Will Trump EPA Challenge California’s De Facto Authority to Regulate Fuel Economy?

Former Oklahoma Attorney General Scott Pruitt is now Administrator of the U.S. Environmental Protection Agency (EPA). Pruitt led the coalition of 27 states, more than two dozen trade associations, and numerous non-profit groups who are challenging the legality of the Obama administration’s marquee climate policy, the so-called Clean Power Plan (CPP). We can expect the Trump administration to take formal action soon to begin unraveling the CPP.

What about the “mobile source” side of Obama’s climate policy legacy—the EPA and California’s de-facto regulation of fuel economy via greenhouse gas (GHG) vehicle emission standards? Should we expect rollback to begin on that front as well?

At Pruitt’s January 18 nomination hearing, Sens. Kamala Harris (D-Calif.) and Ed Markey (D-Mass.) pressed Pruitt for his position on California’s authority under the Clean Air Act (CAA) to issue its own motor vehicle emission standards, which typically have been more stringent than federal standards. The Act authorizes California to set its own standards if the EPA grants the state a waiver of federal preemption.  

Pruitt acknowledged California’s statutory authority to issue motor vehicle emission standards, but would not commit in advance to grant future waiver requests. Asked by Harris about his “intention,” Pruitt replied: “I don’t know that, without going through the process to determine that, Senator, and would not want to presume the outcome.” Asked by Markey whether he “supports the current California waiver for greenhouse gas standards,” Pruitt said it “would be evaluated” but he would not “prejudge the outcome” at the hearing. You can read the Q&A’s in full here.

This somewhat arcane matter is a very big deal. California has the largest auto market of any state. Moreover, the CAA’s Section 177 authorizes other states to adopt standards for which California has been granted a waiver. “This ends up dictating the automobile market, something that has rankled some in the auto industry for decades,” explains reporter Ingrid Lobet. “It’s not uncommon for states representing 40 percent of the automobile market to choose California rules.”

More importantly, unlike other auto emission standards, which apply to individual vehicles, greenhouse gas motor vehicle emission standards apply to entire classes of motor vehicles on average—rather like the federal Corporate Average Fuel Economy (CAFE) standards. Indeed, as explained below, motor vehicle GHG standards implicitly and substantially regulate fuel economy. Consequently, EPA waivers granted to California over the past eight years effectively make the state a full partner in determining both fuel economy standards and national climate policy for motor vehicles.

A review of previous GHG waivers should be part of the Trump administration’s plans to roll back President Obama’s climate policy regime. That may happen soon to address the “midnight waiver” outgoing that Obama EPA Administrator Gina McCarthy granted on December 29, 2016, allowing California to adopt GHG standards for model year (MY) 2014 and later medium- and heavy-duty trucks.

Waiver Process: Background 

The Clean Air Act’s Section 209(a) prohibits states, and subdivisions thereof, from adopting or attempting to enforce motor vehicle emission standards. However, CAA §209(b) directs the EPA to grant California a waiver of federal preemption if the state determines that its “standards will be, in the aggregate, at least as protective of public health and welfare as the federal standards.” On the other hand, “No such waiver shall be granted if the Administrator finds” that:

  1. California’s protectiveness determination is “arbitrary and capricious”;
  2. The state “does not need such standards to meet compelling and extraordinary conditions”; or
  3. The state standards and accompanying enforcement actions are “not consistent” with CAA §202, the provision authorizing EPA regulation of motor vehicle emissions.

That three-pronged test, at least as interpreted by the EPA, virtually guarantees every California waiver request will be granted. Although a particular California standard might be less stringent than the corresponding federal standard, there is essentially no chance California standards “in the aggregate” will be less “protective.” Similarly, it is extremely unlikely California would ever enforce its standards inconsistently with the Clean Air Act.

California’s “compelling and extraordinary conditions” refer to the state’s peculiar topography, meteorology, and large number of vehicles, which make California air pollution problems more intractable than those of other states. Consequently, if “such standards” refer to California’s separate vehicle emissions program as a whole, the state will always “need” said standards—at least until the air is so clean California would no longer ask for waivers anyway.

Unsurprisingly, the EPA has always granted California’s waiver requests—with one notable exception. In March 2008, George W. Bush EPA Administrator Steven Johnson denied the state’s request for a waiver to adopt GHG emission standards for motor vehicles. However, during her first days as Obama EPA Administrator, in February 2009, Lisa Jackson began a proceeding to reconsider Johnson’s denial. She granted the waiver five months later. In so doing, Jackson positioned the EPA and the California Air Resources Board (CARB) to coerce auto industry support for President Obama’s climate policies.

Motor Vehicle GHG Standards Are De-Facto Fuel Economy Standards   

Motor vehicle greenhouse gas standards implicitly and substantially regulate fuel economy. As the EPA and the National Highway Traffic Safety Administration (NHTSA) once acknowledged in a moment of candor, carbon dioxide (CO2) constitutes 94.9 percent of vehicular GHG emissions, and “there is a single pool of technologies … that reduce fuel consumption and thereby CO2 emissions as well” (75 FR 25372). Greenhouse gas and mileage standards are so intimately related that the EPA, NHTSA, and CARB use vehicular CO2 emissions to calculate fuel economy standards.

Or consider CARB’s 2004 Staff Report presenting the agency’s plan to implement AB 1493, the state’s GHG motor vehicle emissions statute. All of CARB’s recommended technologies for reducing vehicular GHG emissions are fuel-saving technologies.

Even the text of AB 1493 implies that CARB is to regulate fuel economy. CARB’s GHG standards are to be “cost-effective,” defined as “Economical to an owner or operator of a vehicle, taking into account the full life-cycle costs of the vehicle.” CARB reasonably interprets this to mean the standards must reduce lifetime vehicle “operating costs” more than they increase showroom sticker prices (Staff Report, p. 148). The overwhelming lion’s share of “operating expenses” are expenditures for fuel. CARB cannot regulate motor vehicle GHGs in a cost-effective manner unless it regulates fuel economy.

How the 2009 Waiver Empowered the Obama Administration to Coerce the Auto Industry

Congress delegated the power to prescribe fuel economy standards to NHTSA, not the EPA. The EPA must be consulted, but its job is to enforce compliance with fuel economy standards, not determine them (Energy Independence and Security Act, Sec. 102). Moreover, the 1975 Energy Policy and Conservation Act (EPCA) expressly prohibits states from regulating fuel economy. Per EPCA, states “may not adopt or enforce laws or regulations related to fuel economy standards.” That is a broad statement of preemption. It prohibits not only overt fuel economy standards but also any state law, regulations, or enforcement actions “related to” such standards.

The 2009 GHG waiver confronted the financially distressed auto industry with the existential threat of a market-balkanizing fuel economy “patchwork.” You might be wondering how that could be so. Wouldn’t there only be two sets of standards, California and federal, as is the case with other motor vehicle emission standards? On paper yes, but in practice, there could be as many different fuel economy regimes as there are states adopting the California standards.

Here’s why. As noted above, under CAA §177, whenever the EPA grants California a waiver to adopt separate vehicle emission standards, it simultaneously enables other states to opt into the California program. The 2009 waiver thus deputized those states, too, to implicitly regulate fuel economy.  

Again, fuel economy standards apply not to each individual vehicle but to entire fleets or segments of fleets on average. That means each automaker would have to reshuffle the mix of vehicles delivered for sale in each “California” state to achieve the same average fuel economy—the same average grams of CO2 per mile—as required in California. If all states opt into the California program, each automaker would have to continually adjust its production and sales to meet the same fleet average CO2/fuel economy standards in 50 separate markets—exactly the sort of chaos Congress enacted the EPCA preemption to prevent.

Having thus imperiled the auto industry, the Obama administration made automakers an offer they could not refuse. In closed-door negotiations run by Obama climate czar Carol Browner, the auto companies agreed to support the EPA’s GHG motor vehicle emission standards and CARB’s newfound role as fuel economy regulator in return for the assurance that California and other states would accept compliance with EPA standards as compliance with their own. Circumstantial evidence also suggests the Obama administration conditioned the availability of bailout money on automakers’ support for a new “National Vehicle Program” jointly administered by the EPA, NHTSA, and CARB.

Dubbed the “Historic Agreement” by proponents, the deal paid off big time in June 2010. Sen. Lisa Murkowski (R-AK) had introduced a Congressional Review Act resolution of disapproval to overturn the legal force and effect of the EPA’s Endangerment Rule—the legal prerequisite for the agency’s motor vehicle GHG standards and all future climate policy rules. The resolution was defeated 47-53. Automakers were the most influential industry to lobby against the measure. They warned that if Congress were to overturn the Endangerment Rule, “the historic agreement creating the One National Program for regulating vehicle fuel economy and greenhouse gas emissions would collapse,” subjecting automakers to “multiple standards”—a “compliance nightmare all across the country.”

The defeat of the Murkowski resolution then allowed the EPA to adopt GHG standards for motor vehicles, which in turn teed up the agency’s extension of CAA permitting programs to “major” stationary sources of GHG emissions.

Of course it’s impossible to say whether the Murkowski resolution would have obtained the 51 votes needed to prevail had the auto industry lobbied for rather than against it. But the waiver undeniably gave the Obama administration a lever to divide and conquer industry opponents in the formative stage of the EPA’s career as climate policymaker.   

Time to Reconsider Jackson’s Reconsideration

In his March 2008 denial of California’s waiver request, Bush EPA administrator Johnson sensibly argued that California’s “compelling and extraordinary conditions” are the state’s geography, meteorology, and large mobile population, which cause severe “local and regional air pollution.” Those California-specific conditions have no “close causal ties” to the “global air pollution” linked to climate change.

Johnson made three key points.

  1. GHG concentrations are essentially uniform throughout the globe, and are not affected by California’s geography and meteorology.
  2. California’s vehicles emit GHGs, 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.
  3. Even if one assumes “extraordinary and compelling” refers not to the “global air pollution” itself but its potential impacts, such as heat waves, drought, and sea-level rise, California’s vulnerability is not “sufficiently different” from the rest of the nation to merit waiving federal preemption of state emission standards. As my CEI colleague Sam Kazman quipped at the time, “They call it global warming, not California warming.”

One might also simply ask why California needs a separate vehicle emissions program in the first place. Due to the aforementioned compelling and extraordinary conditions, the state has traditionally needed tougher motor vehicle emission standards to meet federal air quality standards. But CO2 is not an air quality contaminant, and federal air quality standards for GHGs do not exist. Hence the Clean Air Act rationale for California having its own vehicle emissions program has no intelligible application to GHG emissions.

In her rejection of Johnson’s denial of the waiver, EPA Administrator Jackson argued that Johnson asked the wrong question. He asked whether California needs the specific standards for which it requested a waiver, whereas the test in CAA §209(b) is simply “whether California needs a separate motor vehicle emissions program” (74 FR 32759). However, that is a question to which the answer is known in advance. How convenient!

Jackson noted that in all previous waiver requests, the EPA only asked whether California continued to need its own separate program, not whether it needed the particular standard at issue. Johnson acknowledged that as well. However, he argued, there was an obvious justification for the perfunctory character of the EPA’s “need” review in previous waiver requests. Previous requests were for emission standards addressing the local and regional air pollution created by the state’s “compelling and extraordinary conditions.” GHG standards do not address California-specific conditions.

The statutory language is vague enough to support Johnson’s decision. The provision states: “No such waiver shall be granted if the Administrator determines … that such State does not need such State standards to meet compelling and extraordinary conditions.” The EPA assumes “such” refers to California’s standards “in the aggregate”—that is, the vehicle emissions program as a whole. But it could also refer to the kinds or types of standards for which specific waivers are requested. Indeed, why should waivers that are not related to California’s “compelling and extraordinary conditions” qualify for the same automatic approval as waivers that are?

If that had been Congress’s intent, Congress would have written a different statute. As the Chamber of Commerce argued in its reply brief submitted to the D.C. Circuit Court of Appeals in November 2010:

But if Congress intended to give California free rein to add to its program any standard it chooses, subject only to a general assessment of the state’s continuing need for that “program,” the statute would look radically different. Rather than requiring Section 209(b)(1)(B) review each time California adopts a new “standard,” the statute would limit EPA’s role to periodic reviews of California’s “need” for a “program” “as a whole,” with EPA issuing a categorical preemption waiver at the completion of each review. Likewise, if it were Congress’s intent to permit California-specific standards that have nothing to do with California-specific “conditions,” Congress would have omitted the requirement for “compelling and extraordinary conditions”—a term that plainly requires a comparison to conditions in other states or to the nation as a whole.

Moreover, while CAA §209(b) does not ask the EPA to consider the potential conflict between a California waiver request and other federal statutes, that is a proper concern of the President, who must take care that all laws of the United States be “faithfully executed.” The EPA cannot approve state-level motor vehicle GHG programs without flouting the EPCA prohibition against state adoption or enforcement of laws or regulations “related to” fuel economy.

Trump’s Opportunity

President Trump wants to revitalize U.S. manufacturing and end the EPA’s regulatory overreach. An important short-term fix would be to put a stay on the EPA’s Mid-Term Evaluation (MTE) of model year 2022-2025 fuel economy standards for passenger cars and light trucks, and reopen the MTE to consider lower GHG/Fuel Economy standards for MY 2022-2025.

As explained previously, on January 13, the EPA finalized the MTE 14 months ahead of schedule in order to confront President Trump with a fait accompli. The ultimate midnight regulation, the MTE would lock in GHG standards the agency tentatively adopted in 2012—more than a decade before millions of the covered vehicles are even manufactured.

The EPA’s MTE is legally flawed. As the Auto Alliance points out, by issuing an MTE ahead of and uncoordinated with NHTSA’s corresponding assessment, the agency flouted its obligation under the 2012 motor vehicle rule to implement a “harmonized single national GHG/Fuel Economy program in which the EPA and NHTSA, along with California’s Air Resources Board (‘ARB’), would issue their draft TAR [Technical Assessment Report] and subsequent MTE determinations at the same time.” Most automakers also oppose the EPA’s MTE on economic and technical grounds. They warn it will raise vehicle costs for model years 2022-2025 beyond what millions of prospective auto buyers are willing to pay (in an era of low gasoline prices).

Ultimately, though, President Trump’s goal should be liberate the auto industry from the fear of a fuel economy “patchwork” that empowers CARB to push NHTSA and the EPA to continually ratchet up fuel economy standards regardless of vehicle affordability and consumer acceptance. The critical first step is for the EPA to commence a process to reconsider the July 2009 waiver that made California a full partner with the federal government in regulating fuel economy and determining climate policy for motor vehicles.