December 20, 2019

SAFE Rule: Federal-state tension in auto emission regulation

Peter Whitfield and Aaron L. Flyer

As far back as the 1960s, California has adopted its own air quality standards for tailpipe pollution. This has set the pace for advancements in vehicle emissions controls nationwide. However, California’s delegated authority to administer its own regulatory programs under the Clean Air Act and other federal environmental laws has been revisited by the Trump administration. This federal-state tension is, perhaps, most pronounced in the U.S. Environmental Protection Agency (EPA)’s proposed Safer Affordable Fuel-Efficient Vehicle Rule (SAFE Rule). This rule proposes to rescind California’s authority to administer its Zero-Emission Vehicle mandate and relax federal greenhouse gas (GHG) and fuel economy requirements that were previously adopted by the past administration. The SAFE Rule and ensuing litigation challenging the rule will determine what room, if any, exists for California and state regulation of fuel economy and tailpipe emissions.

Statutory and regulatory background

Vehicle GHG emissions and fuel economy are directly related to fuel consumption. Therefore, they are inextricably intertwined—both in how they are controlled within a vehicle and how they are regulated by the federal government. But the regulation of these standards occurs in two different federal agencies. EPA regulates tailpipe emissions pursuant to its authority under the Clean Air Act while the National Highway Traffic Safety Administration (NHTSA) sets annual Corporate Average Fuel Economy (CAFE) standards pursuant to its authority under the Energy Policy and Conservation Act. Congress arguably reserved room for some state regulation of automobile emissions in Clean Air Act section 209(b), which authorizes EPA to waive Clean Air Act preemption of overlapping state standards where those “standards will be, in the aggregate, at least as protective of public health and welfare as applicable Federal standards.” In contrast, Congress provided no room for states to regulate fuel economy in the Energy Policy and Conservation Act, which provides merely that “a State may not adopt or enforce a law or regulation related to fuel economy standards.”

In 2009, under the Obama administration, EPA and NHTSA jointly established federal GHG and fuel economy requirements, and EPA granted California’s requested preemption waiver under the Clean Air Act, allowing the state to set its own GHG standards. Subsequently, in January 2013, EPA granted California a waiver to enforce its “Advanced Clean Car” program and update regulations for zero-emissions and low-emission vehicles. Collectively, these actions were part of the federal government’s “National Program,” which intended to harmonize compliance requirements for manufacturers that need to sell vehicles meeting both federal and California standards. Thereafter, EPA and NHTSA set forth GHG and fuel economy requirements for vehicles through model year 2025, requiring an average fleet-wide fuel economy of up to 54.5 miles per gallon by model year 2026.

This trajectory changed on August 24, 2018, when EPA and NHTSA proposed the SAFE Rule. Under the proposal, GHG and fuel economy requirements for model years 2021–2026 would be frozen at model year 2020 levels, with fleet-wide requirements holding at approximately 37 miles per gallon. EPA also proposed to rescind California’s Clean Air Act preemption waiver. In justifying the proposal, EPA and NHTSA suggested that the prior fuel economy and GHG requirements were cost-prohibitive and overly restrictive for vehicle manufacturers, and that EPA’s prior preemption waiver was both invalid and no longer appropriate. On September 27, 2019, under a bifurcated final rule, EPA and NHTSA formally withdrew California’s Clean Air Act preemption waiver and found that a state’s ability to regulate GHG emissions is preempted under the Energy Policy and Conservation Act (SAFE Rule Part 1). EPA and NHTSA delayed promulgating final federal GHG and fuel economy standards (SAFE Rule Part 2) for “the near future.” The SAFE Rule puts California’s Zero-Emission Vehicle mandate (and other state laws adopting it) in a predicament—can California’s program survive as a regulation of tailpipe emissions despite the revocation of the Clean Air Act’s preemption waiver or is it impermissibly regulating fuel economy under the Energy Policy and Conservation Act?

SAFE Rule: Key legal questions and challenges

The forthcoming revision to the federal GHG and fuel economy standards, or SAFE Rule Part 2, will undoubtedly have a major impact on vehicle manufacturers, consumers, and petroleum producers. However, the legal issues are relativity straightforward under the Administrative Procedure Act—were the agencies “arbitrary and capricious” in making a decision following review of a detailed and highly technical administrative record? In comparison, SAFE Rule Part 1 raises the most interesting and important legal questions. First, does EPA have a valid legal basis to invalidate and rescind California’s prior Clean Air Act preemption wavier? Second, what effect, if any, does Energy Policy and Conservation Act preemption have on California’s ability to regulate GHGs under a Clean Air Act waiver?

EPA and NHTSA maintain that California’s GHG regulations frustrate the Energy Policy and Conservation Act’s underlying goal of ensuring that NHTSA establish uniform, nationwide fuel economy standards. Central to the final rule are EPA and NHTSA’s conclusions that (1) California’s GHG regulations directly “relate to” fuel economy, which falls solely under NHTSA’s purview, (2) any preemption waiver under the Clean Air Act does not “federalize” state requirements otherwise preempted by the Energy Policy and Conservation Act, and (3) there is no “particularized nexus” between California’s requested waiver and local environmental conditions the state seeks to address. While the Clean Air Act provides a standard for EPA to apply in initially granting a waiver, no such standard exists for retroactively rescinding one. Moreover, the need for a “particularized nexus” to local environmental conditions appears to be a new hurdle for the state. Unsurprisingly, SAFE Rule Part 1 drew immediate legal challenge.

The initial lawsuit came from a coalition of 23 states and the District of Columbia challenging NHTSA’s preemption determination in D.C. federal district court. Similar challenges from environmental groups and local California air quality management districts filed shortly thereafter have been consolidated before Judge Ketanji Brown Jackson. Before addressing the merits, however, the court will need to wrestle with whether it can even hear the case, as Clean Air Act section 307(b) limits judicial review of issues on “nationally applicable regulations” to the D.C. Circuit. Though the actions purport to only challenge NHTSA’s preemption determination, there is significant overlap with EPA’s Clean Air Act preemption waiver determination. It is for this reason that the final rule directs challengers to file suit in the D.C. Circuit. Relying on the justification in the final rule, NHTSA filed a motion to dismiss, which has been fully briefed and is currently pending review.  

Separately, many of these same plaintiffs have filed petitions for review in the D.C. Circuit, which have also been consolidated. These challenges are substantively limited to EPA’s portion of the final rule but also preserve petitioners’ rights to challenge NHTSA’s action should the government prevail on its motion to dismiss in the district court. In both venues, a number of automotive manufacturers, through representation by various trade groups, have intervened on the government’s behalf.

While the D.C. Circuit is likely to resolve the merits of the challenges eventually—either on appeal or direct review—the jurisdictional question may delay ultimate resolution, possibly with the challengers’ hope of having a new administration in place by the time the merits are actually entertained. Regardless, vehicle manufacturers remain in regulatory limbo as they await clear guidance on what GHG and fuel economy standards they must follow, and unless these petitioners are successful, California’s Zero-Emission Vehicle mandate, along with similar programs in a number of other states that rely on California’s preemption waiver, will vanish.

Peter Whitfield and Aaron L. Flyer

Peter Whitfield is a counsel with Sidley’s Environmental practice group in Washington, D.C. He helps companies navigate citizen suits, enforcement actions, regulatory proceedings, and challenges to their environmental clearances and also handles a variety of administrative litigation matters on behalf of clients.

 

Aaron L. Flyer is an associate with Sidley’s Environmental practice group in Washington, D.C. His practice focuses on advising clients through a wide range of environmental matters, including assisting automotive and energy sector clients in defending against Clean Air Act enforcement actions.