Appeal in POET II could complicate California Air Resources Board’s proposed LCFS amendments.

In the case commonly referred to as POET II, petitioner POET, LLC, a biofuels manufacturer, challenged the Low Carbon Fuel Standard (LCFS) and Alternative Diesel Fuels (ADF) regulations which the California Air Resources Board (ARB) adopted in 2015. After briefing had been completed, defendant-respondent ARB filed a motion for judgement on the pleadings (MJOP) on November 21, 2017, in an attempt to have the case dismissed in light of earlier rulings in the related POET I case. On January 5, 2018 the Fresno County Superior Court issued a ruling granting the MJOP with respect to all claims and dismissing the entire case as moot. On March 6, 2018, POET noticed an appeal of the Superior Court’s decision to the California Court of Appeal for the Fifth Appellate District, the same Court of Appeal that issued the decisions in POET I. In that decision, the court sharply criticized the ARB for not acting in good faith and found that ARB failed to comply with the California Environmental Quality Act (CEQA).

Also on March 6, 2018, ARB released proposed amendments to the LCFS that would, inter alia, extend the Program to 2030. Included in the amendment package is an analysis of nitrogen oxide (NOx) emissions attributable to the LCFS, prepared in an attempt to fulfill the writ of mandate issued in POET I. On March 12, 2018, ARB released Regulatory Guidance Document 18-01, which updates prior guidance regarding ARB’s plans to meet the requirements of the writ of mandate issued in POET I. The appeal in POET II carries important implications for the Regulatory Guidance, the amendment package, and potentially for the future of the LCFS Program.

POET I Ruling and Withdrawal of the 2015 Environmental Analysis

As discussed in previous posts, the POET I case arose from Petitioner POET, LLC’s challenges to the original LCFS regulation adopted by ARB in 2009. On April 10, 2017, the Court of Appeal ruled that ARB had failed to faithfully execute a writ of peremptory mandate requiring ARB to address NOx emissions from biodiesel in a manner that complied with CEQA. In an effort to comply with the Court of Appeal’s decision, on November 16, 2017, ARB set aside its approval of the portions of the 2015 LCFS Environmental Analysis (EA) relating to NOx emissions from biodiesel.

Motion for Judgment on the Pleadings in POET II

Per a previous post, ARB argued in its MJOP that Petitioners’ claims were moot because no effective relief was available. ARB noted that Petitioners were requesting from the Superior Court a suspension or injunction of the LCFS and ADF after the Court of Appeal had twice declined to suspend the LCFS. Therefore, according to ARB, the Superior Court could not defy the Court of Appeal and grant Petitioners their requested relief. Further, the MJOP argued that the POET I ruling requires ARB to preserve the status quo by continuing to adhere to the 2017 Carbon Intensity (CI) targets for diesel, and that enjoining or suspending the LCFS would directly contravene the POET I decision. On this basis, ARB asserted that Petitioners’ claims were no longer justiciable.

POET countered ARB’s claims by pointing out that the Court of Appeal in POET I was fully aware of POET II and specifically noted in its opinion that the Court of Appeal did not intend to preclude the Superior Court from granting additional relief in POET II. POET emphasized that the POET I decision was narrow (i.e., assessing compliance with one paragraph of a writ of mandate that addressed the 2009 approval of the original LCFS) and that the requested relief in POET II concerning the re-adopted LCFS would not somehow undermine the relief granted by the POET I court, but rather would be additional to the relief.

The Superior Court’s Order Dismissing the POET II Case

In its order granting the MJOP, the Superior Court agreed with ARB that Petitioners’ claims had become moot. One of the primary forms of relief Petitioners sought was an order setting aside the 2015 LCFS regulations and the associated EA. The Court of Appeals’ decision in POET I declared that the 2015 LCFS was adopted based on an improper EA, and ordered the setting aside of portions of the EA. The Court of Appeals allowed the other provisions of the regulation to remain in effect, albeit frozen at 2017 levels. Based on these facts, the Superior Court found that the Court of Appeals already had granted the relief Petitioners sought with respect to the EA. The Superior Court also found that ordering ARB to rescind the remaining portions of the 2015 LCFS would be improper because such a ruling would be inconsistent with the Court of Appeals’ decision in POET I. To grant Petitioners’ request for relief by suspending or rescinding the 2015 LCFS regulation would, according to the Superior Court, amount to improperly issuing an advisory opinion regarding a regulation that has not yet become final. The Superior Court also found that the issue of whether the EA and LCFS properly consider NOx issues was not yet ripe for adjudication because ARB withdrew its approval of the EA and a new analysis was then underway.

New ARB Guidance Addressing the POET Litigation

On March 12, 2018, ARB released Regulatory Guidance Document 18-01 that replaces Regulatory Guidance 17-03 (issued in November 2017) and provides that:

• The CI targets for diesel fuels will remain frozen at 2017 levels until, at the earliest, Q1 2019.
• An environmental analysis developed to be responsive to the writ of mandate in POET I is included as Appendix G of the proposed regulatory amendment package released on March 6, 2018.
• Following a scheduled April 2018 ARB hearing on the amendment package, ARB staff will work to finalize the amendment package and propose ARB adopt the amendments at a second hearing currently scheduled for September 2018.
• After ARB takes final action on the amendment package and presumably approves of the environmental analysis in Appendix G, ARB will ask the Superior Court to discharge the POET I writ of mandate.

Appendix G is a 229-page “draft supplemental disclosure discussion” addressing NOx emissions potentially caused by the LCFS Program. The amendment package also includes a broader draft EA as Appendix D, addressing the entirety of the amendment package. By choosing to fasten the mandated additional NOx analysis to the broader amendment package, ARB may risk further postponement of a final NOx analysis and a continuing freeze of the diesel CI targets, based on unrelated rulemaking delays and/or judicial challenges to the amendment package. Such delays potentially could run afoul of the Court of Appeal’s order in POET I that ARB act “expeditiously” to address shortcoming of the NOx analysis, which the Court of Appeal initially found deficient almost five years ago in July 2013.

POET II Appeal and Implications for the Program

Petitioners have noticed an appeal of the Superior Court’s dismissal of POET II, but to date there have been no substantive filings in the appellate case. There are a number of different potential outcomes that depend on the sequencing of the rulemaking vis-à-vis the litigation. If the rulemaking package is approved before the merits of POET II are adjudicated, then the ripeness issues cited in the Superior Court’s dismissal may no longer apply. If the Court of Appeal reverses the Superior Court’s dismissal of POET II, ARB loses on the merits (which already have been fully briefed) in the Superior Court, and the Superior Court grants POET’s requested relief before the rulemaking is completed, then the LCFS could be left in limbo. In short, the timing of both the approval of the amendment package and the Superior Court’s presumed discharge of the writ in POET I will be important to track vis-à-vis proceedings in the Court of Appeal in POET II.

To date, courts hearing challenges to the LCFS have allowed it to remain in place despite ARB’s missteps, based on an assumption that allowing the Program to continue is a net benefit for the environment. However, these courts are under no obligation to allow the LCFS to remain in effect indefinitely. Importantly, the Court of Appeal on April 10, 2017 ordered the Superior Court to immediately vacate all LCFS provisions relating to diesel fuel and its substitutes (not just biodiesel), to suspend operation and enforcement of those provisions, and to consider imposing further sanctions on ARB if the Superior Court finds that ARB still had not met CEQA’s requirements, and done so expeditiously and in good faith.