Court Upholds Oregon’s Clean Fuels Program

The State of Oregon adopted a program that assigns a “carbon intensity” value to all transportation fuels.  Those fuels below a certain intensity receive economic credits; those above receive deficits.  The program gives an economic advantage to sellers of low intensity fuels, because fuel sellers with deficits must buy credits from those who sell lower intensity fuels.  Oregon claimed the program would lower the greenhouse gas effect of fuels burned in Oregon.

Trade Associations Allege Discrimination against Out-of-State Fuel Producers
In American Fuel & Petrochemical Manufacturers v. O’Keefe, several trade associations sued; they claimed Oregon’s law illegally discriminates against out-of-state fuel producers.  In a 2-1 decision, the U.S. Court of Appeals for the Ninth Circuit upheld Oregon’s program.

Oregon’s program assigns higher intensities to petroleum-based fuels and to fuels containing Midwest ethanol; it assigns lower intensities to biofuels.  The trade associations alleged all fuels manufactured in Oregon receive credits.  The trade associations claimed the program had a discriminatory effect, essentially helping Oregon’s biofuels industry at the expense of petroleum and ethanol producers.

Majority Upholds Program
State laws that discriminate against out-of-state entities are unconstitutional unless they serve a legitimate local purpose that could not be equally served by available nondiscriminatory means.  The majority determined the program did not discriminate against out-of-state entities.  While only out-of-state entities sold high intensity fuel, some out-of-state entities sold biofuels, and some of those had a lower intensity than some Oregon fuels.  According to the majority, discrimination based on carbon intensity is allowed even if, as a practical matter, all high intensity fuels come from out-of-state.

Dissent Says Program Discriminates
The dissent would have found discrimination against out-of-state fuel producers; out-of-state entities bore the entire economic burden of the program.  Oregon biofuels producers received subsidies from these out-of-state producers.  The dissent would have allowed the case to go forward, giving the trade associations the opportunity to show a nondiscriminatory means (such as a per unit tax on carbon intensity) to accomplish the program’s purpose.

For a copy of the opinion http://cdn.ca9.uscourts.gov/datastore/opinions/2018/09/07/15-35834.pdf

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