Bloomberg News

California Fuel Standard Dispute Rejected by High Court

June 30, 2014

The U.S. Supreme Court sidestepped a dispute over whether California’s low-carbon fuel standard discriminates against out-of-state ethanol producers.

The court let stand a federal appeals court ruling that rejected claims the standard was unfair to Midwest ethanol producers and amounted to an illegal regulation of business outside California.

The standard is intended to reduce greenhouse gases linked to climate change by encouraging use of low-carbon fuels such as ethanol, natural gas and biodiesels. Companies that sell transportation fuel in California are required to reduce their so-called carbon intensity by 10 percent by 2020. They can buy and sell credits to meet the standard.

Fuels are assigned so-called carbon-intensity ratings based on emissions that will be caused by their production, distribution and use in a vehicle. Ethanol produced in the Midwest is given a higher number than identical fuel produced in California because the transportation and processing creates more emissions, state officials say.

The fuel standard also discourages refiners such as Chevron Corp. (CVX:US) and Tesoro Corp. (TSO:US) from processing types of crude that release more carbon when produced and transported into the state, such as output from Canada’s oil sands.

Market Reaction

Fuel credits traded as part of the low-carbon fuel standard and used by suppliers to cover their carbon emissions jumped $2 a metric ton, or 8.3 percent, today to $26, a one-week high, data compiled by Naples, Florida-based broker Progressive Fuels Ltd. show. Prices have slid 41 percent this year.

Farm and oil-industry groups sued in 2011 to overturn the standard. A San Francisco-based appeals court in September 2013 refused to block use of the rule and returned the case to a lower court to consider other arguments by the groups that sued.

The California Air Resources Board, which monitors air quality and administers the standard, told the Supreme Court that the standard has been revised since 2011.

The cases are Rocky Mountain Farmers Union v. Corey, 13-1148; American Fuel & Petrochemical Manufacturers Association v. Corey, 13-1149; and Corey v. Rocky Mountain Farmers Union, 13-1308.

To contact the reporter on this story: Laurie Asseo in Washington at lasseo1@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net; Patrick Oster at poster@bloomberg.net Mark McQuillan, Justin Blum


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Companies Mentioned

  • CVX
    (Chevron Corp)
    • $119.32 USD
    • -1.23
    • -1.03%
  • TSO
    (Tesoro Corp)
    • $60.98 USD
    • -0.07
    • -0.11%
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