obotA recent post here referenced the efforts of various activist groups’ and west-coast state and local governments—purportedly aimed at stopping foreign nations’ contribution to climate change—to create a “thin green line” against the export of coal and other fossil fuels.  As outlined in that post, Washington State officials refused to issue Lighthouse Resources several environmental certifications and permits needed for construction of an export terminal from which Montana- and Wyoming-mined coal would be shipped to customers in Asia.  A federal judge recently held that a lawsuit alleging that Washington’s interference with the terminal violated the U.S. Constitution could proceed.

But the effort to impede fossil fuel transportation is not limited to Washington.  After contracting with a developer to convert an old military base into a bulk cargo shipping center—the Oakland Bulk & Oversized Terminal (OBOT)—in 2016 the City of Oakland attempted to freeze the development because it learned that the center would primarily be used to facilitate the shipment of coal and other fossil fuels.

Based on public pressure about climate change, the City proposed an ordinance banning coal operations at “bulk material facilities” and specifically applied it to the OBOT center, despite the fact that the City had contracted that the terminal would not generally be bound by future ordinances.  OBOT’s contract with Oakland did, however, have a provision that allowed the City to apply new regulations to the shipping center if, based on substantial evidence, failure to apply the new regulation would pose a “substantial danger” to the health of safety of Oakland residents.

To establish that “substantial danger,” the City commissioned a report from an outside consultant, Environmental Science Associates (ESA), analyzing the potential impact of OBOT on the Bay Area’s air quality.  Surprising no one, ESA’s report found that OBOT would create substantially dangerous conditions primarily because, while in transport, coal often emits dust that can reduce air quality.  Based primarily on ESA’s report, the City adopted the shipment ordinance and applied it to the OBOT project.  In response, OBOT filed a lawsuit in federal court.

While OBOT’s complaint alleged that the City’s ban was preempted by federal law and unconstitutional under the U.S. Constitution, the district court only considered the contract claims, holding that the City’s ordinance constituted a breach of OBOT’s contract.  While the City could, under the terms of the contract, apply new regulations to OBOT to prevent a “substantial danger” to its citizens, the City needed to justify that danger with “substantial evidence.”  After an extensive bench trial the court found that, even under the “deferential standard of review” called for in the contract,

the record before [the City] does not contain enough evidence to support [the City’s] conclusion that the proposed coal operations would pose a substantial danger to people in Oakland.  In fact, the record is riddled with inaccuracies, major evidentiary gaps, erroneous assumptions, and faulty analyses.

Oakland Bulk & Oversized Terminal v. City of Oakland. After scrutiny, the court had to determine that “ESA’s estimates, however, were almost completely unreliable.”

While it would not be feasible to provide an exhaustive list of the shortcomings in ESA’s report, we can group them into three categories.  First, ESA report assumed that OBOT would not take any steps to mitigate the emissions from the coal it would house and transport.  However, the contract with Oakland bound OBOT to implement several techniques that would significantly reduce the amount of coal dust released into the atmosphere.  Without taking OBOT’s mitigation into account, ESA’s report did not accurately reflect the shipment center’s actual environmental impact.

Second, in various places, ESA did not conduct the proper methodology and used incorrect or inappropriate models to calculate OBOT’s impact on Oakland.  Third, the report did not consider the impact of other governmental agencies’ regulation of OBOT.  The local Air District regulators could mandate permitting conditions on OBOT that would successfully eliminate any potential environmental impacts on the Oakland area, but ESA did not consider such regulations in its findings.  The court held that because of these infirmities, the City did not have substantial evidence of a substantial danger to its residents to justify imposing the new ordinance on OBOT under the contract.

It is important to note, as the district court did, that although the City justified its ordinance on air quality concerns, “[t]he hostility toward coal operations in Oakland appears to stem largely from concern about global warming.”  Activist groups pushing for the regulations and the City used the uproar to extend the thin green line.  But they did so in breach of OBOT’s contract: “It is facially ridiculous to suggest that this one operation resulting in the consumption of coal in other countries will, in the grand scheme of things, pose a substantial global warming-related danger to people in Oakland.”

As the fight against fossil fuels rages, state and local governments, backed by environmental activists, have begun to use their powers to reduce the fuel available for consumption.  Whatever the merits of their actions, governments cannot violate the contractual and constitutional rights of those engaged in fossil fuel transportation and sale.  We will continue to monitor developments in these important cases as they deal with national, and international, concerns.

Also published by Forbes.com on WLF’s contributor page.