., No. 11-cv-00859-WJM-BNB (issued May 9, 2014).

Enacted by Colorado voters in 2004 and amended several times since, the Colorado RPS now requires Colorado's investor-owned utilities to obtain 30% of their electricity from renewable sources by 2020, while cooperatives serving 100,000 or more meters must meet a 20% standard, and smaller cooperatives and municipal utilities must meet a 10% standard. In 2011, plaintiff Energy and Environmental Legal Institute (then known as the American Traditions Institute) filed a lawsuit seeking to invalidate Colorado's RPS statute on Commerce Clause grounds. Last week's decision rejects that challenge in its entirety, although plaintiffs have indicated they plan to appeal to the U.S. Court of Appeals for the Tenth Circuit.

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Complicating "Coal By Wires" Regulation, Minnesota Court Strikes Down Greenhouse Gas Regulation

April 21, 2014

In a ruling with potentially far-reaching consequences for state-level attempts to regulate greenhouse gases, the U.S. District Court for the District of Minnesota on April 18 issued a ruling striking down key elements of Minnesota's Next Generation Energy Act ("NGEA"). For the Pacific Northwest, in particular, the ruling could complicate efforts by Washington, Oregon, and California to limit "coal by wires" -- the importation of coal-generated electricity from plants located in states like Montana and Arizona. State of North Dakota et al. v. Heydinger et al., No. 11-cv-3232 (SRN/SER) (issued April 18, 2014).

Passed by Minnesota's legislature in 2007, the NGEA is aimed at reducing the carbon footprint of electricity consumed in the state. The statute prohibits new power plants within Minnesota that "would contribute to state power sector emissions." To address the "coal by wires" problem, the statute also broadly prohibits importing power generated outside Minnesota if that generation "would contribute to statewide power sector carbon dioxide emissions," and also prohibits long-term power purchase contracts from facilities larger than 50 MW that would contribute to Minnesota's power sector carbon dioxide emissions.

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Ninth Circuit Denies Rehearing in Greenhouse Gas Case, Continues to Struggle With Standing in Climate Litigation

February 13, 2014

A recent order of the U.S. Court of Appeals for the Ninth Circuit illustrates the extent to which courts continue to struggle with otherwise routine legal issues when confronting claims related to climate change and greenhouse gas emissions. The order denies rehearing of last year's Ninth Circuit panel decision in Washington Environmental Council v. Bellon, which concluded that a group of environmental plaintiffs seeking to force the Washington Department of Ecology to issue greenhouse gas regulations lacked standing to bring the claim.

The rehearing order was unusual in several respects. Ordinarily, a dissatisfied party to the case seeks rehearing and, in nearly all cases, rehearing is denied in a short order simply noting that an insufficient number of judges supported the request for rehearing. Perhaps the most unusual aspect of the Ninth Circuit's order is that it arose from a Ninth Circuit judge seeking rehearing, rather than from one of the parties. This suggests that at least some of the Ninth Circuit's judges view the October panel opinion as not just incorrect, but so seriously wrong that the Court should re-examine the decision even in the absence of any request to do so by the losing parties. The order is also unusual in that it included two impassioned opinions alternatively defending and attacking the October panel opinion.

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Will Protectionism Foil California's Increased RPS Mandate?

September 23, 2013

Under AB 327, passed this month by the California legislature, California has cleared the way to ratchet up its aggressive Renewable Portfolio Standard ("RPS") mandate beyond the 33% it already requires. But the legislature did nothing to address the most troubling aspect of California's RPS program, the "Portfolio Content Categories" -- commonly referred to as "buckets" -- which systematically favor in-state renewable resources over out-of-state resources. A recent report from the National Renewable Energy Laboratory ("NREL") shows, however, that California is rapidly running out of easily-developed in-state resources. It is therefore becoming increasingly clear that, unless California lowers the wall it has erected around its renewable energy market, it will either be unable to meet its ambitious renewable energy goals or else meeting those goals will come at an exorbitant cost to the state's consumers.

On the other hand, if California lowers or eliminates barriers to outside resources, access to huge and highly desirable resources in other parts of the West will allow California to achieve its ambitious climate and renewable energy goals in the most economically efficient manner. Even if California's legislature is unwilling to lower these barriers voluntarily, recent decisions from the federal courts demonstrate that its protectionist policies can be overcome through a legal challenge under the Commerce Clause of the U.S. Constitution.

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Ninth Circuit Upholds California's Low Carbon Fuel Standard, Finding No Discrimination Against Out-of-State Fuel Producers

September 18, 2013

The U.S. Court of Appeals for the Ninth Circuit today issued what may prove to be a landmark decision concerning California's efforts to regulate emissions of greenhouse gases ("GHG"). The Appeals Court concludes that California's Low-Carbon Fuel Standard ("LCFS") does not violate the Commerce Clause even though California uses a life-cycle analysis of carbon intensity that penalizes, for example, ethanol from the Midwest produced using coal-fired electricity, and favors ethanol using less carbon-intensive methods of production. Concluding that California's ambitious efforts to address GHG emissions should not be limited by "archaic formalism," the opinion allows states considerable room to experiment with new approaches to GHG regulation. That being said, the opinion also makes clear that environmental protection cannot be used as an excuse to arbitrarily burden interstate energy transactions. Rocky Mountain Farmers Union et al. v. Corey et al., No. 12-15131 (issued Sept. 18, 2013).

The LCFS, adopted as part of the Global Warming Solutions Act of 2006 (commonly referred to as "AB 32"), is aimed at reducing GHG emissions from California's transportation sector, which account for about 40% of the state's total GHG emissions. Using 2010 carbon intensity as a baseline, the LCFS requires fuel producers and blenders to meet specific carbon intensity limits, which decline annually from the 2010 baseline through 2020. Producers that exceed the limits are awarded credits that can be sold to producers that fail to meet the limits. For gasoline producers, blending gasoline with ethanol is the only practicable way to meet the LCFS.

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City of Palo Alto Issues RFP For Renewable Energy

September 16, 2013

The City of Palo Alto, California, last week issued an RFP for renewable energy. The request calls for non-escalating contracts for periods of between 5 and 30 years. The City intends to contract for 20 GWh to 60 GHw per year. Despite the constitutional cloud hanging over such requirements, the RFP includes a preference for projects within California, although projects with delivery points within the Western Electricity Coordinating Council will be considered. Responses are due by October 9, 2013.

Casting A Constitutional Cloud On In-State Renewable Preferences, Seventh Circuit Upholds Transmission Cost-Spreading

June 12, 2013

In a decision with important implications for both renewable energy and transmission developers, the U.S. Court of Appeals for the Seventh Circuit last week largely upheld a cost-spreading mechanism developed by the Midwest Independent Transmission System Operator ("MISO") to encourage expansion of high-voltage transmission facilities. Written by the renowned Judge Richard Posner, the decision (Illinois Commerce Commission v. Federal Energy Regulatory Commission, 7th Cir. Docket Nos. 11-3421 et al., issued June 7, 2013) may in time be most remembered for lighting the fuse that ultimately brought down the many state renewable energy policies that artificially favor in-state renewable producers at the expense out-of-state producers.

The holding is a response to Michigan's argument that it does not benefit from the high-voltage transmission lines favored by the MISO policy. Because its Renewable Portfolio Standard does not allow Michigan utilities to count out-of-state renewables toward meeting the requirement that they obtain ten percent of their power from renewables by 2015, improving transmission for out-of-state renewables does not benefit Michigan ratepayers. Thus, Michigan argued, it should not be required to bear a share of the cost of these facilities. Judge Posner rejected this argument in strikingly plain terms: "Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy." This holding threatens to unravel state laws from California to Massachusetts that, in various ways, artificially favor in-state renewable producers over out-of-state producers.

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Eric Christensen to Speak At "Buying and Selling Power In the West" Conference in January

December 17, 2012

Please join us on January 17 and 18, 2013, for the annual Buying & Selling Power in the West conference. Now in its 18th year, the conference brings together leading energy attorneys, expert consultants, industry executives, government officials, and many others to discuss the most pressing issues facing the energy industry in our region.

On January 18, Eric Christensen will present a lecture entitled "REC Wreck in the WECC: Litigation Challenging California's REC Market." Mr. Christensen will discuss how legislation adopted by the California legislature has strangled the market for renewable power in the Pacific Northwest, current litigation challenging that legislation, and approaches that could be pursued by Northwest renewables developers and owners to reopen the market on fully competitive terms.

Dams in the Supreme Court: Two Cases To Watch This Term

November 2, 2012

Two cases of great importance to operators of dams, storm sewers, and other water works will be decided in the U.S. Supreme Court's current term. The first, Arkansas Fish & Game Commission v. United States (No. 11-597), involves a takings claim for flooding caused by a U.S. Army Corps of Engineers ("Corps") dam. The second, Los Angeles County Flood Control District v. Natural Resources Defense Council (No. 11-460), addresses whether a the operator of a municipal storm sewer system violated its permit under the Clean Water Act ("CWA") where its flood control structures channeled an already-polluted river, passing the polluted water through a man-made structure, but without adding new pollution.

In Arkansas Fish & Game, the state successfully asserted a claim that periodic flooding from a Corps dam, which caused significant damage at a wildlife refuge downstream from the dam, constituted a compensable "taking" under the Fifth Amendment of the U.S. Constitution. The property at issue, the Donaldson Black River Wildlife Management Area ("WMA") in northwest Arkansas, contains rare and important bottomland hardwood habitat. It is located approximately 115 miles downstream from the Corps' Clearwater Dam in Missouri, which was constructed in the 1940s as part of efforts to control flooding in the Mississippi Basin. In the 1990s, the Corps began to deviate from its accepted operating plan for the Clearwater reservoir in order to reduce damage to crops upstream from the dam. Arkansas claimed that the deviations from operating rules increased flooding in the WMA, damaging hardwoods and reducing the value of the habitat in the WMA.

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California, Climate Change, and the Commerce Clause: Ninth Circuit Expresses Skepticism in Argument Involving Low-Carbon Fuel Standard

October 25, 2012

The U.S. Court of Appeals for the Ninth Circuit last week heard oral argument in a challenge brought by a number of out-of-state biofuel producers who assert that California's Low-Carbon Fuel Standard ("LCFS") violates the Commerce Clause of the U.S. Constitution because it discriminates against out-of-state producers and artificially favors in-state producers. The three-judge panel appeared, at times, perplexed, and at other times, to be highly skeptical of the LCFS.

For example, Senior Judge Dorothy Nelson, citing comments from California officials stating the LCFS will increase employment and tax revenue in California, asked, "Isn't this unambiguous evidence that the board was motivated by protectionism?" Similarly, observing that electricity is a major factor in the carbon intensity calculations used by California and that biofuels producers have no control over how the electricity they use is produced, "isn't this the equivalent of discriminating against producers with the 'dirtiest' electricity," who are generally located in the Midwest. Similarly, Judge Mary Murguia, seemed particularly troubled with LCFS regulations that, on their face, apply a higher carbon intensity score to Midwestern biofuels producers than to California producers. The third judge, Senior Judge Betty Fletcher, did not participate heavily in the argument, but observed that she followed the argument closely and, found some of the answers provided by the attorneys "very satisfactory, others not so much." An audio tape of the argument is available here.

(Sadly, Judge Fletcher passed away just five days after the argument. A native of Tacoma, Judge Fletcher had a highly successful legal career here in Seattle, where, among other achievements, she became the first female partner at a major Pacific Northwest law firm. She was appointed to the Ninth Circuit by President Carter in 1979. She will be missed.)

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