California's low-carbon rules blocked by judge

Fri Dec 30, 2011 9:25am EST

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(Reuters) - A federal judge in California has blocked that state's rules designed to favor producers of gasoline and other fuels that generate lower greenhouse gas emissions, a victory for ethanol producers and refiners.

District Judge Lawrence O'Neill of the federal court in Fresno issued a preliminary injunction on Thursday. He found that the regulation adopted in 2010 by the California Air Resources Board unconstitutionally discriminated against out-of-state producers and impermissibly tried to regulate commercial activities outside California.

That board plans to appeal, according to several published reports. It was not immediately available on Friday for comment.

The regulation was intended to force producers and refiners by 2020 to reduce their fuel's carbon footprint by 10 percent, as part of a state effort to reduce greenhouse gas emissions to 1990 levels by 2020.

It was adopted in the wake of a related 2007 executive order by Arnold Schwarzenegger, then the state's governor.

While Congress has constitutional power to regulate interstate commerce, state interference with such commerce is also limited under the so-called dormant Commerce Clause.

O'Neill said California violated this doctrine, saying the regulation "discriminates against out-of-state corn-derived ethanol while favoring in-state corn ethanol and impermissibly regulates extraterritorial conduct.

"California impermissibly treads into the province and powers of our federal government, reaches beyond its boundaries to regulate activity wholly outside of its borders, and offends the dormant Commerce Clause," he continued.

Industry participants applauded the decision, including Bob Dinneen, chief executive of the Renewable Fuels Association, and Tom Buis, chief executive of trade group Growth Energy. Those entities are plaintiffs in the case.

"With this ruling, it is our hope that the California regulators will come back to the table to work on a thoughtful, fair, and ultimately achievable strategy for improving our environment by incenting the growth and evolution of American renewable fuels," Dinneen and Buis said in a joint statement.

The case is Rocky Mountain Farmers Union et al v. Goldstene et al, U.S. District Court, Eastern District of California, No. 09-02234.

(Reporting by Jonathan Stempel in New York; Editing by Gerald E. McCormick)

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