Lawrence J. O'Neill, UNITED STATES CHIEF DISTRICT JUDGE.
Two sets of Plaintiffs, the "RMFU Plaintiffs"
The Court took the matter under submission on the papers pursuant to Local Rule 230(g). Doc. 388. For the following reasons, the Court GRANTS IN PART and DENIES IN PART Defendants' motions.
This case concerns Plaintiffs' years-long and complex challenge to the LCFS.
The California Air Resources Board ("CARB") promulgated and adopted the LCFS
The AFPM Plaintiffs now bring claims against all three versions of the LCFS; the RMFU Plaintiffs bring claims against only the 2015 LCFS. As explained in more detail below, the LCFS regulates both ethanol and crude oil. The RMFU Plaintiffs challenge the LCFS's ethanol provisions whereas the AFPM Plaintiffs challenge its crude oil provisions.
The RMFU Plaintiffs' TAC contains four causes of action. TAC at 18-22. Claims one and two allege, respectively, that the LCFS is preempted by federal law on its face and as-applied to Plaintiff Growth Energy.
The AFPM Plaintiffs assert three causes of action in their SAC. The first and second allege that all three versions of the LCFS violate the Commerce Clause because they "impermissibly regulate conduct
With respect to their Commerce Clause claims, both sets of Plaintiffs assert the ethanol provisions of the LCFS discriminate on their face, and in their purpose and effect. The RMFU Plaintiffs further assert the ethanol provisions fail under Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970).
Thus, between both sets of Plaintiffs, they assert the following:
Defendants (1) move for judgment on the pleadings under Federal Rule
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is a challenge to the sufficiency of the allegations set forth in the complaint. A 12(b)(6) dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion to dismiss for failure to state a claim, the court generally accepts as true the allegations in the complaint, construes the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the pleader's favor. Lazy Y. Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).
To survive a 12(b)(6) motion to dismiss, the plaintiff must, in accordance with Rule 8, allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the Plaintiff pleads factual content that allows the
Federal Rule of Civil Procedure 12(c) permits a party to seek judgment on the pleadings "[a]fter the pleadings are closed — but early enough not to delay trial." "A motion for judgment on the pleadings should be granted where it appears the moving party is entitled to judgment as a matter of law." Geraci v. Homestreet Bank, 347 F.3d 749, 751 (9th Cir. 2003). A "judgment on the pleadings is appropriate when, even if all allegations in the complaint are true, the moving party is entitled to judgment as a matter of law." Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir.1993).
"A judgment on the pleadings is a decision on the merits." 3550 Stevens Creek Assocs. v. Barclays Bank of California, 915 F.2d 1355, 1356 (9th Cir. 1990), cert. denied, 500 U.S. 917, 111 S.Ct. 2014, 114 L.Ed.2d 101 (1991). A 12(c) motion "is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts." Herbert Abstract Co. v. Touchstone Props., Ltd., 914 F.2d 74, 76 (5th Cir. 1990) (per curiam). "[T]he central issue is whether, in light most favorable to the plaintiff, the complaint states a valid claim for relief." Hughes v. Tobacco Inst., Inc., 278 F.3d 417,420 (5th Cir. 2001). "[A]ll allegations of fact of the opposing party are accepted as true." Austad v. United States, 386 F.2d 147, 149 (9th Cir. 1967). Thus, a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) is "functionally identical" to a motion to dismiss under Rule 12(b)(6). Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). Although Rule 12(c) does not mention leave to amend, courts have discretion to grant a Rule 12(c) motion with leave to amend. See Carmen v. San Francisco Unified Sch. Dist., 982 F.Supp. 1396, 1401 (N.D. Cal. 1997).
Like a Rule 12(b)(6) motion to dismiss, a Rule 12(c) motion challenges the legal sufficiency of an opposing party's pleadings. "When a federal court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one." Balistreri, 901 F.2d at 699. Dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable
The AFPM Plaintiffs candidly acknowledge that a number of their claims are foreclosed by RMFU and this Court's prior decisions and, accordingly, do not oppose Defendants' motions to dismiss them or for judgment on the pleadings on them. See Doc. 383 at 5-6. Those claims are:
Doc. 383 at 5-6, 13-14. Although the RMFU Plaintiffs assert the same uncontested claims as the AFPM Plaintiffs do, they do not oppose Defendants' motion to dismiss or for judgment on the claims. See Doc. 384 at 24-28; see also Doc. 387 at 9. Because the parties agree that RMFU and the Court's prior decisions foreclose these claims, the Court GRANTS Defendants' motions on them WITHOUT LEAVE TO AMEND.
Therefore, all that remains of the AFPM Plaintiffs' claims are their claims that the ethanol provisions of the Original, 2012, and 2015 LCFS discriminate against interstate commerce in purpose and effect. See Doc. 383 at 6. The RMFU Plaintiffs assert the same claims, and additionally assert that all versions of the LCFS are preempted by federal law and the ethanol provisions of all versions of the LCFS fail under Pike.
Defendants move for judgment on the pleadings on AFPM Plaintiffs' claims against the Original LCFS and 2012 LCFS on the ground that they are moot because both versions have been repealed and replaced. Doc. 380-1 at 15. Specifically, Defendants argue those claims are moot because the Court cannot grant any prospective relief, and the Eleventh Amendment bars any retrospective relief. Id. at 16.
Defendants argue in their reply that the AFPM Plaintiffs' SAC does not contemplate the relief they purportedly seek, as stated in their opposition, i.e., that the Court order a recalculation of the credits assigned under the Original and 2012 LCFS. Doc. 385 at 3.
In the SAC, the AFPM Plaintiffs seek the following relief:
SAC at 20. The SAC thus does not explicitly request that the Court order a recalculation of credits assigned under the Original and 2012 LCFS, should the Court find them unconstitutional. Though Defendants suggest that this request is articulated only in the AFPM Plaintiffs' opposition, Defendants do not object to the Court's considering it. The Court will therefore assume without deciding that the AFPM Plaintiffs seek in the SAC the credits recalculation remedy that they articulate in their opposition. In any event, as discussed below, the AFPM Plaintiffs do not have standing to seek this remedy and, even if they did, it is barred by the Eleventh Amendment.
Defendants assert — for the first time in their reply — that the AFPM Plaintiffs lack standing.
In Warth, the Supreme Court explained that an entity has associational standing if, among other things, "the nature of the claim and of the relief sought does not make the individual participation of each injured party indispensable to proper resolution of the cause." Id.
Although the AFPM Plaintiffs state they do not seek damages, Doc. 383 at 16, their request for a recalculation of credits generated under the Original and 2012 LCFS is effectively a request for damages, or so analogous to a request for damages to render it indistinguishable from the circumstances underpinning Warth, 422 U.S. at 515-16, 95 S.Ct. 2197 (association plaintiff failed to allege "monetary injury to itself, nor any assignment of the damages claims of its members.... [m]oreover ... the damages claims are not common to the entire membership, nor shared by all in equal degree"). The AFPM Plaintiffs allege the LCFS is unconstitutionally discriminatory, in part because it requires regulated entities who purchase Midwest ethanol "to purchase vast quantities of other fuels that California has assigned very low carbon intensities or to purchase `credits' accumulated by other entities subject to the LCFS." SAC ¶ 68; see also id. ¶ 33 (alleging fuel provides comply with the LCFS by, among other things, "purchas[ing] credits generated by other fuel providers"); Cal. Code Regs. § 95487 (outlining possible "Credit Transactions" under LCFS). As the AFPM Plaintiffs asserted on appeal before the Ninth Circuit: "The LCFS ... penaliz[es] the use of fuels whose carbon-intensity scores exceed the regulation's annual cap and plac[es] such fuels at a substantial disadvantage in the California market: parties using such fuels must either purchase credits from their competitors ... or incur ... penalties." Doc. 386-1 at 53. The AFPM Plaintiffs thus argued that the LCFS "is discriminatory because ... higher carbon-intensity scores generate `deficits' that must be eliminated through the generation or purchase of `credits.'" Id. at 73. Because of this discriminatory effect, which leads to a price disparity between lower-and higher-carbon-intensity ethanol, the LCFS "could impose as much as $10 to $20 million in additional costs on
The AFPM Plaintiffs therefore contend the purported discriminatory effects of the LCFS caused their members to spend more money on purchasing credits to comply with the LCFS. If the Court were to order a recalculation of credits generated under the Original and 2012 LCFS, as they request, it would require a number of individualized determinations, including (1) who bought which credits; (2) whether the alleged discriminatory effects of the LCFS caused the party to spend more on those credits; and (3) if so, how that should be remedied, i.e., how much the parties are owed due to their overpayment — in other words, what their damages are. These necessary individualized determinations thus render the AFPM Plaintiffs without associational standing to seek the credit recalculations that they request because it would be impossible to make the determinations without the participation of the AFPM Plaintiffs' members. See Warth, 422 U.S. at 515-16, 95 S.Ct. 2197; Brown Group, 517 U.S. at 554, 116 S.Ct. 1529.
Although the AFPM Plaintiffs claim they do not seek damages, the Court's conclusion that the credit recalculations would require determining how much their members overpaid for credits — and ordering corresponding relief — leads the Court to conclude that the AFPM Plaintiffs essentially seek retrospective damages that are barred by the Eleventh Amendment. As explained above, the AFPM Plaintiffs claim the purported discriminatory effects of the Original and 2012 LCFS required them to purchase more credits (i.e., spend more money) than would have been required had that alleged discrimination not existed. They now ask that the credits — all of which were bought and sold by them and other parties — be recalculated and redistributed in a different manner. In effect, the AFPM Plaintiffs request a reshuffling of state funds.
"Relief that in essence serves to compensate a party injured in the past by an action of a state official in his official capacity that was illegal under federal law is barred" by the Eleventh Amendment. Papasan v. Allain, 478 U.S. 265, 278, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). This includes cases for declaratory and injunctive relief that seek "a compensatory, backward-looking remedy," Porter v. Jones, 319 F.3d 483, 491 n.7 (9th Cir. 2003), and encompasses "relief that is tantamount to an award of damages for a past violation of federal law, even though styled as something else." Papasan, 478 U.S. at 278, 106 S.Ct. 2932 (citations omitted). "On the other hand, relief that serves directly to bring an end to a present violation of federal law is not barred by the Eleventh Amendment even though accompanied by a substantial ancillary effect on the state treasury." Id. (emphasis added) (citations omitted).
Accordingly, to the extent the AFPM Plaintiffs seek compensatory relief (whether credit calculations or otherwise) that is based exclusively on Defendants' conduct that allegedly violated federal law in the past, the Eleventh Amendment precludes that relief. But, to the extent they seek relief for Defendants' past conduct that allegedly violated federal law that has an ongoing or future effect, the Eleventh Amendment does not preclude that relief. See id. The Court therefore GRANTS IN PART and DENIES IN PART Defendants' motion for judgment on Plaintiffs' claims concerning the Original and 2012 LCFS on the ground they are barred by the Eleventh Amendment.
As noted above, however, the Court finds it is a stretch, at best, to read the
This brings the Court to the issue of whether the AFPM Plaintiffs' claims against the Original and 2012 LCFS are moot. A footnote in the Ninth Circuit's decision in RMFU is directly on point and controls here. The court held:
RMFU, 730 F.3d at 1097 n.12.
Plaintiffs had challenged the crude oil provisions of the Original LCFS (what the Ninth Circuit called "the 2011 Provisions") in this Court and, by the time RMFU issued, they had been amended by the 2012 LCFS. See id. The Ninth Circuit observed that the means by which credits were calculated under the Original LCFS had an effect on how they were calculated under the then-current version of the regulation, the 2012 LCFS. Id. The Ninth Circuit thus explicitly held that Plaintiffs' challenge to the Original LCFS was not moot because it had a live, ongoing effect then, which would continue into the future. See id.
That holding is directly applicable here. The AFPM Plaintiffs allege, consistent with RMFU, that the Original and 2012 LCFS affect how credits are calculated under the 2015 LCFS. Their challenge to the Original and 2012 LCFS therefore is not moot; it remains "a live controversy." Id.
Regardless of this conclusion, as explained above, the AFPM Plaintiffs' potential remedy for any finding that either the
The RMFU Plaintiffs contend the LCFS
"The Supremacy Clause makes the laws of the United States `the supreme Law of the Land; ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.'" Atay v. Cty. of Maui, 842 F.3d 688, 699 (9th Cir. 2016) (quoting U.S. Const., Art. VI, cl. 2). Accordingly, "state law is pre-empted to the extent that it actually conflicts with federal law." English v. Gen. Elec. Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990). Actual conflict occurs "where it is impossible for a private party to comply with both state and federal requirements, or where state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 S.Ct. 581 (1941)).
"[W]here a statute regulates a field traditionally occupied by states, such as health, safety, and land use, a `presumption against preemption' adheres." Atay, 842 F.3d at 700 (quoting Wyeth v. Levine, 555 U.S. 555 n.3, 129 S.Ct. 1187, 173 L.Ed.2d 51 (2009)). Because federal courts "assume that a federal law does not preempt the states' police power absent a `clear and manifest purpose of Congress,'" id. (quoting Wyeth, 555 U.S. at 565, 129 S.Ct. 1187), "a high threshold must be met
The California legislature enacted the LCFS to regulate air quality in an attempt to improve, among other things, the well-being of California's citizens and environment. See RMFU, 730 F.3d at 1079 (citing Cal. Health & Safety Code § 38501(a)). The LCFS therefore falls within "an area of traditional state control." Oxygenated Fuels Ass'n v. Davis, 331 F.3d 665, 673 (9th Cir. 2003); Exxon Mobil Corp. v. U.S. E.P.A., 217 F.3d 1246, 1255 (9th Cir. 2000) ("Air pollution prevention falls under the broad police powers of the states, which include the power to protect the health of citizens in the state. Environmental regulation traditionally has been a matter of state authority."). Federal courts are "highly deferential to state law in areas traditionally regulated by the states" when assessing whether federal law preempts state laws regulating those areas. Id. To succeed on their preemption claims, then, the RMFU Plaintiffs must provide "clear evidence" that Congress intended to preempt the LCFS when enacting the EISA, or that they actually conflict with one another. Id. (quoting Geier v. Am. Honda Motor Co., Inc., 529 U.S. 861, 885, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000)).
The Court previously found that RMFU Plaintiffs stated a conflict preemption claim. See Rocky Mountain Farmers Union v. Goldstene, 719 F.Supp.2d 1170, 1195 (E.D. Cal. 2010). RMFU Plaintiffs correctly argue that holding remains the law of the case and, accordingly, Defendants' motion to dismiss the preemption claims in the TAC should be denied. See Doc. 384 at 17. Defendants urge the Court to reconsider its prior holding. See Doc. 387 at 7.
The law of the case doctrine generally precludes a court from "reconsidering an issue that already has been decided by the same court, or a higher court in the identical case." United States v. Alexander, 106 F.3d 874, 876 (9th Cir. 1997). Nonetheless, "[a] court may have discretion to depart from the law of the case where ... the first decision was clearly erroneous." United States v. Alexander, 106 F.3d 874, 876 (9th Cir. 1997). For the reasons discussed below, the Court concludes its prior holding that Plaintiffs have stated a conflict preemption claim was erroneous, and therefore declines to find it controlling here.
The geographic regulations provide in relevant part: "Regardless of the date of promulgation, the regulations promulgated under [§ 7545(o)(2)(A)(i)] ... shall not... restrict geographic areas in which renewable fuel may be used." As Defendants correctly point out, this provision applies only to the EPA and any regulations it promulgates. See Minn. Auto. Dealers Ass'n v. Stine, Civil No. 15-2045 (JRT/KMM), 2016 WL 5660420, at *10 (D. Minn. Sept. 29, 2016) ("§ 7545(o)(2)(A)(iii)(II)(aa), which prohibits the imposition of geographical restrictions... appl[ies] only to EPA."); Am. Fuel & Petrochemical Mfrs. v. O'Keeffe, 134 F.Supp.3d 1270, 1288 (D. Or. 2015) ("The Oregon Program is also not an EPA regulation, such that the anti-geographic restriction provision embodied in [§ 7545(o)(2)(A)(iii)(II)(aa)] is not implicated.") (citation omitted). "If Congress intended to limit a state's ability to impose... geographical restrictions, it could have
The RMFU Plaintiffs' remaining two arguments concern whether certain provisions in § 7545(o) conflict with the LCFS. In their opposition, the RMFU Plaintiffs do not address their argument concerning how the LCFS allegedly conflicts with the EPA's discretion to adjust or waive certain GHG reduction requirements, as provided in §§ 7545(o)(4) and 7545(o)(7), respectively. As discussed in more detail below, these provisions, like those contained in § 7545(o)(2)(A) (which is the exclusive focus of RMFU Plaintiffs' briefing), pertain only to the RFS, which does not conflict with the LCFS.
Congress enacted the RFS
Section 7545(o)(2)(A)(i) provides in relevant part:
The RMFU Plaintiffs interpret this provision as Congress ensuring that producers of "grandfathered ethanol" (i.e., ethanol produced in facilities that were constructed prior to the EISA's December 19, 2007 enactment) are exempt from GHG emissions controls. See Doc. 384 at 18-19. RMFU Plaintiffs contend that Congress intended this, in part, to guarantee a market for ethanol produced at "grandfathered" facilities. See TAC ¶¶ 68-70; Doc. 384 at 18-29. According to the RMFU Plaintiffs, the LCFS conflicts with this goal because its "inevitable long-term effect... [is] reducing or altogether ending the California market for corn ethanol from grandfathered plants that do not reduce carbon intensity to California's satisfaction." Id. at 20; see also id. at 18. Put
First, the plain language of § 7545(o)(2)(A)(i) does not support the RMFU Plaintiffs' position. Nothing in the provision suggests that Congress intended the RFS to ensure market access or stability for ethanol (grandfathered or not). That provision does provide that "grandfathered" renewable fuel, including ethanol, is exempt from the RFS's GHG requirements. But, with regard to those requirements, the provision simply provides that renewable fuel produced after December 19, 2007 must achieve "at least a 20 percent reduction in lifecycle [GHG] emissions compared to baseline lifecycle [GHG] emissions." § 7545(2)(A)(i) (emphasis added). "Baseline lifecycle GHG emissions," in turn, "means the average lifecycle [GHG] emissions ... for gasoline or diesel ... sold or distributed as transportation fuel in 2005." § 7545(o)(1)(C). The provision therefore contemplates only a minimum requirement that creates a floor (as opposed to a ceiling) for GHG emissions reductions from non-grandfathered fuels for the RFS; it makes no guarantees for any grandfathered fuel. See O'Keeffe, 134 F.Supp.3d at 1288 ("that Congress elected to exempt such facilities from the requirement that certain fuels achieve a 20% reduction in lifecycle GHG emissions does not confer upon them a preferred or dominant status"). Nor does the RFS require that its mandated renewable fuel volumes be satisfied by any particular fuel. If Congress intended to ensure a market for ethanol (grandfathered or otherwise), it could have structured the RFS so that a fixed amount of ethanol was required to satisfy its renewable fuels volume requirements. More importantly, it is silent as to whether a state may nonetheless subject grandfathered fuels to GHG regulations. There is no indication that the RFS in general or § 7545(o)(2)(A)(i) in particular were intended to protect or ensure a market for ethanol. See id. ("the volume requirements for renewable fuel set in [§ 7545(o)(2)(A)(i)] do not include a minimum amount that must be met with corn ethanol generally, let alone from [grandfathered] corn ethanol").
Other aspects of the CAA and the EISA, as well as the EPA's rulemaking proceedings concerning the RFS, show that Congress did not intend for the RFS to preempt state legislation like the LCFS. See Exxon Mobil, 217 F.3d at 1255 ("The statutory framework surrounding a provision as well as the structure and purpose of the statute as a whole are relevant to analyzing the scope of preemption.") (citation and quotation marks omitted). "The central goal of the [CAA] is to reduce air pollution." Oxygenated Fuels Ass'n, Inc. v. Davis, 331 F.3d 665, 670 (9th Cir. 2003) (citing 42 U.S.C. § 7401(b)). The CAA aims "to encourage and assist the development and operation of regional air pollution prevention and control programs," 42 U.S.C. § 7401(b)(4), and "to encourage or otherwise promote reasonable Federal, State, and local governmental actions, consistent with the provisions of this chapter, for pollution prevention." Id. § 7401(c). Because the CAA "generally seeks to preserve state authority," Davis, 331 F.3d at 670, it "employs a `cooperative federalism' structure under which the federal government develops baseline standards that the states individually implement and enforce." Bell v. Cheswick Generating Station, 734 F.3d 188, 190 (3d Cir. 2013).
"Congress set out the Act's purposes and objectives in a section of the Act labeled
Merrick, 805 F.3d at 690 (citing 42 U.S.C. § 7416). This "sweeping" provision thus "explicitly protects the authority of the states to regulate air pollution." Exxon Mobil Corp. v. U.S. E.P.A., 217 F.3d 1246, 1254, 1255 (9th Cir. 2000); see also id. at 1254 (observing that the CAA "makes clear that the states retain the leading role in regulating matters of health and air quality").
Congress enacted the EISA in 2007, which amended parts of the CAA. See generally Pub. L. No. 110-410 (codified as amended at § 7545(o)). The purpose of the EISA is
Id. Relevant here, Section 204(b) of the EISA provides in full:
The plain language of this savings clause, like the one contained in the CAA, preserves the right of the states to enact their own legislation that is more restrictive than the EISA.
Simply put, both the CAA's and the EISA's savings clauses evince Congress's express intent not to preempt state legislation aimed at improving a state's air quality. See RMFU, 730 F.3d at 1097 ("Congress has expressly empowered California to take a leadership role as to air quality"). The RMFU Plaintiffs' interpretation of § 7545(o) (specifically, § 7545(o)(A)(2)(i)) does not suggest any contrary intent, and the RMFU Plaintiffs do not point to anything else that does. The RMFU Plaintiffs thus fall far short from providing any authority that indicates Congress's "clear and manifest purpose" in enacting the RFS was to preempt the states' "traditional role" of regulating their air quality.
Much of the discussion above is directly applicable to this analysis. This is so because the RMFU Plaintiffs' primary argument as to whether the LCFS actually conflicts with the EISA is premised on their assumption that Congress intended the EISA to ensure a market for ethanol produced by corn grown in the Midwest, and guaranteed that grandfathered ethanol would not be subject to GHG regulations. As explained above, the plain language of the EISA makes no such guarantees. The RFS program, like the CAA in general, imposes a nationwide standard: it requires that at least a certain volume of particular fuels, including "renewable fuels" be sold in the United States each year. "Renewable fuel," in turn, can be derived from a number of different sources — not just ethanol. Thus, the RFS's volume requirements theoretically could be met entirely without ethanol.
That the RFS imposes GHG emissions requirements only on non-grandfathered facilities does not mean that Congress intended to ensure that those facilities were entirely exempt from all GHG regulations, whatever their source. Cf. Doc. 379-1, Environmental Protection Agency, Renewable Fuel Standard Program (RFS2): Summary and Analysis of Comments (Feb. 2010) ("RFS Summary"), at 7-1 ("[T]hese [RFS] thresholds do not constitute a specific control on [GHGs] for transportation fuels (such as a low carbon fuel standard)"), available at https://www.epa.gov/sites/production/files/2015-08/documents/420r10003.pdf. As the EPA recognized, the purpose of the RFS is "to significantly increase the amount of renewable fuel used as transportation fuel over time, particularly fuels with the lowest lifecycle GHG emissions, in the transportation fuel supply." 80 Fed. Reg. 33100-01, 33102 (June 10, 2015) (emphasis added). And as the RMFU Plaintiffs emphasize, the LCFS attempts to do precisely the same thing. The LCFS therefore does not conflict with the RFS's goal of reducing GHG emissions. If anything, the programs are complementary. Cf. 80 Fed. Reg. 33,100-01, 33,103 (observing that the RFS "is complemented and supported by ... myriad efforts and initiatives at the regional and local level").
Defendants argue statements EPA made during the RFS's notice and comment rulemaking proceedings directly undermine the RMFU Plaintiffs' theory that the RFS preempts the LCFS, and that the Court must defer to the EPA's interpretation. Although the Court disagrees with Defendants that these statements are entitled to deference or otherwise constitute any binding authority, they are consistent with and provide further support for the Court's interpretation of the RFS. Cf. Geier, 529 U.S. at 883, 120 S.Ct. 1913 (holding that agency's amicus brief stating that state law would actually conflict with its regulation is entitled to "some weight" because it "is likely to have a thorough understanding of its own regulation and its objectives and is uniquely qualified to comprehend
First, one of the Plaintiffs in this case, Renewable Fuels Associated, commented that the "EPA should preempt state programs designed to address carbon content and lifecycle analysis of fuels. [Renewable Fuels Association] believes that EPA should use its authority to preempt state low carbon fuel standards." Doc. 379-1, Environmental Protection Agency, Renewable Fuel Standard Program (RFS2): Summary and Analysis of Comments (Feb. 2010) ("RFS Summary"), at 13-14, available at https://www.epa.gov/sites/production/files/2015-08/documents/420r10003.pdf. CARB made the following comment:
Id. at 13-15. In response to these (and other) comments, the EPA responded:
Id. Thus, the EPA was explicitly asked — by a Plaintiff in this case — to preempt state low carbon fuel standards, and was aware of California's LCFS when asked. The EPA not only expressly declined to do so, but concluded that state low carbon fuel standard programs are irrelevant to the RFS and, in any event, the EPA has intentionally structured the RFS to be "compatible" with them.
Finally, the RMFU Plaintiffs make passing arguments that the LCFS conflicts with the EISA's goal of decreasing the United States' dependence on foreign oil, thereby increasing the country's energy dependence. In support, the RMFU Plaintiffs point to Congress's finding that "the production of transportation fuels from renewable energy would help the United States ... reduce the dependence of the United States on energy imported from volatile regions of the world that are politically unstable," Pub. L. 110-140, § 806(a)(4), and note that one of the EISA's goals is "[t]o move the United States toward greater energy independence." Pub. L. 110-140. The RMFU Plaintiffs, however, provide no facts or explanation showing that the LCFS actually conflicts with this goal.
For these reasons, the Court finds that its prior holding that the RMFU Plaintiffs had stated a claim that the LCFS is preempted was clearly erroneous; the RMFU Plaintiffs have not stated and cannot state any preemption claim against the LCFS. Accordingly, the Court DISMISSES their preemption claims WITHOUT LEAVE TO AMEND because amendment would be futile.
As noted above, the only remaining claim the AFPM Plaintiffs assert is their
As to their claim that the LCFS discriminates in purpose and effect, the thrust of Plaintiffs' argument is that the LCFS, by design and practical effect, penalizes non-California ethanol producers, specifically those from the Midwest, while benefitting California ethanol producers by assigning higher carbon intensity ("CI") scores to the former and lower CI scores to the latter through its "lifecycle" analysis of fuels, which causes chemically identical fuels sold in California to have varying CI scores due solely to where they are produced. See, e.g., TAC ¶ 87; SAC ¶¶ 35, 46-50, 94. According to Plaintiffs, the LCFS is intentionally designed to make ethanol produced in the Midwest (and elsewhere) more expensive, and eventually will drive a number of non-California ethanol producers out of the California market entirely. This is due, in part, to the regulation's credits-deficits scheme, which inherently benefits California ethanol producers at the expense of out-of-state producers by incentivizing consumers to purchase California ethanol, even if it is physically identical to Midwest ethanol. SAC ¶ 54. In sum, Plaintiffs allege the LCFS "has erected a barrier to Midwest corn ethanol around its borders" in an effort to benefit California ethanol. TAC ¶ 87; SAC ¶ 56.
The RMFU Plaintiffs' Pike claim builds on these allegations. The RMFU Plaintiffs argue that, in addition to the ethanol provisions' discriminatory effects, the LCFS provides no benefit to California because it "will not result in any measurable global climate change, nor in any measurable reduction of the effects of global warming." SAC ¶ 92; Doc. 384 at 27 ("the LCFS will have virtually no effect on the environment"). The RMFU Plaintiffs therefore contend the LCFS's burdens on interstate commerce far outweigh its benefits to California.
Defendants move to dismiss both claims under Rule 12(b)(6). Distilled, Defendants argue (1) RMFU precludes the Plaintiffs' claim that the LCFS discriminates in purpose and effect and, (2) regardless, neither states a claim.
The parties correctly observe that the Ninth Circuit not only did not decide Plaintiffs' claim that the ethanol provisions of the LCFS discriminate in purpose and effect, but remanded it for this Court's consideration. See RMFU, 730 F.3d at 1107 ("We remand the case for the district court to determine whether the ethanol provisions discriminate in purpose or effect and, if not, to apply the Pike balancing test."). Defendants nonetheless argue that the Ninth Circuit's holding that the Original LCFS's crude oil provisions do not discriminate in purpose or effect has preclusive effect here under the law of the case. Plaintiffs, on the other hand, argue that holding and its underlying reasoning does not "apply to the ethanol provisions, because those provisions have a different purpose and effect." Doc. 383 at 23; see also Doc. 384 at 24.
Even though the majority opinion in RMFU did not address Plaintiffs' claim that the Original LCFS's ethanol provisions discriminate in purpose and effect, the majority thoroughly reviewed and discussed the purposes of the Original LCFS in general and its ethanol provisions in particular when assessing Plaintiffs' claims that the ethanol provisions were facially discriminatory and impermissibly regulated extraterritorially. In so doing, the majority explicitly — and repeatedly — held that the ethanol provisions were not purposefully discriminatory, nor was the LCFS generally.
The Court has reviewed thoroughly the quotes from the LCFS's legislative that Plaintiffs cited in their briefs to the Ninth Circuit with those they cited in the SAC, the TAC, and their oppositions. The only quote Plaintiffs have cited that the Ninth Circuit did not consider is from a CARB press release. See Doc. 383 at 21 (citing CARB, California Adopts Low Carbon Fuel Standard (Apr. 23, 2009)) ("Production of fuels within the state will also keep consumer dollars local by reducing the need to make fuel purchases from beyond its borders."), available at https://www.arb.ca.gov/newsrel/2009/nr042309b.htm). Even assuming this press release constitutes an accurate reflection of the California legislature's and CARB's intent behind the LCFS, it is, at best, yet another "`economic defense of a [regulation] genuinely proposed for environmental reasons.'" RMFU, 730 F.3d at 1100 n.13 (citing Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 463 n. 7, 101 S.Ct. 715, 66 L.Ed.2d 659 (1981)) ("We will not invalidate a state statute under the Equal Protection Clause merely because some legislators sought to obtain votes for the measure on the basis of its beneficial side effects on state industry."). Plaintiffs have not pointed to any portion of the LCFS's legislative history that the Ninth Circuit did not consider. Thus, to the extent Plaintiffs rely on the Original LCFS's legislative history to support their discriminatory purpose claim, RMFU forecloses it.
Judge Murguia's dissent from the majority opinion holding that the ethanol provisions are not facially discriminatory bolsters this conclusion. See RMFU, 730 F.3d at 1108 (Murguia, J., dissenting). In her view, the majority erroneously "put[] the cart before the horse and consider[ed] California's reasons for distinguishing between in-state and out-of-state ethanol before examining the text of the statute to determine if it facially discriminates." Id. (emphasis added). She found "[t]his approach is inconsistent with Supreme Court precedent, which instructs that we must determine whether the regulation is discriminatory before we address the purported reasons for the discrimination." Id. (citation omitted).
Six judges dissented from the denial of rehearing RMFU en banc. Rocky Mountain Farmers Union v. Corey, 740 F.3d 507, 512 (9th Cir. 2014) ("RMFU Denial"). The en banc dissent characterized the RMFU majority opinion as holding that the Original LCFS's "ethanol regulations do not facially discriminate against interstate
Judge Gould, who authored RMFU, had "a simple response to this critique." Id. at 509. He explained:
Id. Thus, the RMFU majority did not intend to foreclose Plaintiffs' claim that the LCFS's ethanol provisions are purposefully discriminatory. The majority only held that Plaintiffs' evidence and corresponding arguments presented on appeal as to why the provisions are discriminatory did not support their claims.
The logic and record underlying all of Plaintiffs' claims against the ethanol provisions, however, has not changed. See TAC ¶ 53 ("[T]he lynchpin of the entire regulatory scheme is still "carbon intensity," which continues to be based on "the full fuel life cycle, including all stages of fuel and feedstock production and distribution.") (citation omitted); SAC ¶¶ 94, 112. Plaintiffs contend the 2015 LCFS's ethanol provisions are materially indistinguishable from those in the Original LCFS, and that both discriminate against interstate commerce in the exact same way, namely, through the discriminatory assignment of CI scores that are determined through a purposefully discriminatory lifecycle analysis — an issue the RMFU panel thoroughly considered and rejected. See Doc. 383 at 23; SAC ¶ 87; supra n.20. Their purposeful discrimination claim against the ethanol provisions rises and falls with their argument that the LCFS's design — specifically, the LCFS's geography-based calculations for determining a fuel's CI score — is inherently and intentionally discriminatory. The Ninth Circuit considered this to be the "crux" of Plaintiffs' challenge to the LCFS, RMFU, 730 F.3d at 1090, and rejected the argument in no uncertain terms. See id. at 1091, 1093; see also supra n.20. Plaintiffs make no meaningful effort to differentiate the factual and legal bases of their claims concerning the Original LCFS's ethanol provisions that the Ninth Circuit considered and rejected, and the bases of their pending claim that the 2015 LCFS's ethanol provisions have a discriminatory purpose. Plaintiffs do not, for instance, allege or otherwise suggest that they will be able to produce evidence previously unavailable to them that the Ninth Circuit did not consider. Nor do they argue that their discriminatory purpose claim will rest on facts or theories that the RMFU panel did
As noted above, the majority opinion in RMFU unequivocally held that — on the record and arguments presented — the LCFS's ethanol provisions were not purposefully discriminatory. Plaintiffs, however, have not alleged facts or advanced any argument that shows their pending discriminatory purpose claims against the ethanol provisions are materially distinct from the claims the Ninth Circuit considered in RMFU. As a result, RMFU's holdings and underlying reason apply here. The Court is therefore left to conclude that, despite the majority's clear intention to remand the case for the Court to consider Plaintiffs' claim that the ethanol provisions are purposefully discriminatory, RMFU bars the claim under the law of the case because it turns entirely on argument that RMFU held was erroneous, as a matter of law. Accordingly, the Court DISMISSES WITHOUT LEAVE TO AMEND Plaintiffs' claim that the LCFS's ethanol provisions have a discriminatory purpose.
RMFU does not shut the door on Plaintiffs' claim that the ethanol provisions have a discriminatory effect. To succeed on this claim, Plaintiffs must provide evidence showing that those provisions "have the effect of deleteriously intruding upon Interstate Commerce." Black Star Farms LLC v. Oliver, 600 F.3d 1225, 1232 (9th Cir. 2010). "When challenged to provide such evidence" concerning the Original LCFS's crude oil provisions, the AFPM Plaintiffs simply "relied on [their] claim that the [crude oil provisions] had a discriminatory purpose," and failed to provide any evidentiary support for their claim. RMFU, 730 F.3d at 1100. Their failing before the Ninth Circuit, then, was a wholly evidentiary one. Accordingly, the Ninth Circuit did not make any factual or legal findings concerning the effects of the crude oil provisions beyond observing that the AFPM Plaintiffs failed to meet their burden. RMFU therefore has no bearing on Plaintiffs' claim that the ethanol provisions have a discriminatory effect on interstate commerce.
Over 20 years ago, Justice Scalia remarked that "once one gets beyond facial discrimination [the Court's dormant Commerce Clause] jurisprudence becomes (and has long been) a quagmire." West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 210, 114 S.Ct. 2205, 129 L.Ed.2d 157 (Scalia, J., concurring) (citations and quotation marks omitted). Subsequent precedent has not helped clear the weeds. As the Ninth Circuit recently observed in the context of a discriminatory effects challenge, "decisions interpreting the dormant Commerce Clause appear somewhat difficult to reconcile." Int'l Franchise Ass'n, Inc. v. City of Seattle, 803 F.3d 389, 403 (9th Cir. 2015) (citation and quotation marks omitted); see also id. at 405 (outlining numerous possible tests for determining if a state law has discriminatory effects).
Like the Court's prior decision concerning the LCFS's crude oil provisions, this case does not fit neatly into existing Commerce Clause precedent. This is so because, as explained in more detail below, the LCFS's ethanol provisions, like the crude oil provisions, appear to burden and benefit some, but not all California and out-of-state ethanol producers alike. There is no across-the-board benefit to California producers, nor is there any across-the-board burden to out-of-state producers.
A common thread exists in most, if not all, of the analogous Commerce Clause cases that is applicable here: "Modern dormant Commerce Clause jurisprudence primarily `is driven by concern about economic protectionism — that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." Nat'l Ass'n of Optometrists & Opticians v. Harris, 682 F.3d 1144, 1148 (9th Cir. 2012) (emphasis added) ("Optometrists"). The primary purpose of the Commerce Clause, then, is to prevent states and local governments from shielding their markets from interstate competition and erecting barriers to the free flow of goods across the country by giving intrastate business the upper hand over out-of-state producers. See Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 35, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980); Nat'l Ass'n of Optometrists & Opticians v. Harris, 682 F.3d 1144, 1154 n.14 (9th Cir. 2012) ("Optometrists") ("[D]ormant Commerce Clause jurisprudence is concerned with burdens resulting from discrimination and interference with the interstate flow of goods."). This principle guides the Court's analysis.
Accordingly, "there are two complementary components to a claim that a statute has a discriminatory effect on interstate commerce: the claimant must show both how local economic actors are favored by the legislation, and how out-of-state actors are burdened by the legislation." Eastern Ky. Res. v. Fiscal Court of Magoffin Cty., Ky., 127 F.3d 532, 543 (6th Cir. 1997); see also Pac. Nw. Venison Producers v. Smitch, 20 F.3d 1008, 1012 (9th Cir. 1994) (holding Washington regulations were not discriminatory in effect because they did not "result in the citizens of Washington receiving benefits that are denied to others"). "In cases such as this, where neither facial discrimination nor an improper purpose has been shown, the evidentiary burden to show a discriminatory effect is particularly high." RMFU, 730 F.3d at 1100.
The thrust of Plaintiffs' claim that the LCFS's ethanol provisions discriminate in practical effect is that they assign artificially lower CI scores to California-produced ethanol while assigning artificially higher CI scores to ethanol produced elsewhere, particularly in the Midwest. See SAC ¶¶ 122-14; TAC ¶¶ 51-52. It is alleged that because the LCFS encourages regulated parties to use fuels with lower CI scores, the LCFS inherently promotes California ethanols for LCFS compliance. See SAC ¶¶ 42-43; TAC ¶¶ 52-52. These CI scores, in turn, allegedly cause California ethanol to be more economically attractive in the California marketplace at the expense of out-of-state ethanol, all of which have artificially higher costs due to LCFS compliance. See SAC ¶¶ 58; TAC ¶¶ 55-57. It is further alleged that in order to comply with the LCFS, regulated parties will have to purchase significantly more ethanol from sources other than the Midwest. In sum, Plaintiffs allege "the LCFS creates an incentive for regulated parties to use California corn ethanol instead of physically identical corn ethanol produced outside of California in the Midwest. The LCFS creates regulatory disincentives for using corn ethanol produced in the Midwest." SAC ¶ 54; see also TAC ¶ 59. According to Plaintiffs, once the LCFS is "fully implemented," Midwest ethanol will
Defendants move to dismiss Plaintiffs' claim in a conclusory manner. See Doc. 378-1 at 29-30; Doc. 380-1 at 29. Defendants argue Plaintiffs' argument that the LCFS has a discriminatory effect against out-of-state ethanols is overly narrow because it focuses exclusively on Midwestern ethanols instead of considering all non-California ethanols, and is undercut by the fact that a number of non-California ethanols, including some from the Midwest and foreign countries, receive low CI scores under the LCFS, many of which are lower than other California ethanols. See Doc. 380-1 at 29. Defendants contend that Plaintiffs' failure to account for all out-of-state ethanols is fatal to their claim. See id. Plaintiffs do not address this argument in their oppositions. See Doc. 383 at 20-24; Doc. 384 at 25-27.
Table 6 of the Original LCFS provided thirteen default pathways for corn-based ethanols that corresponded to how they are produced. See CARB, Table 6, Carbon Intensity Lookup Table for Gasoline and Fuels that Substitute for Gasoline, available at https://www.arb.ca.gov/fuels/lcfs/lu_tables_11282012.pdf; see also RMFU, 730 F.3d at 1100, App'x One. As Judge Murguia observed in her dissent, the default pathways for certain ethanols produced by the same means in California and the Midwest are assigned different CI scores:
Id. at 1108 n.1 (Murguia, J., dissenting). In addition, California producers using a dry mill, wet DGS, and natural gas were assigned a default CI score of 80.70 gCO2e/MJ, whereas Midwestern producers using the same process were assigned a default CI score of 90.10 gCO2e/MJ. See Table 6. Moreover, all of the California-produced ethanols received lower default CI scores than all of those produced in the Midwest. See id. Based on this alone, it therefore appears that the Original LCFS's ethanol provisions assign more favorable CI scores to California ethanols compared to identical Midwest ethanols, which would support an inference that the provisions have a discriminatory effect.
A review of the pertinent 2015 amendments to the LCFS shows that there are significant changes to the Original LCFS.
The 2015 LCFS did away these default pathways for ethanol. See § 95488(b); CARB, Staff Report: Initial Statement of Reasons for Proposed Rulemaking: Proposed Re-Adoption of the Low Carbon Fuel Standard ("2015 ISOR"), at II-9-10, III-30, available at https://www.arb.ca.gov/regact/2015/lcfs2015/lcfs15isor.pdf; CARB, Final Statement of Reasons for Rulemaking ("2015 FSOR"), at 1226, 1234, available at https://www.arb.ca.gov/regact/2015/lcfs2015/fsorlcfs.pdf. Under the 2015 LCFS, ethanol producers must apply for an individualized CI score. See §§ 95488(b)(1)(A), (c)(1), (c)(3)(A). If they do not, they are assigned a default score contained in "Table 7." See § 95488(d), tbl. 7. Once CARB has certified the fuel's CI score, the score may be used "by fuel producers, regulated parties, and other entities." CARB, LCFS Pathway Certified Carbon Intensities, https://www.arb.ca.gov/fuels/lcfs/fuelpathways/pathwaytable.htm.
Table 7 provides five default CI scores for ethanols. Corn-based ethanols — regardless of where and how they are produced — are assigned the same CI score. Plaintiffs do not (and cannot) argue that these default pathways are discriminatory, but they do argue that the manner in which individualized pathways are calculated under 2015 LCFS's ethanol provisions discriminate against Midwestern ethanols. See, e.g., Doc. 383 at 24.
As Defendants point out and Plaintiffs fail to address, Brazilian firms that produced ethanol from sugarcane were assigned default CI scores lower than all corn-based ethanols. See id. (assigning Brazilian sugarcane ethanols default pathways of 58.40, 66.40, and 73.40 gCO2e/MJ). Compared to their California-produced counterparts — which the RMFU panel held were similarly situated
The AFPM Plaintiffs impliedly address this observation by correctly pointing out that, as of 2011, the Midwest produced over 94% (11.3 billion gallons) of domestic ethanol, whereas the West Coast only produces less than 1%, making Midwest ethanol "the primary competitor for California-produced biofuel." Doc. 383 at 22 (citing 75 Fed. Reg. 14,670, 14,745 (Mar. 26, 2010)).
Put another way, the AFPM Plaintiffs correctly observe that it is not possible to assess the discriminatory effects, if any, that the LCFS may have on ethanol producers without knowing how much ethanol the affected producers import to California. Although a number of ethanol producers from the Midwest and Brazil have obtained low CI scores and a number of California producers have obtained high CI scores, it is indeterminable how much ethanol these and other producers contribute to the California ethanol market. Without that information, the Court cannot
There is no dispute that Midwestern producers account for the overwhelming majority of ethanol produced in the country. Although a number of them have obtained low CI scores under the LCFS, dozens of them have not, and a number of them have obtained scores higher than almost all California ethanols. Given that (1) an uncontested purpose and goal of the LCFS is to reduce corn-based ethanol, which is almost exclusively produced in the Midwest; (2) the Original LCFS's ethanol provisions seemingly treat some ethanols produced in the Midwest less favorably than identically produced California ethanols; and (3) the Midwest produces the lion's share of the nation's ethanol — close to 95% by some estimates — it is plausible that Midwestern ethanol producers will be disproportionately burdened by the LCFS compared to their California counterparts. The Court therefore concludes that Plaintiffs have stated a claim that both the Original and 2015 LCFS ethanol provisions discriminate in practical effect against Midwestern ethanols. Accordingly, Defendants' motion to dismiss Plaintiffs' discriminatory effects claims against those provisions is DENIED.
To succeed on their Pike claim, the RMFU Plaintiffs must establish that "the burdens that the [LCFS] imposes on interstate commerce clearly outweigh the local benefits arising from it." Kleenwell Biohazard Waste & Gen. Eco. Consultants, Inc. v. Nelson, 48 F.3d 391, 399 (9th Cir. 1995) (citation omitted). The thrust of the RMFU Plaintiffs' Pike claim is that the LCFS's ethanol provisions will impose a substantial burden on interstate commerce (i.e., Midwestern ethanol) while providing little, if any, benefits to California. The RMFU Plaintiffs assert that "CARB has admitted the LCFS will have virtually no effect on the environment." Doc. 384 at 27; SAC ¶ 55. Defendants argue the claim fails because the RMFU Plaintiffs have failed to allege that the LCFS's ethanol provisions will impose a substantial burden on interstate commerce. See Doc. 378-1 at 30; Doc. 387 at 11.
As explained above, the RMFU Plaintiffs have plausibly alleged that the ethanol provisions will cause significant financial harm to Midwestern ethanol producers. Because Defendants' motion to dismiss the claim turns on their assertion that the RMFU Plaintiffs have failed to allege any substantial burden on interstate commerce, the motion is DENIED on that ground alone.
Further, the RMFU Plaintiffs have plausibly alleged that that burden far outweighs the benefits California will obtain as a result of the LCFS. Although the RMFU Plaintiffs do not cite or quote in their opposition the purported admission by CARB that the LCFS will not confer any benefits on California, the Court assumes they are referring to the following quotation from the 2009 FSOR: "GHG
As discussed in detail above, the RMFU Plaintiffs argue the Court cannot accurately assess the discriminatory effects of the ethanol provisions without accounting for the amount (i.e., volume) of ethanol purportedly burdened or benefited by the LCFS. In light of this argument and the Court's finding above that Plaintiffs state a discriminatory effects claim against the ethanol provisions, the Court finds it appropriate to add the following observations and analysis concerning the AFPM Plaintiffs' discriminatory effects claims against the 2012 and 2015 crude oil provisions, beyond that contained in the MTD Order, because the RMFU Plaintiffs' argument appears to apply with equal force those claims, even though the AFPM Plaintiffs do not advance the argument.
As the Court explained in the MTD Order, the claims discussed therein were premised on the AFPM Plaintiffs' position that the crude oil provisions are discriminatory because of their credit-deficit calculating scheme.
Under both the 2012 and 2015 LCFS, credits and deficits for crude oils are assigned at two "steps." "Step One" in the context of crude oil calculates "base deficits" by comparing a compliance target that declines over time to a baseline calculated using the average carbon intensity of all gasoline and diesel imported into California in 2010. Specifically, at Step One, CARB calculates a party's "base deficits," using the following calculation: [symbol below]. The input CI
The AFPM Plaintiffs argue the use of these averages is discriminatory in that it has the practical effect of favoring California crudes over foreign crudes. See, e.g., SAC ¶¶ 51, 73, 78; Doc. 383 at 18-19.
The MTD Order held that, as a matter of law, the fact that the Baseline Crude Average used in Step One benefited and burdened some, but not all out-of-state crudes while simultaneously benefiting and
Even applying the volumetric approach used above in the context of the ethanol provisions, the result would have been the same. The CARBOB Supplement contains information on the CI score and volume in the California market for each crude oil. The document shows the percentage of the market that a given fuel comprised in 2010 and its assigned CI score. As noted above, CARB averaged these results to arrive at the Baseline Crude Average of 11.39 gCO2e/MJ. CARB assigned an average of 12.90 gCO2e/MJ to California crudes, which accounted for 38.78% of the market. The thirteen foreign fuels that had a CI score higher than the Baseline Crude Average, thereby benefitting from it, according to the AFPM Plaintiffs, accounted for 29.72% of the market, whereas the twenty-seven foreign fuels that were burdened by its use due to having a lower CI score accounted for 31.5% of the market.
The CARBOB Supplement provides a partial breakdown of California crudes that shows their individual CI scores and the volume they contributed to the 2010 California market. See CARBOB Supplemental at Table 2. Twenty-two California crudes that had CI scores lower than the Baseline Crude Average (11.39 gCO2e/MJ) — and were allegedly burdened by its use — accounted for 54.4% (303,860 BOPD) of the California-produced crudes. See id. Eleven other crudes accounted for the remaining 45.6% (254,629 BOPD) of California-produced crudes that were allegedly burdened by the use of the Baseline Crude Average. See id. This would suggest that a majority of California crudes were burdened by the Baseline Crude Average.
Table 2, however, only accounts for crudes that produced at least 2,000 barrels of oil per day ("BOPD"). Given that California's crude CI average was 12.90 gCO2e/MJ and that Table 2 only accounts for crudes with production of at least 2,000 BOPD, it appears that Table 2 does not provide information about the crudes whose production was under 2,000 BOPD and whose CI was sufficiently higher to drive up the average CI score for California crudes to 12.90 gCO2e/MJ. In other words, this suggests that these small-scale producers, who are not represented on Table 2, produced enough crude with a CI score higher than the California crudes represented on Table 2 such that they caused California's average CI score to exceed the Baseline Crude Average.
Thus, when accounting for volume of production, the result is the same as in the prior MTD Order: a number of both foreign and California crudes are benefited while a number of both foreign and California crudes are benefited. Although a substantial amount of the California-produced crude oil is burdened, it appears that, on average, California crudes benefit from the use of the Baseline Crude Average. And while approximately 30% of the market is composed of foreign crudes that are benefited by the Baseline Crude Average, slightly more foreign crude is burdened by its use. This result, where, on average, California crude seemingly benefits from Baseline Crude Average while, on average, foreign crude is seemingly burdened by it, "does not fit neatly, if at all, into dormant Commerce Clause precedent." MTD Order at *33. Plaintiffs do not
At "Step Two," CARB calculates a different kind of deficit, called "incremental deficits." Id. Incremental deficits are only assigned if the "Annual Crude Average" is greater than the "Baseline Crude Average," both of which are calculated on a three-year basis and are determined, in part, based on the volume of crude oil imported into California over that three-year period. Id.; see also CARB, Calculation of 2015 Crude Average Carbon Intensity Value (June 23, 2016) ("the CI Calculation Tables"), at 2, available at https://www.arb.ca.gov/fuels/lcfs/crude-oil/2015_crude_average_ci_value_final.pdf. The Baseline Crude Average multiplies pre-determined CI scores by the actual volume of crude imported into California, but the Annual Crude Average uses the actual average CI of each crude imported, taking into account the amount (in barrels) of each crude.
The most recent calculation of these figures (as far as the Court can determine) occurred for the 2015 calendar year, which applies to the 2017 compliance period. See CI Calculation Tables. For 2015, the Baseline Crude Average used pre-determined CI scores of 11.39, 11.39, and 11.98 (in gCO2e/MJ) for the years 2013, 2014, and 2015, respectively. See id.; see also § 95489(b) (requiring use of those CI scores). When the volume of crude for each year was input, the resulting CI score was 11.59 gCO2e/MJ. See CI Calculation Tables at 2. Accordingly, 11.59 gCO2e/MJ is the current Annual Crude Average. See id.
The AFPM Plaintiffs assert the use of the Annual Crude Average is impermissibly discriminatory because it is an average of all crudes, so crude oils whose actual, individualized carbon intensities are below this average are unfairly penalized by its use because they are artificially assigned more deficits than they would be if their actual CI scores were used. See Doc. 383 at 19. Though Plaintiffs acknowledge that some California crudes have actual CI scores that are lower than the Annual Crude Average each year, they contend the "overall impact" of its use is to provide an overall benefit to California crudes at the expense of out-of-state crudes. According to Plaintiffs, the Annual Crude Average is discriminatory because it assigns an average CI score to all crudes, as opposed to their actual, individualized CI scores. Thus, according to Plaintiffs, if a crude's actual CI score is lower than the Annual Crude Average, that crude is burdened by the use of the Annual Crude Average because regulated parties that use it will incur more deficits. If the crude's CI score is higher than the Annual Crude Average, that crude benefits from the use of the Annual Crude Average because regulated parties that use it will incur fewer deficits.
The Court notes at the outset that no incremental deficits will be assessed for the 2017 compliance period because the
More importantly, however, judicially noticeable facts establish that the allegedly discriminatory averages the LCFS employs that Plaintiffs contend are not discriminatory. In fact, Step Two's use of the Annual Crude Average benefits a substantial amount of the foreign crude imported into California while burdening a substantial amount of California's own crudes.
CARB publishes the data that goes into calculating each year's Annual Crude Average. The CI Calculation Tables contain four columns that list the country or state of origin, name, CI score, and the amount (in barrels) of each crude oil consumed in California for 2013, 2014, and 2015. They also show how much crude was consumed in California each year. It is thus possible to calculate how many fuels are, according to Plaintiffs' theory, burdened or benefited by the applicable Annual Crude Average, and how much of California's crude oil market they comprise.
Whether crude oils will incur incremental deficits turns on whether the Annual Crude Average is greater than the Baseline Crude Average, both of which are based on a three-year average that accounts for the amount and carbon intensity of all crudes imported to California. See § 95489(b). Again, if the Annual Crude Average is not greater than the Baseline Crude Average, then no incremental deficits are assessed. The most current figures represent the state of the California crude market in 2013, 2014, and 2015. See CI Calculation Tables at 2. The Annual Crude Average of 11.54 gCO2e/MJ was less than the corresponding Baseline Crude Average of 11.59 gCO2e/MJ, meaning that, as noted above, incremental deficits were not assessed.
Because no incremental deficits have been assessed, it is impossible to see how this scheme is discriminatory. In fact, if incremental deficits were assessed based on a crude's individual score instead of an average of the entire market, as Plaintiffs seek, a number of foreign crudes that make up a substantial portion of the California crude oil market whose CI scores
In 2013, eight foreign crudes accounting for approximately 148,000,000 barrels, or approximately 25% of the total California crude oil market, had CI scores higher than 11.59 gCO2e/MJ. Had their actual, individualized scores been used instead of the Annual Crude Average, they would have incurred deficits. Likewise, in 2014, eleven foreign crudes accounting for approximately 223,000,000 barrels, or approximately 36.3%, had CI scores higher than the Annual Crude Average. And, in 2015, twenty-five foreign oils that account for approximately 19.5% of the market (approximately 118,200,000 barrels) had CI scores higher than the Annual Crude Average.
California crudes also benefited from the use of the Annual Crude Average. In 2013, twenty-one California crudes that accounted for approximately 16.5% of the market had CI scores higher than 11.59 gCO2e/MJ. In 2014, twenty-three California crudes that accounted for approximately 17% of the market had CI scores higher than 11.59 gCO2e/MJ. The results in 2015 are virtually identical: twenty-three California crudes that accounted for approximately 17% of the market had CI scores higher than 11.59 gCO2e/MJ.
Thus, in 2013, 2014, and 2015, more foreign crude oil, by volume and corresponding market share, benefited from the use of the Annual Crude Average than did California crudes. In fact, in 2013 and 2014, significantly more foreign crude oil benefited than did California crude oil — almost twice the amount of benefited California crude in 2013 (approximately 25% of the total market vs. 16.5%), and more than twice the amount in 2014 (approximately 36% of the total market vs. 17%). Given this, it is difficult to see how the incremental deficits scheme in Step Two could have a discriminatory effect on foreign oil, particularly given that no crudes were burdened because incremental deficits were not assessed. If Plaintiffs had their way, and all crudes were assigned their real CI score, substantially more foreign crudes, constituting large portions of the entire California crude oil market, would have caused regulated parties that used them to incur incremental deficits. Instead, no incremental deficits were assessed. And although some California crudes benefited from this scenario, significantly more foreign crude oil did.
On balance, the Court finds that the AFPM Plaintiffs do not and cannot state a claim that the LCFS's crude oil provisions discriminate against foreign crude oils in practical effect. Although Step One appears to benefit California overall, it nonetheless burdens a significant number of California producers while benefitting a significant number of out-of-state producers. Step Two, on the other hand, provides a clear overall advantage to out-of-state producers when compared to their California counterparts. If incremental deficits were assessed under Step Two in the manner the AFPM Plaintiffs sought, a substantial amount of foreign crude would cause regulated parties that use it to incur incremental deficits. Instead, that foreign crude does not generate incremental deficits, meaning Step Two currently benefits
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART Defendants' motions for judgment on the pleadings and to dismiss the SAC and TAC. The Court ORDERS that:
Counsel should not assume that there will be another opportunity, beyond the one provided in this Order, to file another pleading.
IT IS SO ORDERED.
