UPDATE 2-Appeals court backs fuel plan of California climate law

Wed Sep 18, 2013 5:02pm EDT

SAN FRANCISCO, Sept 18 (Reuters) - California's pioneering efforts to combat global climate change got a big boost on Wednesday from a federal appeals court, which upheld a state program to reduce greenhouse gas emissions for transportation fuels.

The Ninth U.S. Circuit Court of Appeals rejected the central argument by fuel producers and allies that California was violating a constitutional rule against impeding interstate commerce with its low-carbon fuel standard, laying the groundwork for a potential Supreme Court fight.

The standard requires reductions in carbon emissions for fuels, to be measured throughout the lifecycle - including production and transportation as well as ultimate use. Out-of-state fuel producers argue that it discriminates against their products, favoring California-produced fuels, which are not transported as far.

A federal judge in Fresno ruled last year that the low-carbon fuel standard (LCFS) was unconstitutional under the Commerce Clause for that reason. State air regulators appealed, and were backed by the appeals court.

"We will not, at the outset, block California from developing this innovative, nondiscriminatory regulation to impede global warming," read the majority opinion in the two-to-one ruling.

"The Commerce Clause does not protect Plaintiffs' ability to make others pay for the hidden harms of their products merely because those products are shipped across state lines," it said.

Catherine Reheis-Boyd, president of the Western States Petroleum Association, said the group was disappointed in the ruling.

"While we were not a party to the litigation, we have been very vocal in our view that the LCFS is proving to be an infeasible and extremely costly regulation," she said in a statement.

The plaintiffs include farmers growing crops to make ethanol, the California Dairy Campaign, the Renewable Fuels Association, and a fuel and petrochemical association.

California regulators say the standard is a crucial component in its effort to roll back emissions to 1990 levels by 2020. Transportation accounts for about 40 percent of the state's output of heat-trapping gases.

"This is a resounding win for the environment," said Tim O'Connor, an Environmental Defense Fund attorney, who believes the case is likely to be appealed to the U.S. Supreme Court.

The Ninth Circuit did not state an opinion as to whether California's regulations are preempted by federal law, and sent the case back to the Fresno federal court for more litigation on a variety of legal issues.

The state was granted a stay on the now-vacated injunction, allowing it to continue implementing the LCFS program.

In the Ninth Circuit's dissenting opinion, Judge Mary Murguia said the LCFS does discriminate against interstate commerce and that California failed to demonstrate that it could not reduce greenhouse gases through a "nondiscriminatory version of the regulation."

The appellate court case is Rocky Mountain Farmers Union v. Richard W. Corey, No. 12-15131, in the U.S. Court of Appeals for the Ninth Circuit.

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