Court Backs Midwest States In Suit Against California LCFS

Low-carbon standard that bars ethanol from other states violates commerce clause, federal court rules.

Published on: Jan 11, 2012

A federal court has agreed with Kansas that a California law favoring California-produced ethanol over that manufactured in the Midwest is unconstitutional, says Kansas Attorney General Derek Schmidt.

The United States District Court for the Eastern District of California barred California from enforcing its state-based Low Carbon Fuel Standards. In March, Kansas and five other Midwestern states had filed a brief asking the court to block the California law because it favored use of California-produced ethanol over that produced in the Midwest in violation of the Commerce Clause of the United States Constitution.

Court Backs Midwest States in Suit Against California LCFS
Court Backs Midwest States in Suit Against California LCFS

"This is good news for Kansas ethanol producers and for our state's farmers who sell grain to them," Schmidt said. "It means that the California market remains open to Kansas ethanol, and it means that Kansas ethanol can continue to be part of the solution to air-quality problems on the west coast."

Schmidt joined with attorneys general from Nebraska, Michigan, Missouri, North Dakota and South Dakota in asking the Court to block the California law because it discriminated against the use of ethanol produced in the Midwest without any lawful basis for doing so. The court agreed.

"This Court finds that the [California fuel standard] impermissibly discriminates against out-of-state corn ethanol and impermissibly regulates extraterritorially in violation of the dormant Commerce Clause and its jurisprudence," the Court wrote in its opinion.

Growth Energy and other plaintiffs filed suit in December 2011 and asserted that the California LCFS violated the Commerce Clause by seeking to regulate farming and ethanol production practices in other states.

Judge Lawrence J. O'Neill ruled: "The purpose of the Commerce Clause is to protect the nation against economic Balkanization." If every State were to adopt legislation based on a lifecycle analysis of fuels, one of two outcomes may occur. First, the ethanol market would become Balkanized, since a producer would have strong  incentives to either relocate its operations in the State of largest use, or sell only locally to avoid transportation and other penalties. This would interfere with the "maintenance of a national economic union unfettered by state-imposed limitations on interstate commerce."

 "Second, Ethanol producers and suppliers in any State would be hard-pressed to satisfy the requirements of 50 different LCFS regulations which may required 50 different levels of reductions over 50 different time periods."

Schmidt said he is encouraged by the Court's decision and believes it will stand up on appeal. If the State of California decides to appeal the ruling, the 9th U.S. Circuit Court of Appeals based in San Francisco would have jurisdiction to hear the matter. The case is Rocky Mountain Farmers Union v. Goldstene.