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Appeals court rejects industry challenge to Oregon's low-carbon fuel program

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Appeals court rejects industry challenge to Oregon's low-carbon fuel program

A federal appeals court on Sept. 7 dismissed a legal challenge to an Oregon program that requires transportation fuel importers to reduce the carbon intensity of fuel sold within the state.

In a 2-1 decision, a three-judge panel for the U.S. Circuit Court of Appeals for the 9th Circuit upheld a district court's dismissal of a legal complaint targeting Oregon's Clean Fuels Program, which regulates transportation fuels based on greenhouse gas emissions.

Established in 2007 under former Oregon Gov. John Kitzhaber, the program aims to reduce the amount of life cycle greenhouse gas emissions per unit of energy by a minimum of 10% below 2010 levels by 2025.

Under the program's rules, a regulated party must keep the average carbon intensity of all transportation fuels used in Oregon below an annual limit, with the limits becoming more stringent through 2025. Similar to California's Low Carbon Fuel Standard, parties regulated under the Oregon program generate credits or deficits based on carbon intensity scores.

In 2015, the American Fuel and Petrochemical Manufacturers, American Trucking Associations and Consumer Energy Alliance challenged the program in the U.S. District Court for Oregon, alleging the regulations violated the U.S. Constitution's Commerce Clause and were also preempted by Section 211 of the Clean Air Act.

Plaintiffs argued the program is unconstitutional because it discriminates against out-of-state fuels by assigning petroleum and Midwest ethanol higher carbon intensity scores than Oregon biofuels.

The groups also contended that the U.S. Environmental Protection Agency has found the regulation of methane unnecessary because the agency excluded methane from the definition of volatile organic compounds under Section 211 of the Clean Air Act.

The district court dismissed the complaint, concluding the program did not discriminate in purpose or effect against out-of-state fuels, and was not preempted by the Clean Air Act.

Circuit Court Judges Andrew D. Hurwitz and Raymond C. Fisher reaffirmed the lower court's decision in their Sept. 7 ruling in American Fuel & Petrochemical Manufacturers et al v. O'Keeffe et al (No. 15-35834).

"The Oregon program discriminates against fuels based on life cycle greenhouse gas emissions, not state of origin," said Hurwitz, who wrote the court's opinion.

The affirming judges also found that the EPA's decision not to regulate methane under Section 211 of the Clean Air Act "is not a finding that regulating methane’s contributions to greenhouse gas emissions is unnecessary."

But in a dissenting opinion, Circuit Court Judge N. Randy Smith said the Oregon program "impermissibly favors in-state interests at the expense of out-of-state interests," noting that no fuel producers in Oregon are negatively affected by the program.

"As American Fuel alleges, the discrimination arises from Oregon’s decision to draw the maximum allowed carbon intensity value in such a manner that all in-state fuel producers generate credits and only out-of-state fuel producers generate deficits," Smith wrote.

The program also requires fuel importers with deficits to offset those deficits by purchasing credits from competing fuel producers that have generated credits.

"Out-of-state entities bear the full brunt of the law’s burden, even though all fuel producers … contribute to greenhouse gas emissions (and consequently global warming)," Smith said.