LCFS

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The Governor has issued an Executive Order with sweeping implications for the oil and gas industry and others.

By Jean-Philippe Brisson, Joshua T. Bledsoe, Nikki Buffa, and Brian F. McCall

On September 23, 2020, California Governor Gavin Newsom signed Executive Order N-79-20, which will have sweeping implications for the oil and gas industry, automakers, low-carbon fuel producers, the logistics industry, and public transit agencies, among others (the Executive Order). Newsom announced the Executive Order against the backdrop of what he called “simultaneous crises,” none of which he argued is more impactful and forceful as the climate crisis. The press conference included Mary Nichols, Chair of the California Air Resources Board (CARB), standing before a small fleet of zero-emission vehicles.

In what will likely be viewed as the most far-reaching measure, the Executive Order requires all passenger vehicle sales starting in 2035 to have zero emissions — a mandate that essentially bans sales of new internal-combustion-powered passenger vehicles in California. As discussed below, the Executive Order raises several significant issues.

In recent LCFS amendments, CARB introduced a new price cap on all LCFS credit transfers and authorized limited future credit borrowing.

By Joshua T. Bledsoe, Brian F. McCall, and Kevin A. Homrighausen

On November 21, 2019, the California Air Resources Board (CARB) passed Resolution 19-27, approving several amendments to the Low Carbon Fuel Standard (LCFS) program designed to foster stability in the LCFS market and promote access to electric vehicle (EV) transportation for disadvantaged and low-income communities in California.

Concerns of Credit Price Run-up

The LCFS is a key pillar of California’s efforts to reduce greenhouse gas (GHG) emissions in the transportation sector. As discussed in previous posts, regulated entities must either: (1) ensure that fuels supplied in California meet annual, decreasing carbon intensity (CI) targets (e.g., by blending biofuels into gasoline and diesel); or (2) procure and surrender credits to CARB. Regulated entities can buy LCFS credits in the bilateral market or in the Credit Clearance Market (CCM), a CARB-administered market intended to supply cost-controlled credits in the event of a market shortage. The rulemaking appears to reflect CARB’s acknowledgment of long-held concerns in the LCFS market that deficit generation will outstrip credit generation, and the CCM will be unable to adequately cap credit prices. The steady advance of LCFS credit prices since the summer of 2017 is well documented in CARB’s Credit Transfer Activity Reports. The most recent LCFS amendments are intended to ensure that the CCM will continue functioning in the event of a credit shortage and to safeguard against a potential LCFS credit price run-up.

High Court’s action clears pathway for low-carbon fuel standard programs.

By Joshua T. Bledsoe, Kimberly D. Farbota, and Brian F. McCall

On May 13, 2019, the US Supreme Court denied certiorari in American Fuel & Petrochemical Manufacturers (AFPM), et al., v. O’Keeffe, et al (O’Keeffe), effectively affirming a US Court of Appeals for the Ninth Circuit decision that upheld the constitutionality of Oregon’s Clean Fuels Program (CFP). The CFP is modeled after, and operates according to, the same principles and general structure as California’s Low Carbon Fuel Standard (LCFS) program. Petitioners argued that Oregon’s CFP discriminates against out-of-state fuels in violation of the US Constitution’s Dormant Commerce Clause. Oregon argued that while a state may not regulate wholly out-of-state commerce, there is no constitutional bar to a state regulating its fuels market based on a product’s objectively measured contributions to in-state harms (i.e., regulating based on harm caused by a fuel’s carbon intensity).

With the Supreme Court’s refusal to hear the case, the Ninth Circuit’s September 2018 ruling that Oregon’s CFP does not unconstitutionally favor in-state fuels over out-of-state fuels stands. The denial of certiorari follows a 2014 refusal by the Supreme Court to review a Ninth Circuit decision in a similar case, commonly known as Rocky Mountain I, that upheld the constitutionality of California’s LCFS program under the same reasoning.

Joshua Bledsoe and Michael Dreibelbis of Latham & Watkins, recently co- wrote a LCFS Fact Sheet with the International Emissions Trading Association (IETA). The article is available on IETA’s website and below:

The California Global Warming Solutions Act of 2006 (aka Assembly Bill 32 or “AB 32”) mandates a reduction in California statewide greenhouse gas (GHG) emissions to 1990 levels by 2020. The Low Carbon Fuel Standard (LCFS) is one of the primary Emission Reduction Measures promulgated by the California…

By Joshua T. Bledsoe, Michael Dreibelbis, and Max Friedman

I. LCFS Readoption

On February 19, 2015, the California Air Resources Board (ARB) will take feedback on proposed regulations implementing the readoption and updating of California’s Low Carbon Fuel Standard (LCFS), with formal readoption targeted for the Summer of 2015.  Triggered by legal defects during the original adoption of the LCFS Program, ARB initiated the rulemaking after the U.S. Supreme Court denied certiorari regarding the constitutionality of the program. …

By Joshua Bledsoe, Michael Dreibelbis, Michele Leonelli, and Aron Potash

I. LCFS Readoption

The California Air Resources Board (“ARB”) is on the cusp of readopting the Low Carbon Fuel Standard (“LCFS”) regulation to remedy legal defects in the initial adoption process found by the California Court of Appeal on July 15, 2013.  In conjunction with the LCFS readoption, ARB is expected to propose significant changes to the program.  ARB staff has been vetting potential revisions via a series of workshops this year, and ARB plans to float a draft revised LCFS regulation next month.  The readoption process gained momentum this summer when the Supreme Court denied certiorari regarding the constitutionality of the program.  A new cost containment mechanism, an updated carbon intensity model, and a reanalysis of fuel availability are among the significant changes that could materially impact program participants, both obligated entities and opt-in fuel producers.

By JP Brisson, Joshua Bledsoe and Michael Dreibelbis

Today, the US Supreme Court denied certiorari regarding the constitutionality of California’s Low Carbon Fuel Standard (LCFS) in Rocky Mountain Farmers Union v. Corey.  The Court’s decision effectively affirms the Court of Appeals for the Ninth Circuit’s recent ruling that the LCFS does not facially violate the dormant Commerce Clause of the US Constitution.  Plaintiffs — including ethanol, farming, petrochemical, energy and trucking industry groups — had argued that the LCFS program’s “lifecycle analysis” impermissibly regulates beyond state lines and discriminates against ethanol and crude oil produced out-of-state, in violation of the dormant Commerce Clause.

By Joshua T. Bledsoe and Aron Potash

California’s low carbon fuel standard (LCFS), a core component of the state’s greenhouse gas (GHG) emission reduction strategy, likely will survive a legal challenge and remain in effect despite an appellate court’s order indicating that the regulation was improperly adopted.

The California Court of Appeal for the Fifth Appellate District issued a tentative disposition on June 3, 2013, in POET, LLC et al. v. Goldstene, et al. finding that the California Air Resources…