California’s LCFS Surviving Challenges As Major Changes Loom

The Air Resources Board proposes to merge court-mandated re-adoption of the Low Carbon Fuel Standard with other significant program changes.

The Low Carbon Fuel Standard (LCFS) continues to generate uncertainty due to enduring legal challenges and the California Air Resources Board’s (ARB) intention to alter the program to prevent market shortages. On March 20, 2014, in a federal proceeding challenging the constitutionality of the LCFS, industry groups filed petitions for certiorari with the US Supreme Court. Invalidation by the US Supreme Court could not only destabilize the LCFS but also cast doubt on the constitutionality of other California programs that regulate greenhouse gas (GHG) emissions attributable to out-of-state activities. In a separate state case, when the California Supreme Court denied a petition for review from ARB last November, it kicked-off an ongoing process whereby ARB must readopt the LCFS on a state court-mandated schedule or face suspension of both the operation and enforcement of the program. In conjunction with this re-adoption of the LCFS, ARB also is preparing major changes to the program that would flatten the program’s carbon intensity (CI) reduction schedule, alter the CI values of certain biofuels, provide LCFS credit generation opportunities for petroleum refineries and crude oil producers, and provide a compliance cost containment mechanism. On March 11, 2014, ARB held public workshops to discuss these proposed updates. Affected entities should continue to monitor these developments and consider engaging ARB on the proposed LCFS reforms.

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