LAW:

Lawyers go west as climate litigation warms up

SAN FRANCISCO -- Next month, the climate change litigation circus leaves Washington, D.C. First stop: the James R. Browning U.S. Courthouse.

The elaborate Beaux Arts structure in an otherwise unremarkable district south of Market Street here is home to the 9th U.S. Circuit Court of Appeals. On Oct. 16, a three-judge panel will hear arguments on the legality of a California regulation that sets a low carbon fuel standard for transportation fuels in the state. It is the first such regulation in the nation.

That case emphasizes how California is increasingly rivaling, if not surpassing, Washington as the center for climate litigation in the United States, reflecting the fact that the Golden State is acting on climate change in a way that neither the Obama administration nor Congress is at the moment in the aftermath of the dramatic failure to enact a national cap-and-trade program.

"California is becoming the second primary node for climate litigation," said Michael Gerrard, director of the Center for Climate Change Law at Columbia Law School. "Previously, it was mostly in Washington."

The attention earlier this year was on the fight in the U.S. Court of Appeals for the District of Columbia Circuit over the Obama administration's greenhouse gas regulations. The court upheld the rules in June, although states and business groups that oppose them have asked for a rehearing and are expected to seek Supreme Court review (Greenwire, June 27).

On the West Coast, the case being argued next month, Rocky Mountain Farmers Union v. Goldstene, is one of the first -- and the most important to date -- of what is expected to be many legal challenges to state regulations arising from the landmark climate change law, enacted in 2006, known as A.B. 32.

Among other things, A.B. 32 paved the way for a cap-and-trade system that is in the process of being implemented in California. Business interests opposed to the program are expected to battle it every step of the way, although they are reluctant to discuss their litigation strategy in public.

"We certainly won't be surprised if there is more litigation to come," said Dave Clegern, a spokesman for the California Air Resources Board. "We are prepared to defend the programs to whatever extent necessary."

Timothy O'Connor, an attorney at the Environmental Defense Fund, is also ready for the fight. His organization was intimately involved in the passage of A.B. 32. He is leading a team of attorneys that will help the state -- represented by the office of Attorney General Kamala Harris (D) -- defend it.

"It's one of the most important things we can do in the nation on climate at this moment," O'Connor said in a recent interview at EDF's San Francisco office. "This is one of the turning points for the nation."

Certain business interests -- some are on board with A.B. 32 -- will do "everything and anything to stop A.B. 32," he added.

Setting the standard

The low carbon fuel standard case will likely set the tone for future litigation over A.B. 32.

Those challenging the regulation, which is intended to reduce the carbon content of transportation fuels sold in the state by 10 percent by 2020, include out-of-state ethanol producers and oil refiners, who claim they are unlawfully injured by the requirement.

That is because the law takes into account the life-cycle greenhouse gas emissions of fuel, including emissions produced during production and transportation to California. Various business groups, including the U.S. Chamber of Commerce and the American Petroleum Institute, which both also joined the attack on the Obama administration greenhouse gas rules, are backing the challenge.

The focus is on the Commerce Clause of the Constitution, which allows Congress to regulate commerce among the states. More specifically, the challengers have focused on what is known as the "dormant" Commerce Clause. Under that doctrine, there are restrictions on the ability of states to enact legislation that puts up obstacles to interstate commerce.

In December 2011, U.S. District Judge Lawrence O'Neill of the Eastern District of California ruled that the fuel standard did violate the dormant Commerce Clause. He issued an injunction, since lifted by the 9th Circuit, that prevented the state from enforcing the standard.

In two separate orders, O'Neill concluded that the standard "discriminates against out-of-state corn-derived ethanol while favoring in-state corn ethanol and impermissibly regulates extraterritorial conduct" and "discriminates against out-of-state and foreign crude oil while giving an economic advantage to in-state crude oil."

His ruling is important in two respects. First, it set up the case now before the 9th Circuit. But perhaps more importantly, it gave opponents of A.B. 32 hope that the dormant Commerce Clause could come to their aid in other challenges to the law, including the cap-and-trade program.

The ruling "opens up a new set of tools for challengers to A.B. 32," said Cara Horowitz, executive director of the Emmett Center on Climate Change and the Environment at the University of California, Los Angeles, School of Law. She worked on an amicus brief in support of the regulation that was filed by the Truman National Security Project.

Horowitz said she thinks the fuel standard is probably the most vulnerable of the A.B. 32-related regulations.

The industry and state opponents certainly hope so. In a brief filed on behalf of the American Fuel and Petrochemical Manufacturers and other industry groups, Peter Keisler of the Sidley Austin law firm insisted that the challenge is not merely a way to combat attempts to address concerns raised by climate change.

Rather, challengers want to show that the ARB designed the fuel standard both to "decrease California's use of ... the Midwest corn ethanol that dominates California's biofuel market" and "to promote in their place the development of an in-state California biofuel industry while protecting in-state crude oil sources from competition from imported crude oils," Keisler wrote.

Keisler, who will argue the case for the challengers, has become something of a go-to lawyer for those challenging environmental regulations. Most recently he successfully argued in the D.C. Circuit that the Obama administration's cross-state air pollution rule should be invalidated (Greenwire, Aug. 21). He was part of the legal team that had less success challenging the administration's greenhouse gas regulations

Those who support the fuel standard insist its legal footing is not as fragile as Keisler makes it out to be.

Sean Donahue, a lawyer working with EDF on the litigation -- and, like Keisler, a veteran of the D.C. Circuit greenhouse gas litigation -- said it is not much different from other state regulations.

"We think in important ways this regulation is just a new form of what states already do and by common consent can do," he said.

Donahue cited consumer product regulations of food that states like California routinely exercise.

In the case before the 9th Circuit, "the only products being regulated are those being sold in California," he said. "That's traditional state police power regulation."

Some legal observers think the case could end up at the Supreme Court, where the outcome would be anything but certain. While the 9th Circuit is usually seen as sympathetic to environmental interests and the high court less so, any case that rests on the dormant Commerce Clause would be different, legal scholars observe. Some of the conservative justices, namely Antonin Scalia and Clarence Thomas, are thought to favor greater freedom for states to conduct their own affairs.

"These cases are always hard to predict in the Supreme Court," said Daniel Farber, an environmental law professor at the University of California, Berkeley, School of Law. The fuel standard case is certainly "a possible case for Supreme Court review," he added.

Laundry list

Legal experts examining current and potential challenges to A.B. 32 can easily compile a laundry list that begins but doesn't end with challenges focused on interstate commerce.

Early skirmishes over the law have been led by some environmentalists who don't support it, either because they claim it would have a negative impact on minority communities or because the law's provision that allows the use of carbon offsets does not do enough to reduce emissions. A state appeals court ruled in favor of the state in a case raising the first argument (Greenwire, June 20). The second question is still pending before a state court (E&ENews PM, March 28).

Looking ahead, groups that have been critical of A.B. 32 are keeping their cards close to their chests.

Gino DiCaro, a spokesman for the California Manufacturers and Technology Association, would say only that his organization is not currently involved in any litigation beyond the low carbon fuel standard case. But he conceded that he "wouldn't be surprised if litigation came up" in the future over other A.B. 32 matters.

Those watching developments closely are expecting further action as the state prepares to hold its first auction of permits under the cap-and-trade program. It is currently scheduled for November.

"With each of these steps, as you get closer and closer, the potential impact of the regulation becomes more and more apparent," EDF's O'Connor said. "That's probably why some of those businesses are saying it's going to happen right at the time the first auction occurs."

Of the many potential challenges (see sidebar), the one that may be receiving the most attention is the tax argument.

The state maintains that cap and trade is a fee, not a tax. It is an important distinction because at the time A.B. 32 was approved, any legislation that involved raising taxes had to be approved by a supermajority of the California Assembly, while legislation involving fees did not. In 2010, voters approved Proposition 26, which requires both fees and taxes to be passed with a supermajority.

Those following A.B. 32 developments think that there will likely be a lawsuit filed claiming that cap and trade is a tax. Some may also argue that, even if it is deemed a fee, Proposition 26 could somehow apply retroactively.

The tax question is "a very serious issue" that will be "heavily litigated," according to Richard Frank, director of the California Environmental Law and Policy Center at the University of California, Davis, School of Law.

Damien Schiff, an attorney at the Pacific Legal Foundation, a Sacramento-based conservative legal group, said his organization is "very much looking at ways" to challenge cap and trade on the tax question.

"If cap and trade can be characterized as a tax as opposed to a fee, it would be constitutionally infirm," Schiff said.

UCLA's Horowitz believes the tax question will be "the most compelling and hard fought" of the issues that end up in court.

'Nip around the edges'

In the short term, if the 9th Circuit upholds the fuel standard, it would be a boost for the state going into future litigation, according to Farber, who -- along with Frank -- joined an amicus brief filed by law professors who support the regulation.

"If that one is upheld, that will make it much harder to challenge the other things," he said. "I think it will indicate an awareness of the court of the realities of greenhouse gas regulations."

How the fuel standard case and others come out may depend in large part on whether the state manages to effectively frame the cases, according to Jonathan Adler, a law professor at Case Western Reserve University School of Law, an acknowledged skeptic when it comes to state regulatory efforts to combat climate change. The state needs to show not only that climate change is a problem it -- acting alone -- can help to address but also that there are no alternatives to achieve the same goals without discriminating against out-of-state interests, Adler said.

That is not an easy task. Judge O'Neill, for example, had ruled in the fuel standard case that lawyers for the state had failed "to establish that no alternative means exist to address their legitimate concerns of combating global warming."

The upcoming 9th Circuit argument "will come down to whether California can explain why this is important for California to do," Adler said.

From his perch back on the East Coast, Columbia Law School's Gerrard thinks the state will win that argument and isn't unduly worried about the fate of California's climate law as a whole.

The legal challenges "nip around the edges and don't endanger the heart of A.B. 32, even if they succeed," he said. "I do think A.B. 32 is here to stay."

Click here to read O'Neill's ruling on crude oil and the low carbon fuel standard.

Click here to read O'Neill's ruling on ethanol and the low carbon fuel standard.