EPA Rescinds California’s Authority to Regulate Vehicle Tailpipe Greenhouse Gas Emissions and to Implement a Zero-Emission Vehicle Program

On September 18, 2019, President Trump announced on Twitter that his administration was “revoking California’s Federal Waiver on emissions in order to produce far less expensive cars for the consumer, while at the same time making the cars substantially SAFER.”

One day later, the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) issued the One National Program Rule, which finalizes two components of the proposed Safer, Affordable, Fuel-Efficient (SAFE) Vehicles Rule:

1. NHTSA regulations stating that the Energy Policy and Conservation Act (EPCA) preempts both state action to regulate tailpipe greenhouse gas (GHG) emissions and impose Zero-Emission Vehicle (ZEV) mandates, which require that a certain number or percentage of vehicles sold or delivered in a state meet ZEV requirements; and
2. EPA’s rescission of the California waiver for its GHG and ZEV programs.

California and 22 other states have already filed suit to challenge NHTSA’s EPCA preemption regulations, and California is expected to file suit imminently to challenge EPA’s waiver rescission.

Section 177 of the Clean Air Act (CAA) provides a mechanism for states to adopt California’s vehicle standards. Thirteen so-called Section 177 states and the District of Columbia have adopted California’s emissions standards, and nine of those have adopted California’s ZEV regulations.

California has announced plans to continue enforcing its GHG and ZEV regulations. While it is not yet know whether the Section 177 states will do the same, the One National Program Rule almost guarantees protracted litigation and years of regulatory uncertainty.

EPA and NHTSA intend to finalize the remainder of the proposed SAFE Rule “in the near future.” This will include final action on proposed rollbacks of Corporate Average Fuel Economy (CAFE) standards and federal tailpipe GHG emissions standards for passenger cars and light trucks for model years (MY) 2021 through 2026.

EPCA Preemption of State GHG and ZEV Programs

EPCA preempts state and local regulations “related to fuel economy standards or average fuel economy standards.” 49 U.S.C. § 32919(a). In the One National Program Rule, NHTSA construes “related to” broadly and finds that “a State or local requirement limiting tailpipe carbon dioxide emissions from automobiles has the direct and substantial effect of regulating fuel consumption and, thus, is ‘related to’ fuel economy standards.” Similarly, NHTSA finds that this provision preempts state ZEV programs: because “carbon dioxide emissions constitute the overwhelming majority of tailpipe carbon emissions, a State regulation of all tailpipe GHG emissions from automobiles or prohibiting all tailpipe emissions is also ‘related to’ fuel economy standards.”

In addition, NHTSA dismisses comments arguing that its interpretation conflicts with the Supreme Court’s decision in Massachusetts v. EPA, where EPA argued that it could not regulate tailpipe GHG emissions because doing so conflicts with NHTSA’s role under EPCA. The Court rejected this argument, finding EPA’s CAA obligation to protect public health and welfare is “wholly independent” of, and does not pose an obstacle to, NHTSA’s mandate under EPCA to promote energy efficiency. Massachusetts v. EPA, 549 U.S. 497, 532 (2007). In the One National Program Rule, NHTSA disagrees with attempts to “stretch the holding” of Massachusetts and states that the Court “addressed only EPA’s own statutory obligations, which have no bearing on EPCA preemption.” NHTSA also dismisses as erroneously decided two district court decisions finding that EPCA does not preempt state tailpipe GHG standards.

Rescission of the California Waiver

In the One National Program Rule, EPA determines that it has the authority to withdraw a waiver under CAA Section 209(b) in appropriate circumstances – even though it has never sought to do so previously – and announces its withdrawal of the January 2013 waiver for California’s GHG and ZEV standards.

CAA Section 209(b) provides that EPA “shall” grant California a waiver unless: “(A) [California’s] determination [that its standards in the aggregate will be at least as protective] is arbitrary and capricious, (B) [California] does not need such State standards to meet compelling and extraordinary conditions, or (C) such State standards and accompanying enforcement procedures are not consistent with section [202(a)].” (emphasis added). Courts have generally interpreted this provision to place the burden on EPA to prove that California fails to meet one of these conditions.

EPA finds that California does not need its GHG and ZEV standards to meet compelling and extraordinary conditions because:

• Those standards address environmental problems that are not particular or unique to California.
• The environmental problems at issue are not caused by emissions or other factors particular or unique to California.
• The standards will not provide any remedy particular or unique to California.
• The California waiver authority only exists because California has uniquely difficult problems with ozone-forming pollutants.
• The California waiver authority does not exist to allow California to address national and global issues such as climate change.

Outlook

Notwithstanding the waiver rescission, California Air Resources Board (CARB) officials say they will continue to enforce the state’s GHG and ZEV standards while they challenge the One National Program Rule. During a September 19, 2019 board meeting, CARB’s chief counsel affirmed the agency’s position that “our standards are still in effect,” and went on to warn that CARB “can enforce against all of the car companies in future years.”

The One National Program Rule comes shortly after CARB also negotiated an agreement-in-principle with four major automakers to provide an alternative approach to reducing GHG emissions and improving fleet fuel economy. Under the agreement, Ford, Honda, BMW of North America, and Volkswagen Group of America have committed to reducing their vehicles’ average emissions by 3.7% year over year through MY 2026, ultimately reaching an adjusted equivalent of roughly 51 mpg. By comparison, the SAFE Rule proposal would freeze the standard at 36.9 mpg for MYs 2020 through 2026. The future of the agreement-in-principle – and whether additional automakers will join – remains uncertain (the Department of Justice has initiated an investigation into whether the agreement violates antitrust law).

Automakers who elect to disregard the California GHG and ZEV standards risk CARB enforcement action and costly disruption of vehicle development and production should there be a change in administration or should litigation ultimately invalidate the rule. Moreover, the timeline for EPA’s finalization of the rest of the SAFE Rule – including the rollback of CAFE and federal tailpipe emission standards – remains unclear. This rollback will also inevitably spark years of litigation and leave automakers looking down a long road of regulatory uncertainty.

Beveridge & Diamond’s Mobile Source Emissions group has experience in all aspects of mobile source emissions regulation. For over two decades, the firm has engaged in a host of matters involving rulemakings, regulatory interpretation, compliance, enforcement, litigation, and advocacy with respect to automobiles and light-duty vehicles (gasoline, diesel, and electric), heavy-duty vehicles, non-road engines and equipment/vehicles, and commercial aircraft and marine engines.