Rocky Mountain Farmers Union et al v. Corey, et al

OPPOSITION

E.D. Cal.December 17, 2010

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) EDMUND G. BROWN JR., Attorney General of California ROBERT W. BYRNE, Supervising Deputy Attorney General GAVIN G. MCCABE, State Bar No. 130864 MARK POOLE, State Bar No. 194520 DAVID A. ZONANA, State Bar No. 196029 M. ELAINE MECKENSTOCK, State Bar No. 268861 Deputy Attorneys General 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Telephone: (415) 703-5524 Fax: (415) 703-5480 E-mail: David.Zonana@doj.ca.gov Attorneys for Defendants James N. Goldstene et al. IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA FRESNO DIVISION ROCKY MOUNTAIN FARMERS UNION, et al., Plaintiffs, v. JAMES GOLDSTENE, et al., Defendants. And Related Consolidated Action. --------------------------------------------------------- NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION, et al., Plaintiffs, v. JAMES GOLDSTENE, et al., Defendants. LEAD CASE No. 1:09-CV-02234-LJO-DLB Consolidated With Case No.: 1:10-CV00163-LJO-DLB DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO RMFU'S MOTION FOR SUMMARY JUDGMENT Date: February 23, 2011 Time: 8:30 a.m. Courtroom: Four Judge: The Honorable Lawrence J. O'Neill Trial Date: TBD Action Filed: 12/23/2009 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 1 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page i DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) INTRODUCTION .......................................................................................................................... 1 BACKGROUND ............................................................................................................................ 3 SUMMARY JUDGMENT STANDARD ....................................................................................... 4 ARGUMENT .................................................................................................................................. 4 I. THE COURT SHOULD DENY PLAINTIFFS’ MOTION BASED ON DEFENDANTS CROSS-MOTION. ...................................................................... 4 II. THE LCFS DOES NOT DISCRIMINATE AGAINST INTERSTATE COMMERCE. ......................................................................................................... 5 A. The LCFS Does Not Facially Discriminate Against Out-of-State Ethanol. ....................................................................................................... 5 B. The LCFS Does Not Cause Discriminatory Effects on Out-of-State Ethanol. ....................................................................................................... 9 C. The LCFS Does Not Have a Discriminatory Purpose. ............................. 11 D. The LCFS Should Survive Strict Scrutiny. ............................................... 12 1. The LCFS Has Several Legitimate Local Purposes. ..................... 12 2. There Are No Reasonable Nondiscriminatory Alternatives. ........ 13 III. THE LCFS DOES NOT REGULATE EXTRATERRITORIAL COMMERCE. ....................................................................................................... 14 A. The LCFS Does Not Directly Regulate Wholly Out of State Activities. .................................................................................................. 14 B. The LCFS Will Not Lead to Balkanization............................................... 17 1. The LCFS Impose No Transportation Penalty and No Trade Barriers. ......................................................................................... 18 2. The LCFS Does Not Impermissibly Regulate Channels of Interstate Commerce. .................................................................... 19 IV. ANY BURDEN IMPOSED ON INTERSTATE COMMERCE BY THE LCFS IS INCIDENTAL RELATIVE TO ITS LOCAL BENEFITS.................... 19 A. Plaintiffs Balancing Claim is Not Appropriate for Summary Judgment. .................................................................................................. 20 B. The Local Benefits of the LCFS are Well Established as a Matter of Law. ........................................................................................................... 20 C. The Evidence Indicates No Burden on Commerce Let Alone an Excessive One. .......................................................................................... 20 V. SUMMARY JUDGMENT AS TO PLAINTIFFS’ CONFLICT PREEMPTION ARGUMENTS MUST BE DEFERRED OR DENIED. ............ 21 A. Plaintiffs’ Conflict Preemption Arguments Rest on Disputed Facts Concerning the Effect of the LCFS on Existing Corn Ethanol Producers and the Intent of California. ..................................................... 22 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 2 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS (continued) Page ii DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) B. The Presumption Against Preemption Requires That Plaintiffs Demonstrate a Clear and Manifest Purpose of Congress to Preempt the LCFS. .................................................................................................. 23 1. Congress Expressly Narrowed the Scope of Preemption in EISA to Allow for State Environmental Laws Such as the LCFS. ............................................................................................ 24 2. Congress’s Silence Concerning the LCFS Belies a Clear and Manifest Purpose to Preempt State Law. ...................................... 26 3. EPA Views RFS2 as Compatible With Parallel State LCFS Programs. ...................................................................................... 27 C. The LCFS Does Not Conflict With Congress’ Intent, Goals or Methods. .................................................................................................... 28 1. The LCFS Compliments the Energy Security Intent and Goals of Congress in EISA. .......................................................... 28 2. The LCFS Does Not Conflict With Congress’ Goals With Respect to Existing Corn Ethanol Plants. ..................................... 30 3. RFS2 Does Not Give Rise to a Method Conflict with The LCFS. ............................................................................................ 32 D. Contrary to Plaintiffs’ Argument, EISA Bars EPA From Restricting Geographic Markets in order to Leave Room for State Regulation. ......... 34 CONCLUSION ............................................................................................................................. 35 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 3 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page iii DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) CASES Alaska v. Arctic Maid 366 U.S. 199, 204 (1961) .......................................................................................................... 6 Alliance for Clean Coal v. Miller 44 F.3d 591 (1995) .................................................................................................................... 8 Am. Trucking Ass’ns, Inc. v. Scheiner 483 U.S. 266, 284 (1987) .......................................................................................................... 9 American Petroleum Institute v. Cooper 681 F.Supp.2d 635, 642 (E.D. North Carolina 2010) ................................................. 22, 23, 30 Arnett v. Myers 281 F.3d 552, 561 (6th Cir.2002) .............................................................................................. 4 Baldwin v. G.A.F. Seelig, Inc. 294 U.S. 511, 521 (1935) ........................................................................................................ 16 BFI Med. Waste Sys. v. Whatcom County 983 F.2d 911, 913 ..................................................................................................................... 9 Birth Hope Adoption Agency, Inc. v. Ariz. Health Care Cost Containment Sys. 218 F.3d 1040 (9th Cir. 2000) ................................................................................................... 6 Boston Stock Exch. v. State Tax Comm’n 429 U.S. 318 (1977) .................................................................................................................. 8 Brimmer v. Rebman 138 U.S. 78 (1891) .................................................................................................................. 10 Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth. 476 U.S. 573, 582 (1986) ........................................................................................................ 16 Camps/Newfound/ Owatonna, Inc. v. Town of Harrison, Me. 520 U.S. 564 (1997) .............................................................................................................. 6, 8 Cavel Int’l, Inc. v. Madigan 500 F.3d 551, 555 (7th Cir. 2007) ........................................................................................... 17 Celotex Corp. v. Catrett 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1986) ..................................................... 4 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 4 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page iv DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Chae v. SLM Corp. 593 F.3d 936, 944 (2010) ........................................................................................................ 30 Chem. Waste Mgmt., Inc. v. Hunt 504 U.S. 334, 336-37 (1992) ..................................................................................................... 6 Cippollone v. Liggett Group, Inc. 505 U.S. 504, 516 (1992) ........................................................................................................ 23 Daghlian v. DeVry Univ., Inc. 582 F. Supp. 2d 1231 (C.D. Cal. 2007) ................................................................................ 6, 7 Dean Milk Co.v. City of Madison, Wis. 340 U.S. 349, 354 ...................................................................................................................... 9 Dep’t of Revenue of Ky. v. Davis 553 U.S. 328, 337-38 (2008) ............................................................................................... 5, 12 Edgar v. MITE Corp. 457 U.S. 624, 642-643 (1982) ................................................................................................. 16 English v. General Elec. Co. 496 U.S. 72, 78-79 (1990) ....................................................................................................... 22 Exxon Corp. v. Governor of Md. 437 U.S. 117, 127 (1978) .............................................................................................. 6, 15, 17 Exxon Mobil Corp. v. U.S. Envtl. Prot. Agency 217 F.3d 1246, 1255 (9th Cir. 2000) ....................................................................................... 23 Gade v. Nat’l Solid Wastes Mgmt. Ass’n 505 U.S. 88, 92 (1992) ............................................................................................................ 30 Gen. Motors Corp. v. Tracy 519 U.S. 278, 298 (1997) ................................................................................................ 5, 6, 15 Granholm v. Heald 544 U.S. 460, 466-67 (2005) ..................................................................................................... 6 Grier v. Am. Honda Motor Co. 529 U.S. 861 (2000) ................................................................................................................ 30 Harris v. United States 536 U.S. 545, 555 (2002) ........................................................................................................ 23 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 5 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page v DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Healy v. Beer Institute 491 U.S. 324, 336-341 (1989) ..................................................................................... 13, 15, 16 Hillsborough County, Florida v. Automated Medical Laboratories, Inc. 471 U.S. 707, 721 (1985) .................................................................................................. 22, 24 Hunt v. Wash. State Apple Adver. Comm’n 432 U.S. 333 (1977) .................................................................................................................. 8 Int’l Paper Co. v. Ouellette 479 U.S. 481, 494 (1987) ........................................................................................................ 30 Kleenwell Biohazard Waste and Gen’l Ecology Consultants, Inc. v. Nelson 48 F.3d 391, 398 (9th Cir. 1995) ............................................................................................... 8 Malabed v. North Slope Borough 335 F.3d 864, 869 (9th Cir. 2003) ........................................................................................... 23 Massachusetts v. E.P.A. 549 U.S. 497 (2007) .................................................................................................... 12, 18, 20 Medronic, Inc. v. Lohr 518 U.S. 470, 474 (1996) .................................................................................................. 26, 30 Minn.v. Clover Leaf Creamery Co. 449 U.S. 456, 473 (1981) ........................................................................................................ 21 Nat’l Ass’n of Home Builders v. San Joaquin Valley Unified Air Pollution Control District No. CIV F 07-0820, 2008 WL 4330449, *9 (E.D. Cal. Sept. 19, 2008), aff’d, No. 08- 17309, 2010 WL 4948510 (Dec. 7, 2010 9th Cir.) ................................................................. 24 Nat’l Ass’n of Optometrists & Opticians Lenscrafters, Inc. v. Brown 567 F.3d 521, 525 (9th Cir. 2009) ......................................................................................... 5, 6 Nat’l Solid Wastes Mgmt. Ass’n v. Meyer 165 F.3d 1151, 1154 (7th Cir. 1999) ....................................................................................... 16 New Energy Co. of Ind. v. Limbach 486 U.S. 269, 276 (1988) .......................................................................................................... 7 Nippert v. City of Richmond 327 U.S. 416 (1946) ................................................................................................................ 10 Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality of the State of Or. 511 U.S. 93, 99 (1994) ...................................................................................................... 5, 7, 9 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 6 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page vi DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Oxygenated Fuels Ass’n v. Davis 331 F.3d 665, 670-671 (9th Cir. 2003) ................................................................................... 23 Pac. Nw. Venison Producers v. Smitch 20 F.3d 1008, 1015 (9th Cir. 1994) ................................................................................... 19, 20 Pacific Gas & Elec. Co. v. State Energy Res. Conserv. and Dev. Comm’n 461 U.S. 190, 206 (1983) .................................................................................................. 23, 30 Pacific Merchant Shipping Ass’n v. Cackette 2007 WL 2492681 (Aug. 30, 2007 E.D.Cal.) ..................................................................... 4, 30 Pike v. Bruce Church, Inc. 397 U.S. 137, 142 (1970) .................................................................................................. 19, 21 Rice v. Norman Williams Co. 458 U.S. 654, 659 (1982) ........................................................................................................ 24 S.D. Myers, Inc. v. City and County of SF 253 F.3d 461, 467 (9th Cir. 2001) ..................................................................................... 14, 16 S. Pac. Co. v. Ariz. 325 U.S. 761 (1945) .................................................................................................................. 9 South-CentralTimber Dev. v. Wunnicke 467 U.S. 82, 87 (1984) .............................................................................................................. 7 Ting v. AT&T 319 F.3d 1126 (9th Cir. 2003) ................................................................................................. 30 Total TV v. Palmer Commc’ns, Inc. 69 F.3d 298, 304 (9th Cir. 1995) ............................................................................................. 24 Union Pac. R.R. Co. v. Cal. Pub. Utils. Comm’n 346 F.3d 851, 871 (9th Cir. 2003) ........................................................................................... 21 United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth. 550 U.S. 330, 346 (2007) ........................................................................................................ 19 West Lynn Creamery, Inc. v. Healy 512 U.S. 186, 201 (1994) .................................................................................................... 9, 16 Wyeth v. Levine 129 S.Ct. 1187, 1194 (2009) ............................................................................................ passim Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 7 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page vii DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Wyoming v. Oklahoma 502 U.S. 437 (1992) .................................................................................................................. 8 STATUTES 42 U.S.C. § 211(o)(1)(H) ......................................................................................................................... 13, 14 § 7401(a)(3) ................................................................................................................................... 23 § 7545(o)(2)(A)(iii)(II)(aa) ........................................................................................................... 30 § 7545(o)(5) .................................................................................................................................. 30 § 7545(o)(12) ................................................................................................................................ 25 § 9545(o)(1)(H) ............................................................................................................................. 17 CAL. CODE REGS. Title 17 § 95480.1(a) ............................................................................................................................ 15, 16 § 95482 (2010) ................................................................................................................................ 3 § 95484(d)(2)(D) ........................................................................................................................... 18 § 95486 ................................................................................................................................ 7, 10, 11 CAL. HEALTH & SAFETY CODE §§ 38500-38599 ............................................................................ 3 Clean Air Act, § 211(o)(2)(B) ....................................................................................................... 30 Clean Air Act § 211, subd. (1)(B)(ii)(II) ...................................................................................... 29 Global Warming Solutions Act of 2006 (“AB 32”) .................................................................... 1, 3 CONSTITUTIONAL PROVISIONS U.S. CONST. Article VI, cl. 2 ........................................................................................................ 22 COURT RULES Fed. R. Civ. P. 56(c)(2) ................................................................................................................... 4 Fed.R. Civ. P. 56(d) .............................................................................................................. 1, 2, 20 Local Rule 260(a) ............................................................................................................................ 4 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 8 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page viii DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) OTHER AUTHORITIES 75 FED REG 14669 ............................................................................................................................................. 14 14670 ............................................................................................................................................. 27 14764 ............................................................................................................................................. 27 14766 ............................................................................................................................................. 14 153 Cong. Rec. E2665-01 ....................................................................................................... 28, 29 153 Cong. Rec. S7680 ................................................................................................................... 29 153 Cong. Rec. S7694 ................................................................................................................... 29 153 Cong. Rec. S7704 ................................................................................................................... 26 153 Cong. Rec. H14434-02 ..................................................................................................... 28, 29 153 Cong. Rec. H14451-02 ........................................................................................................... 26 153 Cong. Rec. H16651-02 ........................................................................................................... 29 153 Cong. Rec. H9722-03 ............................................................................................................. 28 Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 9 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) INTRODUCTION The Rocky Mountain Farmers’ Union and other corn ethanol interests (“RMFU” or “plaintiffs”) are challenging the Low Carbon Fuels Standard regulation (“the LCFS”) adopted by the California Air Resources Board (“ARB”) in 2009. The LCFS uses a market-based performance standard designed to gradually reduce the overall greenhouse gas emissions from transportation fuels consumed in California and to reduce California’s dependence on petroleum. The LCFS is a critical piece of ARB’s strategy to reduce statewide emissions of greenhouse gasses to 1990 levels by 2020, pursuant to its mandate under Assembly Bill 32, the Global Warming Solutions Act of 2006 (“AB 32”). Plaintiffs seek summary judgment on their claims that the LCFS violates the Commerce Clause and the Supremacy Clause of the United States Constitution. Specifically, plaintiffs seek summary judgment based on no less than five Commerce Clause arguments (facial discrimination, discriminatory purpose, discriminatory effect, regulation of out-of-state commerce, and undue burden), as well as an argument that the LCFS conflicts with the federal Renewable Fuels Standard (“RFS2”) and, therefore, is preempted. Although there has been no discovery, plaintiffs’ early motion for summary judgment encompasses every claim in their case. Many of plaintiffs’ arguments are simply premature because defendants require discovery in order to oppose those arguments. In particular, because efficiency improvements at Midwest corn ethanol facilities appear to be lowering their carbon intensity value under the LCFS, plaintiffs’ assertions that the LCFS will cause a substantial burden on their members and conflict with the goals of federal law must be tested in discovery. Thus, defendants move concurrently, pursuant to Rule 56(d) of the Federal Rules of Civil Procedure, for an order denying or deferring consideration of all of plaintiffs’ arguments except their Commerce Clause claims of facial discrimination, discriminatory purpose and extraterritorial regulation. Defendants address those claims here and in their Cross-Motion for Summary Judgment.1 In the event, however, that the issues plaintiffs raise in their motion are not 1 Concurrently with this opposition and in addition to their Rule 56(d) motion, defendants move by targeted cross-motion for summary judgment and adjudication. To reduce duplication, (continued…) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 10 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) deferred pursuant to the Rule 56(d) motion, or resolved by defendants’ Cross-Motion, plaintiffs’ motion for summary judgment should be denied for the additional reasons presented herein. First, plaintiffs’ commerce clause arguments lack any merit. The LCFS is not facially discriminatory; it is facially neutral. The LCFS measures the carbon intensity of all fuels, regardless of origin, based on the same scientifically-based factors. Nor does the LCFS have the practical effect of discriminating against out-of-state transportation fuels. Indeed, the “transportation” component of the LCFS’s lifecycle analysis, which plaintiffs attack as discriminatory, actually favors Midwest ethanol producers over California producers. In addition, the LCFS is not a disguised protectionist measure. It is an environmental law designed to reduce the emissions that cause climate change and pose a serious threat to the public health, natural resources and environment of California. Nor does the LCFS regulate interstate commerce outside California. To the contrary, it regulates fuel consumed in California. For these reasons, the LCFS is not subject to strict scrutiny. Lastly, for Commerce Clause purposes, any incidental burden on interstate commerce from the LCFS is far outweighed by the environmental benefit: namely, reducing greenhouse gas emissions from the transportation sector in California by 16 million metric tons in 2020. Nor does plaintiffs’ preemption argument stand up to examination. Fundamentally, plaintiffs’ conflict preemption argument is based on disputed facts and speculation about the effects of the LCFS on Midwest ethanol producers and therefore is not appropriate for summary judgment. Further, because California is regulating in an area of traditional state authority, because Congress was fully aware of the state law at issue, and because the relevant federal statute expressly permits state law in that area, plaintiffs cannot demonstrate a clear and manifest purpose of Congress to preempt the LCFS, as required to overcome the presumption against preemption. Nor can plaintiffs maintain a “method conflict” argument when they lack any indicia of Congressional intent to establish a “uniform standard” or method and the relevant federal (…continued) defendants cross-reference their Rule 56(d) Motion and their Cross-Motion for Summary Judgment where possible. Defendants hereby incorporate both motions and their supporting papers in full in this opposition to RMFU plaintiffs’ Motion for Summary Judgment. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 11 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) agency views the state and federal laws as complimentary. Defendants therefore request that the Court deny plaintiffs’ motion for summary judgment in full. BACKGROUND AB 32 AND CALIFORNIA’S LOW CARBON FUEL STANDARD In September 2006, California’s Legislature enacted AB 32, finding that, among other things, “[g]lobal warming poses a serious threat to the economic well-being, public health, natural resources, and the environment of California.” See CAL. HEALTH & SAFETY CODE § 38501. AB 32 directed ARB to identify and adopt measures that would reduce California’s emissions of greenhouse gasses to 1990 levels by 2020. Id. at §§ 38550, 38560. In January 2007, California’s Governor issued Executive Order S-01-07, setting a statewide goal to “reduce the carbon intensity of California’s transportation fuels by at least 10 percent by 2020,” and calling on ARB to “determine if an LCFS can be adopted as a discrete early action measure pursuant to AB 32.” RJN Exh. E. In June 2007, ARB adopted the LCFS as an early action measure and initiated public workshops on the issue, followed by a formal rulemaking and culminating in a board vote in April 2009 and final adoption of the regulation in April 2010. Defendants’ Statement of Facts (hereafter “ARB’s Sep. Stmt.”)2 ¶ 13. The LCFS establishes declining carbon intensity standards that all producers and importers selling transportation fuels in California must meet each year, starting with a 0.25 percent reduction in 2011 and gradually scaling up to a 10 percent reduction in 2020. CAL. CODE REGS. tit. 17 (hereafter “LCFS Section”), § 95482 (2010). The LCFS measures the carbon intensity (“CI”) of fuels using a lifecycle analysis that includes the emissions associated with producing, transporting, and using the fuels. Id. at Section 95481(a)(28); see also Declaration of Michael Scheible (“Scheible Decl.”) at ¶¶ 14-25. The regulation uses a market-based system of credits and deficits that gives fuel producers and importers the flexibility to determine the mix of fuels they use in California. Scheible Decl., at ¶¶ 29-31. The LCFS is designed to incentivize the 2 Defendants’ Separate Statement follows its response to plaintiffs statement of facts, in a single document titled “Defendants’ Response to RMFU Plaintiffs’ Statement of Material Facts Not Subject to Dispute; and Defendants Statement of Facts.” Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 12 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) steady introduction of lower carbon fuels, which could include ethanol, biodiesel, and renewable diesel, as well as non-liquid fuels. ARB Request for Judicial Notice (“RJN”), Exh. B (ARB’s Initial Statement of Reasons (“ISOR”)) at ES-1. ARB estimates that the LCFS will reduce emissions from the transportation sector in California by about 16 million metric tons in 2020.3 Id. SUMMARY JUDGMENT STANDARD Under the Federal Rules of Civil Procedure, a motion for summary judgment should be granted when “there is no genuine issue as to any material fact” and “the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2); See Local Rule 260(a). A party seeking summary judgment “bears the initial responsibility of informing the district court of the basis for its motion” and of demonstrating “the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “The plaintiff movant ‘must establish beyond peradventure all of the essential elements of the claim or defense to warrant judgment in his favor.’” Pacific Merchant Shipping Ass’n v. Cackette, 2007 WL 2492681 (Aug. 30, 2007 E.D.Cal.) (citing Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986)) (emphasis in original); Arnett v. Myers, 281 F.3d 552, 561 (6th Cir. 2002) (“a substantially higher hurdle must be surpassed, particularly where ... the moving party bears the ultimate burden of persuasion ... at trial”). ARGUMENT I. THE COURT SHOULD DENY PLAINTIFFS’ MOTION BASED ON DEFENDANTS CROSS-MOTION. Defendants’ Cross-Motion for Summary Judgment, filed concurrently herewith, raises several arguments that are dispositive of some or all of plaintiffs’ claims and thus, would dispose of their motion for summary judgment. Rather than repeat those arguments here, defendants incorporate their Cross-Motion and supporting papers by reference. 3 See also Defendants’ Cross-Motion for Summary Judgment, at 7-9 (discussing the development and structure of the LCFS). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 13 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) II. THE LCFS DOES NOT DISCRIMINATE AGAINST INTERSTATE COMMERCE. “The modern law of what has come to be called the dormant Commerce Clause is driven by concern about economic protectionism – that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 337-38 (2008) (internal quotation omitted). A regulatory scheme “can discriminate against out-of-state interests in three different ways: (a) facially, (b) purposefully, or (c) in practical effect.” Nat’l Ass’n of Optometrists & Opticians Lenscrafters, Inc. v. Brown, 567 F.3d 521, 525 (9th Cir. 2009). Plaintiffs allege that the LCFS discriminates in all three ways. Plaintiffs’ Br. p. 5. In reality, the LCFS does none of the above. A. The LCFS Does Not Facially Discriminate Against Out-of-State Ethanol. “[D]iscrimination simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality of the State of Or., 511 U.S. 93, 99 (1994). As plaintiffs acknowledge, “any notion of discrimination assumes a comparison of substantially similar entities.” Gen. Motors Corp. v. Tracy, 519 U.S. 278, 298 (1997). But plaintiffs’ construction of “similarly situated” lacks any basis in either law or logic. Plaintiffs want to isolate and compare the carbon intensity (“CI”) values for a subset of ethanol pathways that they claim have “identical production processes [and] create physically and chemically identical ethanol,” and on that narrow basis have the Court conclude the regulation is facially discriminatory.4 Plaintiffs’ Br. p. 6. As a matter of law, plaintiffs’ construction of “similarly situated” is simply wrong. The question of whether entities are “similarly situated” under the dormant Commerce Clause turns on whether they compete in a market, not whether they employ “identical production processes.” See Exxon Corp. v. Governor of Md., 437 U.S. 117, 127 (1978) (rejecting the “notion that the 4 Defendants contest plaintiffs’ characterization of these pathways as “identical production processes.” ARB Response to Plaintiffs’ Statement of Material Facts Not in Dispute (“ARB Resp. Stmt.”), at ¶ 6. Plant efficiencies vary greatly, and that is an important factor in the lifecycle emissions of the production process. See Scheible Decl., at ¶¶ 46-47. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 14 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Commerce Clause protects the particular structure or methods of operation in a . . . market”) (emphasis added). See also Gen. Motors Corp. v. Tracy, 519 U.S. at 299; Exxon Corp., 437 U.S. at 127 (“[The dormant Commerce] Clause protects the interstate market, not particular interstate firms.”); Alaska v. Arctic Maid, 366 U.S. 199, 204 (1961). In other words, production processes are irrelevant to the dormant Commerce Clause unless they produce different products that do not compete.5 But, ethanol is a fungible commodity. Scheible Decl., at ¶ 16; Babcock Decl., at ¶ 77- 84. Thus, the proper consideration under the dormant Commerce Clause is whether the LCFS discriminates between in-state ethanol and out-of-state ethanol.6 Under the LCFS, all ethanols are regulated in the same manner. All are assigned a CI value, based on lifecycle emissions calculations determined by the same scientific modeling tool (CA-GREET). RJN Exh. A. Those facts alone stand in contrast to the paradigmatic facial discrimination cases where the regulation only applies to either in-state or out-of-state entities.7 Plaintiffs rely on a similarly distinguishable case, Daghlian v. DeVry Univ., Inc., 582 F. Supp. 2d 1231 (C.D. Cal. 2007). The statute in that case granted a regulatory exemption only to certain entities based entirely on geography and was, therefore, facially discriminatory. Id. at 1241-42.8 5 Plaintiffs do not, and cannot, allege that ethanol plants with different production processes have “different responsibilities, different purposes [or] different business structures” such that they should not be considered similarly situated under the dormant Commerce Clause. See Lenscrafters, 567 F.3d at 527 (9th Cir. 2009). 6 Confusingly, plaintiffs urge the Court to use “identical production processes” as the basis for comparing the treatment of ethanol plants under the LCFS. But, then, plaintiffs urge the Court to conclude that the LCFS is discriminatory because it considers emissions related to transportation and electricity used during production of the fuel. Plaintiffs’ Br. at 13. Plaintiffs do not explain why aspects of the production process are legitimate for purposes of comparing regulatory treatment but are somehow completely off limits for consideration in regulatory design. 7 See, e.g., Granholm v. Heald, 544 U.S. 460, 466-67 (2005) (invalidating law restricting only out-of-state wineries from selling directly to consumers); Camps/Newfound/ Owatonna, Inc. v. Town of Harrison, Me., 520 U.S. 564 (1997) (invalidating tax exemption that only applied to camps serving primarily in-state residents); Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 336- 37 (1992) (invalidating disposal fee that only applied to out-of-state waste); Birth Hope Adoption Agency, Inc. v. Ariz. Health Care Cost Containment Sys., 218 F.3d 1040 (9th Cir. 2000) (invalidating statute requiring only out-of-state adoptive parents to reimburse the state for prenatal care and delivery expenses). 8 Daghlian can be further distinguished from this case by the fact that Daghlian was involved a residency requirement. Id. at 1245. The LCFS contains no such requirements. (continued…) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 15 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) The LCFS has no such on/off switch. It applies, in the same manner, to all ethanols, regardless of origin. In addition, the CI values themselves confirm that in-state or out-of-state status is not “[t]he statutory determinant for which [carbon intensity value] applies to any particular” ethanol. See Or. Waste Sys., Inc., 511 U.S. at 99. As originally promulgated, the CI values for in-state ethanol ranged from 77.44 to 88.90. LCFS Section 95486 (Table 6). The CI values for out-of-state ethanol ranged from 58.40 to 120.99.9 Id. There was, thus, no correlation between in-state status and lowest CI values or out-of-state status and highest CI values.10 New pathways have since been proposed through Methods 2A and 2B, which permit fuel producers to request an individualized CI value. Twenty-five new ethanol pathways have been published under those Methods and are currently available for use. ARB Sep. Stmt. ¶ 8; RJN Exh. H. All of these new pathways are for out-of state ethanol producers. Id. They range in CI value from 63.94 to 92.4, with many in the mid-to-low 80s. Id. Indeed, there are now five Midwest ethanol pathways with lower CI values than the value for which California plants have registered (80.70). Id. These additional ethanol pathways simply underscore that the LCFS is non-discriminatory – both because it distinguishes among fuels based on carbon intensity, rather than origin, and because it provides the flexibility for low carbon fuel producers to apply for a lower, individualized CI value, regardless of the location of their facility.11 (…continued) 9 This range includes Brazilian ethanol from sugarcane. The dormant Commerce Clause considers and protects foreign competitors as well as domestic. See South-CentralTimber Dev. v. Wunnicke, 467 U.S. 82, 87 (1984). This range also demonstrates that plaintiffs have failed to meet their burden for a facial challenge. S.D. Myers, Inc. v. City and Cnty of San Francisco, 253 F.3d 461, 467 (9th Cir. 2001). 10 Plaintiffs assert that they need not show “a widespread advantage to in-state interests nor a widespread disadvantage to out-of-state competitors.” New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 276 (1988). But that rule only applies “where discrimination is patent,” id., which it is not here. Regardless, this rule simply means there is no de minimus exception to the Commerce Clause. Defendants do not assert that there is. 11 These two facts further distinguish the LCFS from the statute in Daghlian, which provided no out-of-state entities with better treatment than in-state entities and no opportunity to apply for the desirable exemption. Daghlian, 582 F. Supp. 2d at 1242-43. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 16 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Relying on Wyoming v. Oklahoma, 502 U.S. 437 (1992), plaintiffs allege that the LCFS creates a discriminatory preference for “domestic” (i.e., California) corn ethanol. Plaintiff’s Br. at 6. The LCFS’s market-based mechanism bears no resemblance to the requirement in Wyoming that Oklahoma power plants buy at least 10% of their coal in-state. See 502 U.S. at 443. It also bears no resemblance to the statute in Alliance for Clean Coal v. Miller, 44 F.3d 591 (1995), which “essentially mandate[d] that [large] generators burn Illinois coal.” 44 F.3d at 596. That statute also contained another provision that amounted to “price fixing for the benefit of local producers.” Id. The LCFS contains no such mandates or price fixing provisions, and plaintiffs point to none. Rather, market forces determine the ultimate mix of fuels in California. ARB Sep. Stmt. ¶ 24. Analogizing to Camps Newfound/Owatonna, Inc. v. Town of Harrison, Me., 520 U.S. 564 (1997), plaintiffs also allege that the LCFS creates impermissibly strong incentives not to do business with out-of-state ethanol producers. Plaintiffs’ Br. at 6-7. But that case, and the one upon which it relies, involved state laws that “tended ‘to discourage domestic corporations from plying their trades in interstate commerce.’” Camps, 520 U.S. at 579 (quoting Fulton Corp. v. Faulkner, 516 U.S. 325, 327 (1996) (emphasis added)). Plaintiffs allege nothing, and indeed there is nothing, about the LCFS that discourages California ethanol producers from “plying their trades in interstate commerce.”12 Plaintiffs arguably allege that the LCFS makes selling ethanol in California “more costly” for out-of-state producers than in-state producers. Plaintiffs’ Br. at 6. Plaintiffs neither explain this allegation or provide any factual basis for it. The undisputed facts demonstrate that all regulated parties are subject to the same compliance costs, if any.13 RJN Exh. A. Ultimately, 12 Boston Stock Exch. v. State Tax Comm’n, 429 U.S. 318 (1977) is equally inapplicable. See 429 U.S. at 334-35 (invalidating “discriminatory taxes [designed] to assure that nonresidents direct their commerce to businesses within the State”). 13 The case on which plaintiffs rely for this point also did not find increased business costs for out-of-state entities. Kleenwell Biohazard Waste and Gen’l Ecology Consultants, Inc. v. Nelson, 48 F.3d 391, 398 (9th Cir. 1995). The case upon which Kleenwell relies, however, did find such increased costs, but those costs resulted from a regulation that would have forced the out-of-state entities to radically alter marketing mechanisms in which they had heavily invested. Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333 (1977). That is not this case. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 17 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) plaintiffs cite no cases that support a finding of facial discrimination where, as here, the regulation applies to all competitors, where some out-of-state competitors are treated more favorably than in-state competitors, and where treatment under the regulation is based on scientifically-validated modeling rather than origin. Thus, plaintiffs’ motion on their facial discrimination claim should be denied, and defendants’ cross-motion should be granted. B. The LCFS Does Not Cause Discriminatory Effects on Out-of-State Ethanol. Plaintiffs complain about inclusion of emissions from two parts of the lifecycle: the transportation of ethanol to California and the electricity used in the production of ethanol. Plaintiffs call these “theoretical distinctions.” Plaintiffs’ Br. at 7. Plaintiffs offer no legal support for separating out two components of carbon intensity for an independent discrimination analysis. The dormant Commerce Clause doctrine focuses on the aspect of the regulation that determines how an entity will be treated. See, e.g., Or. Waste Sys., Inc., 511 U.S. at 99. Courts should not separately analyze bits and pieces of a regulation for discrimination. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994) (rejecting respondent’s argument to “analyze separately two parts of an integrated regulation” and considering instead “the entire program”). In any event, plaintiffs claims have no merit. Plaintiffs focus on the emissions from transportation and allege that consideration of those emissions discriminates against interstate commerce based on the distance that the product travels. Plaintiffs’ Br. at 7. In fact, inclusion of emissions from transportation provides a net advantage to Midwest corn ethanol plants compared to California corn ethanol plants, because of the inclusion of the emissions for transporting the corn (which is grown in the Midwest). ARB Sep. Stmt. ¶ 34; Scheible Decl., at ¶ 45. There is no relative “penalty” to Midwest producers based on their distance from California. There is, thus, no discrimination, and the cases to which plaintiffs cite for this argument are inapplicable.14 14 See Am. Trucking Ass’ns, Inc. v. Scheiner, 483 U.S. 266, 284 (1987) (invalidating a flat tax for entry into Pennsylvania by motor vehicle); S. Pac. Co. v. Ariz., 325 U.S. 761 (1945) (invalidating regulations on lengths of trains); BFI Med. Waste Sys. v. Whatcom County, 983 F.2d 911, 913 (reiterating finding of earlier case that medical waste does not become more hazardous the longer it travels); Dean Milk Co.v. City of Madison, Wis., 340 U.S. 349, 354 (invalidating requirement to pasteurize milk within 5 miles of town because it acted as a ban on out-of-state (continued…) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 18 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Plaintiffs then turn to the carbon intensity of the electricity available in the Midwest and California and argue that inclusion of emissions from electricity also discriminates “based on origin.” Plaintiffs seem to be alternately concerned that ethanol producers will be put to “time, expense and labor” to travel to and from California, or that the LCFS will exert significant pressure on California ethanol producers to “buy and use” California electricity, or that ethanol producers will be required to perform business operations in California. Plaintiffs’ Br. at 8. These allegations are nonsensical. Nothing in the LCFS requires any one to travel to or set up operations in California. And California ethanol producers use California electricity regardless of the existence of the LCFS. Nothing in plaintiffs’ arguments about the inclusion of electricity provides any basis to exclude it from a proper lifecycle analysis or to conclude that it will have a discriminatory effect on the ethanol market. It is well-established as a matter of both science and policy that capturing lifecycle emissions is the best way to reduce emissions from transportation fuels. ARB Sep. Stmt. ¶¶ 32- 33. It is equally well-established that all aspects of the lifecycle must be counted, including transportation and electricity. Id. The mere fact that these two, of many, components of the lifecycle calculation bear some connection to location does not render lifecycle carbon intensity “indistinguishable from origin.”15 The determinant of regulatory treatment under the LCFS is carbon intensity, not geographic origin. That is why Midwest corn ethanol plants initially had a variety of CI values ranging from 86.80 to 120.99. LCFS Section 95486 (Table 6). Today, that range is even broader as a result of customized CI values for individual facilities. RJN Exh. H. (…continued) milk); Brimmer v. Rebman, 138 U.S. 78 (1891) (invalidating a similar law regarding meat, again because it acted as a ban on out-of-state-meat); Nippert v. City of Richmond, 327 U.S. 416 (1946) (invalidating a license fee for out-of-state solicitors procuring orders for subsequent interstate shipment). To the extent that plaintiffs argue some of these cases are applicable because the LCFS acts as a ban to Midwest corn ethanol, that is a heavily disputed fact and not appropriate as a basis for summary judgment. ARB Resp. Stmt. ¶¶ 10-11. 15 Clearly, many other factors go into carbon intensity that have nothing to do with location or origin. For example, the thermal heat source – the energy used to “cook” the feedstock – makes a significant difference and explains why the highest CI values in Table 6 are for pathways using coal for thermal heat. Table 6. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 19 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Finally, plaintiffs offer no explanation for the fact that 49 Midwest ethanol plants have indicated, either by registration or through the 2A/2B procedures, their intent to sell ethanol in California under the LCFS. It is entirely unclear why so many Midwest ethanol producers would affirmatively seek to participate in a regulatory scheme as severely stacked against them as plaintiffs paint the LCFS. C. The LCFS Does Not Have a Discriminatory Purpose. Plaintiffs also allege that the LCFS was adopted with a discriminatory purpose to ban Midwest corn ethanol “while maintaining a constant demand for California corn ethanol.” Plaintiffs’ Br. at 9. Plaintiffs rely on a collage of phrases, many taken out of context, to support their claim, and it cannot bear the weight. The “compliance scenarios,” upon which much of plaintiffs’ claim is based, were developed to demonstrate that the LCFS is feasible. ARB Resp. Stmt. ¶ 10; Scheible Decl., at ¶¶ 65-66, 70. The rulemaking record clearly identifies them not as predictions but as “what if” exercises to show several possible ways in which compliance with the LCFS would be possible. Id.; see also RJN Exh. D (FSOR) at 71, 339, 431, 433. The compliance scenarios do show declining volumes of “Midwest average corn ethanol,” while California production is shown at 300 million gallons per year. Plaintiffs RJN, Exh. C. “Midwest average ethanol” is just that – an average. Scheible Decl., at ¶ 39. Significantly, five specific Midwest pathways, representing actual production processes, have values lower than “Midwest average ethanol.” LCFS Section 95486 (Table 6). There are now 27 Midwest pathways with CI values lower than 99.40, including ones as low as 73.20. RJN (new pathways). There is no reason to assume those pathways will decline as the Midwest average is shown to do. See Babcock Decl., at ¶ 10; Scheible Decl., at ¶ 71. In addition, plaintiff RFA estimates California ethanol production in 2011 to be 60 million gallons, not 300. David Decl. at 6 n.5. Similarly, there is no reason to assume California’s production will immediately rise from 60 to 300 million gallons, even though 300 is the figure in the compliance scenarios. There is no “ban” of any fuel, including Midwest corn ethanol, under the LCFS. ARB Resp. Stmt. ¶¶ 10-11, 16-19, 34, 36. Nor is there a 300 million gallon guarantee to California Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 20 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) producers.16 The absence of any prohibitions on ethanol is simply becoming more obvious as more lower carbon pathways for Midwest ethanol come through the Method 2a and 2b procedures. See Scheible Decl. at ¶¶ 57-64. The LCFS is designed to let market forces determine the mix of fuels for any given year, within the aggregate carbon intensity limit for that year. Id. at ¶¶ 29-33. That is hardly protectionist. Plaintiffs ignore the true purposes of the LCFS which are the antithesis of protectionism. A primary goal of the LCFS is to encourage the development and commercialization of lower carbon fuels, which will diversify the market, not contract it. Scheible Decl. at ¶¶ 10-12. This primary goal will enable California to reduce GHG emissions associated with transportation fuels consumed in the state, to reduce the threats posed by global warming, and to reduce dependency on foreign oil. Id.; see also ARB Sep. Stmt. ¶¶ 10-11, 20. The LCFS clearly lacks any purpose to discriminate against interstate commerce, and plaintiffs’ summary judgment motion must be denied. D. The LCFS Should Survive Strict Scrutiny. If the Court disagrees with the arguments above and finds that the LCFS impermissibly discriminates under the Commerce Clause, the Court must still refrain from invalidating the LCFS “if it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” Dep’t of Revenue of Ky. v. Davis, 553 U.S. at 338 (internal quotation omitted). The LCFS meets both of these criteria and should survive strict scrutiny. 1. The LCFS Has Several Legitimate Local Purposes. Plaintiffs assertion that California has no legitimate interest in reducing the risks from global warming flies in the face of the Court’s opinion in Massachusetts v. E.P.A., 549 U.S. 497 (2007). The Court recognized as fully legitimate a state’s “well-founded desire to preserve its 16 Plaintiffs assert that the LCFS intends that “a significant portion of the biofuels used in the LCFS are produced in California.” Plaintiffs’ Br. at 9. That language they cited in ARB’s Initial Statement of Reasons is describing the goals of a separate order of the Governor, and the specific sentence begins with the words “If these goals are met.” ARB RJN, Exh. B (ISOR) at II- 3. In other words, the LCFS takes no position on those goals, and indeed is designed to let market forces determine the low carbon fuel mix for California’s future. See Scheible Decl., at ¶¶ 29-33. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 21 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) sovereign territory” from the threats of rising seas and other impacts of global warming. 549 U.S. at 519, 522. “That these climate-change risks are ‘widely-shared’ does not minimize [California’s] interest” in reducing them. Id. at 522. California’s purpose here is both legitimate and local. Perhaps recognizing that, plaintiffs suggest that the LCFS will have no impact on emissions because of “fuel shuffling.” Plaintiffs’ Br. at 10. But, several features of the LCFS are expected to reduce or eliminate fuel shuffling as a significant means of compliance. See Scheible Decl. at ¶ 73. First, a plant that is incentivized by the LCFS to develops new, lower carbon fuels or improve its existing fuel production processes will not necessarily always sell all of its product into California. Thus, the reduced emissions recorded through the LCFS may only be a fraction of the reductions incentivized by the program. Scheible Decl., at ¶¶ 75-84. Moreover, the LCFS is complementing the incentives created by RFS2, providing additional incentives for incremental reductions in emissions within RFS2 categories of fuels. Id. 2. There Are No Reasonable Nondiscriminatory Alternatives. As discussed above, a lifecycle analysis is the only effective way to regulate emissions from transportation fuels. ARB Sep. Stmt. ¶ 32-33; see also Spatari Decl., at ¶¶ 7-8; Babcock Decl., at ¶¶ 6-7. Any other method – for example, a focus solely on tailpipe emissions – will miss critical contributors to the lifecycle and may result in greater, rather than lower, emissions overall, which is why California is not the only government entity to adopt this approach. See CAA, 42 U.S.C. § 211(o)(1)(H) (“Lifecycle greenhouse gas emissions”). The alternative plaintiffs suggest – abandoning the lifecycle approach – would make it impossible to achieve the desired 10 percent reduction in carbon intensity and the resulting reductions in emissions. See Plaintiffs’ Br. at 10. As discussed above, the LCFS takes a market-based approach with tradeable credits for maximum flexibility. See Background, supra; see also Scheible Decl., at ¶¶ 29-33. Plaintiff RFA has acknowledged as much. RJN RFA comment on RFS2 p. 90. Thus, the LCFS should survive even strict scrutiny. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 22 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) III. THE LCFS DOES NOT REGULATE EXTRATERRITORIAL COMMERCE. Courts invalidate state laws under the extraterritorial regulation aspect of the dormant Commerce Clause doctrine when: 1) the regulation directly controls commerce taking place wholly outside the state; 2) the regulation threatens economic Balkanization; and 3) the regulation applies only to interstate commerce. Healy v. Beer Institute, 491 U.S. 324, 336-341 (1989). As set forth in Defendants’ cross motion, as a matter of law the LCFS does not violate these standards. Regardless, plaintiffs’ motion should be denied because it fails to demonstrate any violation under this branch of the Commerce Clause doctrine.17 A. The LCFS Does Not Directly Regulate Wholly Out of State Activities. Plaintiffs’ direct regulation argument boils down to essentially one question: does the LCFS directly regulate commerce wholly outside of California by including lifecycle greenhouse gas emissions in its calculation of CI values? Defendants submit that the answer is no.18 Plaintiffs’ argument should be rejected because it mischaracterizes the purpose and effect of the LCFS, misstates the facts, and is not supported by the case law. First and foremost, plaintiffs rely on the mistaken assertion, which is repeatedly stated, that the LCFS is directly “regulating” the activities that it takes into consideration in the determination of CI values. See, e.g., Plaintiffs’ Br. at 11:24-25, 14:26-27. However, consideration of the fuel production and distribution activities that go into the CI metric does not equate with any purpose or effect of regulating or otherwise controlling those activities either inside or outside of the State.19 The LCFS creates a market based system, including a yearly average performance 17 Since plaintiffs state a facial challenge, it can prevail only if the LCFS must necessarily be read as directly regulating interstate commerce. The Court must construe the regulation narrowly and resolve any ambiguities in favor of the interpretation that most clearly supports constitutionality. S.D. Myers, 253 F.3d at 468. 18 U.S. EPA has reached the same conclusion with respect to its consideration of indirect land use in the lifecycle analysis. “Considering international emissions in determining the lifecycle GHG emissions of the domestically-produced or imported fuel does not change the fact that the actual regulation of the product involves its use solely inside the U.S.” RJN Exh. P (75 Fed. Reg. 14669, 14766). 19 The lifecycle analysis is conducted in accordance with recognized scientific principles (continued…) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 23 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) standard and the availability of trading for credits and debits. In-state or out-of-state ethanol producers with higher CI values are not required to reduce CI values or to make any changes in production or distribution in order to sell in California. ARB Sep. Stmt. ¶ 24; Scheible Decl., at ¶¶ 29-33. Nor are regulated parties prevented from purchasing fuels with higher CI values. Scheible Decl., at ¶¶ 29-33. They have discretion to meet the yearly average standard with any combination of fuels and credits/debits. In short, any out of state effects of the LCFS are indirect.20 Id. If fuel producers alter aspects of their business in order to reduce the CI value of their fuels, they are doing so to compete for business in California, not because there is any legal requirement. As the Supreme Court has established, “[i]nterstate commerce is not subjected to an impermissible burden simply because an otherwise valid regulation causes some business to shift from one interstate supplier to another. The Commerce Clause protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulations.” Exxon Corp. v. Maryland, 437 U.S. 117, 127-28 (1978). The Exxon court rejected the plaintiff’s argument that a Maryland law prohibiting refiners from owning retail gasoline stations impermissibly changed the market structure by weakening independent refiners. The Court noted that “[s]ome refiners may choose to withdraw entirely from the Maryland market, but there is no reason to assume that their share of the entire supply will not be promptly replaced by other interstate refiners.” 437 U.S. at 127. That is analogous to the situation here: the LCFS which will change the market structure by weakening the position of higher-CI producers relative to lower-CI producers, and some higher CI producers may choose to withdraw. But California should be allowed to pursue its legitimate goal of reducing GHG emissions, so long as the interstate market in ethanol and other fuels is protected, which it is. (…continued) and is also used by U.S. EPA in the federal Renewable Fuel Program. 42 U.S.C. § 211(o)(1)(H). 20 “[T]he Commerce Clause . . . was never intended to cut States off from legislating on all subjects relating to health, life, and safety of their citizens, though the legislation might indirectly affect the commerce of the country.” (internal quotations removed). Gen. Motors Corp. v. Tracy, 519 U.S. at 306 (rejecting Commerce Clause challenge to Ohio tax on natural gas purchases.) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 24 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Plaintiffs’ argument also fails because the case law reflects that for a state regulation to be invalid as a direct regulation of interstate commerce, the regulation must apply to commerce “wholly” outside the State. Healy, 491 U.S. at 336. That is simply not the case here. As the text of the LCFS reveals, it directly regulates only in-state transactions. LCFS Section 95480.1(a). The LCFS does not require any CI standard to be met by fuels sold in other states. ARB Sep. Stmt. ¶ 30. Nor are fuels sold outside of California factored into any CI average in California, even for a producer who sells fuel both inside and outside California. LCFS Section 95480.1(a).21 For this reason, the cases relied on by plaintiffs provide it with no support. In Healy and the related price affirmation cases22 the challenged state laws required the use of a scale of prices or otherwise effectively controlled prices in commerce transacted entirely in another state. See Healy, 491 U.S. at 331-336. There is no analogous requirement in the LCFS.23 The LCFS does not control the terms by which fuel producers sell their products in other states. Finally, plaintiffs’ argument should also be rejected because it is permeated by erroneous factual assertions. Plaintiffs assert that “[t]he LCFS regulation . . . penalizes out-of-state corn ethanol producers who do not follow CARB’s favored production methods, by assigning their 21 See S.D. Myers, Inc. v. City and County of SF, 253 F.3d 461, 467 (9th Cir. 2001) (San Francisco’s requirement for its contractors to provide domestic partner benefits was not an extraterritorial regulation.) 22 Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 582 (1986)(“[ f]orcing a merchant to seek regulatory approval in one State before undertaking a transaction in another directly regulates interstate commerce”); Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 521 (1935) (New York has no power to project its legislation into Vermont by regulating the price to be paid in that state for milk acquired there.) 23 Plaintiffs’ reliance on Nat’l Solid Wastes Mgmt. Ass’n v. Meyer, 165 F.3d 1151, 1154 (7th Cir. 1999) is equally in error. In that case, the Seventh Circuit struck down a Wisconsin statute that required out-of-state communities to adopt Wisconsin’s recycling standards before they could dispose of their waste in Wisconsin. Here, there is not even an allegation that the LCFS requires out of state communities or sister states to adopt an LCFS before out of state producers can sell fuels in California. Plaintiffs’ citation to Edgar v. MITE Corp., 457 U.S. 624, 642-643 (1982) is also off the mark. In that case an Illinois law regarding corporate takeovers, which restricted communications by the bidder to Illinois shareholders, was written so broadly that it prevented the bidder from communicating with out of state shareholders, even in the extreme case where not a single shareholder resided in Illinois. No analogy to the LCFS can be drawn. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 25 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) ethanol a worse carbon intensity score.” (Plaintiffs Br. at 12:14-16.) ARB has no “favored” production methods. CI values are established via a science-based methodology and numerous out-of-state fuels have CI values below those of California fuels. LCFS Section 95486. Moreover, producers can request an adjusted CI value if they think the value assigned by ARB is inaccurate. Plaintiffs assert that “[t]he LCFS regulation goes beyond regulating the out-of-state production processes for corn ethanol imported into California. It further penalizes corn ethanol producers for their entirely separate business decision to dry distillers grains co-products, rather than leave them wet, after their ethanol fuel is produced.” Plaintiffs Br. at 13:9-12 (emphasis in original). In fact, the inclusion of distillers’ grains in the CI value calculation provides ethanol producers with a credit because the use of this co-product is assumed to offset GHG emissions. Scheible Decl., at ¶ 22. Plaintiffs assert that: “CARB imposes a substantial penalty—more than 30% of the carbon intensity score for corn ethanol—for what it calls “indirect land use . . .” Consideration of indirect land use is not a “penalty,” but a factor that is applied in the calculation of CI values for all fuels. The indirect land use value for out of state corn ethanol is identical to the value for California corn ethanol. Indirect land use is part of U.S. EPA’s lifecycle analysis in the federal Renewable Fuels Program. 42 U.S.C. § 9545(o)(1)(H). In summary, RMFU’s direct regulation argument has no merit. The LCFS imposes no requirements on out of state commerce as a precondition to selling fuels in California or for any other purpose. B. The LCFS Will Not Lead to Balkanization. Plaintiffs’ claim that the LCFS “distorts” the market for interstate ethanol is based purely on plaintiffs’ own misreading of the regulation. This is precisely the type of claim that the Supreme Court rejected in Exxon v. Maryland, supra, 437 U.S. at 127 (rejecting claim that a state law “interfered ‘with the natural functioning of the interstate market. . .’")24 As a matter of law, 24 Plaintiffs’ reliance on Cavel Int’l, Inc. v. Madigan, 500 F.3d 551, 555 (7th Cir. 2007) for this proposition is misplaced. That case rejected the plaintiff’s Commerce Clause claims (continued…) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 26 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) the LCFS does not ban any type of ethanol from the California market, does not encourage biofuels producers to relocate to California based on a “transportation penalty,” and does not require ARB approval of choices about transportation or other production matters.25 As set forth below, plaintiffs’ Balkanization argument is entirely insubstantial. 1. The LCFS Impose No Transportation Penalty and No Trade Barriers. Plaintiffs’ assertions notwithstanding, Balkanization is neither the purpose nor the effect of the LCFS. The purpose of the LCFS is to reduce greenhouse gas emissions from fuels sold in California. ARB Sep. Stmt. ¶ 8. The LCFS does not create a “menagerie of unique products” and does not direct the flow of ethanol “based on how and where it is made.” Plaintiffs’ Br. at 15:28-16:1. On the contrary, Refiners and blenders are free to buy ethanol and other fuels from wherever they can find them, as long as they ultimately comply with the aggregate CI standard. Plaintiffs offer two examples to support its Balkanization argument but neither example supports the claim. First, plaintiffs assert that ARB is raising a trade barrier in order to “’isolate’ California ‘from a problem,’ like global climate change, ‘common to the several States . . .” Plaintiffs’ Br. at 16:1-7 (citing Chem. Waste Mgmt. Inc. v. Hunt, 504 U.S. 334, 339-40 (1992) (invalidating Alabama tax only on imported hazardous waste). This assertion makes no sense. As a market based performance standard, the LCFS does not control what fuels will be used in any compliance year. Scheible Decl., at ¶ 33. More importantly, greenhouse gasses are not like hazardous waste, California cannot keep out emissions generated elsewhere, and it is effected by those emissions. Nonetheless, California can take steps to do its part to reduce greenhouse gas emissions. See Mass. v. E.P.A., 549 U.S. 497, 524 (2007). (…continued) against an Illinois animal slaughter regulation and included no holding about market distortion. 25 As for plaintiffs’ prediction that “[t]he regulation also will draw more advanced ethanol to California in the next 10 years, and away from other States, than would otherwise occur” (P&A at 15:15-17), that will remain unknown for quite some time. Other States may adopt LCFS rules and other forces may work to alter the market. However, even if the prediction were to come true, there is no Commerce Clause violation associated with that outcome. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 27 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Second, plaintiffs assert that “[t]he LCFS regulation’s penalty on interstate shipping has the Balkanizing purpose and effect of favoring local ethanol over out-of-state ethanol.” (plaintiffs’ Br. at 16:8-9.) This argument rehashes plaintiffs’ flawed discrimination claim and fails for the same reason: the LCFS has no “transportation penalty” for Midwest corn ethanol. Scheible Decl., at ¶ 45. Midwest ethanol production businesses will not want to relocate to California when the effect would only be to boost the CI value of their fuels. The Court should reject this mistaken argument. 2. The LCFS Does Not Impermissibly Regulate Channels of Interstate Commerce. Plaintiffs’ final argument is that the requirements of the LCFS Registration Form and requirements for recordkeeping and auditing in LCFS Section 95484(d)(2)(D) constitute direct regulation of interstate commerce. Plaintiffs’ Br. at 17. As plaintiffs note, the information required by the Registration Form and Section 95484(d)(2)(D) is used to verify the accuracy of carbon intensity values. Citing to the caveat that this information “is subject to ARB review and validation,” plaintiffs leap to the conclusion that ARB “purports to be the arbiter of interstate transportation decisions.” plaintiffs’ Br. at 17:21-22. This argument is entirely without merit. By seeking to verify the accuracy of components of CI values, ARB is simply trying to ensure the efficacy of the LCFS system and the market that it creates. Neither the Registration Form nor Section 95484 (nor any other part of the LCFS) requires ARB approval of a party’s transportation choices. The only requirement is that the party accurately reports the information about those choices. There is no analogy to the situation in Brown Forman, 476 U.S. 573, because no “regulatory approval” is at issue. The Court should reject this argument. IV. ANY BURDEN IMPOSED ON INTERSTATE COMMERCE BY THE LCFS IS INCIDENTAL RELATIVE TO ITS LOCAL BENEFITS. Plaintiffs stretch both the facts and the law in their attempt to show that any burden imposed on interstate commerce by the LCFS “is clearly excessive in relation to” its local benefits. Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). Neither the facts nor the law are elastic enough to sustain plaintiffs’ claim. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 28 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) A. Plaintiffs Balancing Claim is Not Appropriate for Summary Judgment. Application of the Pike balancing test is a fact-intensive inquiry, requiring evidence of the alleged burdens on interstate commerce. E.g., Pac. Nw. Venison Producers v. Smitch, 20 F.3d 1008, 1015 (9th Cir. 1994) (granting summary judgment to defendant because plaintiff failed to offer evidence of volumetric and financial impacts). Plaintiffs have provided none. Further, defendants have been provided with no opportunity for discovery to test plaintiffs’ allegations of burden. Precisely because they are fact- and evidence-intensive, cases decided under the Pike test frequently require discovery. See, e.g., United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 346 (2007) (noting that after years of discovery, no “disparate impact on out-of-state as opposed to in-state businesses” could be detected). Defendants have moved for discovery under Rule 56(d), and plaintiffs’ motion should be denied or deferred on these grounds. B. The Local Benefits of the LCFS are Well Established as a Matter of Law. Regarding local benefits of the LCFS, the Supreme Court has already ruled against plaintiffs’ arguments. Mass. v. E.P.A., 549 U.S. at 522 (“That these climate-change risks are ‘widely-shared’ does not minimize Massachusetts’ interest [in regulation of emissions].”); id. at 524-26 (rejecting the argument that incremental steps to address climate change will have no impact). Plaintiffs’ repeated refusal to recognize that environmental problems such as climate change may have both global and local dimensions is an oversimplification aimed at stripping California of its legitimate power to “preserve its sovereign territory,” Mass. v. E.P.A., 549 U.S. at 519, from the threats posed by climate change. C. The Evidence Indicates No Burden on Commerce Let Alone an Excessive One. Plaintiffs sound the doomsday alarm yet again in an attempt to establish excessive burdens on interstate commerce. But plaintiffs have a different burden here – an evidentiary one – and their conjectures alone cannot meet that burden. See Pac. Nw. Venison Producers, 20 F.3d at 1015. Plaintiffs claim that the California market will be closed to Midwest corn ethanol, relying solely on the LCFS compliance scenarios. Plaintiffs’ Br. at 20. As discussed above, there is no Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 29 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) reason, based on the rulemaking record or the facts on the ground, to accept the compliance scenarios as prediction of any decline in Midwest corn ethanol in California. See Part II. C. supra. Plaintiffs also offer no evidence that the LCFS will “segment” the ethanol market. The evidence before the court indicates the opposite. Forty-four out-of-state ethanol producers have requested registration for existing CI pathways under the LCFS. Scheible Decl., at ¶ 42. Sixty entities have approached ARB to discuss individualized CI values under the 2A and 2B procedures, and ten ethanol producers have submitted final applications. Id. at ¶ 61. All of those entities are out-of-state. Scheible Decl., at ¶¶ 61-64; RJN Exhs. I and H (Published Pathways). Clearly, many out-of-state ethanol producers, most of them from the Midwest, plan to sell ethanol in California under the LCFS. In fact, Pike should not even apply here, because there appears to be no burden on interstate commerce. Similarly, plaintiffs offer no evidence that their members will be subject to conflicting requirements, and the cases they cite are inapplicable. Only one of plaintiffs’ cases even involves an application of Pike. And most of the case involve regulations that would require trains to reconfigure along interstate routes due to differing rules. See, e.g., Union Pac. R.R. Co. v. Cal. Pub. Utils. Comm’n, 346 F.3d 851, 871 (9th Cir. 2003). No such “immense” effect is even imaginable here. Finally, plaintiffs’ claim that the LCFS will more heavily burden out-of-state interests fails for the same reasons that their discrimination claims fail. In light of the available CI values for out-of-state ethanol, the flexibility provided by Methods 2A and 2B, and the numerous out-of- state producers indicating plans to sell in California, “there is no reason to suspect that the gainers will be [California] firms, or the losers out-of-state firms.” Minn.v. Clover Leaf Creamery Co., 449 U.S. 456, 473 (1981). Plaintiffs’ summary judgment motion must be denied. V. SUMMARY JUDGMENT AS TO PLAINTIFFS’ CONFLICT PREEMPTION ARGUMENTS MUST BE DEFERRED OR DENIED. In support of their preemption claim, plaintiffs argue that the LCFS is in conflict with the Congressional intent, goals and method embodied in the EISA. Plaintiffs’ argument is both Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 30 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 22 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) premature and without merit. Summary judgment based on plaintiffs’ preemption arguments is not appropriate prior to a reasonable period of discovery concerning the disputed facts underlying plaintiffs’ motion, such as the purported effect of the LCFS on corn ethanol producers with facilities that existed or had commenced construction by December 2007 (hereafter “existing biorefineries” or “existing corn ethanol producers”). Even if, the Court does not defer or deny plaintiffs’ motion on the basis of defendants’ need for discovery or its authority to promulgate the LCFS (see ARB’s Cross-Motion), the available evidence demonstrates Congress’ intent to permit and preserve, rather than to preempt, state environmental regulations such as the LCFS. Plaintiffs’ arguments to the contrary misread or ignore key provisions of RFS2 and EISA and rely on case law that is readily distinguished. A. Plaintiffs’ Conflict Preemption Arguments Rest on Disputed Facts Concerning the Effect of the LCFS on Existing Corn Ethanol Producers and the Intent of California. Fundamentally, plaintiffs premise their motion on the sweeping assertion that the LCFS will “clos[e] California to ethanol produced by more than 150 ‘grandfathered’ biorefineries.”26 ARB disputes this fact. The sole basis for plaintiffs’ assertion is the “compliance scenarios” ARB staff developed in 2009. As discussed in Part II. C. below, there is no reason, based on the rulemaking record or the facts on the ground, to accept the compliance scenarios as prediction of any decline in Midwest corn ethanol in California. To the extent a non-speculative prediction can be made about the effect of the LCFS on Midwest plants five to ten years hence, such a prediction should be based on discovery and expert testimony, and tested at trial.27 26 See Plaintiffs’ Br. at 22:26-27 (citing Plaintiffs’ Sep. Stmt. ¶¶ 10-11, 17); see also id. at 23:16-17 (citing Plaintiffs’ Sep. Stmt. ¶¶ 10-11, 19); id. at 25:24-27 (citing Plaintiffs Sep. Stmt. ¶ 19); id. at 28:4-7 (citing Plaintiffs Sep. Stmt. ¶¶ 10-11, 18-19, 34); Plaintiffs Sep. Stmt ¶ 36. 27 It is also possible that even after discovery and expert analysis, the effect of the LCFS on existing corn ethanol facilities will be too speculative to support finding a conflict with federal law. See American Petroleum Institute v. Cooper, 681 F.Supp.2d 635, 642 (E.D. North Carolina 2010) (a “hypothetical or potential conflict” that is “insufficient to warrant the pre-emption of the state statute”) (quoting Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982)); see also Hillsborough County, Florida v. Automated Medical Laboratories, Inc., 471 U.S. 707, 721 (1985) (claims that a county ordinance would increase the cost of production and reduce the number of businesses found to be “too speculative to support pre-emption…”). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 31 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 23 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) B. The Presumption Against Preemption Requires That Plaintiffs Demonstrate a Clear and Manifest Purpose of Congress to Preempt the LCFS. Under the U.S. Constitution’s Supremacy Clause, federal laws “shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. CONST. art. VI, cl. 2. Preemption is characterized as either (1) express, (2) field or (3) conflict preemption. See English v. General Elec. Co., 496 U.S. 72, 78-79 (1990). In any preemption analysis, “the purpose of Congress is the ultimate touchstone.…” Wyeth v. Levine, 129 S.Ct. 1187, 1194 (2009) (citations omitted); see also Cippollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992). “In all preemption cases, and particularly in those in which Congress has ‘legislated ... in a field which the States have traditionally occupied,’ ... we ‘start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.’” Wyeth, 129 S.Ct. at 1194-95 (citations omitted); see also Pacific Gas & Elec. Co. v. State Energy Res. Conserv. and Dev. Comm’n, 461 U.S. 190, 206 (1983) (citations omitted). If the court has “any doubt about congressional intent,” the court is “to err on the side of caution, finding no preemption.” Malabed v. North Slope Borough, 335 F.3d 864, 869 (9th Cir. 2003). Further, “[i]n determining the construction of the federal and state statutes, the court is obligated to attempt to harmonize them if reasonably possible.” Am. Petroleum Inst., 681 F.Supp.2d 635, 641 (E.D. N.C. 2010) (citing Anderson v. Babb, 632 F.2d 300, 308 (4th Cir. 1980) and Unical Corp. v. Kaabipour, 177 F.3d 755, 769 (9th Cir. 1999)). “[W]hen a statute is susceptible of two constructions, by one of which grave and doubtful constitutional questions arise and by the other of which such questions are avoided, [the court’s] duty is to adopt the latter.” Harris v. United States, 536 U.S. 545, 555 (2002). In the present case, the state law at issue – the LCFS – concerns air pollution prevention and control, an area that “is primarily the responsibility of States and local governments.” ARB Sep. Stmt. ¶ 10; see also 42 U.S.C. § 7401(a)(3); Oxygenated Fuels Ass’n v. Davis, 331 F.3d 665, 670-671 (9th Cir. 2003). There can be no dispute that “environmental regulation is an area of Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 32 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) traditional state control.” Oxygenated Fuels, 331 F.3d at p. 673. “Air pollution falls under the broad police powers of the states, which include the power to protect the health of citizens in the state.” Exxon Mobil Corp. v. U.S. Envtl. Prot. Agency, 217 F.3d 1246, 1255 (9th Cir. 2000). Plaintiffs argue that the LCFS conflicts with federal law, not that it is expressly preempted or that Congress intended to preempt the field of renewable fuels. Plaintiffs’ Br. at 22-28. The Supreme Court has long held that the presumption against pre-emption applies to claims of implied conflict preemption such as those here. Wyeth, 129 S.Ct. at 1195, n.3 (citations omitted). Further, “‘[t]ension between federal and state law is not enough to establish conflict preemption.’” Nat’l Ass’n of Home Builders v. San Joaquin Valley Unified Air Pollution Control District No. CIV F 07-0820, 2008 WL 4330449, *9 (E.D. Cal. Sept. 19, 2008), aff’d, No. 08- 17309, 2010 WL 4948510 (Dec. 7, 2010 9th Cir.) (quoting Incalza v. Fendi North America, Inc., 479 F.3d 1005, 1010 (9th Cir. 2007)). A “hypothetical conflict is not a sufficient basis for preemption.” Total TV v. Palmer Commc’ns, Inc., 69 F.3d 298, 304 (9th Cir. 1995); see also Rice, 458 U.S. at 659; Hillsborough County, 471 U.S. at 721. 1. Congress Expressly Narrowed the Scope of Preemption in EISA to Allow for State Environmental Laws Such as the LCFS. The presumption against preemption is bolstered here by clear indicia of congressional intent: instead of an express preemption provision like that found elsewhere in the Clean Air Act, Congress included explicit savings clauses that indicate the RFS was not meant to impact state and federal laws outside of section 211(o) that are more environmentally protective. Through these savings clauses, Congress narrowed the preemptive scope of the statute to leave the door open for states to adopt environmental laws. First, in Section 3 of EISA, Congress stated its intent with regard to other laws as follows: Except to the extent expressly provided in this Act or an amendment made by this Act, nothing in this Act or an amendment made by this Act supersedes, limits the authority provided or responsibility conferred by, or authorizes any violation of any provision of law (including a regulation), including any energy or environmental law or regulation. Second, in section 204(b) of EISA, Congress reinforced the limited scope of preemption by adding the following caveat regarding the effect of the RFS: Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 33 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) (b) Effect on Air Quality and Other Environmental Requirements. – Except as provided in section 211(o)(12) of the Clean Air Act, nothing in the amendments made by this title to section 211(o) of the Clean Air Act shall be construed as superseding, or limiting, any more environmentally protective requirement under the Clean Air Act, or under any other provision of State or Federal law or regulation, including any environmental law or regulation. (Emphasis added.) Third, Congress further reinforced this specifically for the regulation of greenhouse gases. In section 210(b) of the EISA, Congress added the following provision to the RFS: (12) Effect on Other Provisions. – Nothing in this subsection, or regulations issued pursuant to this subsection, shall affect or be construed to affect the regulatory status of carbon dioxide or any other greenhouse gas, or to expand or limit regulatory authority regarding carbon dioxide or any other greenhouse gas, for purposes of other provisions (including section 165 [42 U.S.C. § 7475]) of this Act. The previous sentence shall not affect implementation and enforcement of this subsection. 42 U.S.C. § 7545(o)(12) (emphasis added). Plaintiffs do not argue that this section preempts the LCFS or provides any indication of Congressional intent to preempt. In their brief, plaintiffs fail to address these sections of EISA. Since California's authority to adopt the LCFS derives from its special status as described in 211(c)(4)(B) of the CAA, section 211(o)(12) expresses that nothing in 211(o), including therefore the so-called "grandfathering" provisions, "may be construed" to "limit" California’s regulatory authority regarding CO2 under another provision of the CAA, namely, 211(c)(4)(B). Congress could not have made it clearer there is no conflict between 211(o) and the LCFS because it has specifically authorized both to operate concurrently without limitation on California's regulatory authority. In addition, clearly the LCFS is a state environmental regulation. ARB Sep. Stmt. ¶ 10-11. Furthermore, the LCFS is more environmentally protective than section 211(o) of the Clean Air Act. ARB Sep. Stmt. ¶ 12. Thus, the LCFS fits squarely within the savings clauses. Moreover, these congressional enactments provide “a reliable indicium of congressional intent with respect to state authority” and “severely limit[s]” the pre-emptive effect of EISA. See Cal. Fed. Sav. & Loan Ass’n, 479 U.S. 272, 282 (1987). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 34 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) 2. Congress’s Silence Concerning the LCFS Belies a Clear and Manifest Purpose to Preempt State Law. In addition to the congressional intent not to preempt state environmental laws evidenced by the savings clauses, Congress’ silence regarding the LCFS specifically is telling. Where Congress is aware of state laws in a field where it is acting, Congress’s silence as to preemption is “powerful evidence that Congress did not intend” to preempt the states. Wyeth, 129 S.Ct. at p. 1200. In Wyeth, plaintiff brought a state tort action for “failure to warn” after defendant’s drug caused the loss of one of her limbs. Id. at 1191. Defendant argued that the state tort action created an unacceptable obstacle to federal drug labeling legislation, “because it substitutes the lay jury’s decision about drug labeling for the expert judgment of the FDA.” Id. at 1193-94. In light of Congress’ awareness of failure-to-warn claims under state law, “[i]ts silence” on preempting those claims “is powerful evidence that Congress did not intend FDA oversight to be the exclusive means of ensuring drug safety and effectiveness.” Id. at 1200.28 Plaintiffs cannot dispute that Congress was fully aware of California’s clear progress toward adoption of the LCFS. In January 2007, the Governor issued an Executive Order and White Paper which set forth the goal of reducing the lifecycle greenhouse gas emissions of California’s transportation fuels by 10 percent by 2020. RJN Exh. O. In the same Senate statement cited by plaintiffs, Senator Obama specifically cited to California’s LCFS and “applauded” the Governor for his leadership. See 153 Cong. Rec. S7704 (daily ed., June 14, 2007); cf. Plaintiffs Br. at 24, n.15.29 In June 2007, in a publicly noticed meeting, ARB voted to approve the LCFS as an “early action” emissions reduction measure. ARB Sep. Stmt. ¶ 13. That 28 Similarly, in California Federal Savings & Loan, 479 U.S. at p. 287-288, 291 n.30, the Court rejected appellants’ conflict preemption argument, finding it “significant that Congress was aware of state laws similar to California’s,” prohibiting sex discrimination on the basis of pregnancy, acknowledged their existence, but then failed to evince the requisite “clear and manifest purpose” to supersede them. See also Medronic, Inc. v. Lohr, 518 U.S. 470, 491 (1996). 29 See also 153 Cong. Rec. H14451-02 (daily ed., June 14, 2007) (statement of Rep. Lee) (“this bill takes the right steps forward to reduce our dependence on foreign oil, to save our constituents money, and to fight global warming. Most importantly, it echoes the innovative steps that have already been taken by individual cities, States and districts like my district in the East Bay of California….”). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 35 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 27 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) year, during consideration of EISA, members of both Houses introduced bills proposing a national LCFS that, like California’s announced program, would reduce lifecycle greenhouse gas emissions from transportation fuels. The proposed national LCFS programs were patterned on California’s proposed program, in some cases targeting the exact same level of reductions in greenhouse gas emissions by 2020. ARB Sep. Stmt. ¶¶ 14-15.30 Indeed, the Congressional Research Service concluded that Congress derived a key definition for EISA (the definition of “lifecycle greenhouse gas emissions”) from California’s work on the LCFS. ARB Sep. Stmt. ¶ 16. Given Congress’ acute awareness of the LCFS and its approach to regulating emissions of transportation fuels, Congress’s failure to provide any indication of an intent to preempt state LCFS programs is powerful evidence of the lack of the requisite “clear and manifest purpose” to supersede them. 3. EPA Views RFS2 as Compatible With Parallel State LCFS Programs. The arguments plaintiffs present in this lawsuit are virtually identical to those they presented to EPA during its rulemaking for RFS2. ARB Sep. Stmt. ¶ 17. In particular, in comments during EPA’s rulemaking, the Renewable Fuels Association argued that “under a low carbon fuel standard, States are making judgment calls that Congress expressly placed in the hands of EPA.” Id. Yet, plaintiffs fail to cite any statement by EPA that remotely indicates a judgment on the agency’s part that the LCFS should be preempted by RFS. Rather, statements by the EPA demonstrate that the agency has been working with the State of California to ensure compatibility of the two parallel programs. Thus, for example, the U.S. EPA stated that “[d]ialogue with the State of California and the European Union on their parallel on-going efforts on GHG lifecycle analysis also helped inform EPA’s methodology.” RJN Exh. P (75 Fed. Reg. 14670, 14764). In addition, in its Summary of Analysis and Comments for the RFS2, EPA stated that: 30 See also 153 Cong. Rec. S7680, S7704 (daily ed. June 14, 2007) (statement of Sen. Obama) (“Today, I rise to suggest that it is time for us to establish a national low carbon fuel standard for the entire transportation fuel pool in the country….”). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 36 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 28 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) EPA through the RFS2 final rule is implementing the Renewable Fuel Standards program as required by Congress through EISA. Issues associated with State LCFS programs, and potential future Federal fuel standards, are not germane to the final RFS program. However, where possible we have attempted to structure the RFS2 program so as to be compatible with existing State LCFS programs, including coordination on lifecycle modeling.” RJN Exh. R at 13-15. C. The LCFS Does Not Conflict With Congress’ Intent, Goals or Methods. In their preemption argument, the plaintiffs’ blend concepts of congressional intent, goals and methods. Because different legal standards and specific material facts apply to each, defendants address each of plaintiffs’ arguments in turn. 1. The LCFS Compliments the Energy Security Intent and Goals of Congress in EISA. The first ground on which plaintiffs seek to manufacture a conflict between EISA and the LCFS is in their effect on energy security. Plaintiffs’ Br. at 22, 26. Plaintiffs base their argument on erroneous assertions that: (i) the CAA “protects” corn-ethanol from foreign competition; (ii) the LCFS treats imported sugarcane ethanol favorably, whereas RFS2 does not; and (iii) that the Sense of Congress expressed in EISA was to restrict imported ethanol. Id. At their hearts, EISA and RFS2 are designed to enhance energy security by reducing reliance on foreign oil.31 Indeed, both the EPA and plaintiff Renewable Fuels Association cite the reduction in foreign oil (not foreign ethanol) as the “energy security” goal of RFS. ARB Sep. Stmt. ¶¶ 18-19. The LCFS complements Congress’s goal by “reduc[ing] California’s dependence on petroleum.” ARB Sep. Stmt. ¶ 20. Moreover, plaintiffs largely ignore the other main goal of the RFS which is to encourage a dramatic increase in the production of advanced biofuels. Members of congress were emphatic 31 See 153 Cong. Rec. H9722-03 at H9723 (August 4, 2007) (statement of Speaker Pelosi) (“Congress has created this bill with four principles in mind. We must strengthen our national security by reducing our dependence on foreign oil; lower energy costs with greater efficiency, cleaner energy, and smarter technology; create new and good-paying American jobs, and reduce global warming.”); id. at H9743 (Statement of Rep. DeLauro) (“It is time to reduce our reliance on foreign oil-an addiction that threatens our environment, our economy, and our national security.”); id. at H9744 (Statement of Rep. Conyers) (“This landmark Energy Independence legislation will help make our nation more secure by reducing our dependence on foreign oil …”). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 37 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) about this purpose in the debate over the EISA.32 While the focus of the LCFS is not exclusively biofuels, it also complements the RFS in this regard by creating an incentive for increased production of advanced, alternative fuels. ARB Sep. Stmt. ¶¶ 8-9. Plaintiffs’ argument rests initially on section 211(o)(2)(A)(i) of the CAA, which they assert Congress enacted in order to protect domestic corn ethanol producers from imported renewable fuels. Plaintiffs Br. at 23-24. The relevant clause does not distinguish between domestic and foreign corn ethanol producers. See CAA, § 211(o)(2)(A). Any protection Congress affords the domestic corn ethanol industry from foreign competition, comes from an entirely separate statute: namely, the $0.54 per gallon tariff on imported ethanol. It is the about-to-expire tariff on imported ethanol, not RFS2, that Senator Thune refers to in the statements quoted by plaintiffs. Cf. Plaintiffs’ Br. at 26:3-5; 153 Cong. Rec. S7680, S7694 (daily ed. June 14, 2007). 33 Plaintiffs also argue that LCFS will cause corn-ethanol consumption to be replaced with imported sugarcane ethanol consumption, and that such an outcome conflicts with Congress’ energy security goals. Plaintiffs Br. at 24, n.15 and 26:2-5. Plaintiffs’ argument raises disputed facts and is inconsistent with the text of EISA. The only evidence plaintiffs offer regarding the effect of the LCFS are the “compliance scenarios.” Id. As discussed above, those scenarios are not predictions, and even if they were, as predictions they would need to be adjusted in light of energy efficiency improvements being made by corn-ethanol producers, some of which we cannot know about absent discovery. See Part V.A. supra. Furthermore, Congress’ treatment of 32 See 153 Cong. Rec. H14434-02, at H1440 (statement of Rep. Stark) (“I am troubled that we are continuing to subsidize and ratchet up corn-based ethanol production…. Fortunately, this bill includes some environmental safeguards and directs future production toward advanced bio-fuels.”); 153 Cong. Rec. E2665-01, at E2666 (daily ed. Dec. 18, 2007) (statement of Rep. Dingell) (“[S]everal concerns have been raised with the viability of relying on corn-based ethanol as our primary renewable fuel…. To address these concerns, this bill before us places an emphasis on the use of cellulosic biomass as a means of producing ethanol.”) 33 See 153 Cong. Rec. H16651-02, at H16655 (statement of Rep. G. Green) (“There is no shortage of literature detailing the negative environmental impacts of corn based ethanol, its questionable greenhouse gas reductions, its reduced fuel efficiency, and its effect on food and energy prices.”); see also 153 Cong. Rec. H14434-02, at H1440 (statement of Rep. Stark); 153 Cong. Rec. E2665-01, at E2666 (daily ed. Dec. 18, 2007) (statement of Rep. Dingell); 153 Cong. Rec. at E2631 (statement of Rep. Davis) (“Placing a limit on the amount of corn ethanol eligible to be applied in meeting the RFS is a necessary step.”). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 38 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) sugarcane ethanol in the RFS evidences an intent to place the emphasis on greenhouse gas reduction, rather than the locus of production. Based on its significantly lower lifecycle greenhouse gas emissions, Congress allowed sugarcane ethanol – which is predominately produced abroad – to qualify as an “Advanced Biofuel.” See Clean Air Act § 211, subd. (1)(B)(ii)(II). This gives sugarcane ethanol a distinct advantage, because RFS sets a guaranteed volume for Advanced Biofuels, consistent with Congressional aims to dramatically increase production of low greenhouse gas biofuels. Id. at § 211, subds. (2)(B)(i)(I) and (2)(B)(i)(II). Finally, plaintiffs’ argue that the LCFS is in conflict with the Sense of Congress set forth in EISA section 806(a)(4). Plaintiffs’ Br. at 22, 25. For the reasons stated above, however, plaintiffs cannot link Congress’ concern regarding “energy imported from volatile regions of the world that are politically unstable” with sugarcane ethanol imports from a stable democracy such as Brazil. In fact, in 2007, the United States and Brazil achieved new levels of cooperation on biofuels. ARB Sep. Stmt. ¶ 21. Moreover, by diversifying the sources of transportation fuel away from oil, the LCFS compliments Congress’ goal of “stabilizing the cost and availability of energy, and safeguard[ing] the economy and security of the United States.” See EISA § 806(a)(4); see also ARB Sep. Stmt. ¶ 20. 2. The LCFS Does Not Conflict With Congress’ Goals With Respect to Existing Corn Ethanol Plants. Plaintiffs argue that section 211(o)(2)(A)(i) reflects a goal of Congress to guarantee “market certainty” to existing corn ethanol producers to protect existing investment and encourage investment in new biofuels, and that the LCFS destroys that goal by “ending the California market for corn ethanol from grandfathered plants in the Midwest.”34 As discussed above, plaintiffs’ assertions about the effect of the LCFS on the market for Midwest corn ethanol in California are disputed and should be the subject of discovery. See Part V.A., supra. This issue alone precludes summary judgment based on plaintiffs’ section 211(o)(2)(A)(i) argument. 34 Plaintiffs Br. at 26:24-26 (citing Plaintiffs Sep. Stmt. ¶¶ 30-31); see also id. at 22:26-27 (citing Plaintiffs Sep. Stmt. ¶¶ 10-11, 17); id. at 23:16-17 (citing Plaintiffs Sep. Stmt. ¶¶ 10-11, 19); id. at 25:24-27 (citing Plaintiffs Sep. Stmt. ¶ 19); Plaintiffs Sep. Stmt ¶ 36. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 39 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Further, plaintiffs’ contention regarding the goal of section 211(o)(2)(A)(i) of the CAA is incorrect. The negative implication of this section is that existing renewable fuel facilities and those that commenced construction prior to adoption do not have to demonstrate a 20 percent reduction in lifecycle greenhouse gas emissions to qualify under RFS2. All that Congress did in the above section was provide existing or recently constructed corn ethanol facilities the opportunity to qualify under the RFS at the conventional biofuel level. This is far from a guarantee of “market certainty.” Corn ethanol is still required to compete economically with other transportation fuels. Indeed, given that ethanol producers compete primarily on price, and the newer more energy efficient plants (with lower lifecycle greenhouse gas emissions) produce ethanol at a lower price per gallon, existing plants have no guarantee of market certainty. That’s why it is the older less efficient ethanol plants that are idled when there is excess capacity in the market. David Decl. at ¶ 21. Other provisions of RFS2 also show that there is no guaranteed volume for any corn ethanol producers. See Clean Air Act, § 211(o)(2)(B). As the EPA stated in its rulemaking: “It should be noted, however, that there is no specific ‘corn ethanol’ mandated volume, and that any advanced biofuel produced above and beyond what is required for the advanced biofuel requirements could reduce the amount of corn ethanol needed to meet the total renewable fuel standard.” ARB Sep. Stmt. ¶ P (EPA p. 14723; see also p. 14709 (emphasis added)). The LCFS, on the other hand, has no 20 percent threshold for ethanol or any other fuel to meet prior to that fuel being eligible for sale in California. ARB Sep. Stmt. ¶ 23. Put another way, the LCFS does not require a 20 percent reduction of greenhouse gases in order to be sold in California. In fact, any fuel can be sold in California. Id. It is up to the California fuel provider to provide a mix of fuels, augmented by any credits accrued or purchased, that meets its compliance obligation for that year. Id. at ¶ 24. For example, a provider could buy a small volume of very low carbon fuel at a higher price and then buy a higher carbon fuel at a lower price to meet its overall obligation. Id. As to incentivizing investment in new biorefineries, plaintiffs contend that Congress’ goal was to ensure that “the existing corn ethanol industry” would have “capital for new technologies.” Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 40 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 32 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Plaintiffs’ Br. at 23-24. Congress, however, expressed no intention to grant existing corn ethanol producers a monopoly on investment capital for the next generation of biofuels. In fact, in section 223 of EISA, Congress purposely directed research grants to “states with low rates of ethanol production.” See also EISA §§ 207 (grants for production of “advanced biofuels”), 230 (grant program for research in cellulosic ethanol and biofuels). In fact, Congress intended to incentivize investment by all potential investors in the next generation of biofuels, and the LCFS is entirely consistent with that goal.35 Finally, if Congress intended by way of section 211(o)(2)(A)(i) to “protect” existing corn ethanol producers from the LCFS, “its failure to even hint at it is spectacularly odd, particularly since Members of both Houses were acutely aware of” California’s development of the LCFS. See Medtronic, 518 U.S. at 491.36 3. RFS2 Does Not Give Rise to a Method Conflict with The LCFS. Plaintiffs argue that even though RFS2 and the LCFS share at least one goal – reduction of greenhouse gasses – the LCFS is nonetheless preempted because it interferes with the method chosen by Congress. Plaintiffs’ Br. at 25-27. Specifically, plaintiffs argue that Congress intended that RFS2 set a uniform standard that vested ethanol producers with the flexibility to sell corn ethanol in any state in quantities they determined. Id. Plaintiffs’ argument overreaches. The “method conflict” cases cited by plaintiffs are inapplicable to refiners, who face a patchwork of state laws affecting ethanol production and consumption. The overriding principle in the “method conflict” cases relied on by plaintiffs is that Congress and/or the relevant agency involved developed a single scheme to address an issue. Thus, for example, courts have found conflict method preemption where federal statutes and regulations establish a single set of rules for (i) student loan servicing (Chae v. SLM Corp., 593 35 Notably, plaintiff Growth Energy asserted in comments that U.S. EPA had the authority under RFS to adopt a credit program for corn ethanol plants that reduce emissions beyond the 20% threshold for new plants, which is very similar to what the LCFS does. ARB Stmt. ¶ 26. 36 The mere fact that a Congressional statute provides support for a particular industry is not enough to create a conflict with State regulation in areas of traditional authority – such as environmental regulation. See Pacific Gas & Elec., 461 U.S. at 206-207. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 41 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 33 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) F.3d 936, 944 (2010)), (ii) auto passenger restraint systems(Grier v. Am. Honda Motor Co., 529 U.S. 861 (2000)), (iii) marine engine emissions (Pac. Merch. Shipping Ass’n v. Cackette, No. CIV S-06-2791, 2007 WL 2492681 *5 (E.D. Cal. Aug. 30, 2007), aff’d, 517 F.3d 1108 (9th Cir. 2008)), (iv) hazardous waste worker training (Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88, 92 (1992)), and (v) water permitting (Int’l Paper Co. v. Ouellette, 479 U.S. 481, 494 (1987)). Method preemption does not apply in every case where Congress has acted and a federal agency regulates. See Ting v. AT&T, 319 F.3d 1126, 1143 (9th Cir. 2003). In the present case, EISA and RFS2 did not establish a single set of rules for transportation fuels generally, or for renewable fuels specifically. Rather, Congress imposed a volumetric mandate on biofuels only and left in place a complete lack of uniformity in the regulation of ethanol and its production as a fuel. To begin with, each state sets its own blend requirement for ethanol, up to the 10 percent maximum for older vehicles and 15 percent for vehicles model years 2007 and after. See, e.g., ARB Sep. Stmt. ¶ 27. Other states have chosen to encourage consumers to buy flex fuel vehicles, which could result in the consumption of more ethanol. Id. at ¶ 28. Some states have offered tax incentives for ethanol or advanced biofuel plants inside their state. Id. at ¶ 29. As a result, here, as in Ting, the ability to attain Congress’ goal to increase renewable fuels production generally depends on complimentary state laws, and there is no reason to imply a conflict with the LCFS. In addition, in the cases plaintiffs cite in support of their “method preemption” argument, the courts have relied heavily on the presence of either: (1) an express preemption provision37; (2) a statutory requirement for states to obtain a waiver38; (3) a federal agency’s clear expression of 37 See Plaintiffs Br. at 26-27 (citing Engine Mfrs. Ass’n v. South Coast Air Quality Management District, 541 U.S. 246, 255 (2004) (state vehicle fleet restrictions constitute a “standard” expressly preempted by section 209(a) of the Clean Air Act)). Plaintiffs erroneously equate the “right to sell” the Court found in Engine Manufacturer’s Association with the present case. Plaintiffs’ Br. at 27. EISA, however, contains no applicable express preemption provision establishing a “right to sell” renewable fuels. 38 See Plaintiffs Br. at 26 (citing Pac. Merch. Shipping Ass’n v. Cackette, No. CIV S-06- 2791, 2007 WL 2492681 *5 (E.D. Cal. Aug. 30, 2007), aff’d, 517 F.3d 1108 (9th Cir. 2008) (state marine vessel rules constitute a “standard” that was preempted by section 209(e)(2) of the Clean Air Act absent EPA authorization ); Gade v. Nat’l Solid Waste Mgmt. Ass’n, 505 U.S. 88, 97-99 (1992) (statute required states to submit a plan for the U.S. Secretary of Labor if it wishes to (continued…) Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 42 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 34 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) preemption in its regulation or in the litigation39; or (4) a state regulation or cause of action that acts as an immediate and complete ban on the activity sanctioned by federal law.40 In the present case, not one of these factors is present. Finally, in the first reported case involving the new RFS, the Federal District Court in the Eastern District of North Carolina addressed a similar issue and rejected refiners “method” preemption argument. See Am. Petroleum Inst. v. Cooper, 681 F.Supp.2d 635 (E.D. N.C. 2010). A North Carolina law required importers of gasoline to give North Carolina distributors and retailers the option of purchasing gasoline that is not preblended with ethanol. Id. at 645. The court rejected refiners’ argument that the law stood as an obstacle to the “flexible method Congress chose to give refiners to comply with renewable fuel production mandates.” Id. at 642, 646-47. The LCFS provides even fewer obstacles to the method adopted by Congress, since it, like the RFS2, leaves the choice of fuel up to the refiner/blender. D. Contrary to Plaintiffs’ Argument, EISA Bars EPA From Restricting Geographic Markets in order to Leave Room for State Regulation. Plaintiffs final preemption argument is that 42 U.S.C. § 7545(o)(2)(A)(iii)(II)(aa), reflects a decision by Congress that the market for renewable fuels should be “national, not regionally balkanized.” See Plaintiffs’ Br. at 27-28. In that section, titled “Provisions of regulations,” Congress set certain rules for EPA’s regulations. In subdivisions (II)(aa) and (II)(bb), Congress wrote that the EPA Administrator shall not “restrict geographic areas in which renewable fuel (…continued) assume responsibility” for occupational health and safety standards). 39 See Plaintiffs Br. at 27 (citing Grier v. Am. Honda Motor Co., 529 U.S. 861 (2000) (Court considered ‘a “complex and extensive’ regulatory history and background” in which the agency explained how the state law interfered with its regulation); see also Wyeth, 129 S.Ct. at p. 1203 (distinguishing Grier); see also Plaintiffs’ Br. at 27 (citing Chae v. SLM Corp., 593 F.3d 936, 944 (2010) (Court of appeal gave deference to the agency’s interpretation of its regulations as preempting state law). 40 See Plaintiffs Br. at 27 (citing Young v. Colma-Agaran, 340 F.3d 1053, 1057 (“the ban completely excludes the plaintiffs from conducting their federally licensed tour-boat business…”); Grier, 593 F.3d at 881 (state tort action would effectively require all cars in the state have a passive restraint system); Chae, 590 F.3d at 946 (state contract and tort action challenging federal student loan servicer’s fees and practices)). Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 43 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 35 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) may be used,” or “impose any per-gallon obligation for the use of renewable fuel.” As written, these statutory directives are not imposed on the states. Moreover, the restriction against the EPA setting “any per-gallon obligation for the use of renewable fuel” directly contradicts plaintiffs’ argument that Congress intended a single uniform rate of ethanol consumption across the nation. If anything, Congress appears to have been protecting an area of traditional state authority: the determination of blend levels. This is logical, given the effect of fuel blends on local air quality issues. In addition, the credit trading program built into the RFS envisions refiners and others transferring credits, such that compliance does not hinge on the rate of consumption of ethanol or any other renewable fuel in a particular part of the country. See 42 U.S.C. § 7545(o)(5) (“Credit Program”). As the court in API noted, the tradable nature of the RINs allow refiners to comply even if they are not blending ethanol. API, 681 F.Supp.2d at p. 646. As with many of plaintiffs’ arguments, this argument also depends on plaintiffs false and disputed contention that the effect of the LCFS is a “unilateral opting-out” of the RFS. See Part V.A., supra. CONCLUSION For the foregoing reasons, defendants respectfully request that the Court deny plaintiffs’ motion for summary judgment. Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 44 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 36 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) Dated: December 17, 2010 Respectfully Submitted, EDMUND G. BROWN JR. Attorney General of California ROBERT W. BYRNE Supervising Deputy Attorney General __/s/ David A. Zonana_____________ DAVID A. ZONANA Deputy Attorney General Attorneys for Defendants James N. Goldstene et al. NATURAL RESOURCES DEFENSE COUNCIL By: /s/ David Pettit_______________ DAVID PETTIT Attorneys for Defendant-Intervenor, Natural Resources Defense Council, Inc. SIERRA CLUB By: /s/ Pat Gallagher______________ PAT GALLAGHER Attorney for Defendant-Intervenor, Sierra Club CONSERVATION LAW FOUNDATION By: /s/ Jane West_________________ JANE WEST Attorney for Defendant-Intervenor, Conservation Law Foundation ENVIRONMENTAL DEFENSE FUND By: /s/ James T.B. Tripp___________ JAMES T.B. TRIPP Attorney for Defendant-Intervenor, Environmental Defense Fund Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 45 of 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 37 DEFENDANTS' MEMO. OF P & A’s IN OPP. TO RMFU'S MOTION FOR SUMMARY JUDGMENT (No. 1:09-CV-02234-LJO-DLB) SF2010400011 20383451.doc Case 1:09-cv-02234-LJO -GSA Document 139 Filed 12/17/10 Page 46 of 46