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Fuel Economy: DOJ's Defense of the One National Program Rule, Part 2

California Governor Gavin Newsom signed an executive order on Wednesday, September 23, directing the California Air Resources Board (CARB) to draft rules that will ban the sale of gasoline-powered vehicles in the state by 2035. Whether California has the legal authority to restrict consumer choice and economic liberty on so massive a scale may be decided next year in litigation now before the D.C. Circuit Court of Appeals.

The case, called Union of Concerned Scientists v. National Highway Traffic Safety Administration, pits the State of California and its allies (petitioners) against the Trump administration and its allies (respondents). Petitioners filed their opening brief on June 26. The Department of Justice (DOJ) filed its reply brief on September 9. Petitioners’ reply briefs are due October 13. Final briefs are due October 27. Oral argument has not yet been scheduled.

As discussed in Part 1 of this series, posted last Friday, California et al. are petitioning the court to vacate the Trump administration’s One National Program Rule, which clarifies that federal law preempts state and local tailpipe greenhouse gas (GHG) emission standards as well as zero emission vehicle (ZEV) standards.

Friday’s post discussed DOJ’s defense of the National Highway Traffic Safety Administration’s (NHTSA) finding that the Energy Policy Conservation Act (EPCA) preempts California’s tailpipe GHG and ZEV standards. Today’s post discusses DOJ’s defense of the Environmental Protection Agency’s (EPA) finding that California’s GHG and ZEV standards do not qualify for a waiver of Clean Air Act (CAA) preemption under Section 209 of the Act, and that CAA Section 177 does not authorize other states to adopt those standards.

Background

The legal controversy over California’s GHG and ZEV standards can be confusing because the meaning and effect of two separate preemption provisions are in dispute. The EPCA preemption, discussed in last week’s post, expressly prohibits state and local governments from adopting or enforcing laws or regulations “related to” fuel economy standards. It states:

When an average fuel economy standard prescribed under this chapter is in effect, a State or a political subdivision of a State may not adopt or enforce a law or regulation related to fuel economy standards or average fuel economy standards for automobiles covered by an average fuel economy standard under this chapter [49 U.S.C. 32919].

It is hard to imagine a broader and clearer preemption provision. As the proposed Safer Affordable Fuel Efficient (SAFE) Vehicles Rule pointed out, EPCA does not allow NHTSA (or any other agency) to waive federal preemption of state government fuel economy regulation, does not allow states to establish or enforce regulations identical or equivalent to federal standards, and preempts state laws and regulations merely “related to” fuel economy standards (83 FR 43233).

CAA Section 209(a) preempts state and local government vehicle emission standards, declaring: “No State or any political subdivision thereof shall adopt or attempt to enforce any standard relating to the control of emissions from new motor vehicles or new motor vehicle engines subject to this part.” However, Section 209(b) makes an exception for “any state” (i.e. California) that had adopted vehicle emission standards before March 30, 1966.

Under Section 209(b), the EPA “shall” grant California a waiver of Clean Air Act preemption if the state determines that its standards, “in the aggregate,” will be at least as protective as federal standards. However, “No such waiver shall be granted” if the EPA finds that: (A) California’s protectiveness determination is “arbitrary and capricious,” (B) California “does not need such state standards to meet compelling and extraordinary conditions,” or (C) California’s standards are “inconsistent” with CAA Section 202—the provision under which the EPA regulates emissions from light duty vehicles.

In Central Valley Chrysler-Jeep Inc. v. Goldstene (2008), the Eastern District Court of California argued that granting a CAA Section 209(b) waiver would transform California’s standards into federal standards, making them immune to EPCA preemption, which applies solely to state and local policies related to fuel economy standards.

NHTSA refutes that argument in the One National Program Rule, pointing out that preemption statutes apply “ab initio”—from the beginning. Because California’s tailpipe GHG and ZEV standards are “related to” fuel economy (as explained in Part 1), EPCA rendered those standards null and void before California could even ask the EPA for a CAA preemption waiver.

In the One National Program Rule, the EPA additionally determines that, separate and apart from their preemption by EPCA, California’s tailpipe GHG and ZEV standards do not qualify for a waiver of Clean Air Act preemption, because California “does not need such state standards to meet compelling and extraordinary conditions.”

The remainder of this post discusses the main points in DOJ’s defense of the EPA’s portion of the One National Program Rule.

  1. EPA has authority to reconsider a previously granted Section 209(b) waiver.

In a shoot-for-the-moon argument akin to their claim that NHTSA has no power to interpret EPCA’s preemption provision, petitioners argue that the EPA has no power to withdraw a waiver previously granted under CAA Section 209(b). However, it is hard to imagine that Congress would authorize the EPA to grant waivers but not to reconsider and, if appropriate, withdraw them.

Authority to reconsider and reverse regulatory decisions is generally regarded as “statutorily implicit,” DOJ points out. Absent specific statutory language prohibiting reconsideration, federal “agencies have the right to correct legal interpretations and other substantive legal errors.” Petitioners cite no language in CAA Section 209 stating or implying that waivers once granted may never be withdrawn.

In fact, DOJ argues, the provision implies the opposite. CAA Section 209(b)(1)(C) forbids the EPA to grant a waiver if the state standards “are not consistent with” CAA Section 202(a). That provision directs the EPA, when setting motor vehicle emission standards, to consider the lead time necessary to develop and apply the “requisite technology.” In NRDC v. EPA (1981), the D.C. Circuit Court of Appeals ruled that the EPA may modify its standards “if the actual future course of technology diverges from expectation.” DOJ reasonably concludes: “Congress’s cross-reference to this provision in CAA Section 209 thus makes California’s waiver dependent on the standards’ continued feasibility.”

Legislative history supports the EPA’s interpretation. The drafters of the 1990 CAA amendments “expressly acknowledged EPA’s authority to reconsider and withdraw its waiver decisions.” The Senate Report stated: “Implicit in this provision is the right of the [Administrator] to withdraw the waiver at any time [if] after notice and an opportunity for public hearing he finds that the State of California no longer complies with the conditions of the waiver.” S. Rep. No. 90-403, at. 34.

Regulatory history also supports the EPA’s interpretation: “EPA twice initiated review of previous waivers after the 1977 [CAA] amendments, in 1978 and 1982,” both times because California did not provide sufficient lead time to develop the requisite technologies (84 FR 51333, n. 223). DOJ comments: “The 1990 [CAA] amendments made no changes in response to EPA’s open exercise of that authority.”

The Obama administration’s 2012 tailpipe GHG/fuel economy rule demonstrates the mutability of waivers. The 2012 rule committed the EPA and NHTSA to undertake a mid-term review of model year 2022-2025 standards. It explained that “if EPA revises its standards in response to the mid-term evaluation, California may need to amend one or more of its [model year] 2022-2025 standards and would submit such amendments to EPA with a request for a waiver, or for confirmation that said amendments fall within the scope of an existing waiver, as appropriate” (77 FR 62785).

Finally, petitioners’ legal theory is conflicted. CARB Chair Mary Nichols wrote to then-EPA Administrator nominee Lisa Jackson: “California believes EPA has an inherent authority to reconsider the [G.W. Bush EPA’s] denial [of the state’s waiver request] and should do so in order to restore the interpretations and applications of the Clean Air Act to continue California’s longstanding role in setting emission standards” (letter of Jan. 21, 2009). So, according to petitioners, the EPA has an “inherent authority” to reconsider a waiver—but only to grant it, not to withdraw it. DOJ comments: “The text, structure, and logical operation [of CAA Section 209] allows no such distinction—and the drafters’ legislative history is to the contrary.”

  1. Petitioners lack sufficient reliance interests to preclude reconsideration.

Petitioners argue that automakers, California, its state allies, and electric utilities have made substantial investments in reliance on the state’s GHG motor vehicle standards and ZEV mandate, and that those “reliance interests” make it unlawful for the EPA to change course now. In effect, the CAA waiver is too big to withdraw. The One National Program Rule shreds this line of argument in one sentence: California and its allies cannot have “valid reliance interests in regulations that are void ab initio” (84 FR 51327).

DOJ emphasizes that California and its allies knew their investments were a calculated risk, and as the D.C. Circuit of Appeals held in Solenex LLC v. Bernhardt (2020), “Reliance interests incurred when an issue had long been in dispute were not reasonable.”

“California’s authority has long been in dispute,” DOJ observes. Indeed, all “parties knew by 2006 (at the latest) that NHTSA believed EPCA preempted California’s greenhouse-gas standards—a position NTSHA has never conceded or changed.” NHTSA’s 2006 fuel economy rulemaking stated:

We reaffirm our view that a state may not impose a legal requirement relating to fuel economy, whether by statute, regulation or otherwise, that conflicts with this rule. A state law that seeks to reduce motor vehicle carbon dioxide emissions is both expressly and impliedly preempted [by EPCA] (71 FR 17654).

In addition, the EPA’s model year 2022-2025 GHG emission standards “were always contingent on EPA’s 2018 Mid-Term Evaluation.” EPA’s withdrawal of the waiver “was the culmination of a reconsideration process that was specifically anticipated at the time of the waiver grant in 2013.” Thus, DOJ concludes, “California’s, and other interested parties’, concurrence with the Mid-Term Evaluation stipulation negates any justifiable expectation of fixed standards for those years or a permanent, unchangeable waiver.”

  1. Withdrawing the California waiver implements the Supreme Court’s “avoid inconsistency” directive in Massachusetts v. EPA.    

Irony mavens will enjoy this one because California and its allies practically venerate the Supreme Court’s landmark global warming case.

DOJ argues as follows. In Massachusetts, the Court recognized that the EPA and NHTSA have overlapping obligations because tailpipe carbon dioxide (CO2) standards effectively regulate fuel economy. However, the Court found “no reason to think the two agencies cannot both administer their obligations yet avoid inconsistency.”

In the One National Program Rule, NHTSA correctly determined that EPCA preempts California’s tailpipe CO2 and ZEV standards. That exposed an inconsistency with EPA waivers authorizing those same standards. The EPA could not reasonably ignore that inconsistency. To do so would put the U.S. government “in the untenable position of arguing that one federal agency can resurrect a state provision, that, as another federal agency has concluded and codified, Congress has expressly preempted and therefore rendered void ab initio.”

This point has become clearer since Governor Newsom directed CARB to expand the ZEV mandate to ban the sale of all new petroleum-fueled vehicles by 2035. Congress has never signed off on any such policy. Had Congress wanted to squeeze gasoline-powered vehicles out of the national market, it could have done so by requiring NHTSA to consider the market penetration of alternative fuel vehicles when prescribing “maximum feasible” fleet average fuel economy standards. Instead, Congress in 2007 “amended EPCA to prohibit NHTSA from considering the fuel economy of dedicated alternative fuel vehicles, including electric vehicles, when setting maximum feasible standards” (85 FR 25170).

The EPA cannot waive federal preemption of the ZEV program without imposing emission standards that are wildly inconsistent with NHTSA’s fuel economy standards. Thus, the EPA cannot do so without defying the Supreme Court’s directive to “avoid inconsistency.” 

  1. The EPA reasonably interprets “such state standards” in Section 209 to allow the agency to review the specific standards in each waiver request.

To reiterate, under CAA Section 209(b)(1)(B), the EPA may not grant a waiver if California “does not need such state standards to meet compelling and extraordinary conditions.” Petitioners claim “such state standards” mean California’s standards “in the aggregate”—in effect, California’s entire vehicle emissions program. In contrast, the One National Program Rule interprets the phrase to mean the specific standards or types of standards at issue in each waiver request.

Petitioners insist that their reading of “such state standards” is the only permissible one. Thus, according to them, the EPA may not reject any California waiver request unless the agency determines either (i) that granting the waiver would make California’s emission standards as a whole “less protective” than federal standards, or (ii) that California no longer needs its own vehicle emissions program.

DOJ concedes that it is possible to read “such state standards” as petitioners do. However, it is more reasonable to interpret the phrase as referring to the specific standards for which California requests a waiver.

To begin with, the EPA’s interpretation comports with the actual operation of the waiver review process. California seeks a waiver for each standard or package of standards it adopts. The EPA receives each submission “individually, not in the aggregate with all standards for which it has previously granted waivers.” Thus, “it is logical that its review under Section 209(b)(1)(B) would be similarly individualized.”

The Obama-era EPA interpreted “such state standards” as petitioners do. However, under that reading, once the EPA granted its first waiver to California (more than 50 years ago), the agency “would never have the discretion to determine that California did not need any subsequent standards for which it sought a successive waiver.” That would make the limiting terms “compelling and extraordinary” superfluous, void, or insignificant.

In contrast, the EPA’s reading of “such state standards” squares with Congress’ intent, reflected in subsections (a) and (b) of Section 209, “to strike a balance between giving California latitude to address those extraordinary problems and promoting national uniformity and certainty for automakers.”

Most critically, the third criterion for denying a waiver, stated in CAA Section 209(b)(1)(C), only makes sense if “such state standards” mean the specific standards in particular California waiver requests. As noted, that provision requires the EPA to assess whether “such state standards” are “consistent with” CAA Section 202(a), which requires the agency to consider technology lead times before adopting vehicle emission standards. A judgment about the consistency of California’s standards with the EPA’s assessment of appropriate lead times is necessarily a judgment about specific California standards, not the totality of all state standards going back more than half a century.

  1. The EPA reasonably interpreted “compelling and extraordinary conditions” as referring to air pollution problems that are not just significant but also distinctive, unusual, or exceptional.

Until California began campaigning for motor vehicle GHG standards, there was little reason to ponder the meaning of “compelling and extraordinary conditions.” Although not defined in the statute, the phrase undoubtedly refers to California’s persistent non-attainment of air quality standards. But there is more to it than that.

In the One National Program Rule, the EPA notes that “compelling and extraordinary” modify “conditions,” not “need.” Congress has long understood that California’s “need” for separate vehicle emission standards derive from special conditions—the state’s peculiar geography and meteorology, which produce pollution-trapping thermal inversions, and large number of vehicles (83 FR 43247).

The Senate Report, DOJ observes, “specifically tied these localized concerns to the statute’s design.” It explained that California needs “compelling and extraordinary circumstances sufficiently different from the nation as a whole to justify standards” different from those set by the EPA (S. Rep. 90-403, at 33).

The EPA reasonably concludes that for California to need separate standards, the standards “must relate to extraordinary—beyond the usual or exceptional—conditions.” Accordingly, to qualify for a waiver, California must demonstrate that the air pollution problem addressed by its standards is not only significant (“compelling”) but also distinctive (“extraordinary”).

Petitioners instead read “extraordinary” as a synonym for “compelling,” turning it into surplusage. Accordingly, they conclude that California may set any emission standard it desires, “even where California has no unique need.”

But, DOJ argues, if Congress wanted to give California free rein to set vehicle emission standards, “it had a much plainer means to do so, as it did with respect to California’s fuel controls.” CAA Section 211(c)(4)(B) specifies that “any state” which has received a CAA Section 209(b) waiver (i.e. California) “may at any time prescribe and enforce, for the purpose of motor vehicle emission control, a control or prohibition respecting any fuel or fuel additive.”

By expressly linking CAA Sections 211(c)(4)(B) and 209(b), Congress “pointedly” gave California a “blanket waiver” to set emission standards for motor fuels and additives but not for motor vehicles and engines. California’s eligibility for preemption waivers under CAA Section 209(b) is “limited” by the state’s “need to meet compelling and extraordinary conditions.”

  1. California’s greenhouse-gas related conditions do not justify a waiver.

CAA Section 209(b) enables California to tailor motor vehicle emission standards to address its extraordinary conditions. However, the fossil-fuel greenhouse effect and its potential impacts have no special nexus to California. GHG concentrations are essentially uniform throughout the globe and are not affected by California’s geography and meteorology. California’s vehicles emit greenhouse gases, but so do mobile and stationary sources throughout the world. The resulting “global pool” of GHG emissions is not any more concentrated in California than anywhere else (83 FR 43246).

Even if one assumes “compelling and extraordinary” refer not to the fossil-fuel greenhouse effect itself but its potential impacts, such as heat waves, drought, and coastal flooding, those effects in California “are not sufficiently different from the conditions in the nation as a whole to justify separate state standards” under CAA Section 209(b) (83 FR 43248-50). Thus, neither the causes nor the effects of anthropogenic warming are California-specific.

Unlike California emission standards for conventional air pollutants, California’s GHG standards would not ameliorate any environmental problem in the state. Compared to the GHG standards the EPA finalized in the Safer Affordable Fuel Efficient (SAFE) Vehicles Rule, California’s standards would decrease global average surface temperature by 0.003°C in 2100. That undetectably small change in global temperatures 80 years from now would have no discernible impacts on weather patterns, coastal flooding, crop yields, or other environmental factors affecting public health and welfare. California cannot “need” a policy that “will have no material effect on the problem.”

Indeed, DOJ continues, “because California’s standards only apply to certain states, which can be averaged against emissions in other states by manufacturers to meet federal standards, they will ‘lead[] to little to no change in either fuel use or [greenhouse-gas] emissions at a national level’—and therefore all the more so at a global one.”

In any event, the test in CAA Section 209(b) is not whether California’s standards will reduce the nation’s contribution to a global problem compared to federal standards, but whether California needs such standards to meet compelling and extraordinary conditions. California’s greenhouse gas-related conditions are not sufficiently different from the rest of the country to justify a waiver.

  1. California’s criteria-pollutant conditions do not justify a waiver for its tailpipe GHG and ZEV standards.

Petitioners claim California needs its tailpipe ZEV standards to reduce emissions of the criteria air pollutants that cause soot and smog. However, DOJ points out, California’s 2013 waiver request (pp. 15-16) acknowledged that:

There is no criteria emissions benefit from including the ZEV proposal in terms of vehicle (tank-to-wheel or TTW) emissions. The LEV [low-emission-vehicle] III criteria pollutant fleet standard is responsible for those emission reductions in the fleet; the fleet would become cleaner regardless of the ZEV regulation because manufacturers would adjust their compliance response to the standard by making less polluting conventional vehicles.

In fairness, California also stated that the ZEV mandate would reduce “upstream” emissions associated with petroleum production, refining, and transport. DOJ counters that the “exact” level of upstream emission reductions is “uncertain,” and that such “vague and ancillary” considerations “do not establish grounds for a waiver.”

In addition, as the One National Program Rule points out (84 FR 51355), invalidating the ZEV mandate will not prevent California or any other state from continually improving its air quality. States will still “be able to encourage ZEVs in many different ways, such as through investments in infrastructure and appropriately tailored incentives.” They also will remain “able to address pollutants regulated by the Clean Air Act in numerous ways that are not preempted by federal law.”  

  1. EPA reasonably interpreted CAA Section 177 to preclude other states from adopting California’s tailpipe GHG and ZEV standards.

Petitioners claim all states have the right, under CAA Section 177, to adopt California’s motor vehicle standards, including California’s GHG and ZEV standards. In the One National Program Rule, the EPA argues that CAA Section 177 applies only to states in non-attainment of national ambient air quality standards (NAAQS), hence only with respect to NAAQS-regulated (“criteria”) air pollutants. If the Court upholds either NHTSA’s preemption regulations or the EPA’s waiver withdrawal, it need not review the EPA’s Section 177 interpretation.

In case the court does decide to review that issue, DOJ develops the following points. The EPA is the agency that administers the CAA and thus has broad authority to interpret its provisions, and the EPA’s interpretation of CAA Section 177 is reasonable.

Structurally, Section 177 occurs in Title I of the CAA, in a part that addresses only criteria pollutants. Section 177’s title, “New motor vehicle emission standards in non-attainment areas,” indicates that the provision applies only to non-attainment areas. The first paragraph confirms that limitation by identifying which states may adopt California’s motor vehicle standards: any state that “has plan provisions approved under this part”—i.e., under CAA Title I Part D, which governs “Plan requirements for non-attainment areas.” In short, CAA Section 177 “allows states with nonattainment areas to adopt California emission standards” for criteria pollutants.

Then comes the kicker. There are no NAAQS, hence no non-attainment areas, and no approved non-attainment plans, for greenhouse gases. Thus, other states have no authority under CAA Section 177 to adopt California’s tailpipe GHG or ZEV standards.

Conclusion

The One National Program Rule ranks among the most consequential of the Trump administration’s deregulatory initiatives. If upheld by the courts, it will change the institutional framework and political climate in which NHTSA and the EPA regulate fuel economy and tailpipe carbon dioxide emissions.

California’s progressive political culture and Sacramento policy makers’ ambition to be world “climate leaders” sustain and feed the California Air Resources Board’s central planning impulses. At the same time, the state’s lack of conventional (non-electric) vehicle manufacture ensures that California politicians face no blowback at the polls from autoworkers for indulging in regulatory zealotry.

Governor Newsom has exposed the anti-market logic of the waiver granted to California by the EPA in 2013. Bureaucrats in Sacramento are now drafting rules to ban the sale of gasoline-powered vehicles regardless of consumer preferences, the cost to households, and the profitability of U.S. auto companies.

Returning California to its pre-2009 role as a stakeholder rather than decision maker in fuel economy would spare California—and many other states—the debacle of another failed central planning experiment. It should also relieve much of the political pressure on the EPA, NHTSA, and the auto industry to ignore the adverse impacts of fuel economy mandates on vehicle affordability, consumer choice, and occupant safety.