Disagreements between California and the US Environmental Protection Agency (US EPA) over greenhouse gas (GHG) standards for automobiles have been simmering since 2018, but tensions between the two sides have recently increased after California entered into a voluntary agreement on GHG standards with a group of major automakers, followed swiftly by US EPA’s withdrawal of California’s authority to enforce its own GHG standards. California has challenged the withdrawal in court. The dispute over vehicle emissions standards is likely to result in significant uncertainty for the regulated community.

Background

The dispute over GHG standards was triggered in 2018 when US EPA announced its plan to roll back tailpipe emissions standards, which prompted California and 17 additional states to file a petition for review in the US Court of Appeals for the District of Columbia to challenge the agency action, as covered in more detail in a prior frESH post.

US EPA and the US Department of Transportation (US DOT) then published the rule, called the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks (SAFE Vehicles Rule), to roll back the 2012 fuel economy standards. As part of the SAFE Vehicles Rule, the agencies additionally proposed to “withdraw the January 9, 2013 waiver of CAA preemption” for California’s programs. Negotiations between the White House and the California Air Resources Board (CARB) did not resolve the conflict.

In July 2019, CARB and four major automotive manufacturers (BMW, Volkswagen, Ford, and Honda) entered into an agreement to follow a Voluntary Framework (Framework) for GHG standards. In a press release, CARB explained that the Framework “supports continued annual reductions of vehicle greenhouse gas emissions through the 2026 model year, encourages innovation to accelerate the transition to electric vehicles, and provides industry the certainty needed to make investments and create jobs.”

Approximately two weeks later, on September 6, 2019, media reports published that the US Department of Justice (DOJ) had started an antitrust investigation into the agreement between California and the four automotive manufacturers.  Companies have already reportedly received letters from the DOJ in relation to the investigation. US EPA and US DOT on the same day sent CARB a letter cautioning that the Framework may be “inconsistent with Federal law.”

Following this warning, on September 19, 2019, US EPA and the National Highway Traffic Safety Administration (NHTSA) issued a final rule revoking California’s authority to enforce its GHG and zero-emission vehicle (ZEV) standards. The rule also added regulatory text related to preemption of fuel economy standards under the Energy Policy and Conservation Act (EPCA).

California and a group of states have challenged the waiver withdrawal in the D.C. District Court. On October 25, 2019, the D.C. Circuit Court of Appeals dismissed the petition to review US EPA’s decision to revisit tailpipe emissions standards, concluding that US EPA’s decision was not a final action and therefore not ripe for judicial review.

Framework Details and CARB Follow-up Letter

Framework components included topics such as revision of greenhouse gas standards, flexibilities for the promotion of zero emission technology, increased innovation, simplification of accounting, and notably, recognition of California’s authority. For example, the Framework provides that it will implement GHG standards “beginning in the 2022 model year (MY) and extending through the 2026 MY, with increasing stringency at a nationwide average annual rate of 3.7% . . .”

CARB’s next step was to send a letter to manufacturers on August 5, 2019 entitled “Greenhouse Gas Program Compliance Path for Model Year 2020 Vehicles.” In the letter, CARB requested that manufacturers who elect to follow California’s GHG program notify CARB in writing by August 16, 2019. In such a notification, CARB also directed manufacturers to indicate if they intended to proceed “under Option 2 in 13 CCR Section 1961.3(a)(5)(D).” Option 2 in the referenced section provides for demonstration of compliance with fleet average requirements through the total number of passenger cars, light-duty trucks, and medium-duty passenger vehicles certified to California exhaust emission standards and delivered for sale in California, the District of Columbia, and “all states that have adopted California’s greenhouse gas emission standards for that model year.”

Outcome and Third Party Reactions

Recent reports indicate that CARB received no affirmative responses, but that does not necessarily mean that CARB will not reach out again or that manufacturers do not intend to follow CARB’s GHG program. For example, the Association of Global Automakers, a trade association representing US operations of international automotive manufacturers and related entities, sent a letter to CARB on August 9, 2019 requesting an extension of CARB’s deadline to September 30, 2019. The Association’s reasoning for an extension was that the current deadline did not take into consideration company shutdowns, vacations, and the decision-making process involving parent companies. In the letter, the Association also explained that it does not believe a formal declaration of compliance with California’s GHG regulations is necessary in order to benefit from California’s intended creation of a GHG credit bank.

Other organizations have also called on both sides to compromise and find middle ground before setting the stage for a two-standard system. On August 29, the US Chamber of Commerce chief policy officer, Neil Bradley, directed a letter to Elaine Chao, Andrew Wheeler and Mary Nichols requesting the parties “redouble efforts to identify a workable path forward on light duty vehicle fuel economy and greenhouse gas standards.” On July 9, 2019, a bipartisan group of governors also issued a statement entitled “The Nation’s Clean Car Promise” and called for “one, strong, national clean car standard and support preserving state authority to protect our residents from vehicle pollution.”

Withdrawal of Waiver

In the September 19 rule, entitled the “One National Program Rule,” US EPA withdrew California’s January 2013 waiver of Clean Air Act (CAA) preemption, as previously proposed in its SAFE Vehicles Rule. Under the waiver, California has had the ability to implement its Advanced Clean Car (ACC) program which includes additional and stricter requirements than exist under federal law, such as the GHG and ZEV standards that were invalidated by US EPA’s rule.

US EPA asserted two primary arguments in the rule: (1) that California does not need its GHG and SEV standards to meet compelling and extraordinary conditions under CAA Section 209(b), and (2) that EPCA preempts the GHG and ZEV standards. As a threshold matter, US EPA argued that it has the inherent authority to withdraw a previously-granted waiver and that the language of the CAA does not preclude such a withdrawal.

US EPA’s first argument for withdrawal is based on CAA Section 209(b), which prohibits the agency from granting a waiver request if it finds that the state does not need the standards to meet “compelling and extraordinary” conditions. In the rule, US EPA argued that the California standards at issue are aimed at addressing the effects of GHG emissions, which are not a local or state issue because atmospheric concentrations of GHG are substantially uniform across the world. In contrast, California standards aimed at addressing pollutants that contribute to ozone formation are needed because California’s ozone problem is uniquely exacerbated by its geography and location.

US EPA also argued that California’s GHG and ZEV standards are related to fuel economy standards such that they are preempted by EPCA. EPCA requires NHTSA to prescribe fuel economy standards for automobiles and expressly preempts state or local laws or regulations that are “related to” fuel economy standards. The rule asserts that any state or local requirement limiting tailpipe carbon dioxide emissions is related to fuel economy standards and therefore preempted.

The rule was published in the Federal Register on September 27, 2019 and has an effective date of November 26, 2019. The day after the rule was announced, on September 20, California and a group of 22 states filed a lawsuit challenging the rule in the US District Court for the District of Columbia. While the court’s decision on whether US EPA may withdraw a CAA waiver could provide some clarity as to agency authority, in the meantime the ongoing litigation leaves automakers in a state of uncertainty as to which standards will ultimately apply to them.

We will continue to follow and update readers on the development of standards in this space.