Am. Fuel & Petrochemical Mfrs. v. O'Keeffe

• Decision Date: 07 September 2018
• Docket Number: No. 15-35834,15-35834
• Parties: AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS; American Trucking Associations, Inc., a trade association; Consumer Energy Alliance, a trade association, Plaintiffs-Appellants, v. Jane O'KEEFFE; Ed Armstrong; Morgan Rider; Colleen Johnson; Melinda Eden; Dick Pedersen; Joni Hammond; Wendy Wiles ; David Collier ; Jeffrey Stocum; Cory-Ann Wind; Lydia Emer; Leah Feldon; Greg Aldrich ; and Sue Langston, in their official capacities as officers and employees of the Oregon Department of Environmental Quality; Ellen F. Rosenblum, in her official capacity as Attorney General of the State of Oregon; Kate Brown, in her official capacity as Governor of the State of Oregon, Defendants-Appellees, California Air Resources Board; State of Washington; Oregon Environmental Council; Sierra Club; Natural Resources Defense Council; Environmental Defense Fund; Climate Solutions, Intervenor-Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

903 F.3d 903

AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS; American Trucking Associations, Inc., a trade association; Consumer Energy Alliance, a trade association, Plaintiffs-Appellants,

v.Jane O'KEEFFE; Ed Armstrong; Morgan Rider; Colleen Johnson; Melinda Eden; Dick Pedersen; Joni Hammond; Wendy Wiles ; David Collier ; Jeffrey Stocum; Cory-Ann Wind; Lydia Emer; Leah Feldon; Greg Aldrich ; and Sue Langston, in their official capacities as officers and employees of the Oregon Department of Environmental Quality; Ellen F. Rosenblum, in her official capacity as Attorney General of the State of Oregon; Kate Brown, in her official capacity as Governor of the State of Oregon, Defendants-Appellees,California Air Resources Board; State of Washington; Oregon Environmental Council; Sierra Club; Natural Resources Defense Council; Environmental Defense Fund; Climate Solutions, Intervenor-Defendants-Appellees.

No. 15-35834

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 6, 2018—Portland, Oregon

Filed September 7, 2018

Paul J. Zidlicky (argued), Paul J. Ray, and Roger R. Martella Jr., Sidley Austin LLP, Washington, D.C., for Plaintiffs-Appellants.

Denise Gale Fjordbeck (argued), Attorney-in-Charge; Benjamin Gutman, Solicitor General; Ellen F. Rosenblum, Attorney General; Civil/Administrative Appeals, Office of the Attorney General, Salem, Oregon; for Defendants-Appellees.

Amanda W. Goodin and Patti A. Goldman, Earthjustice, Seattle, Washington; David Pettit, Natural Resources Defense Council, Santa Monica, California; Joanne Spalding, Sierra Club, Oakland, California; Sean H. Donahue, Donahue & Goldberg LLP, Washington, D.C.; for Intervenor-Defendants-Appellees Oregon Environmental Council, Sierra Club, Natural Resources Defense Council, Environmental Defense Fund, and Climate Solutions.

Margaret Elaine Meckenstock (argued), Deputy Attorney General; Gavin G. McCabe, Supervising Deputy Attorney General; Robert W. Byrne, Senior Assistant Attorney General; Office of the Attorney General, Oakland, California; Thomas J. Young, Senior Counsel; Robert W. Ferguson, Attorney General; Office of the Attorney General, Olympia, Washington; for Intervenor-Defendants-Appellees California Air Resources Board and State of Washington.

Before: Raymond C. Fisher, N. Randy Smith, and Andrew D. Hurwitz, Circuit Judges.

Dissent by Judge N.R. Smith

HURWITZ, Circuit Judge

This case requires us to decide whether an Oregon program regulating the production and sale of transportation fuels based on greenhouse gas emissions violates the Commerce Clause, U.S. Const. art. I, § 8, cl. 3, or is preempted by § 211(c) of the Clean Air Act ("CAA"), 42 U.S.C. §§ 7401, 7545. The district court dismissed a complaint challenging the Oregon program. We affirm.

I. Background

A. The Oregon Program

In 2007, the Oregon legislature found that "[g]lobal warming poses a serious threat to the economic well-being, public health, natural resources and environment of Oregon," and identified "a need to ... take necessary action to begin reducing greenhouse gas emissions." Or. Rev. Stat. § 468A.200(3), (7). The legislature accordingly created the Oregon Clean Fuels Program (the "Oregon program") and instructed the Oregon Environmental Quality Commission ("OEQC") to adopt rules to decrease lifecycle greenhouse gas emissions from transportation fuels produced in or imported into Oregon. Or. Rev. Stat. §§ 468A.266 – 268. Between 2010 and 2015, the OEQC promulgated rules designed to reduce greenhouse gas emissions from use and production of transportation fuels in Oregon to at least 10% lower than 2010 levels by 2025. See Or. Admin. R. 340-253-0000 - 8100.¹

Under these rules, a regulated party must keep the average carbon intensity² of all transportation fuels used in Oregon below an annual limit. See id. 340-253-0100(6), - 8010, -8020. The annual carbon intensity limits become more stringent annually through 2025. See id .³

A fuel with a carbon intensity below the limit generates a credit, and one with a carbon intensity above the limit generates a deficit. See id. 340-253-0040(30), (35), -1000(5). Regulated parties must generate carbon intensity "credits" greater than or equal to their "deficits" on an annual basis. Regulated parties can buy or sell credits, store them for future use, or use them to offset immediate deficits. Thus, a "regulated party may demonstrate compliance in each compliance period either by producing or importing fuel that in the aggregate meets the standard or by obtaining sufficient credits to offset the deficits it has incurred for such fuel produced or imported into Oregon." Id. 340-253-0100(6).

The cumulative carbon intensity value attributed to the lifecycle of a particular type of fuel is called a "pathway." Id. 340-253-0040(46) (" ‘Fuel pathway’ means a detailed description of all stages of fuel production and use for any particular transportation fuel, including feedstock generation or extraction, production, distribution, and combustion of the fuel by the consumer. The fuel pathway is used to calculate the carbon intensity of each transportation fuel."); see also Rocky Mountain Farmers Union v. Corey , 730 F.3d 1070, 1081 (9th Cir. 2013) (noting a similar definition in California's Low Carbon Fuel Standard ("LCFS") ). The first phase of Oregon rules provided tables with default pathways for various fuels, "including feedstock generation or extraction, production, distribution, and combustion of the fuel by the consumer." Or. Admin. R. 340-253-0040(46), - 0400(1). During this phase, regulated parties could either use the default pathways, or seek approval for individualized pathways. Id. 340-253-0400(3), -0450.

The second phase of the Oregon rules introduced a scientific modeling tool called OR-GREET, based on "the Greenhouse gases, Regulated Emissions, and Energy in Transportation (GREET) model developed by Argonne National Laboratory" to calculate individualized pathways for non-petroleum fuels. Id. 340-253-0040(67), -0400(1); see also Rocky Mountain , 730 F.3d at 1080–84 (describing California LCFS, which also uses GREET modeling tools). The OR-GREET employs a "lifecycle analysis" to determine total carbon intensity, which includes emissions from the production, storage, transportation, and use of the fuels, thus accounting for "all stages of fuel production." Or. Admin. R. 340-253-0040(46). The lifecycle analysis allows a state to account for "the climate-change benefits of biofuels such as ethanol, which mostly come before combustion." Rocky Mountain , 730 F.3d at 1081. Lifecycle analysis also allows for an accurate comparison of the carbon effects of fuels produced using different production methods and source materials. See id. ("An accurate comparison is possible only when it is based on the entire lifecycle emissions of each fuel pathway.").

Producers and importers of ethanols and biodiesels can obtain carbon intensity scores in one of three ways. If a fuel has been assigned a carbon intensity score under the California LCFS, a regulated party can have that value adjusted for use in Oregon. Or. Admin. R. 340-253-0400(4)(a). Regulated parties can also use individualized carbon intensity scores calculated using the OR-GREET modeling tool. Id. 340-253-0500. If it is not possible to obtain an individualized value, a regulated party may also use a default pathway to report carbon intensity. See id. 340-253-0450.⁴ "Thus fuel producers can take advantage of default and individualized carbon intensity values, and choose what is most advantageous." Rocky Mountain , 730 F.3d at 1082.

Because of the uniquely harmful environmental effects of petroleum-based fuels, importers of petroleum-based gasoline and diesel—unlike producers and importers of other fuels—are required to use average carbon intensity pathways, based on the average carbon-intensity values of such fuels in Oregon.⁵ Or. Admin R. 340-253-0400(3)(a). This requirement was designed to promote the use and development of alternative fuels, because reliance solely on petroleum-based fuels would make targeted emissions reductions unattainable. See Rocky Mountain , 730 F.3d at 1085 ("No matter how efficiently crude oil is extracted and refined, it cannot supply [the targeted] level of reduction. To meet California's ambitious goals, the development and use of alternative fuels must be encouraged.").

B. Procedural Background

In March 2015, the American Fuel and Petrochemical Manufacturers, American Trucking Associations, and Consumer Energy Alliance (collectively, "American Fuel") filed this action against officials of the ODEQ and OEQC (the "Oregon defendants"), alleging that the Program violated the Commerce Clause and was preempted by § 211(c) of the CAA.⁶ The district court granted motions to intervene by several conservation organizations (the "Conservation Intervenors"),⁷ the California Air Resource Board, and the State of Washington (the "State Intervenors"). The Oregon defendants moved to dismiss the complaint for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), and the State Intervenors moved for judgment on the pleadings under Rule 12(c). The district court granted both motions, finding American Fuel's claims "largely barred" by this court's decision in Rocky Mountain about a virtually identical California program. The district court also concluded that the Oregon program did not discriminate in purpose or effect against out-of-state ethanol and was not preempted by the CAA.

We review the district court's judgment de novo, taking well-pleaded allegations of material fact as true and construing the complaint in the light most favorable to American Fuel. AlliedSignal, Inc. v. City of Phoenix , 182 F.3d 692, 695 (9th Cir. 1999).

II. The Commerce Clause

The Commerce Clause grants Congress the power "[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." U.S. Const. art. I,...