In September, the war against stronger vehicle emission standards got real. We went from two and a half years of escalating rhetoric between the Trump administration and California to dramatic federal action with potentially profound consequences. The National Highway Traffic Safety Administration (“NHTSA”) and the U.S. Environmental Protection Agency (“EPA”) jointly issued new rules to prevent California from enforcing its tailpipe emissions standards for greenhouse gases. In one fell swoop, the agencies’ action threatens to upend ambitious, forward-looking requirements – intended to address a significant piece of the climate puzzle in the absence of any serious federal effort – that have been adopted by more than a dozen states and cover roughly thirty percent of the auto market. At the moment, it is still a war of (legal) words to be sorted out by the courts. But absent swift judicial intervention, the new federal rules will go into effect by Thanksgiving. Immediately following the federal announcement, California sought injunctive relief from a D.C. District court, joined by twenty-two other states, the District of Columbia, and the nation’s two largest cities, New York and Los Angeles.
The new lawsuit raises a number of fascinating constitutional, statutory, and policy issues. But at its heart is the revival of a challenging legal question that the Obama Administration sidestepped in 2009 when it brokered a grand deal on vehicle emission standards. With relevant state and federal agencies, automakers, labor, and environmental organizations all at the table, that deal harmonized two federal statutes, aligned state and federal standards, gave certainty to the industry, ended a spate of litigation among various warring parties, and still managed to significantly advance climate policy. In some sense, it was a textbook example of how the oft-touted concept of “cooperative federalism” can actually lead to socially beneficial outcomes. The Trump Administration’s attempt to unravel the existing standards, in contrast, leaves the very notion of cooperative federalism in tatters.
The current dispute has its roots in mid-twentieth century Los Angeles, where the post-war economic boom, suburban sprawl, and the basin’s unique topographic conditions combined to produce an unhealthful brown haze on most warm days. To address this worsening smog problem, California first adopted tailpipe emission standards in 1966. Those standards were intended to reduce hydrocarbon and carbon monoxide pollution from new motor vehicles by as much as 80 percent. The following year, Congress enacted the Air Quality of Act of 1967 – the precursor to today’s Clean Air Act – which preempted states from setting vehicle emission standards in favor of uniform national standards. But importantly, the new federal law allowed California to continue enforcing its own standards under a “waiver” of this preemption provision. In crafting this waiver authority, Congress not only acknowledged that California faced a particularly difficult air pollution situation, but also recognized that states can serve as laboratories of innovation for tough national problems.
When Congress passed the substantially beefier Clean Air Act in 1970, it retained and affirmed California’s pivotal role in advancing vehicle emission standards. Section 209 of the Clean Air Act provides that EPA “shall . . . waive” the statute’s state preemption provision “if the State determines” that its standards will, in the aggregate, be “at least as protective of public health and welfare as applicable Federal standards.” This provision, which applies only to states that adopted vehicle emission standards before March 30, 1966, was aimed exclusively at California because only California satisfied that threshold criterion. But in amending the Clean Air Act in 1977, Congress added Section 177, which allows other states to adopt vehicle emission standards as long as they are “identical to the California standards for which a waiver has been granted.” Over the last fifty years, EPA has granted dozens of waivers for different pollutants and different types of vehicles, and at least two dozen states routinely adopt California’s stricter standards pursuant to Section 177. Under those waivers, the country lived for many years with two sets of standards.
Section 209 quite intentionally places a significant burden on EPA to override California’s determination as to its own vehicle emission standards. First, it provides that a California standard “shall be deemed” to satisfy the threshold requirement – “at least as protective” – as long as such standard is as stringent as the comparable applicable federal standard. Second, to overcome the statutory presumption that EPA “shall” grant a waiver request, the Administrator must show that (1) California’s determination is “arbitrary and capricious”; (2) California does not “need such State standards to meet compelling and extraordinary conditions”; or (3) California’s standards are “not consistent” with the statutory provisions authorizing EPA to set motor vehicle emission standards. The statute thus inverts the typical deference regime by putting the onus squarely on the federal government to show why a waiver should not be granted.
Congress’ foundational intuition that California could serve as an engine of technological and policy innovation proved spot on. Starting in 1968, California has repeatedly invoked the waiver authority – and EPA has routinely granted waiver requests – to drive significant improvements. From the an early waiver that spurred nationwide adoption of the catalytic converter, which resulted in a fivefold reduction in hydrocarbon and carbon monoxide emissions over the 1970s, to the progressively more stringent low emission vehicle (LEV) standards adopted in the 1990s, California blazed the trail on vehicle emissions reduction. After twice granting waivers for the LEV program, EPA ultimately followed with its own (voluntary) national low emission vehicle program, crediting California’s standards with facilitating “considerable advances in emission control technology.” Although originally targeted at reducing traditional air pollutants, California’s LEV regulations set the stage for the kind of zero emission vehicles (“ZEVs”) that are now imperative for any successful domestic climate policy today because transportation alone accounts for almost thirty percent of domestic greenhouse gas emissions.
In 2004, California took its LEV/ZEV program to the next level, adopting the nation’s first vehicle greenhouse gas standards. These standards, expressed primarily as grams of carbon emitted per mile driven, were designed to progressively reduce vehicle carbon emissions between 2009 and 2016 by roughly thirty percent. Roughly a dozen other states exercised their Section 177 authority to adopt the California greenhouse gas standards. California duly sought a Section 209 waiver for these greenhouse gas standards, a request that Bush EPA Administrator Stephen Johnson ultimately denied – the first full waiver ever denial by EPA – primarily on the ground there were no “compelling and extraordinary conditions” to support California’s regulation of a global pollutant. In its lengthier published notice of the denial, however, EPA focused more on policy than statutory language, asserting that Congress did not intend Section 209 to apply to global pollution issues.
Lurking just below the surface in EPA’s denial was another federal statute, the Energy Policy and Conservation Act (“EPCA”) of 1975. Following the OPEC oil embargo of 1973-74 and the resulting energy shock to the U.S. economy, Congress enacted EPCA to promote energy independence and efficiency. Among other things, EPCA statutorily set initial corporate average fuel economy (“CAFE”) standards and charged NHTSA with setting “maximum feasible” CAFE standards thereafter. EPCA preempts states from setting their own fuel economy standards for vehicles covered by federal CAFE standards, and it does not contain a California carve-out similar to Section 209 of the Clean Air Act. Although EPCA was enacted to push the automobile manufacturers toward more efficient internal combustion engines, such increased fuel economy has the tangential benefit of reducing carbon emissions from the burning of fossil fuel because increased mileage efficiency (miles per gallon) is the only realistic ways to address greenhouse gas emissions from fossil fuel burning vehicles. There is no feasible tailpipe technology (like a catalytic converter) that can capture and prevent carbon dioxide emissions.
Although EPA’s final explanation for denying the greenhouse gas emissions waiver did not turn EPCA preemption, the ensuing litigation put California’s waiver on a collision course with EPCA. The automobile industry sued both California and Vermont (one of the states exercising its Section 177 authority) over the legality of the California standards. Those lawsuits squarely joined the legal issue of whether California’s greenhouse gas tailpipe standards constitute de facto vehicle fuel economy standards and are, therefore, preempted by EPCA. Districts courts in both states rejected the industry’s preemption arguments, albeit using somewhat different reasoning. At roughly the same time, California sued EPA over the denial of the waiver (in a case that was never adjudicated) and separately sued NHTSA over that agency’s failure to account for the true cost of greenhouse gas emissions in setting the “maximum feasible” CAFE standard for light duty vehicles – that is, NHTSA unlawfully failed to consider the social cost of carbon.
After California prevailed in the NHTSA lawsuit and while industry appeals of the two EPCA preemption cases were pending, the Obama Administration announced a deal that took the all of these issues off the table. Going forward, California agreed to abide by uniform national fuel economy standards as the mechanism for implementing its own greenhouse gas emission standards, EPA and NHTSA coordinated their emissions and mileage standards under the Clean Air Act and EPCA, and the industry agreed to a substantial improvement in average fleet efficiency, to 54.5 miles per gallon by 2025.
The collision between California’s greenhouse gas standards and EPCA that this Obama-negotiated deal avoided lies at the heart of today’s revived controversy. As part of that 2009 deal, EPA reversed its earlier decision and granted the Section 209 waiver to California, but California agreed not to actually exercise that authority. Instead, the state agreed that the new uniform national mileage standards would be “deemed to comply” with California’s greenhouse gas emission requirements. With automakers pushing to roll back agreed-upon national standards and the Trump EPA proposing to accommodate that request, California’s ability to revive and exercise its waiver authority has become the focal point for the dispute. A rollback of the national standards alone does not prevent California from using its existing Section 209 waiver authority to maintain higher state standards, nor will it stop a dozen other states from exercising their Section 177 authority to follow California’s lead. The Trump Administration’s most recent action is thus an anticipatory strike, with EPA revoking California’s waiver and NHTSA issuing an agency interpretation that EPCA preempts California’s greenhouse gas standards.
In the new lawsuit, California and its state and local allies will argue to the D.C. District court that (1) NHTSA does not have legal authority to issue an interpretative rule on preemption and, in any event, its interpretation is wrong on the law; and (2) EPA’s revocation of the waiver is ultra vires, arbitrary and capricious, unsupported by the factual evidence, and inconsistent with the Clean Air Act. The litigation puts at issue a number of statutory interpretation and intent questions, but also could easily implicate federalism, standing, Chevron deference, and other broader issues before the U.S. Supreme Court, where it is surely headed. At the very least, the grand deal that harmonized standards and statutes is dead. And with it, we can mourn the demise of both coherent climate policy and certainty for the business community.
In an ironic twist, the auto industry that pressed the new administration in early 2017 to roll back vehicle emission standards, just when the mileage standards curve was set to bend substantially upward, now finds itself in self-inflicted regulatory chaos. Fuel economy standards are set in advance for compliance periods of at least five years in order to allow the automobile industry a substantial planning and production time horizon. As we march toward the end of 2019, the Trump Administration intends to freeze the 2020 standards in place, while twenty-three states hope to enforce the progressively stronger efficiency standards already adopted for model years 2021 through 2025. Given the regulatory and litigation uncertainty, what will the industry do now? One clue comes from a voluntary agreement that four automakers, accounting for roughly 40 percent of the market, recently struck with California. Under that agreement, Ford, Volkswagen, BMW, and Honda will voluntarily comply, more or less, with the existing standards on a slightly slower timeline and with a few relatively minor modifications. Rumors abound that other manufacturers, and other states, may follow suit. In an apparent attempt to undermine these voluntary efforts and chill the interest of would-be joiners, the Trump Department of Justice has responded by opening an antitrust investigation against the participating manufacturers. Any federal action on that front will undoubtedly spawn additional lawsuits.
RIP, cooperative federalism.