Calif. Court of Appeals knocks back California Low Carbon Fuel Standard in POET suit

July 18, 2013 |

In California, the Fifth District Court of Appeal issued its opinion in POET, LLC v. California Air Resources Board, which challenged the Low Carbon Fuel Standard adopted by the Air Resources Board.

The Court ruled for POET on every one of its substantive challenges, reversed the decision of the Superior Court affirming the LCFS, and ordered that ARB’s approval of the LCFS be set aside.  The Court also ruled that ARB must, among other things, re-evaluate the LCFS’s overall environmental impacts, and allow public comment on several controversial issues including the carbon intensity values attributed to ethanol based on the theory of indirect land use change, which has been disputed and debunked by many in the scientific community.

The Court allowed ARB to continue to enforce the LCFS regulation for the time being, but also prohibited ARB from ramping up enforcement of the LCFS regulation beyond the current 2013 levels until it fully satisfies its legal obligations under CEQA and the APA.

POET responded: “We are pleased the court recognized the fundamental flaws in ARB’s process for implementing the Low Carbon Fuel Standard. The Court ruled in our favor on every challenge we raised on appeal, each of which went to a different problem with the approval process. The Court has also made clear that ARB must re-evaluate the LCFS’s recognized potential to increase smog-forming pollutants, recirculate its environmental document evaluating the impacts of the LCFS and, significantly, allow public comment on several controversial issues, including the carbon intensity values attributed to land use changes.”

Analysis: Fifth Appellate District Finds CEQA Violations in Air Resources Board’s Adoption of Low Carbon Fuel Standards Regulations

To explore the ruling in more depth, we turned to long-time member of the Digesterati, Graham Noyes, a partner with Stoel Rives, to unravel the mysteries of the decision. He offered this analysis, developed by two of Stoel’s CEQA attorneys, Kristen Castanos and Carissa Beecham:

In Poet, LLC et al. v. California Air Resources Board et al., the Fifth Appellate District held the Air Resources Board (“ARB”) violated CEQA and the APA with its approval of the Low Carbon Fuel Standards (“LCFS”) regulations, and ordered the lower court to issue a peremptory writ of mandate, requiring ARB to take certain CEQA-related actions in any re-approval of the regulations.  In doing so, however, the Court concluded that the LCFS regulations could remain in effect while ARB took the actions necessary to comply with CEQA and the APA.  The Court also ordered that if those corrective actions were not taken, ARB would be ordered to set aside and suspend operation and enforcement of the LCFS regulations.

The LCFS regulations were adopted by ARB to reduce emissions from transportation and implement measures to achieve the goals of the California Global Warming Solutions Act of 2006 ( “AB 32”).  In enacting the regulations, ARB was required to comply with AB 32, California’s Administrative Procedures Act (“APA”), and the California Environmental Quality Act (“CEQA”).

The Court concluded that ARB violated CEQA by: (1) prematurely approving the LCFS regulations before completing the necessary environmental review, (2) splitting the authority for project approval from responsibility for completing environmental review, and (3) improperly deferring formulation of mitigation measures.  As an initial matter, the Court confirmed that ARB’s actions were still subject to certain requirements of CEQA.  The LCFS regulations were adopted under a certified regulatory program, which exempted ARB from the requirements for preparing initial studies, negative declaration, or environmental impact reports.  Yet, ARB was still required to comply with other provisions of CEQA.

The Court agreed with Plaintiffs’ contention that ARB approved the LCFS regulations before it competed the environmental review process required by CEQA.  Specifically, the Board’s April 2009 passage of a resolution, which provided that the Board approved the LCFS regulations for adoption, constituted commitment “to the project as a whole or any particular features, so as to effectively preclude any alternatives or mitigation measures,” and approval pursuant to CEQA Guidelines section 15352, subdivision (a).  (Poet, LLC at 39 (citing Save Tara v. City of West Hollywood (2008) 45 Cal.4th 116, 139).)  It was of no consequence that ARB provided some authority to the Executive Officer of ARB to modify the regulations prior to “final adoption,” as he could not choose to abandon the regulations entirely.  Despite the fact that the final LCFS regulation as modified was not finally adopted until later in 2009, the agency had committed itself to the regulations in April 2009, and therefore “approved” the project prior to completing environmental review under CEQA.

Second, the Court agreed with Plaintiffs that ARB improperly split the project approval from the responsibility for environmental review.  ARB argued that it properly delegated responsibility for environmental review to the Executive Officer in finalizing the LCFS regulations.  Relying on its conclusion that ARB committed to and therefore approved the regulations prior to completing the environmental review, the Court reasoned that the Executive Officer could not be acting as a “decision-making body” pursuant to CEQA as that role had already been filled by the Board.  Simply, the Executive Officer did not have the authority to approve or disapprove the project, and thus, he should not have been delegated the responsibility to complete the environmental review.

Third, the Court found that ARB violated CEQA in deferring its analysis and mitigation of potential increases in Nitrogen Oxide (“NOx”) emissions resulting from impacts of the LCFS regulations.  The LCFS regulations would result in increased use of biodiesel fuel,  and consequently, NOx emissions.  The initial staff report (“ISOR”) provided to the Board for the April 2009 approval, however, provided that ARB staff assumed no increase in NOx emissions, and noted that the staff was currently conducting an extensive testing program and would promulgate new motor vehicle fuel specification for biodiesel at a later date.

The Court recognized an exception allowing for deferred formulation of mitigation measures when three conditions are met: (1) practical considerations prevented formulation of mitigation measures at the usual time, (2) the agency actually committed itself to future formulation of the mitigation measures, and (3) the agency adopted specific performance criteria that the mitigation measures were required to satisfy.  ARB did not explicitly address whether it adopted specific performance criteria, however, and the Court concluded that “no increases in NOx,” as provided in the ISOR was not a specific performance criterion as it provided no objective performance criteria for measuring whether the stated goal would be achieved.

More specifically, it was unclear what tests would be performed and what measurements would be taken to determine that biodiesel use was not increasing NOx emissions.  Thus, ARB improperly deferred mitigation related to NOx emissions and did not comply with requirement excepting such deferral.

The Court’s discussion of ARB’s violation of the APA was not certified for publication.  Generally, the Court concluded that ARB violated the APA by not including consultant emails in the Rulemaking File.

Perhaps most interesting is the Court’s conclusion that the LCFS regulations could remain in effect pending ARB’s actions to cure the CEQA and APA defects.  The Court found it appropriate to maintain the “status quo” pending ARB’s actions to cure the CEQA defects.  Such a remedy is common where a physical project is constructed while a CEQA lawsuit is pending, and courts often allow a constructed project to remain in place while CEQA defects are cured.  The Court here found no reason to treat a regulation differently than any other CEQA project, and concluded that the status quo could be maintained, and the regulations could remain in effect, while ARB takes the necessary CEQA actions.

Kristen Castanos, a partner with Stoel Rives can be reached at [email protected].  Carissa Beecham, an associate with Stoel Rives can be reached at [email protected] Graham Noyes, a partner with Stoel Rives based now in Sacramento, California, can be reached at [email protected]Graham Noyes, a partner with Stoel Rives based now in Sacramento, California, can be reached at [email protected] 

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