Court Opinion

ID: 4310670
Source: CourtListenerOpinion
Date Created: 2018-09-07 17:01:35.935259+00
Date Added: 2024-06-11T14:44:15.022969
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

AMERICAN FUEL & PETROCHEMICAL             No. 15-35834
MANUFACTURERS; AMERICAN
TRUCKING ASSOCIATIONS, INC., a               D.C. No.
trade association; CONSUMER               3:15-cv-00467-
ENERGY ALLIANCE, a trade                        AA
association,
                 Plaintiffs-Appellants,
                                            OPINION
                  v.

JANE O’KEEFFE; ED ARMSTRONG;
MORGAN RIDER; COLLEEN JOHNSON;
MELINDA EDEN; DICK PEDERSEN;
JONI HAMMOND; WENDY WILES;
DAVID COLLIER; JEFFREY STOCUM;
CORY-ANN WIND; LYDIA EMER;
LEAH FELDON; GREG ALDRICH; and
SUE LANGSTON, in their official
capacities as officers and employees
of the Oregon Department of
Environmental Quality; ELLEN F.
ROSENBLUM, in her official capacity
as Attorney General of the State of
Oregon; KATE BROWN, in her
official capacity as Governor of the
State of Oregon,
                Defendants-Appellees,
2    AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

CALIFORNIA AIR RESOURCES BOARD;
STATE OF WASHINGTON; OREGON
ENVIRONMENTAL COUNCIL; SIERRA
CLUB; NATURAL RESOURCES
DEFENSE COUNCIL; ENVIRONMENTAL
DEFENSE FUND; CLIMATE
SOLUTIONS,
   Intervenor-Defendants-Appellees.

      Appeal from the United States District Court
               for the District of Oregon
        Ann L. Aiken, District Judge, Presiding

         Argued and Submitted March 6, 2018
                  Portland, Oregon

               Filed September 7, 2018

     Before: Raymond C. Fisher, N. Randy Smith,
       and Andrew D. Hurwitz, Circuit Judges.

             Opinion by Judge Hurwitz;
             Dissent by Judge N.R. Smith
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                     3

                          SUMMARY *

                           Civil Rights

    The panel affirmed the district court’s dismissal of a
complaint challenging Oregon’s Clean Fuels Program,
which regulates the production and sale of transportation
fuels based on greenhouse gas emissions.

    Plaintiffs, the American Fuel and Petrochemical
Manufacturers, American Trucking Associations, and
Consumer Energy Alliance, alleged that the Oregon Program
violated the Commerce Clause and was preempted by
§ 211(c) of the Clean Air Act.

    Addressing the Commerce Clause claim, the panel held
that plaintiffs’ assertion that the Oregon Program facially
discriminates against out-of-state fuels by assigning
petroleum and Midwest ethanol higher carbon intensities
than Oregon biofuels was squarely controlled by Rocky
Mountain Farmers Union v. Corey, 730 F.3d 1070, 1081
(9th Cir. 2013). The panel held that like the California Low
Carbon Fuel Standard at issue in Rocky Mountain, the
Oregon Program discriminated against fuels based on
lifecycle greenhouse gas emissions, not state of origin.

    The panel held that the complaint failed to plausibly
allege that the Oregon Program was discriminatory in
purpose.    The panel held that none of the alleged
discriminatory statements cited by plaintiffs undermined the

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4      AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

Oregon Program’s stated purpose of reducing greenhouse
gas emissions. The panel rejected plaintiff’s claim that that
the Oregon Program’s assignment of carbon intensity credits
and deficits effectuated a discriminatory effect. The panel
also rejected the claim that the Oregon Program violates the
Commerce Clause and principles of interstate federalism by
attempting to control commerce occurring outside the
boundaries of the state.

    Addressing the preemption claim, the panel held that the
Environmental Protection Agency’s decision not to regulate
methane under § 211(k) of the Clean Air Act was not a
finding that regulating methane’s contributions to
greenhouse gas emissions was unnecessary, and thus the
decision not to regulate was not preemptive under
§ 211(c)(4)(A)(i).

     Dissenting, Judge N.R. Smith stated that he could not
dismiss plaintiffs’ claim alleging that the practical effect of
the Oregon Program impermissibly favored in-state interests
at the expense of out-of-state interests.
       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE             5

                        COUNSEL

Paul J. Zidlicky (argued), Paul J. Ray, and Roger R. Martella
Jr., Sidley Austin LLP, Washington, D.C., for Plaintiffs-
Appellants.

Denise Gale Fjordbeck (argued), Attorney-in-Charge;
Benjamin Gutman, Solicitor General; Ellen F. Rosenblum,
Attorney General; Civil/Administrative Appeals, Office of
the Attorney General, Salem, Oregon; for Defendants-
Appellees.

Amanda W. Goodin and Patti A. Goldman, Earthjustice,
Seattle, Washington; David Pettit, Natural Resources
Defense Council, Santa Monica, California; Joanne
Spalding, Sierra Club, Oakland, California; Sean H.
Donahue, Donahue & Goldberg LLP, Washington, D.C.; for
Intervenor-Defendants-Appellees Oregon Environmental
Council, Sierra Club, Natural Resources Defense Council,
Environmental Defense Fund, and Climate Solutions.

Margaret Elaine Meckenstock (argued), Deputy Attorney
General; Gavin G. McCabe, Supervising Deputy Attorney
General; Robert W. Byrne, Senior Assistant Attorney
General; Office of the Attorney General, Oakland,
California; Thomas J. Young, Senior Counsel; Robert W.
Ferguson, Attorney General; Office of the Attorney General,
Olympia, Washington; for Intervenor-Defendants-Appellees
California Air Resources Board and State of Washington.
6      AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

                         OPINION

HURWITZ, Circuit Judge:

    This case requires us to decide whether an Oregon
program regulating the production and sale of transportation
fuels based on greenhouse gas emissions violates the
Commerce Clause, U.S. Const. art. I, § 8, cl. 3, or is
preempted by § 211(c) of the Clean Air Act (“CAA”),
42 U.S.C. §§ 7401, 7545. The district court dismissed a
complaint challenging the Oregon program. We affirm.

                      I. Background

    A. The Oregon Program

    In 2007, the Oregon legislature found that “[g]lobal
warming poses a serious threat to the economic well-being,
public health, natural resources and environment of
Oregon,” and identified “a need to . . . take necessary action
to begin reducing greenhouse gas emissions.” Or. Rev. Stat.
§ 468A.200(3), (7). The legislature accordingly created the
Oregon Clean Fuels Program (the “Oregon program”) and
instructed the Oregon Environmental Quality Commission
(“OEQC”) to adopt rules to decrease lifecycle greenhouse
gas emissions from transportation fuels produced in or
imported into Oregon. Or. Rev. Stat. §§ 468A.266–268.
Between 2010 and 2015, the OEQC promulgated rules
designed to reduce greenhouse gas emissions from use and
production of transportation fuels in Oregon to at least 10%
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                     7

lower than 2010 levels by 2025. See Or. Admin. R. 340-
253-0000-8100. 1

   Under these rules, a regulated party must keep the
average carbon intensity2 of all transportation fuels used in
Oregon below an annual limit. See id. 340-253-0100(6), -
8010, -8020. The annual carbon intensity limits become
more stringent annually through 2025. See id. 3

    A fuel with a carbon intensity below the limit generates
a credit, and one with a carbon intensity above the limit
generates a deficit.           See id. 340-253-0040(30),
(35), -1000(5). Regulated parties must generate carbon
intensity “credits” greater than or equal to their “deficits” on
an annual basis. Regulated parties can buy or sell credits,
store them for future use, or use them to offset immediate
deficits.   Thus, a “regulated party may demonstrate
compliance in each compliance period either by producing
or importing fuel that in the aggregate meets the standard or
by obtaining sufficient credits to offset the deficits it has
incurred for such fuel produced or imported into Oregon.”
Id. 340-253-0100(6).

    1
      The regulations were incorporated by reference into American
Fuel’s complaint. The parties have also included the regulations in
motions for judicial notice, Dkt. 13, 37, 52, which we GRANT.
    2
       “‘Carbon intensity’ or ‘CI’ means the amount of lifecycle
greenhouse gas emissions per unit of energy of fuel expressed in grams
of carbon dioxide equivalent per megajoule (gCO2e/MJ).” Or. Admin.
R. 340-253-0040(20).

    3
      Regulated fuel importers or producers must (1) register with the
Oregon Department of Environmental Quality (“ODEQ”) and (2) report
the volumes and carbon intensities of their transportation fuels. Or.
Admin. R. 340-253-0100.
8      AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

     The cumulative carbon intensity value attributed to the
lifecycle of a particular type of fuel is called a “pathway.”
Id. 340-253-0040(46) (“‘Fuel pathway’ means a detailed
description of all stages of fuel production and use for any
particular transportation fuel, including feedstock generation
or extraction, production, distribution, and combustion of
the fuel by the consumer. The fuel pathway is used to
calculate the carbon intensity of each transportation fuel.”);
see also Rocky Mountain Farmers Union v. Corey, 730 F.3d
1070, 1081 (9th Cir. 2013) (noting a similar definition in
California’s Low Carbon Fuel Standard (“LCFS”)). The
first phase of Oregon rules provided tables with default
pathways for various fuels, “including feedstock generation
or extraction, production, distribution, and combustion of
the fuel by the consumer.” Or. Admin. R. 340-253-
0040(46), -0400(1). During this phase, regulated parties
could either use the default pathways, or seek approval for
individualized pathways. Id. 340-253-0400(3), -0450.

    The second phase of the Oregon rules introduced a
scientific modeling tool called OR-GREET, based on “the
Greenhouse gases, Regulated Emissions, and Energy in
Transportation (GREET) model developed by Argonne
National Laboratory” to calculate individualized pathways
for non-petroleum fuels. Id. 340-253-0040(67), -0400(1);
see also Rocky Mountain, 730 F.3d at 1080–84 (describing
California LCFS, which also uses GREET modeling tools).
The OR-GREET employs a “lifecycle analysis” to determine
total carbon intensity, which includes emissions from the
production, storage, transportation, and use of the fuels, thus
accounting for “all stages of fuel production.” Or. Admin.
R. 340-253-0040(46). The lifecycle analysis allows a state
to account for “the climate-change benefits of biofuels such
as ethanol, which mostly come before combustion.” Rocky
Mountain, 730 F.3d at 1081. Lifecycle analysis also allows
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                     9

for an accurate comparison of the carbon effects of fuels
produced using different production methods and source
materials. See id. (“An accurate comparison is possible only
when it is based on the entire lifecycle emissions of each fuel
pathway.”).

    Producers and importers of ethanols and biodiesels can
obtain carbon intensity scores in one of three ways. If a fuel
has been assigned a carbon intensity score under the
California LCFS, a regulated party can have that value
adjusted for use in Oregon. Or. Admin. R. 340-253-
0400(4)(a). Regulated parties can also use individualized
carbon intensity scores calculated using the OR-GREET
modeling tool. Id. 340-253-0500. If it is not possible to
obtain an individualized value, a regulated party may also
use a default pathway to report carbon intensity. See id. 340-
253-0450. 4 “Thus fuel producers can take advantage of
default and individualized carbon intensity values, and
choose what is most advantageous.” Rocky Mountain,
730 F.3d at 1082.

    Because of the uniquely harmful environmental effects
of petroleum-based fuels, importers of petroleum-based
gasoline and diesel—unlike producers and importers of
other fuels—are required to use average carbon intensity
pathways, based on the average carbon-intensity values of
such fuels in Oregon. 5 Or. Admin R. 340-253-0400(3)(a).

    4
       The second phase of rules provides two default ethanol
pathways—Midwest and Oregon averages—which assume production
using the same inputs but different energy sources. Or. Admin. R. 340-
253-8030, tbl. 3. These pathways are used only until an individual
pathway is approved. Id. 340-253-0400(4)(b), -0450(3).
    5
       See Rocky Mountain, 730 F.3d at 1084 (“Crude oil presents
different climate challenges from ethanol and other biofuels. Corn and
10       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

This requirement was designed to promote the use and
development of alternative fuels, because reliance solely on
petroleum-based fuels would make targeted emissions
reductions unattainable. See Rocky Mountain, 730 F.3d at
1085 (“No matter how efficiently crude oil is extracted and
refined, it cannot supply [the targeted] level of reduction. To
meet California’s ambitious goals, the development and use
of alternative fuels must be encouraged.”).

     B. Procedural Background

    In March 2015, the American Fuel and Petrochemical
Manufacturers, American Trucking Associations, and
Consumer Energy Alliance (collectively, “American Fuel”)
filed this action against officials of the ODEQ and OEQC
(the “Oregon defendants”), alleging that the Program
violated the Commerce Clause and was preempted by
§ 211(c) of the CAA. 6 The district court granted motions to

sugarcane absorb carbon dioxide as they grow, offsetting emissions
released when ethanol is burned. By contrast, the carbon in crude oil
makes a one-way trip from the Earth’s crust to the atmosphere. For crude
oil and its derivatives, emissions from combustion are largely fixed, but
emissions from production vary significantly. As older, easily accessible
sources of crude are exhausted, they are replaced by newer sources that
require more energy to extract and refine, yielding a higher carbon
intensity than conventional crude oil.”).
     6
      The plaintiffs are national trade associations. American Fuel’s
members include nearly all United States refiners and petrochemical
manufacturers, and sell transportation fuels throughout Oregon. A
number of American Fuel’s members produce and sell gasoline, diesel,
and ethanol used as transportation fuels in Oregon, and several import
such gasoline, diesel, and ethanol into Oregon. Members of the
American Trucking Association purchase transportation fuels in Oregon
for use in Oregon. The Consumer Energy Alliance’s members include
industrial consumers and producers of gasoline, diesel, and ethanol.
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE               11

intervene by several conservation organizations (the
“Conservation Intervenors”), 7 the California Air Resource
Board, and the State of Washington (the “State
Intervenors”). The Oregon defendants moved to dismiss the
complaint for failure to state a claim upon which relief can
be granted under Federal Rule of Civil Procedure 12(b)(6),
and the State Intervenors moved for judgment on the
pleadings under Rule 12(c). The district court granted both
motions, finding American Fuel’s claims “largely barred” by
this court’s decision in Rocky Mountain about a virtually
identical California program. The district court also
concluded that the Oregon program did not discriminate in
purpose or effect against out-of-state ethanol and was not
preempted by the CAA.

   We review the district court’s judgment de novo, taking
well-pleaded allegations of material fact as true and
construing the complaint in the light most favorable to
American Fuel. AlliedSignal, Inc. v. City of Phoenix,
182 F.3d 692, 695 (9th Cir. 1999).

                 II. The Commerce Clause

     The Commerce Clause grants Congress the power “[t]o
regulate Commerce with foreign Nations, and among the
several States, and with the Indian tribes.” U.S. Const. art.
I, § 8, cl. 3. Despite its textual focus solely on congressional
power, the Clause also “has long been understood to have a
‘negative’ aspect that denies the States the power
unjustifiably to discriminate against or burden the interstate
flow of articles of commerce.” Or. Waste Sys., Inc. v. Dep’t

    7
       The Conservation Intervenors are the Oregon Environmental
Council, the Sierra Club, the Environmental Defense Fund, Climate
Solutions, and the Natural Resources Defense Council.
12     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

of Envtl. Quality of State of Or., 511 U.S. 93, 98 (1994). This
so-called “dormant” Commerce Clause is “driven by
concern about ‘economic protectionism—that is, regulatory
measures designed to benefit in-state economic interests by
burdening out-of-state competitors.’” Dep’t. of Revenue of
Ky. v. Davis, 553 U.S. 328, 337–38 (2008) (quoting New
Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273–74
(1988)); see also South Dakota v. Wayfair, Inc., 138 S. Ct.
2080, 2089 (2018) (noting that the Commerce Clause was
enacted to combat “the tendencies toward economic
Balkanization that had plagued relations among the Colonies
and later among the States” (quoting Hughes v. Oklahoma,
441 U.S. 322, 325–26 (1979)).

    But, courts considering dormant Commerce Clause
challenges must “respect a cross-purpose as well, for the
Framers’ distrust of economic Balkanization was limited by
their federalism favoring a degree of local autonomy.”
Davis, 553 U.S. at 338. Thus, we must uphold a
nondiscriminatory law against a dormant Commerce Clause
challenge “unless the burden imposed on [interstate]
commerce is clearly excessive in relation to the putative
local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137,
142 (1970).

    In Rocky Mountain, we considered a challenge to the
California LCFS, on which the district court accurately
noted the Oregon program was modeled and to which it is
analogous in all relevant respects. As in the Oregon
program, parties regulated under the LCFS generate credits
or deficits based on their carbon intensity scores, which are
calculated through a GREET modeling tool. Rocky
Mountain, 730 F.3d at 1080–82. In Rocky Mountain, we
largely upheld the LCFS against a Commerce Clause
challenge, remanding for further proceedings on an issue not
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                        13

addressed by the district court: whether the LCFS
discriminated against out-of-state ethanol in purpose or
effect. Id. at 1078. 8

     We thus begin from the premise established in Rocky
Mountain: state regulation violates the dormant Commerce
Clause if it discriminates against out-of-state economic
interests (in either purpose or effect) or if it regulates conduct
occurring entirely outside of a state’s borders. Id. at 1087,
1101–02. In contrast, we will uphold regulations that accord
all fuels “the substantially evenhanded treatment demanded
by the Commerce Clause.” Id. at 1094 (quoting Boston
Stock Exch. v. State Tax Comm’n, 429 U.S. 318, 332 (1977)).

    A. Discrimination

         i. Facial Discrimination

    American Fuel’s claim that the Program facially
discriminates against out-of-state fuels by assigning
petroleum and Midwest ethanol higher carbon intensities

    8
      On remand, the district court concluded that the Program did not
discriminate in purpose or effect against out-of-state petroleum. Rocky
Mountain Farmers Union v. Goldstene, No. 1:09-cv-02234, 2014 WL
7004725, at *14–15 (E.D. Cal. Dec. 11, 2014). The court later held that
the Program did not purposefully discriminate against out-of-state
ethanol, but, because of changes in the manner in which California
calculated its carbon intensity scores, twice denied motions to dismiss
the claim that the Program had a discriminatory effect on out-of-state
ethanol. Rocky Mountain Farmers Union v. Corey, 258 F. Supp. 3d
1134, 1158, 1163 (E.D. Cal. 2017); Memorandum Decision and Order,
Rocky Mountain Farmers Union v. Corey, No. 1:09-cv-02234-LJO-
BAM (E.D. Cal. Aug. 3, 2015), ECF No. 343. These subsequent denials
are discussed in greater depth in Part II(A)(iii)(a), infra. The plaintiffs
voluntarily dismissed their remaining claims and filed an appeal, which
is pending in this court.
14       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

than Oregon biofuels is squarely controlled by Rocky
Mountain. Like its California counterpart, the Oregon
program discriminates against fuels based on lifecycle
greenhouse gas emissions, not state of origin. See Rocky
Mountain, 730 F.3d at 1090.

      A state may not discriminate “against articles of
commerce coming from outside the State unless there is
some reason, apart from their origin, to treat them
differently.” City of Philadelphia v. New Jersey, 437 U.S.
617, 626–27 (1978). But, the Oregon program distinguishes
among fuels not on the basis of origin, but rather on carbon
intensity. Out-of-state fuels are not necessarily disfavored:
when the complaint was filed, the Program assigned twelve
out-of-state ethanols, including five Midwest ethanols,
lower carbon intensities than those assigned to Oregon
biofuels. 9 The fact that the Program labels fuels by state of
origin does not render it discriminatory, as these labels are
not the basis for any differential treatment. See Rocky
Mountain, 730 F.3d at 1097 (“California’s reasonable
decision to use regional categories in its default pathways
. . . does not transform its evenhanded treatment of fuels
based on their carbon intensities into forbidden
discrimination.”).

         ii. Discriminatory Purpose

   Citing statements by former Oregon Governor John
Kitzhaber and various Oregon legislators, American Fuel
next alleges that the Oregon program was enacted with the

     9
      More recent carbon intensity scores—including those submitted
with American Fuel’s motion for judicial notice—also make plain that
out-of-state fuels are not systematically disfavored. See Or. Admin.
R. 340-253-8030, -8040.
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE              15

intent to “foster Oregon biofuels production at the expense
of existing out-of-state fuel producers.” But, the stated
purpose of the Program is simply to “reduce Oregon’s
contribution to the global levels of greenhouse gas emissions
and the impacts of those emissions in Oregon”—in
particular, to “reduce the amount of lifecycle greenhouse gas
emissions per unit of energy by a minimum of 10 percent
below 2010 levels by 2025.” Or. Admin. R. 340-253-
0000(1), (2). “We will ‘assume that the objectives
articulated by the legislature are actual purposes of the
statute, unless an examination of the circumstances forces us
to conclude that they could not have been a goal of the
legislation.’” Rocky Mountain, 730 F.3d at 1097–98
(quoting Minnesota v. Clover Leaf Creamery Co., 449 U.S.
456, 463 n.7 (1981)).

    The district court did not err in finding that the
statements by Oregon public officials cited in American
Fuel’s complaint do not demonstrate that the objectives
identified by the legislature were not the true goals of the
Program. Even construing the allegations in the complaint
in the light most favorable to American Fuel, the statements
cited, “do not plausibly relate to a discriminatory design and
are ‘easily understood, in context, as economic defense of a
[regulation] genuinely proposed for environmental
reasons.’” Id. at 1100 n.13 (alteration in original) (quoting
Clover Leaf Creamery Co., 449 U.S. at 463 n.7). The
statements of the Oregon officials are no more probative of
a discriminatory or protectionist purpose than the statements
by California state officials we found insufficient to establish
discriminatory purpose in Rocky Mountain. Id. 10

   10
      Compare Mem. in Supp. of Mot. Summ. J., Rocky Mountain
Farmers Union v. Goldstene, No. 1:09-cv-02234-LJO-BAM (E.D. Cal.
16      AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

    None of the statements cited by American Fuel
undermines the Oregon program’s stated purpose. One of
the allegedly discriminatory statements of former Governor
Kitzhaber, for example, explicitly attributed the Program’s
favorable treatment of biofuels to the fact that “natural gas
transmissions and generation emit 50 percent less
greenhouse gas than burning coal.” See generally Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (“Where a complaint
pleads facts that are ‘merely consistent with’ a defendant’s
liability, it ‘stops short of the line between possibility and
plausibility of entitlement to relief.’” (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 557 (2007))).

    Our federal system recognizes “each State’s freedom to
‘serve as a laboratory; and try novel social and economic

Nov. 1, 2010), ECF No. 112 (quoting remarks by California state
officials promoting the benefits of the LCFS, including the prospect that
the program would “keep more money in the State” and “ensure that a
significant portion of the biofuels used in the LCFS are produced in
California”), with Compl., Am. Fuel & Petrochemical Mfrs. v. O’Keeffe,
No. 3:15-cv-00467-AA (D. Or. March 23, 2015), ECF No. 1 (citing
statements by former Governor Kitzhaber that the Oregon program
would “provide important economic benefits to Oregon’s economy” and
“keep capital circulating in our region through local sourcing and supply
chains while reducing our dependence on carbon-intensive fuels.”
(quoting J. Kitzhaber, 10-Year Energy Action Plan 37 (Dec. 14, 2012))).

    American Fuel also cites a statement from an advisory committee
member that the LCFS “will create net jobs, make net improvements for
household income, and be beneficial for Oregon’s Gross State Product.”
See Advisory Final Report, Appx. A, Summary of Advisory Committee
Input at 142 (2010), http://library.state.or.us/repository/2011/20110208
1424462/appendixA.pdf. These statements merely represent feedback
and recommendations from stakeholders consulted during the
rulemaking process; under the same subheading, another committee
member offered the critique that “more can be done to incentivize low
carbon fuels within the state.” Id.
       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                17

experiments.’” San Antonio Indep. Sch. Dist. v. Rodriguez,
411 U.S. 1, 50 (1973) (quoting New State Ice Co. v.
Liebmann, 285 U.S. 262, 280 (1932) (Brandeis, J.,
dissenting)). This freedom would be meaningless if officials
could not promote the economic benefits of these
experiments to their states without running afoul of the
Commerce Clause. For this reason, regulations “justified by
a valid factor unrelated to economic protectionism” are
permissible, even if they benefit a state’s economy. New
Energy Co., 486 U.S. at 274.

    It is well settled that the states have a legitimate interest
in combating the adverse effects of climate change on their
residents. Massachusetts v. EPA, 549 U.S. 497, 522–23
(2007). “Air pollution prevention falls under the broad
police powers of the states, which include the power to
protect the health of citizens in the state.” Exxon Mobil
Corp. v. U.S. Envtl. Prot. Agency, 217 F.3d 1246, 1255 (9th
Cir. 2000). The complaint does not allege that the Oregon
program was enacted for the purpose of supporting a
uniquely local industry. Cf. Bacchus Imports, Ltd. v. Dias,
468 U.S. 263, 271 (1984) (finding a discriminatory purpose
behind tax exemptions for two liquors produced in Hawaii
because it was “undisputed that the purpose of the exemption
was to aid Hawaiian industry”). The district court therefore
correctly rejected the argument that the complaint plausibly
alleged that the Program was discriminatory in purpose.

        iii. Discriminatory Effect

    A facially neutral statute can violate the Commerce
Clause if it effectuates “differential treatment of in-state and
out-of-state interests that benefits the former and burdens the
latter.” Or. Waste Sys., Inc., 511 U.S. at 99. But, even
assuming that the in-state and out-of-state fuels at issue in
this case are similarly situated, American Fuel’s complaint
18     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

does not state a claim based on discriminatory effects. See
Rocky Mountain, 730 F.3d at 1089 (“All factors that affect
carbon intensity are critical to determining whether the Fuel
Standard gives equal treatment to similarly situated fuels.”).

           a. Burdens on Out-of-State Fuels

    American Fuel argues that the Program’s assignment of
credits and deficits creates an impermissible burden on
producers or importers of petroleum and Midwest ethanols,
who must purchase credits, and provides an impermissible
benefit to Oregon biofuel producers, who can generate and
can sell credits. The argument fails. On its face, the Oregon
program assigns credits and deficits to fuels evenhandedly
based on a “reason, apart from [their] origin”: carbon
intensity. Or. Waste Sys., Inc., 511 U.S. at 101 n.5. The
number of credits assigned to fuels does not depend on their
state of origin. See also Rocky Mountain, 730 F.3d at 1089
(finding no discrimination under the LCFS, which “does not
base its treatment on a fuel’s origin but on its carbon
intensity”).

    And, American Fuel has not plausibly alleged that the
application of these neutral criteria has a discriminatory
effect. Many out-of-state producers generate credits, and
several fare better in this respect than Oregon producers of
the same fuels. Indeed, even factoring in transportation
emissions does not neatly divide in-state and out-of-state
producers, because “[t]ransportation emissions reflect a
combination of: (1) distance traveled . . . ; (2) total mass and
volume transported; and (3) efficiency of the method of
transport.” Id. at 1083; see, e.g., State of Or. Dep’t of Envtl.
Quality, Oregon-Approved Carbon Intensity Values for
2016 (2016) (hereinafter “ODEQ 2016 Report”) (assigning
lower carbon-intensity scores to renewable diesels and
biofuels from Arkansas, Louisiana, Texas, South Korea,
       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE            19

China, and Canada than to Oregon biofuels, and lower
carbon-intensity scores to numerous out-of-state ethanols
than to Oregon-produced ethanols); Or. Admin. R. 340-253-
8030, -8040. Given its scoring system, the Program does not
require or even incentivize “an out-of-state operator to
become a resident in order to compete on equal terms.”
Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64,
72 (1963).

     Under the Oregon program, producers of higher carbon-
intensity fuels are disfavored relative to all lower carbon-
intensity fuels, including those produced outside of Oregon.
This is plainly permissible. A state “may regulate with
reference to local harms, structuring its internal markets to
set incentives for firms to produce less harmful products for
sale” within its borders. Rocky Mountain, 730 F.3d at 1104;
see also Exxon Corp. v. Governor of Maryland, 437 U.S.
117, 127 (1978) (holding that “interstate commerce is not
subjected to an impermissible burden simply because an
otherwise valid regulation causes some business to shift
from one interstate supplier to another”). The Commerce
Clause “protects the interstate market, not particular
interstate firms.” Exxon Corp., 437 U.S. at 127.

    American Fuel alleges that “to compete in the Oregon
market, producers of high carbon-intensity fuels must
change the manner in which they produce and transport fuels
to obtain lower carbon-intensity scores to avoid the
commercial disadvantage placed on their higher carbon-
intensity fuels.” But this allegation merely affirms that the
Program targets differences in production methods that
affect greenhouse gas emissions “based on the real risks
posed by different sources of generation,” something we
have squarely held “is not a dormant Commerce Clause
violation.” Rocky Mountain, 730 F.3d at 1092.
20     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

    This is because the OR-GREET model considers in its
calculation of carbon intensities emissions from the growth
of inputs into the production of fuels, such as corn;
efficiency of production, including electricity or fuel used
for energy; milling processes; conversion of land for
production; and transportation of fuels and feedstock into its
calculations of carbon intensities. See id. at 1082–83
(upholding use of analogous GREET model in regulation in
California). Accordingly, carbon intensity scores for ethanol
vary widely under the Oregon program, ranging in January
2016 from 7.49 (Brazilian sugarcane ethanol) to as high as
98.59 (Midwest coal ethanol). See State of Or. Dep’t of
Envtl. Quality, Oregon-Approved Carbon Intensity Values
for 2016 (2016). But, some of the lowest carbon intensity
scores are also assigned to Midwest producers. See id. at 8–
11 (assigning values to Midwest ethanols ETHC036,
ETHC056, ETCH073-75, and ETHC089-90 lower than the
value of Oregon ethanol). “The dormant Commerce Clause
does not require [a state] to ignore the real differences in
carbon intensity among out-of-state ethanol pathways,”
including emissions from transporting fuels and other
“important contributors to GHG emissions.”             Rocky
Mountain, 730 F.3d at 1088, 1093.

    Nor does the Oregon program eliminate a competitive
advantage that producers of higher carbon-intensity fuels
have earned. Cf. Hunt v. Wash. State Apple Advert. Comm’n,
432 U.S. 333, 351 (1977) (striking down a North Carolina
regulation that had “the effect of stripping away from the
Washington apple industry the competitive and economic
advantages it has earned for itself through its expensive
inspection and grading system”). A state may favor
environmentally friendly production methods over others
with more harmful effects. See Clover Leaf Creamery Co.,
449 U.S. at 473. And, “[a]ccess to cheap electricity is an
       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE            21

advantage, but it was not ‘earned’ . . . simply because
ethanol producers built their plants near coal-fired power
plants and imposed the hidden costs of GHG emissions on
others.” Rocky Mountain, 730 F.3d at 1092; see id. at 1091–
92 (“Drawing electricity from the coal-fired grid might be
the easiest and cheapest way to power an ethanol plant. But
the dormant Commerce Clause does not guarantee that
ethanol producers may compete on the terms they find most
convenient.”); see also Exxon Corp., 437 U.S. at 127
(holding that the Commerce Clause does not protect “the
particular structure or methods of operation in a retail
market”).

    On remand, the Rocky Mountain district court held that
American Fuel had plausibly alleged a discriminatory effect
on out-of-state ethanol in California from the California
program. Rocky Mountain Farmers Union, 258 F. Supp. 3d
at 1163; Mem. Decision & Order, Rocky Mountain Farmers
Union v. Corey, No. 1:09-cv-02234-LJO-BAM (E.D. Cal.
Aug. 3, 2015), ECF No. 343. But, that finding is of no aid
to American Fuel here, as it was based on an allegation that
California had changed the way it calculated carbon intensity
scores so as to “assign artificially lower CI scores to
California-produced ethanol while assigning artificially
higher CI scores to ethanol produced elsewhere, particularly
in the Midwest.” Rocky Mountain Farmers Union, 258 F.
Supp. 3d at 1159. There is no allegation of a similar change
here. Nothing in the complaint in this case suggests that
Midwest ethanol’s scores are “artificially” high—only that
they are higher than the scores of fuels that generate lower
greenhouse gas emissions.

           b. In-State Benefits

   American Fuel also alleges that the Program
impermissibly benefits in-state entities because Oregon
22     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

biofuels producers can generate credits. But, any benefits
conferred on Oregon biofuels producers arise from the
relatively low carbon intensity of their products. The
Program assigns lower carbon intensity scores to all biofuels
(regardless of state of origin) in comparison to other fuels
because of their lower greenhouse gas emissions. See, e.g.,
ODEQ 2016 Report; Or. Admin. R. 340-253-8030, -8040.
Such factors “are not discriminatory because they reflect the
reality of assessing and attempting to limit GHG emissions.”
Rocky Mountain, 730 F.3d at 1093.

    And, biofuels are not a “uniquely local industry” to
Oregon. Id. at 1100; cf. Bacchus, 468 U.S. at 271 (finding
the effect of a tax exemption “clearly discriminatory, in that
it applies only to locally produced beverages”). As the
district court explained, some of the fuels “most desirable
from a carbon intensity standpoint” are out-of-state biofuels.
Judgment, Am. Fuel & Petrochemical Mfrs. v. O’Keeffe, No.
3:15-cv-00467-AA (D. Or. March 23, 2015), ECF No. 72.
The Program thus does not favor in-state biofuels over
similar out-of-state biofuels, which renders this case fully
distinguishable from West Lynn Creamery, Inc. v. Healy,
512 U.S. 186, 188 (1994), upon which the dissent relies. In
that case, a Massachusetts tax on in-state and out-of-state
milk dealers was used to fund a subsidy exclusively for in-
state milk producers. See 512 U.S. at 190–91. Under the
structure of the Oregon Program, however, out-of-state
producers are able to—and do—generate credits and thus
share in the Program’s benefits. As the district court noted,
the Program “rewards all investment in innovative fuel
production, irrespective of where that innovation occurs.”
See ODEQ 2016 Report. In contrast, the subsidies at issue
in West Lynn Creamery were distributed explicitly and
exclusively to in-state producers based on geography alone.
See 512 U.S. at 190–91, 196–97.
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                      23

    Thus, the pleadings do not provide a plausible basis from
which to infer that the Program will shift market shares to
in-state biofuel producers, as opposed to biofuel producers
in general. See Exxon Corp., 437 U.S. at 126 (holding that a
law did not discriminate against out-of-state refiners because
“in-state independent dealers will have no competitive
advantage over out-of-state dealers”); Black Star Farms LLC
v. Oliver, 600 F.3d 1225, 1231–32 (9th Cir. 2010). The fact
that some burdens of Oregon’s program “fall[] on some
interstate companies does not, by itself, establish a claim of
discrimination against interstate commerce.” Exxon Corp.,
437 U.S. at 126. 11

             c. Pike Analysis

    “A nondiscriminatory regulation serving substantial
state purposes is not invalid simply because it causes some
business to shift from a predominantly out-of-state industry
to a predominantly in-state industry.” Clover Leaf Creamery
Co., 449 U.S. at 474. Such a regulation “will be upheld
unless the burden imposed on such commerce is clearly
excessive in relation to the putative local benefits.” Pike,
397 U.S. at 142. Although American Fuel alleges that the
Program “imposes economic and administrative burdens on
regulated parties” because importers of petroleum-based
gasoline and diesel “must either change the composition of

      11
         The fact that Oregon does not have a petroleum industry that is
burdened under the Program does not support American Fuel’s
discrimination claims. We have previously upheld, for example, an
Arizona regulation that could shift market share away from large
wineries even though the state had only one large winery that would be
burdened under the regulation. See Black Star Farms, 600 F.3d at 1227–
29. The regulations show that the Program “‘regulates evenhandedly’
. . . without regard” to a regulated party’s origin. Clover Leaf Creamery
Co., 449 U.S. at 471–72.
24     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

the fuel they import or purchase credits,” it fails to plausibly
allege that this burden is “‘clearly excessive’ in light of the
substantial state interest” in mitigating the environmental
effects of greenhouse gas emissions from transportation
fuels. Clover Leaf Creamery Co., 449 U.S. at 473.

        B. Extraterritorial Effect

     The dormant Commerce Clause also prohibits a state
from regulating conduct that “takes place wholly outside of
the State’s borders.” Sam Francis Found. v. Christies, Inc.,
784 F.3d 1320, 1323 (9th Cir. 2015) (en banc) (quoting
Healy v. Beer Inst., 491 U.S. 324, 336 (1989)). American
Fuel alleged that the Oregon program violates the Commerce
Clause and “principles of interstate federalism” by
attempting to control “commerce occurring wholly outside
the boundaries” of the state. Healy, 491 U.S. at 336. But,
these claims are squarely barred by Rocky Mountain. See
730 F.3d at 1101 (“Firms in any location may elect to
respond to the incentives provided by the Fuel Standard if
they wish to gain market share in California, but no firm
must meet a particular carbon intensity standard, and no
jurisdiction need adopt a particular regulatory standard for
its producers to gain access to California.”). Like the LCFS,
the Program expressly applies only to fuels sold in, imported
to, or exported from Oregon. Or. Admin. R. 340-253-
0100(1).

    American Fuel contends that its claim based on
principles of interstate federalism raises issues not
considered in Rocky Mountain. However, as the district
court correctly noted, “irrespective of its constitutional basis,
any such claim is necessarily contingent upon a finding that
the Oregon program regulates and attempts to control
conduct that occurs in other states.” See Rocky Mountain
Farmers Union, 2014 WL 7004725, at *13–14 (denying
       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE            25

leave to amend on remand to add claim alleging that the
LCFS was unconstitutional under principles of interstate
federalism because claim was based on same premise as an
extraterritorial legislation claim). Because the Program does
not legislate extraterritorially, American Fuel’s claim fails
no matter how its constitutional claim is labelled.

       C. Preemption

    Finally, American Fuel alleges that the Oregon program
is preempted by § 211 of the CAA. That Act recognizes that
“air pollution control at its source is the primary
responsibility of States and local governments,” 42 U.S.C.
§ 7401(a)(3), but preempts state regulation of a fuel or fuel
component if the EPA Administrator has declared regulation
unnecessary:

       Except     as    otherwise     provided      in
       subparagraph (B) or (C), no State (or political
       subdivision thereof) may prescribe or attempt
       to enforce, for purposes of motor vehicle
       emission control, any control or prohibition
       respecting any characteristic or component of
       a fuel or fuel additive in a motor vehicle or
       motor vehicle engine—

           (i) if the Administrator has found that no
               control or prohibition of the
               characteristic or component of a fuel
               or fuel additive under paragraph (1) is
               necessary and has published his
               finding in the Federal Register . . . .

42 U.S.C. § 7545(c)(4)(A).
26     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

    American Fuel contends that the EPA has found
regulation of methane is unnecessary because it excluded
methane from the definition of volatile organic compounds
under § 211(k) of the CAA in light of its low reactivity. See
40 C.F.R. pt. 80 (1994); 42 U.S.C. § 7545(k). The CAA,
however, makes plain that the administrator must find that
“no control or prohibition . . . under” § 211(c) is necessary
in order to effect preemption. The EPA’s decision not to
regulate methane under § 211(k) is not a finding that
regulating methane’s contributions to greenhouse gas
emissions is unnecessary, and thus is not preemptive under
§ 211(c)(4)(A)(i).

                     III. Conclusion

    For the reasons above, we AFFIRM the judgment of the
district court.
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                      27

N.R. SMITH, Circuit Judge, dissenting:

    I cannot agree to dismiss American Fuel’s claim, 1
alleging that the practical effect of Oregon’s Clean Fuels
Program (the “Oregon program”) impermissibly favors in-
state interests at the expense of out-of-state interests.

                                   I.

     Where “a statute discriminates against out-of-state
entities . . . in its practical effect, it is unconstitutional unless
it ‘serves a legitimate local purpose, and this purpose could
not be served as well by available nondiscriminatory
means.’” Rocky Mountain Farmers Union v. Corey, 730
F.3d 1070, 1087 (9th Cir. 2013) (quoting Maine v. Taylor,
477 U.S. 131, 138 (1986)).

    In Rocky Mountain, we followed the Supreme Court’s
decision in West Lynn Creamery, Inc. v. Healy, 512 U.S. 186
(1994). See 730 F.3d 1098–1100. There the Supreme Court
struck down as “clearly unconstitutional” a facially neutral
state pricing order that imposed a tax on all milk produced
for consumption in Massachusetts while also providing a
subsidy “exclusively to Massachusetts dairy farmers” that
“entirely (indeed more than) offset” the tax for in-state
producers. W. Lynn Creamery, 512 U.S. at 194. By
increasing the competitiveness of in-state industry at the

    1
      I agree with the majority that Rocky Mountain Farmers Union v.
Corey, 730 F.3d 1070 (9th Cir. 2013), resolved many of the issues
presented in this case. Nonetheless, although bound by our circuit
precedent, I continue to believe that the incorporation of location and
distance data into the calculation of carbon intensity values is facially
discriminatory under the Supreme Court’s Commerce Clause analysis.
See Rocky Mountain Farmers Union v. Corey, 740 F.3d 507, 515–16
(9th Cir. 2014) (M. Smith dissenting from denial of rehearing en banc).
28     AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

expense of out-of-state industry,            Massachusetts
“neutraliz[ed] advantages belonging to the place of origin.”
Id. at 196 (quoting Baldwin v. G.A.F. Seelig, Inc., 294 U.S.
511, 527 (1935)). The Supreme Court explained that

       [n]ondiscriminatory measures, like the
       evenhanded tax at issue here, are generally
       upheld, in spite of any adverse effects on
       interstate commerce, in part because the
       existence of major in-state interests adversely
       affected is a powerful safeguard against
       legislative abuse. . . . However, when a
       nondiscriminatory tax is coupled with a
       subsidy to one of the groups hurt by the tax,
       a State’s political processes can no longer be
       relied upon to prevent legislative abuse,
       because one of the in-state interests which
       would otherwise lobby against the tax has
       been mollified by the subsidy.

Id. at 200 (original alterations and internal quotation marks
omitted).

    In Rocky Mountain, we applied the West Lynn Creamery
Rule in evaluating the constitutionality of California’s clean
fuels program (which the Oregon law models). 730 F.3d at
1098–1100. There we determined that the California law
burdened more in-state industry than it benefitted. See id. at
1099. Importantly, that conclusion was necessary to our
decision that California’s law did not violate the principles
in West Lynn Creamery. See id. at 1098–1100.

   In its opinion the majority fails to grapple with the
Oregon program’s West Lynn Creamery problem. That
decision causes them to err as is shown below.
        AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE                     29

                                  II.

    Again, to state a plausible claim for discrimination,
American Fuel must allege that (A) the Oregon program
discriminates against out-of-state interests in its practical
effect, and (B) Oregon’s legitimate interest in reducing
global warming could be addressed by non-discriminatory
means.

    Further, as an initial matter in evaluating American
Fuel’s claim, this case is distinguished from Rocky Mountain
because it comes before us on a motion to dismiss, not
summary judgment. The evidentiary record has not been
developed in discovery. Thus, we must take all factual
allegations and reasonable inferences therefrom in the light
most favorable to American Fuel. See Adams v. U.S. Forest
Serv., 671 F.3d 1138, 1142–43 (9th Cir. 2012).

                                  A.

    American Fuel’s pleadings plausibly allege that
Oregon’s program discriminates in its practical effect. First,
Oregon’s program assigns a carbon intensity2 to all
transportation fuels produced for in-state consumption. The
program then sets a maximum carbon intensity value. Fuels
with a carbon intensity level above the maximum allowed
carbon intensity value generate deficits and fuels with
intensity levels below this value generate credits. Oregon
also requires producers with deficits to off-set those deficits
by purchasing credits from competing fuel producers that
have generated credits under the law.

    2
       The Carbon intensity value is based on a formula aimed at
assessing the carbon footprint of each fuel from production through its
ultimate consumption.
30       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE

    As American Fuel alleges, the discrimination arises from
Oregon’s decision to draw the maximum allowed carbon
intensity value in such a manner that all in-state fuel
producers generate credits and only out-of-state fuel
producers generate deficits. As a practical matter, this not
only exempts in-state entities from any burden under the law
(to remedy deficits by purchasing credits from competitors),
but it also affords them an additional subsidy in the form of
valuable carbon credits. By contrast, out-of-state regulated
entities, including American Fuel, generate deficits and
experience the full impact of the law. 3

    Thus, like the tax and subsidy in West Lynn Creamery,
Oregon’s program discriminates in its practical effect. See
512 U.S. at 200. Out-of-state entities bear the full brunt of
the law’s burden, even though all fuel producers (including
in-state entities) contribute to greenhouse gas emissions (and
consequently global warming). At the same time, in-state
entities not only avoid the burden of the law, they also
receive a subsidy from the out-of-state entities in the sale of
their valuable credits. Thus, American Fuel plausibly alleges
that the Oregon program discriminates in its practical effect.

                                    B.

   It is also plausible that there are nondiscriminatory
means of advancing Oregon’s legitimate interest in
combating global warming. See Rocky Mountain, 730 F.3d
at 1087, 1106 (identifying legitimate state interests in
addressing global warming). To state a plausible claim, it is
     3
      As the majority is quick to note, there are some out-of-state entities
that also generate credits. But the Commerce Clause problem
emphasized in the West Lynn Creamery analysis was the uniform
absence of an in-state burden—not the presence of a uniform burden on
out-of-state interests. See 512 U.S. at 200.
       AM. FUEL & PETROCHEM. MFRS. V. O’KEEFFE            31

unnecessary to identify every “available nondiscriminatory
means” of accomplishing the goal of reducing greenhouse
gases. See id. at 1087 (quoting Taylor, 477 U.S. at 138).
However, it is easy to suggest one plausible example.
Oregon could simply adopt a per unit tax on carbon intensity.
Such a tax would discourage use of carbon intense fuels
without artificially shielding in-state interests from any
responsibility for their contributions to greenhouse gas
emissions. The availability of nondiscriminatory means of
addressing global warming plausibly establishes that the
discriminatory effect of Oregon’s law violates the
Commerce Clause.

                            III.

    There is no doubt American Fuel alleges a plausible
claim. Taken together, the discriminatory practical effect of
Oregon’s program and the availability of nondiscriminatory
alternatives plainly state a claim under the Commerce Clause
that ought to survive a motion to dismiss.