By Rory Carroll
SAN FRANCISCO, Oct 16 (Reuters Point Carbon) - California attorneys advocating for a program to reduce greenhouse gas emissions from fuels came under stern questioning from a three-judge panel on Tuesday, in a case that threatens a key component of the state's ambitious effort to combat climate change.
A packed courtroom at the Ninth Circuit Court of Appeals on Tuesday heard arguments from attorneys on both sides of the debate over California's low carbon fuel standard, which assigns a carbon intensity score to a wide variety of fuels based on the energy used in their production and transportation.
The state says the program is a necessary component of its effort to reduce the amount of carbon used in the economy, but Midwestern gasoline, diesel and ethanol producers say the program tips the scales against their products and violates the U.S. Constitution's commerce clause.
Last year a federal judge in Fresno agreed with the out-of-state producers and ruled the program unconstitutional, but a stay from the Ninth Circuit has allowed California to continue implementing the program while the panel weighs the arguments.
At the hearing, one member of the panel of judges asked whether the state could alter the lifecycle analysis so that geographical location isn't factored into a fuel's rating, which she said gives California-produced fuels a 10 percent advantage "right out of the gate."
"Can the lifecycle process be modified so that it's regulated in a more neutral way or not in a way that appears to give favorable assumptions to California verses the Midwest or folks outside of California?" Justice Mary Murguia asked.
California Deputy Attorney General Elaine Meckenstock said that since the distance a fuel travels is a necessary component in weighing its overall environmental impact, geography could not be stripped entirely out of the equation.
But she said the regulation cuts both ways, since California ethanol producers that import corn will see their score rise to reflect the energy used to transport the feedstock.
"That's another demonstration of the way in which this is not a proxy for geography," she said.
But out-of-state fuel producers said the regulation amounted to economic protectionism by the state, and should be struck down.
"A penalty for transportation inherently discriminates by origin," said Peter Keisler, who represented petrochemical producers at the hearing.
Judge Dorothy Nelson drew attention to statements from the California Air Resources Board, which said the regulation would provide employment in the state while increasing the tax base.
"Isn't this unambiguous evidence that the board was motivated by protectionism?" she asked.
Sean Donahue, an attorney representing environmental groups backing California in the case, said those comments were plucked from a longer economic analysis, and said the program was based on sound science, not economic protectionism.
"Lifecycle is unquestionably the scientifically appropriate way of regulating carbon from fuels," Donahue said.
"Our groups do not support this because we are in cahoots with California ethanol producers," he said.
A ruling from the court could take anywhere from two to ten months, attorneys involved in the case said.
(Reporting by Rory Carroll; Editing by Phil Berlowitz)