Crediting the Environment: A Challenge to the Oregon Clean Fuels Program

Energy Law Journal, July 1, 2019 | Go to article overview

Crediting the Environment: A Challenge to the Oregon Clean Fuels Program


I. Introduction

On September 7, 2018, in American Fuel and Petrochemical Manufacturers et al. v. O 'Keeffe et al (American Fuel), the United States Court of Appeals for the Ninth Circuit ruled on challenges to Oregon's Clean Fuels Program (OCFP).1 The Ninth Circuit held that the implementation and enforcement of the OCFP by Officials of Oregon Environmental Quality Commission (OEQC) and Oregon Department of Environmental Quality (ODEQ) was not in violation of the Commerce Clause, U.S. Constitution Article I, section 8, Cl. 3.2 More specifically, the OCFP was not discriminatory, did not burden out-of-state fuel producers, nor benefit in-state producers, did not impose a burden on interstate com merce, and did not legislate extraterritorially.3 Nor was the OCFP preempted by section 211 (c) of the Clean Air Act (CAA), 42 U.S.C. sections 7401 and 7545.4

The stated goal of the OCFP is to lower Oregon's contribution to global greenhouse gas emissions (GHGs) while at the same time, reducing impacts of those emissions within the state.5 To accomplish this goal, the OCFP set forth low carbon fuel standards for transportation fuels produced within the state and transportation fuels imported into the state.6 The OCFP was modeled on a California program known as the California Low Carbon Fuel Standard (LCFS).7 In American Fuel, the Ninth Circuit recognized the similarities between the two programs, and followed to a great extent, its own earlier decision from a challenge to the LCFS in Rocky Mountain Farmers Union v. Corey (Rocky Mountain).s While the OCFP and California's LCFS are similar programs,9 Oregon and California themselves are two vastly different states. Therefore, the practical effects of the programs must also be addressed in relation to the harboring state and not merely in a general sense.10

In Rocky Mountain, the Ninth Circuit was similarly presented with the issue of whether the LCFS discriminated against out-of-state crude oil.11 In its assessment, the Ninth Circuit looked to whether the LCFS favored in-state sources over out-of-state sources.12 California is one of the country's largest holders of oil reserves, and one of the largest producers of crude oil.13 On the other hand, Oregon has neither crude oil reserves, nor any crude oil exploration and production.14 Therefore, the exact reasoning used in Rocky Mountain should not successfully support the Oregon OCFP as a simple matter of precedent because of the differences between Oregon and California.15

In upholding the OCFP, the American Fuels court found that the program was not discriminatory when viewing the GHGs from various types of fuel on the stand-alone basis, not on the basis of origin.16 Furthermore, the court assert ed that in this case, Oregon's interests override the potential for discrimination.17 The court states that "[o]ur federal system recognizes 'each State's freedom to 'serve as a laboratory'; and try novel social and economic experiments.' This freedom would be meaningless if officials could not promote the economic benefits of these experiments to their states without running afoul of the Commerce Clause."18 However, as noted by the dissent, there could be other nondiscriminatory means for advancing Oregon's goal of reducing GHGs.19 Asking the Oregon legislature to adopt an alternate nondiscriminatory program would not impede on the states interest to serve as an experiment to combat GHGs.20

II. Background

A. American Fuel and Petrochemical Manufactures et al. v. O 'Keeffe

In March 2015, various trade associations21 brought an action against officials of the OEQC and ODEQ alleging that the OCFP violated the Commerce Clause and was preempted by section 211(c) of the CAA.22 The Defendants filed a motion for summary judgment alleging that Plaintiffs failed to state a claim upon which relief can be granted under the Federal Rules of Civil Procedure 12(b)(6).23 The district court granted the motion, finding that Plaintiff s claim of a Commerce Clause violation was barred by a Ninth Circuit decision in Rocky Mountain, and that the clear language of section 211(c) of the CAA does not preempt the regulation of fuels through the OCFP. …

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