In 2012, California, the Obama Administration, and major US automakers agreed (2012 Agreement) to nearly double fuel efficiency fleet-wide by 2025, raising the average fuel economy of new cars and light trucks to more than 50 MPG, or roughly 36 MPG in real-world driving. As part of the 2012 Agreement, a midterm review was scheduled to take place for April 2018 to determine the attainability of the final requirements. However, just prior to Obama leaving office in January 2017, US EPA announced it had completed its midterm review with no changes to the 2012 Agreement based on a record supported by a 2015 National Academies study and on the federal agency’s finding that the 2025 standards could be met with both technical and economic feasibility.

In February 2017, the Alliance of Automobile Manufacturers (Alliance), representing the majority of the automakers who agreed to the higher standards in 2012, wrote a letter requesting US EPA to withdraw its premature midterm determination. In this letter, the Alliance argued that “EPA and NHTSA in 2012 took the unprecedented step of setting joint greenhouse gas and fuel economy standards over a decade in advance for MY 2022-2025 vehicles,” and that US EPA’s commitment to a robust midterm evaluation was abrogated when it issued its final determination early, and without coordinating development of the standards with NHTSA. In March of 2017, US EPA and NHTSA granted the Alliance’s request and announced their intention to reopen midterm review and reconsider the Obama Administration EPA’s final determination that new standards were unnecessary. In response, California’s Air Resources Board (CARB) announced it would nonetheless move forward with the greenhouse gas emissions standards set forth in the 2012 Agreement.

California has special authority to make its own pollution and greenhouse-gas rules for mobile sources under a waiver granted pursuant to the Clean Air Act. After California announced its intention to invoke this authority if federal standards are weakened, the Trump Administration threatened to withdraw the waiver, which can be done only if US EPA determines that California “does not need such standards to meet compelling and extraordinary conditions.” This tension between the country’s most active state with regard to environmental regulations and a federal Administration clearly prioritizing regulatory rollbacks has the potential to create headache for an auto industry that has invested considerably in more efficient vehicle technology and likely only wanted the agreed-upon process announced in 2012 to be followed and to create some additional flexibility built into meeting emissions standards.

Softening the federal rules established under Obama could lead more states to adopt the California standards under CAA 177, making it more difficult for automakers to avoid California’s more stringent standards. Furthermore, it could prompt lawsuits from individual states—in June 2017, the New York attorney general and 12 other states’ top law officials announced they would challenge any effort to loosen mobile source emissions in court. State lawsuits against the federal government would in all likelihood create more regulatory uncertainty for automobile manufacturers, potentially undermining Trump’s goal of stimulating the US auto industry. CARB has stated it will abandon its support of the reopened midterm review if US EPA takes steps to weaken emissions standards, and it contends that without aggressively shifting towards zero- and low-emissions cars, the American auto industry risks lagging behind global competition. California plans to have 5 million zero-emissions vehicles on the road by 2030, and the state has a legislative mandate to cut carbon dioxide emissions to 40 percent below 1999 levels by 2030.

As expected, US EPA announced in early April 2018 that it intended to begin the process of rolling back the federal standards aimed at cutting tailpipe emissions of carbon dioxide. US EPA Administrator Scott Pruitt simultaneously demanded California align with US EPA’s decision. Despite Pruitt’s prerogative, California’s authority to maintain its own stricter air pollution standards under the Clean Air Act is legally well established, and if the sides cannot agree on what the standard should be, then the auto industry potentially faces a convoluted legal struggle between California and the 12 states that adhere to its emissions standards and the rest of the nation following the more lenient federal standard.

Barely a week after US EPA’s announcement, CARB said it was actively considering a lawsuit to challenge the decision to revise tailpipe emissions. The potential legal and political struggle that a faceoff between the federal government and California would evoke could create vast uncertainty for the auto industry that largely wanted substantial flexibility in meeting emissions standards when it petitioned the Trump Administration in early 2017.