Rocky Mountain Farmers Union; Redwood County Minnesota Corn and Soybean Growers; Penny Newman Grain, Inc.; Rex Nederend; Fresno County Farm Bureau; Nisei Farmers League; California Dairy Campaign; Growth Energy; Renewable Fuels Association; American Fuel & Petrochemical Manufacturers Association, FKA National Petrochemical & Refiners Association; American Truckings Associations; Center for North American Energy Security; The Consumer Energy Alliance, Plaintiffs-Appellees,
Richard W. Corey, in his official capacity as Executive Officer of the California Air Resources Board; Mary D. Nichols; Daniel Sperling; Ken Yeager; Dorene D'Adamo; Barbara Riordan; John R. Balmes; Lydia H. Kennard; Sandra Berg; Ron Roberts; John G. Telles, in his official capacity as member of the California Air Resources Board; Ronald O. Loveridge, in his official capacity as member of the California Air Resources Board; Edmund G. Brown, Jr., in his official capacity as Governor of the State of California; Kamala D. Harris, Attorney General, in her official capacity as Attorney General of the State of California, Defendants-Appellants, Environmental Defense Fund; Natural Resources Defense Council; Sierra Club; Conservation Law Foundation, Intervenor-Defendants-Appellants. Rocky Mountain Farmers Union; Redwood County Minnesota Corn and Soybean Growers; Penny Newman Grain, Inc.; Rex Nederend; Fresno County Farm Bureau; Nisei Farmers League; California Dairy Campaign; Growth Energy; Renewable Fuels Association; American Fuel & Petrochemical Manufacturers Association, FKA National Petrochemical &Refiners Association; American Truckings Associations; Center for North American Energy Security; The Consumer Energy Alliance, Plaintiffs-Appellees,
Richard W. Corey, in his official capacity as Executive Officer of the California Air Resources Board; Mary D. Nichols; Daniel Sperling; Ken Yeager; Dorene D'Adamo; Barbara Riordan; John R. Balmes; Lydia H. Kennard; Sandra Berg; Ron Roberts; John G. Telles, in his official capacity as member of the California Air Resources Board; Ronald O. Loveridge, in his official capacity as member of the California Air Resources Board; Edmund G. Brown, Jr., in his official capacity as Governor of the State of California; Kamala D. Harris, Attorney General, in her official capacity as Attorney General of the State of California, Defendants-Appellants, Environmental Defense Fund; Natural Resources Defense Council; Sierra Club; Conservation Law Foundation, Intervenor-Defendants-Appellants. Variance Variance Variance Intensity Pathway Description
Argued and Submitted October 16, 2012 —San Francisco, California
Appeal from the United States District Court D.C. Nos. 1:09-cv-02234-LJO-GSA, 1:10-cv-00163-LJO-DLB for the Eastern District of California Lawrence J. O'Neill, District Judge, Presiding
M. Elaine Meckenstock (argued), Deputy Attorney General, Kamala D. Harris, Attorney General of California, Kathleen A. Kenealy, Senior Assistant Attorney General, Robert W. Byrne, Supervising Deputy Attorney General, Mark W. Poole, Gavin G. McCabe, David A. Zonana, Deputy Attorneys General, San Francisco, California, for Defendants-Appellants.
Sean H. Donahue (argued) Donahue & Goldberg, LLP, Washington, D.C., Timothy Joseph O'Connor, Environmental Defense Fund, San Francisco, California; James T.B. Tripp, Environmental Defense Fund, New York, New York; David Richard Pettit, Natural Resources Defense Council, Santa Monica, California; Joanne Spalding and Devorah Ancel, Sierra Club, San Francisco, California; Jennifer Kate Rushlow, Conservation Law Foundation, Boston, Massachusetts, for Intervenor-Defendant-Appellants.
Peter D. Keisler (argued), Roger R. Martella, Jr., Paul Zidlicky, Eric D. McArthur, and Ryan C. Morris, Sidley Austin LLP, Washington, D.C.; Kurt E. Blase, Holland & Knight, LLP, Washington, D.C., for Plaintiffs-Appellees American Fuels & Petrochemical Manufacturers Association (formerly known as National Petrochemical and Refiners Association), American Trucking Associations, the Center for North American Energy Security, and the Consumer Energy Alliance.
John C. O'Quinn (argued), Michael W. McConnell, Stuart A.C. Drake, Katherine Crytzer, Kirkland & Ellis LLP, Washington, D.C.; Howard R. Rubin, Charles H. Knauss, Jennifer Baker Loeb, Katten Muchin Rosenman LLP, Washington, D.C.; Shannon S. Broome, Katten Muchin Rosenman LLP, Oakland, California; Timothy Jones and John P. Kinsey, Wanger Jones Helsley PC, Fresno, California, for Plaintiffs-Appellees Rocky Mountain Farmers Union; Redwood County Minnesota Corn and Soybeans Growers; Penny Newman Grain, Inc.; Fresno County Farm Bureau; Nisei Farmers League; California Dairy Campaign; Rex Nederend; Growth Energy; and the Renewable Fuels Association.
Jon Bruning, Nebraska Attorney General, Kevin L. Griess and Katherine J. Spohn, Assistant Attorneys General, Lincoln, Nebraska, for Amici Curiae States of Nebraska, Illinois, Iowa, Kansas, Michigan, Missouri, North Dakota, Ohio, and South Dakota.
Kevin Murray Fong, Pillsbury Winthrop Shaw Pittman LLP, San Francisco, California, for Amici Curiae Western States Petroleum Association and Oregon Petroleum Association.
Michael Rhead Enion, Sean Hecht, and Cara Horowitz, Frank G. Wells Environmental Law Clinic, UCLA School of Law, Los Angeles, California, for Amici Curiae Truman National Security Project and Truman National Security Institute.
Katherine Mayer Mangan, Mayer Mangan, PLC, San Diego, California, for Amicus Curiae Brazilian Sugarcane Industry Association.
Matthew Dwight Zinn, Shute, Mihaly, and Weinberger, San Francisco, California, for Amicus Curiae Professors of Environmental Law. Deborah Ann Sivas, Alicia E. Thesing, Matthew H. Armsby, Daniel Cullenward, Mills Legal Clinic at Stanford Law School, Stanford, California, for Amici Curiae Ken Caldeira, Ph.D., W. Michael Hanemann, Ph.D., John Harte, Ph.D., Katharine Hayhoe, Ph.D., James C. McWilliams, Ph.D., Michael Oppenheimer, Ph.D., Terry Root, Ph.D., Richard Somerville, Ph.D., John M. Wallace, Ph.D., James Zachos, Ph.D., and William R.L. Anderegg.
Pierre G. Basmaji, Law Office of Pierre G. Basmaji, San Francisco, California, for Amicus Curiae Ecoshift Consulting, LLC.
Deborah A. Sivas, Alicia E. Thesing, Leah J. Russin, Matthew H. Armsby, David Weiskopf, Mills Legal Clinic at Stanford Law School, Stanford, California, for Amici Curiae Michael Wang, Ph.D., Thomas L.Theis, Ph.D., Greg Thoma, Ph.D., Matthew Eckelman, Ph.D., and Kimberley Mullins, Ph.D. Candidate.
John R. Kroger, Attorney General of Oregon, Anna M. Joyce, Solicitor General, Denise G. Fjordbeck, Attorney-in-Charge, Civil/Administrative Appeals, Cecil A. Reniche-Smith, Assistant Attorney General, Salem, Oregon; Douglas F. Gansler, Attorney General of Maryland, Maryland Department of the Environment, Baltimore, Maryland; Martha Coakley, Attorney General of Massachusetts, Boston, Massachusetts; Eric T. Schneiderman, Attorney General of New York, New York, New York; Peter F. Kilmartin, Attorney General of Rhode Island, Providence, Rhode Island; William H. Sorrell, Attorney General of Vermont, Montpelier, Vermont; Robert M. McKenna, Attorney General of Washington, Olympia, Washington, for Amici Curiae States of Maryland, Massachusetts, New York, Oregon, Rhode Island, Vermont, and Washington.
Jason A. Levine, John P. Elwood, and Jeremy C. Marwell, Vinson & Elkins LLP, Washington, D.C.; Robin S. Conrad and Rachel L. Brand, National Chamber Litigation Center, Inc., Washington, D.C.; Harry M. Ng and Erik C. Baptist, American Petroleum Institute, Washington, D.C., for Amici Curiae Chamber of Commerce of the United States of America and the American Petroleum Institute.
Edward C. Mosca, Legal Counsel, New Hampshire House of Representatives, Concord, New Hampshire, for Amici Curiae Peter Bragdon, President of the New Hampshire State Senate, and William L. O'Brien, Speaker of the New Hampshire House of Representatives.
Elbert Lin and Samuel B. Gedge, Wiley Rein LLP, Washington, D.C., for Amicus Curiae Law Professors.
Joshua W. Abbot, Gary E. Marchant, Center for Law, Science & Innovation, Sandra Day O'Connor College of Law, Tempe, Arizona, for Amici Curiae Scientific Experts.
Gary J. Smith, Beveridge & Diamond, PC, San Francisco, California, for Amicus Curiae California Manufacturers & Technology Association.
Tammy W. Klein, Hart Energy, Houston, Texas, for Amicus Curiae Hart Energy.
Before: Dorothy W. Nelson, Ronald M. Gould, [*] and Mary H. Murguia, Circuit Judges.
Fuel Standards/Commerce Clause
The panel affirmed in part and reversed in part the district court's summary judgment, and vacated the district court's preliminary injunction and remanded in an action which alleged that California's Low Carbon Fuel Standard, Cal. Code Regs. tit. 17, §§ 95480–90 (2011), violated the dormant Commerce Clause and was preempted by Section 211(o) of the Clean Air Act, 42 U.S.C. § 7545(o).
The panel held that the Fuel Standard's ethanol provisions were not facially discriminatory, and reversed that portion of the district court's decision and remanded for entry of partial summary judgment in favor of California Air Resources Board ("CARB"). The panel also reversed the district court's decision that the Fuel Standard was an impermissible extraterritorial regulation and the panel directed that an order of partial summary judgment be entered in favor of CARB on those grounds. The panel remanded the case for the district court to determine whether the ethanol provisions discriminate in purpose or effect and, if not, to apply the balancing test established in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).
The panel affirmed the district court's conclusion that the Fuel Standard's crude oil provisions (the 2011 Provisions), were not facially discriminatory, but reversed the district court's holding that the 2011 Provisions were discriminatory in purpose and effect. The panel directed the district court to enter an order of partial summary judgment in favor of CARB on those issues. The panel remanded to the district court to apply the Pike balancing test to the 2011 Provisions.
The panel affirmed the district court's conclusion that Section 211(c)(4)(b) of the Clean Air Act does not insulate California from scrutiny under the dormant Commerce Clause.
The panel remanded to the district court with instructions to vacate the preliminary injunction. The panel expressed no opinion on plaintiffs' claim that the Fuel Standard is preempted by the federal Renewable Fuel Standard (RFS). The panel also expressed no opinion on CARB's claim that the savings clause in the Energy Independence and Security Act of 2007 precludes implied preemption by the RFS.
Concurring in part and dissenting in part, Judge Murguia agreed with the majority's conclusions concerning the crude oil regulations and preemption under the Clean Air Act. She dissented from the majority's conclusion that ethanol regulations do not facially discriminate against interstate commerce.
GOULD, Circuit Judge
Whether global warming is caused by carbon emissions from our industrialized societies is a question for scientists to ponder. Whether, if such a causal relationship exists, the world can fight or retard global warming by implementing taxes or regulations that deter carbon emissions is a question for economists and politicians to decide. Whether one such regulatory scheme, implemented by the State of California, is constitutional under the United States Constitution's Commerce Clause is the question that we consider in this opinion.
Plaintiffs-Appellees Rocky Mountain Farmers' Union et al. ("Rocky Mountain") and American Fuels & Petrochemical Manufacturers Association et al. ("American Fuels") separately sued Defendant-Appellant California Air Resources Board ("CARB"), contending that the Low Carbon Fuel Standard ("Fuel Standard"), Cal. Code Regs. tit. 17, §§ 95480–90 (2011), violated the dormant Commerce Clause and was preempted by Section 211(o) of the Clean Air Act, 42 U.S.C. § 7545(o), known as the federal Renewable Fuel Standard ("RFS"). In three rulings issued in December 2011, the district court held that the Fuel Standard (1) facially discriminated against out-of-state ethanol; (2) impermissibly engaged in the extraterritorial regulation of ethanol production; (3) discriminated against out-of-state crude oil in purpose and effect; and (4) was not saved by California's preemption waiver in the Clean Air Act. See Rocky Mountain Farmers Union v. Goldstene ("Rocky Mountain Ethanol"), 843 F.Supp.2d 1071, 1090, 1093 (E.D. Cal. 2011); Rocky Mountain Farmers Union v. Goldstene ("Rocky Mountain Preemption"), 843 F.Supp.2d 1042, 1070 (E.D. Cal. 2011); Rocky Mountain Farmers Union v. Goldstene ("Rocky Mountain Crude"), Nos. CV-F-09-2234 LJO DLB, CV-F-10-163 LJO DLB, 2011 WL 6936368, at *12–14 (E.D. Cal. Dec. 29, 2011). The district court applied strict scrutiny, and although it reasoned that the Fuel Standard served a legitimate state purpose, it concluded that CARB had not shown that its purpose could not be achieved in a nondiscriminatory way. Rocky Mountain Ethanol, 843 F.Supp.2d at 1093–94; Rocky Mountain Crude, 2011 WL 6936368 at *15–16. The district court granted American Fuels's motions for summary judgment on its Commerce Clause claims, and it granted Rocky Mountain's request for a preliminary injunction, finding that Rocky Mountain was likely to succeed on the merits of its Commerce Clause challenge and raised "serious questions" about whether the Fuel Standard was preempted by the RFS. Rocky Mountain Ethanol, 843 F.Supp.2d at 1103. The appeals of the orders were consolidated.
We hold that the Fuel Standard's regulation of ethanol does not facially discriminate against out-of-state commerce, and its initial crude-oil provisions (the "2011 Provisions") did not discriminate against out-of-state crude oil in purpose or practical effect. Further, the Fuel Standard does not violate the dormant Commerce Clause's prohibition on extraterritorial regulation. We vacate the preliminary injunction and remand to the district court to consider whether the Fuel Standard's ethanol provisions discriminate in purpose or in practical effect. If so, then the district court should apply strict scrutiny to those provisions. If not, then the district court should apply the balancing test established in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), to the Fuel Standard's ethanol provisions. The district court is directed to apply the Pike balancing test to the 2011 Provisions for crude oil. Id. To prevail under that test, Plaintiffs-Appellees must show that the Fuel Standard imposes a burden on interstate commerce that is "clearly excessive" in relation to its local benefits. Id. at 142.
California has long been in the vanguard of efforts to protect the environment, with a particular concern for emissions from the transportation sector. Since 1957, California has acted at the state level to regulate air pollution from motor vehicles. Motor & Equip. Mfrs. Ass'n v. EPA ("MEMA"), 627 F.2d 1095, 1109 n.26 (D.C. Cir. 1979) (citing 1957 Cal. Stats., chap. 239, § 1). Based on this expertise, "[t]he first federal emission standards were largely borrowed from California." Id. at 1110 & n.34.
When instituting uniform federal regulations for air pollution in the Clean Air Act, "Congress consciously chose to permit California to blaze its own trail with a minimum of federal oversight." Ford Motor Co. v. EPA, 606 F.2d 1293, 1297 (D.C. Cir. 1979). Section 209(a) of the Clean Air Act expressly prohibited state regulation of emissions from motor vehicles. 42 U.S.C. § 7543(a). But the same section allowed California to adopt its own standards if it "determine[d] that the State standards will be, in the aggregate, at least as protective of public health and welfare as applicable Federal standards." Id. § 7543(b). Other states could choose to follow either the federal or the California standards, but they could not adopt standards of their own. Id. § 7507. The auto industry strenuously objected to this waiver provision and was "adamant that the nature of [its] manufacturing mechanism required a single national standard in order to eliminate undue economic strain on the industry." MEMA, 627 F.2d at 1109 (quoting S. Rep. No. 403, at 33 (1967)). But Congress decided to encourage California "to continue and expand its pioneering efforts at adopting and enforcing motor vehicle emission standards different from and in large measure more advanced than the corresponding federal program; in short, to act as a kind of laboratory for innovation." Id. at 1111. So California's role as a leader in developing air-quality standards has been explicitly endorsed by Congress in the face of warnings about a fragmented national market.
Continuing its tradition of leadership, the California legislature enacted Assembly Bill 32, the Global Warming Solutions Act of 2006. The legislature found that "[g]lobal warming poses a serious threat to the economic well-being, public health, natural resources, and the environment of California." Cal. Health & Safety Code § 38501(a). These threats included "exacerbation of air quality problems, a reduction in the quality and supply of water to the state from the Sierra snowpack, [and] a rise in sea levels resulting in the displacement of thousands of coastal businesses and residences." Id. This environmental damage would have "detrimental effects on some of California's largest industries, including agriculture, wine, tourism, skiing, recreational and commercial fishing and forestry" and would "increase the strain on electricity supplies." Id. § 38501(b).
Faced with these threats, California resolved to reduce its greenhouse gas ("GHG") emissions to their 1990 level by the year 2020, and it empowered CARB to design emissions-reduction measures to meet this goal. Id. § 38501(e), (g). In Assembly Bill 32, the legislature told CARB to issue regulations, including scoping and reporting requirements to achieve maximum technologically and economically feasible reductions, see, e.g., id. § 38561(a), a cap and trade program to enforce limits on carbon emissions from a variety of domestic sources, id. § 38562(c), and regulations seeking to reduce GHG emissions from the transportation sector, see, e.g., id. § 38562(a); Cal. Code Regs. tit. 13, § 1961.1.
The Assembly Bill 32 scoping plan required CARB to consider "the relative contribution of each source or source category to statewide greenhouse gas emissions." Cal. Health & Safety Code § 38561(e). In California, transportation emissions account for more than 40% of GHG emissions—the state's largest single source. Cal. Exec. Order No. S-01-07 (January 18, 2007). Given the relative import of these emissions, CARB adopted a three-part approach designed to lower GHG emissions from the transportation sector: (1) reducing emissions at the tailpipe by establishing progressively stricter emissions limits for new vehicles ("Tailpipe Standards"), Cal. Code Regs. tit. 13, § 1961.1 (2001); (2) integrating regional land use, housing, and transportation planning to reduce the number of "vehicle miles traveled" each year ("VMT Standards"), see Cal. Gov't Code § 65080; and (3) lowering the embedded GHGs in transportation fuel by adopting the Fuel Standard to reduce the quantity of GHGs emitted in the production of transportation fuel, Cal. Code Regs. tit. 17, §§ 95480–90.
The Tailpipe and VMT Standards work on the demand side: they aim to lower the consumption of GHG-generating transportation fuels. The Fuel Standard, by contrast, is directed at the supply side, creating an alternate path to emissions reduction by reducing the carbon intensity of transportation fuels that are burned in California.
On January 18, 2007, the California governor issued Executive Order S-01-07, which directed CARB to adopt regulations that would reduce the average GHG emissions attributable to California's fuel market by ten percent by 2020. The Fuel Standard, developed in response, applies to nearly all transportation fuels currently consumed in California and any fuels developed in the future. Id. § 95480.1(a). In 2010, regulated parties were required to meet the Fuel Standard's reporting requirements but were not bound by a carbon intensity cap. Id. § 95482(a). Beginning in 2011, the Fuel Standard established a declining annual cap on the average carbon intensity of California's transportation-fuel market. Id. § 95482(b). By setting a predictable path for emissions reduction, the Fuel Standard is intended to spur the development and production of low-carbon fuels, reducing overall emissions from transportation.
To comply with the Fuel Standard, a fuel blender must keep the average carbon intensity of its total volume of fuel below the Fuel Standard's annual limit. Id. § 95482(a). Fuels generate credits or deficits, depending on whether their carbon intensity is higher or lower than the annual cap. Id. § 95485(a). Credits may be used to offset deficits, may be sold to other blenders, or may be carried forward to comply with the carbon intensity cap in later years. Id. § 95485. With these offsets, a blender selling high carbon intensity fuels can comply with the Fuel Standard by purchasing credits from other regulated parties; no regulated party is required to sell any particular fuel or blend of fuels with a certain carbon intensity or origin. To build a durable and effective marketplace to stimulate the development of alternative fuels, the Fuel Standard created a market for trading, banking, and borrowing Fuel Standard credits. Id.; see also ISOR ES-1. CARB expects that the demand for credits will encourage producers, wherever they are located, to develop fuels with lower carbon intensities for use within the California market.
The Fuel Standard uses a "lifecycle analysis" to determine the total carbon intensity of a given transportation fuel. Because GHGs mix in the atmosphere, all emissions related to transportation fuels used in California pose the same local risk to California citizens. "'That these climate change risks are widely-shared does not minimize [California's] interest' in reducing them." Rocky Mountain Ethanol, 843 F.Supp.2d at 1093 (quoting Massachusetts v. EPA, 549 U.S. 497, 522 (2007)) (alteration in original) (internal quotation marks omitted). One ton of carbon dioxide emitted when fuel is produced in Iowa or Brazil harms Californians as much as one emitted when fuel is consumed in Sacramento. The Tailpipe Standards control only emissions within California. Without lifecycle analysis, all GHGs emitted before the fuel enters a vehicle's gas tank would be excluded from California's regulation. Similarly, the climate-change benefits of biofuels such as ethanol, which mostly come before combustion, would be ignored if CARB's regulatory focus were limited to emissions produced when fuels are consumed in California.
With a one-sided focus on consumption, even strong tailpipe-emissions standards would let GHG emissions rise during fuel production. Tailpipe standards could sharply reduce emissions from each individual vehicle without reducing net GHG emissions. In the extreme, rising emissions from production could raise total GHG emissions, completely subverting tailpipe-emissions limits. As an example, CARB analyzed the carbon intensity of ethanol produced in the Midwest using coal for electricity and heat. That method of production yields a carbon intensity more than twenty-percent higher than gasoline. See Cal. Code Regs. tit. 17, § 95486(b)(1), tbl.6 ("Table 6"). No tailpipe standard could capture that difference. If the ethanol were credited for the carbon dioxide absorbed during cultivation of the corn feedstock, it would look superior to gasoline from a GHG perspective at the tailpipe. But any shift from gasoline to that form of ethanol would increase net GHG emissions and subject California to greater risk.
To avoid these perverse shifts, CARB designed the Fuel Standard to account for emissions associated with all aspects of the production, refining, and transportation of a fuel, with the aim of reducing total, well-to-wheel GHG emissions. See id. § 95481(a)(38). When these emissions are measured, CARB assigns a cumulative carbon intensity value to an individual fuel lifecycle, which is called a "pathway." Id. § 95481(a)(14).
The importance of lifecycle analysis is shown clearly by the diversity of the California fuel market, which includes fuels made with many different source materials, called "feedstocks, " and production processes. As of June 2011, CARB has performed lifecycle analyses of fuels made from petroleum, natural gas, hydrogen, electricity, corn, sugarcane, used cooking oil, and tallow. Id. § 95486(b)(1). Fuels made from these feedstocks generate or avoid emissions at different stages of their production, transportation, and use, depending on when the conversion to fuel requires or displaces energy. An accurate comparison is possible only when it is based on the entire lifecycle emissions of each fuel pathway.
Recognizing the need for a reliable method to compare the lifecycle emissions of diverse fuels, the Argonne National Laboratory developed the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation Model ("GREET"). GREET, first published in 1996 and revised and peer reviewed several times since, incorporates comprehensive data on the lifecycle emissions of various fuels. The Environmental Protection Agency ("EPA") uses GREET for lifecycle analysis in the RFS, which mandates the use of low-carbon-intensity biofuels in the United States fuel supply. See 78 Fed. Reg. 14190, 14209 (Mar. 5, 2013). State agencies in Oregon, Minnesota, and New York have also used GREET to estimate emissions from the production of alternative fuels. In designing the Fuel Standard, CARB used GREET as the basis for its lifecycle-emissions model for fuels used in California. That peer-reviewed model, called CA-GREET, incorporates detailed information about local conditions, including California's stringent environmental regulations and low-carbon electricity supply.
To provide a baseline against which to compare future reductions, CARB measured the average carbon intensity of the 2010 gasoline market at 95.86 grams of carbon-dioxide equivalent per mega joule ("gCO2e/MJ") of energy. Cal. Code Regs. tit. 17, § 95486(b). In 2011, the carbon intensity cap was set 0.25% below the 2010 average. Id. § 95482. From 2011 to 2020, each annual limit will be a further reduction from that baseline. Id. § 95482(b). After reviewing ethanol sales in different markets during 2011, the Oil Price Information Service reported that fuels with lower carbon intensities received a price premium in California. So this program is starting to work as intended.
The Fuel Standard gives regulated parties two methods to comply with its reporting requirements. First, CARB issued a schedule of "default pathways" for a range of fuels that it anticipated would appear in the California market. These default pathways provided average values for the CA-GREET factors for these anticipated fuels. The resulting default pathways for ethanol appear in Table 6, which we attach as Appendix One. Under Method 1, regulated parties who sell fuel under a default pathway may rely on that pathway in reporting the carbon intensity of the conforming fuel. Id. § 95486(b).
Second, the Fuel Standard allows regulated parties to register individualized pathways using Method 2A or 2B. Id. § 95486(c), (d). Under Method 2A, a regulated party relies in part on a default pathway but proposes a replacement for one or more of the pathway's average values. Id. § 95486(c). Under Method 2B, a regulated party proposes a new, individualized pathway. Id. § 95486(d). To qualify for Method 2A, the proposed pathway must have a carbon intensity at least 5 gCO2e/MJ less than the default pathway it seeks to replace, and it must be expected to supply more than 10 million gasoline-equivalent gallons per year in California. Id. § 95486(e)(2). There is no such threshold for Method 2B. Id. § 95486(e). Once CARB approves a Method 2A or 2B pathway, the pathway remains available for use without further documentation unless there is a material change. Id. § 95484(c)(2)(D). Thus fuel producers can take advantage of default and individualized carbon intensity values, and choose what is most advantageous.
Ethanol is an alcohol produced through fermentation and distillation of a variety of organic feedstocks. Most domestic ethanol comes from corn. Brazilian sugarcane dominates the import market. See 75 Fed. Reg. 14670, 14743, 14746–47 (Mar. 26, 2010). Ethanol production is a resource-intensive process, requiring electricity and steam. Id. at 14745. Steam is usually produced on site with coal or natural gas in dedicated boilers. Id. The choices of type of feedstock, source of electricity, and source of thermal energy affect the carbon intensity of the fuel pathway. To illustrate, ethanol made with sugarcane, hydroelectricity, and natural gas would produce lower emissions than ethanol made from corn and coal. Id. To determine the total carbon intensity values for each ethanol pathway, the CA-GREET model considers the carbon intensity of factors including: (1) growth and transportation of the feedstock, with a credit for the GHGs absorbed during photosynthesis; (2) efficiency of production; (3) type of electricity used to power the plant; (4) fuel used for thermal energy; (5) milling process used; (6) offsetting value of an animal-feed co-product called distillers' grains, that displaces demand for feed that would generate its own emissions in production; (7) transportation of the fuel to the blender in California; and (8) conversion of land to agricultural use.
On Table 6, CARB separates these factors into those that are correlated with location and those that are not, using a regional identifier as a shorthand for the factors correlated with location. The milling process, co-product, and source of thermal energy are not correlated with region, so they are labeled individually. Factors related to transportation, efficiency, and electricity are correlated with a plant's location in the Midwest, Brazil, or California. For example, California ethanol plants are newer and more efficient on average than those in the Midwest, using less thermal energy and electricity in the production process. Also, the electricity available on the grid in the Midwest produces more emissions in generation than electricity in California or Brazil because much of the electricity in the Midwest is generated by coal-fired power plants. By contrast, California receives most of its power from renewable sources and natural gas, and Brazil relies almost entirely on hydroelectricity.
Emissions from transporting the feedstock and the refined fuel are related to location, but they are not directly proportionate to distance traveled. Transportation emissions reflect a combination of: (1) distance traveled, including distance traveled inside California to the fuel blender; (2) total mass and volume transported; and (3) efficiency of the method of transport. California ethanol produces the most transportation emissions because California grows no corn for ethanol, so its producers import raw corn, which is bulkier and heavier than the refined ethanol shipped by producers in Brazil and the Midwest. Brazilian ethanol produces fewer emissions than the 7, 500 miles it travels would suggest because ocean tankers are very efficient. Midwest ethanol, going one third of that distance, produces the least. As a result, total transportation emissions for California ethanol are 8.1 gCO2e/MJ, compared to 5.5 for Brazil and 4.8 for the Midwest. Brazilian GREET Pathways 6. This advantage in transportation is reflected in the location of ethanol plants, which are mainly located in the Midwest near sources of corn. 75 Fed. Reg. at 14745. California producers gain a larger credit for distillers' grains because those grains are consumed in California, so they do not travel as far from the plant to the point of consumption.
We attach two excerpts from Table 6 as appendices. Appendix One reproduces the ethanol pathways from the Midwest, California, and Brazil in Table 6. Appendix Two breaks out two default corn ethanol pathways from Table 6, individually showing each of the regionally correlated factors that determine the carbon intensity values of those pathways. The ethanol pathways detailed in Appendix Two both use a dry-mill production process with natural gas as a heat source and produce dry distillers' grains as a co-product. As shown in these tables, California's combination of more efficient plants and greater access to low-carbon electricity outweighs Midwest ethanol's lower transportation emissions, leaving California ethanol with a 7.2 gCO2e/MJ lower carbon intensity for the factors correlated with region. California ethanol producers import their corn from the Midwest, so the two regions have ...