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SAFE Rule Examined Part 5: Statutory Issues

This post examines some legal objections to the Final Safer Affordable Fuel Efficient (SAFE) Vehicles Rule and the Trump agencies’ rebuttals. Previous posts in this series examine the SAFE Rule’s potential impacts on climate change, air quality, auto safety, and consumer choice, and the agencies’ critique of the Obama administration’s 2012 motor vehicle rule. Caveat: I have not reanalyzed the agencies’ data and modeling, and do not vouch for their accuracy.

Quick Background

The 2012 rule, if still in effect today, would increase the stringency of light duty vehicle corporate average fuel economy (CAFE) and carbon dioxide (CO2) emission standards by 5 percent annually during model years 2021-2025. The Final Safe Rule increases regulatory stringency by 1.5 percent annually during model years 2021-2026.

The Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) originally proposed to freeze CO2 and CAFE standards at model year 2020 levels. Many opponents challenge the lawfulness of any significant relaxation of the 2012 rule standards.

How Dare You!

That is the tone and implication of much negative commentary on the SAFE Rule—as if the 2012 rule were above reproach, the standards it selected for automobiles manufactured 10-13 years later were obviously correct, and any retreat from its “climate protections” is intolerable.

As explained in Part 3 of this series, the 2012 rule was based on faulty market forecasts and unreasonable assumptions about consumer and business behavior. Those analytic errors wildly inflated the rule’s estimated benefits. As shown in Part 1, replacing the 2012 rule with the SAFE Rule will make no detectable difference to global average temperatures or climate impacts. As explained below, in January 2017, the Obama EPA upheld the 2012 rule standards based on a truncated and incomplete midterm evaluation. Thus, some degree of deregulation was both appropriate and timely.

The SAFE Rule outrages green groups and blue state politicians, but indignation does not settle statutory controversies. Like it or not, “Agencies always have authority under the Administrative Procedure Act to revisit previous decisions in light of new facts, as long as they provide notice and an opportunity for comment,” and “it is plainly the best practice to do so when changed circumstances so warrant” (85 FR 24182).

Ironically, the 2012 rule does not presume its own inerrancy or immutability. As the SAFE Rule explains, the Obama agencies “codified” the “value of being able to adjust course when critical assumptions are proven inaccurate,” binding themselves to undertake a “midterm evaluation” (MTE) of model year 2022-2025 standards “as part of the 2102 final rule” (85 FR 24231).

The MTE was deemed necessary for two reasons. First, much statutorily relevant information might change during the 2012 rule’s “long time frame”—a nine-year compliance period ending 13 years later. Second, the Energy Policy and Conservation Act (EPCA) only allows CAFE standards to be set five years at a time (85 FR 25012). NHTSA thus had a “statutory obligation to conduct a de novo rulemaking in order to establish final standards for MYs 2022–2025” (77 FR 62631).

The agencies pledged to “finalize their [MTE] actions related to MYs 2022–2025 standards concurrently” (77 FR 62628, 62631, 62784). That was the only way to “align” their “proceedings” and “maintain a joint national program” (77 FR 62628, 62631, 62633, 62652, 62784). Why so? Because CO2 and CAFE standards are inherently and mathematically related (75 FR 25324, 25327).

The agencies issued a Draft Technical Assessment Report for the MTE in July 2016 and told industry they would issue a draft MTE in mid-summer 2017 and, as required by the 2012 rule (77 FR 62652), finalize the evaluation by April 1, 2018. They also posted a timeline on their Web sites so all stakeholders could plan their analytic work accordingly.

But then Election Day 2016 happened. Scrapping the previously announced timeline, the EPA proposed its final MTE in the Federal Register on December 6, 2016. The comment period closed on December 30, giving the public only 24 days (including Christmas week) to comment on EPA’s 268-page proposal and 719-page technical support document (TSD). Despite receiving more than 100,000 comments, the EPA finalized the MTE two weeks later—one week before Inauguration Day and 14 months ahead of schedule. Unsurprisingly, the agency decided that, despite several unforeseen changes in key relevant facts, the model year 2022-2025 standards selected in 2012 “remain appropriate” and “do not need to be revised.”

The EPA’s premature evaluation flouted the 2012 rule’s requirement that the agencies complete their MTEs and finalize their respective standards “concurrently.” NHTSA did not come close to finishing its MTA on the Obama administration’s watch.

Writing to EPA administrator Gina McCarthy on December 8, 2016, Auto Alliance CEO Mitch Bainwol cautioned that the agency’s “early action” would force NHTSA to choose between two unacceptable options. NHTSA could either (1) produce an independent evaluation that “may be substantially different and not at all harmonized with EPA’s determination,” or (2) “align itself with EPA’s determination regardless of the existence of facts and analyses that would suggest the need for a different outcome.” “Either way,” Bainwol observed, “the process now bears no resemblance to the coordinated effort that was envisioned in the midterm evaluation.”

Indeed, EPA’s midnight regulatory rush job made a mockery of the 2012 rule’s claim to have established a “consistent,” “coordinated,” and “harmonized” (77 FR 62624, 62627, 62635) national motor vehicle program.

Did the EPA ever seriously intend to reconsider its model year 2022-2025 standards based on later information, or was the requirement for a midterm evaluation just the setup for a bait-and-switch—a ploy to obtain industry support for the 2012 rule? We likely will never know.

In any case, the core legal point is clear. The 2012 rule standards for model years 2022-2025 were not carved in stone. The Administrative Procedure Act authorizes agencies to revise existing rules based on new information, the 2012 rule expressly provided a process for changing those standards, and the Obama EPA’s truncated and uncoordinated MTE flouted that process.

You Call that Maximum?

A common objection raised in the comment period is that freezing the CO2 and CAFE standards at model year 2020 levels cannot possibly be the “maximum feasible” level required by the agencies’ respective statutes. Although the Final SAFE Rule requires regulatory stringency to increase by 1.5 percent annually, many commenters stated or implied that only standards significantly more stringent could be lawful.

The EPA sets tailpipe CO2 standards under section 202(a)(1) of the Clean Air Act (CAA). NHTSA sets CAFE standards under EPCA, as amended. Neither statute obligates the agencies to regulate at the maximum level of “technical” feasibility.

The Supreme Court has held that “where Congress includes particular language in one section of a statute but omits it in another part of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” CAA section 202(a)(3) requires EPA to set emission standards for heavy duty vehicles that “reflect the greatest degree of emission reduction achievable.” Similarly, CAA section 213(a)(3) requires the EPA to set emission standards for non-road vehicles that “achieve the greatest degree of emission reduction achievable.”

In contrast, CAA section 202(a)(1), the authority for the EPA’s tailpipe CO2 standards for passenger cars and light trucks, does not include language requiring the “greatest degree of emission reduction achievable,” or any similar form of words.

Even under the CAA sections dealing with heavy-duty and non-road vehicles, the agency’s determination of what constitutes the “greatest degree of emission reduction achievable” is not a purely technical judgment. The agency must give “appropriate consideration to cost.”

CAA section 202(a)(2) provides an additional check on the stringency of CAA section 202(a)(1) emission standards—lead time. Such standards take effect only “after such period as the Administrator finds necessary to permit the development and application of the requisite technology, giving appropriate consideration to the cost of compliance within such period.”

The SAFE Rule reasonably concludes that the EPA has discretion to “consider and weigh various factors along with technical feasibility” when setting emission standards for new light duty vehicles (85 FR 25105).

EPCA, as amended by the Energy Independence and Security Act (EISA), requires NHTSA to set CAFE standards for model years 2021-2030 at “the maximum feasible average fuel economy standard for each fleet for that model year.” That sounds rather definitive. However, NHTSA also is required to weigh and balance several factors along with technological feasibility. The SAFE Rule explains:

In determining the maximum feasible level achievable by the manufacturers, EPCA requires that NHTSA consider four statutory factors of technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy. In addition, NHTSA has the authority to consider (and traditionally does) other relevant factors, such as the effect of the CAFE standards on motor vehicle safety and consumer preferences. The ultimate determination of what standards can be considered maximum feasible involves a weighing and balancing of factors, and the balance may shift depending on the information before NHTSA about the expected circumstances in the model years covered by the rulemaking. (85 FR 25122)

As discussed in Part 3 of this series, under current conditions and forecasts, fuel prices are lower, fuel saving technologies are less valuable, domestic oil production is much greater, and oil imports are much lower than the agencies forecast in 2012. In addition, consumer demand for heavier and taller vehicles (which consume more fuel per mile than lighter and more aerodynamic vehicles) is significantly greater than the agencies forecast in 2012.

As noted in Part 4, consumers who want high-mpg and electric powertrain vehicles will find no shortage of choices under the SAFE Rule. In contrast, retaining the 2012 rule would exacerbate the rise in vehicle costs that is pricing millions of middle-income households out the market for new vehicles (85 FR 25115). The agencies thus reasonably decided to place “greater weight on the costs to industry and the up-front vehicle costs to consumers” than they did in 2012 (85 FR 25120).

NHTSA’s longstanding approach in CAFE rulemakings has been to weigh technological feasibility against economic practicability. For example, in the first (2010) Obama administration CAFE/CO2 standards rule, NHTSA chose to base the standards “solely on technologies available today” rather than “those still in the research phase.” Although CAFE standards may be set to exert “a degree of technology forcing,” the required levels of technology must be based on a “balancing of all relevant factors” (75 FR 25605).

NHTSA’s middle name is “safety,” and the SAFE Rule cautions that “as the price of vehicles increase beyond the reach of more consumers, such consumers continue to drive or purchase older, less safe vehicles.” Thus, in “assessing practicability, NHTSA also considers the harm to the Nation’s economy caused by highway fatalities and injuries” (85 FR 25132). NHTSA estimates the SAFE Rule’s more lenient CAFE standards will avoid 3,344 vehicle fatalities, 177,000 serious injuries, and 1,509,000 total injuries (85 FR 25034).

When assessing economic practicability, NHTSA also considers the extent to which increasingly stringent CAFE standards divert capital automakers would otherwise spend “on safety improvements, among other things that consumer value.” Some commenters dismissed that concern. However, automakers attest to the reality of such tradeoffs, “and NHTSA does not have a reason to disbelieve that companies have limited budgets” (85 FR 25136).

The 2012 rule itself did not set the CAFE standards at “maximum feasible” technological levels (85 FR 25149). The Obama agencies explained:

We recognize that higher standards would help the need of the nation to conserve more energy and might potentially be technologically feasible (in the narrowest sense) during those model years, but based on our analysis and the evidence presented by the industry, we conclude that higher standards would not represent the proper balancing for MYs 2017-2025 cars and trucks. (77 FR 63055)

The SAFE Rule reasonably concludes: “NHTSA has been consistent over time, despite commenters’ suggestions to the contrary, that maximum feasible is a balancing of factors; that all factors must be considered; and that information before the agency may change how the agency both understands and balances the statutory factors” (85 FR 25149).

Some SAFE Rule opponents seem to confuse abstract logic with statutory interpretation. EISA obligates NHTSA to require “maximum feasible average fuel economy,” and EPCA’s overarching goal is energy conservation, so shouldn’t CAFE standards require ever-higher levels of vehicle electrification?

No. If EISA’s goal were to electrify the U.S. motor vehicle fleet, it would require NHTSA to consider the market penetration of electric vehicles when determining maximum average fuel economy. Instead, EISA prohibits NHTSA from doing so. The SAFE Rule explains:

NHTSA does not interpret EPCA/EISA to mean that Congress expected the CAFE program to take the U.S. auto fleet off of oil entirely—indeed, EISA renders doing so impossible because it amended EPCA to prohibit NHTSA from considering the fuel economy of dedicated alternative fuel vehicles, including electric vehicles, when setting maximum feasible standards. This means that standards cannot be set that assume increased usage of full electrification for compliance. Reading that prohibition together with the obligation to set maximum feasible standards by considering (which is hard to do without balancing) factors like economic practicability with the need of the U.S. to conserve energy, NHTSA believes that Congress intended CAFE to try to mitigate the risk of gas lines, but not to shift the fleet entirely off of oil. (85 FR 25171)

Your Net Benefits Are Puny—or Negative!

As remarked in Part 1, “the respective impacts of the SAFE Rule and 2012 rule on vehicle prices, vehicle sales, auto safety, national fuel consumption, consumer fuel savings, auto industry employment, and air pollution differ only at the margins. The climate change impacts differ only in the margin of the margins.” Unsurprisingly, the net benefits of the two rules are roughly equivalent. Replacing the 2012 rule with the SAFE Rule may slightly increase or slightly decrease net benefits.

Depending on the discount rate, the combined fleet net social benefit of the CAFE standards is -$13 to $16 billion. That of the CO2 standards is -$22 billion to $6 billion (85 FR 24180-81).

Since Republicans historically have championed cost-benefit analysis, SAFE Rule opponents ping the agencies for producing a rule with meager or even negative net benefits. They claim the SAFE Rule flouts longstanding executive branch policy, initiated by President Ronald Reagan’s  Executive Order 12291, to select regulatory alternatives that “maximize net benefits.” However, such criticisms have no legal merit.

Although regulating to maximize net benefits is a good rule of thumb, it is not a binding obligation. As E.O. 12291 states: “This Order is intended only to improve the internal management of the Federal government, and is not intended to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers or any person.” The same basic disclaimer occurs in President Clinton’s E.O. 12866 and President Obama’s O.E. 13563, which also direct agencies to maximize net benefits.

Opponents’ attempt to cite Michigan v. EPA (2015) as grounds for opposing the SAFE Rule is ridiculous. That case dealt with the Obama EPA’s Mercury Air Toxics Standards (MATS) Rule. The EPA estimated the required toxic emission reductions would cost $9.6 billion to achieve and produce $4 million to $6 million in health benefits—a cost-benefit ratio of 1,600 to one or even 2,400 to one.

The Supreme Court commented: “One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.” That criticism does not apply to the SAFE Rule, which has estimated net benefits roughly equivalent to the 2012 rule it replaces.   

More importantly, “nothing in EPCA or EISA mandates that NHTSA set standards at the point at which net benefits are maximized, and case law confirms that whether to maximize net benefits in determining maximum feasible standards is within NHTSA’s discretion” (85 FR 25185). The 2012 rule took the same position:

For example, in 2012, NHTSA rejected the regulatory alternative that appeared to maximize net benefits (and all alternatives more stringent than that one) based on the conclusion that even though net benefits were maximized, the “resultant technology application and cost” were simply too high, and thus made those standards economically impracticable, and thus beyond maximum feasible. (85 FR 25186 citing 77 FR 63050)

Because the net benefits of the SAFE Rule and 2012 rule are roughly equivalent, net benefits do not make for an appropriate basis for choosing between them. The agencies explain:  

While $20 billion may seem like a large amount of money, it must be understood within context—the auto industry accounted for approximately $89 billion of U.S. GDP in 2018 alone, and Americans spent approximately $370 billion on gasoline in 2019 alone. For a program this large, if the difference between the net benefits created by different regulatory alternatives is within $20 billion (over the full lifetimes of six model years), the net benefits are relatively small. Furthermore, given how close together the net benefits are across the range of regulatory alternatives considered, NHTSA does not believe that the point at which net benefits are maximized is meaningful for determining maximum feasible CAFE standards in this final rule. (85 FR 25186)

Note that the “full lifetimes of six model years” is a period of 45 years since the agencies assume a vehicle lifetime “can be up to 39 years” (85 FR 25110). So, on average, a $20 billion net benefit works out to less than half a billion per year. Such differences are too small to tip the legal scales for or against any of the regulatory alternatives considered.

Conclusion

The Obama and Trump agencies considered the same statutory factors when determining CAFE and CO2 tailpipe standards. In 2012, the agencies prioritized fuel savings and “climate ambition” guided by key forecasts that proved incorrect and unreasonable assumptions about consumer and business behavior. In 2020, the agencies prioritized economic practicability and occupant safety guided by current information and updated forecasts regarding fuel prices, vehicle costs, energy security, and consumer preferences. The SAFE Rule makes a strong case that reducing regulatory stringency is reasonable and well within the EPA’s and NHTSA’s statutory authority.