OMAHA (DTN) -- California's low-carbon fuel standard was dealt a major blow Thursday as a U.S. district judge ruled the state's law violates the commerce clause of the U.S. Constitution, which leaves regulation of interstate commerce to the federal government.

Ruling in favor of the ethanol groups that had challenged the fuel standard, the court issued an injunction halting enforcement of the state's LCFS.

The ruling is important because it could allow the Midwest ethanol industry to access California's estimated 1.5-billion-gallon biofuels market, in turn creating an additional market for U.S. corn farmers.

According to court documents, the U.S. District Court of the Eastern District of California granted a motion to ethanol interest groups Growth Energy and the Renewable Fuels Association, along with other agriculture groups, to stop enforcement of the LCFS while the case moves forward.

The ethanol industry has made the case that the state's regulation gives an unfair advantage and access to California's biofuels market to those biofuels produced in the state.

The standard, which took effect Jan. 12, 2010, has one key component that has made life miserable for corn-based ethanol: a greenhouse gas emissions penalty for international indirect land use change, or the theory that expanding U.S. corn acres in response to ethanol is leading to land use change in other countries.

As a result, corn-based ethanol from the Midwest is considered to be a higher carbon fuel in California.

In its ruling, the court states that the commerce clause limits the power of the states to "discriminate against interstate commerce."

"Because defendants have failed to establish that no alternative, nondiscriminatory means exist to address their legitimate purpose, this court finds that the LCFS violates the dormant commerce clause," the ruling said.

In a joint written statement, RFA President and CEO Bob Dinneen and Growth Energy CEO Tom Buis said they are hopeful the judge's ruling will set the stage for the state to draft a law that is fair to Midwest ethanol producers.

"The state of California overreached in creating its low carbon fuel standard by making it unconstitutionally punitive for farmers and ethanol producers outside of the state's border," the statement said.

"With this ruling, it is our hope that the California regulators will come back to the table to work on a thoughtful, fair, and ultimately achievable strategy for improving our environment by incenting the growth and evolution of American renewable fuels."

The groups originally filed their suit on Dec. 24, 2009, and asserted that the California LCFS violated the U.S. Constitution by seeking to regulate farming and ethanol production practices in other states.

The commerce clause specifically forbids state laws that discriminate against out-of-state goods and that regulate out-of-state conduct.

In the original lawsuit, the groups said, "The LCFS imposes excessive burdens on the entire domestic ethanol industry while providing no benefit to Californians.

"In fact, in disadvantaging low-carbon, domestic ethanol, the LCFS denies the people of California a genuine opportunity to clean their air, create jobs, and strengthen their economic and national security," the RFA/Growth Energy statement said. "One state cannot dictate policy for all the others, yet that is precisely what California has aimed to do through a poorly conceived and, frankly, unconstitutional LCFS."

Judge Lawrence J. O'Neill ruled that the California Air Resources Board failed to establish that there are no alternative methods to advance its goals of reducing greenhouse gas emissions to combat global warming.

The ruling allows CARB to appeal the court's decision immediately to the U.S. Court of Appeals for the Ninth Circuit.

In the joint statement, RFA and Growth Energy said they will defend the judge's decision.

Todd Neeley can be reached at todd.neeley@telventdtn.com

(AG)

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