Client Alert

Fuel Economy and Greenhouse Gas Emission Standards for Automobiles: EPA Announces That No Adjustments to the Standards for Model Years 2022-2025 Will Be Made

01 Dec 2016

The United States Environmental Protection Agency (EPA or Agency) yesterday announced its proposed determination that greenhouse gas (GHG) emission standards for light-duty vehicles (LDVs) manufactured in model years (MYs) 2022-2025 would remain unchanged, following a midterm evaluation that commenced last summer.  EPA’s action is notable for several reasons.  First, transportation sector emissions remain significant, accounting for approximately 26% of U.S. GHG emissions in 2015.  Second, and not surprisingly, the standards, which have been an integral component of the Obama Administration’s Climate Action Plan, are an essential part of the United States’ “national commitment” made pursuant to the Paris Agreement on climate change.  Third, EPA’s action reflects the outgoing Administration’s efforts to buttress its clean energy and climate change regulations and policies, so that if the new Administration wants to reverse or limit them, it will face a heavier lift, both procedurally and substantively if its actions are going to withstand judicial challenge.

Background

As one of President Obama’s first official acts, he directed the United States Department of Transportation through the National Highway Traffic Safety Administration (NHTSA) and EPA to work together to establish the first joint corporate average fuel economy (CAFE) and GHG emission standards for LDVs.  NHTSA and EPA undertook a stakeholder process (including automobile manufacturers, labor unions, environmental groups, consumer advocates, the State of California, and members of Congress) to develop the first set of standards, which was announced in May 2009.  NHTSA and EPA replicated this collaborative approach several more times, culminating with the August 2016 joint announcement of Phase Two standards for medium- and heavy-duty vehicles built in MYs 2018-2027.

EPA and NHTSA estimated that the joint LDV standards would increase fuel economy to the equivalent of 54.5 miles per gallon by MY 2025, save consumers an estimated $1.7 trillion in fuel costs, and reduce domestic oil consumption by 12 billion barrels over the life of the program.  At the time they were announced, the joint standards garnered the broad support of consumers, automakers, labor, and environmental groups.  Since then, some stakeholders (including some automakers) have questioned the benefits of the standards relative to their costs in light of new information and have requested that the standards be adjusted in comments submitted in response to a draft technical assessment report (Draft TAR).

On November 30, EPA issued a “Proposed Determination on the Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards under the Midterm Evaluation,” stating its intent to reaffirm the final GHG emission standards promulgated for MYs 2022-2025 in 2012.  This announcement comes more than 6 months ahead of NHTSA’s and EPA’s publicly stated plan to jointly release NHTSA’s proposed CAFE standards and EPA’s proposed determination in mid-2017.  EPA’s action, while not entirely unexpected, may call into question the viability of a harmonized National Program beyond MY 2021 and NHTSA’s role in setting standards for MY 2022 and beyond.

Comments on EPA’s proposed determination are due by December 30, 2016.  EPA expects to finalize its determination before January 20, 2017.

What’s Notable About EPA’s Action?

President Obama directed NHTSA and EPA to act together because both agencies have independent statutory authority to set standards that govern CAFE requirements and GHG emissions limits for motor vehicles.  NHTSA’s authority comes from the Energy Policy and Conservation Act (EPCA), as amended by the Energy Independence and Security Act (EISA).  EPA’s authority is based on Section 202 of the Clean Air Act (CAA) and the Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007), holding that the CAA gives EPA the power to regulate tailpipe emissions of GHGs.  To avoid potential conflict between the two statutory programs, NHTSA and EPA developed a harmonized National Program.  The program allows manufacturers to build a single light-duty national fleet that would satisfy the requirements of both agencies.  The National Program also ended years of litigation involving fuel economy standards, ensured that consumers could still purchase the vehicles of their choice, substantially decreased oil consumption, and dramatically reduced GHG emissions.

So where’s the rub?  By statute, NHTSA is authorized to finalize CAFE standards for no more than five years at a time (with a two year lead time).  This legal constraint was designed to ensure that the CAFE standards that are proposed and finalized reflect the “maximum feasible average fuel economy level that [NHTSA] decides that manufacturers can achieve” based on the most recent information available (49 U.S.C. § 32902(a)).  Under the CAA, EPA has no such time-limited restriction on its authority to set standards for the future.

To resolve this statutory conflict and provide automakers with some degree of certainty as to future requirements, in the rule published in October 2012, EPA finalized MYs 2022-2025 GHG standards for LDVs, and NHTSA proposed compatible “augural” standards for the same MYs.  But both NHTSA and EPA agreed to undertake a midterm evaluation – with public engagement – using a variety of factors to assess whether EPA’s final standards and NHTSA’s augural standards for MYs 2022-2025 should be adjusted.  The agencies remained committed to a harmonized National Program.

The midterm evaluation process formally started on July 18, 2016, with NHTSA’s and EPA’s issuance of the Draft TAR.  Announcing the release of the Draft TAR, the agencies stated:  “Using comments to the Draft TAR and the best available data and information, NHTSA will begin to develop its rulemaking to establish CAFE standards for MYs 2022 and beyond, while EPA will consider whether its existing GHG standards for those MYs continue to be appropriate or should be revised.”  The comment period closed on September 26, 2016, and a number of commenters raised concerns – based on new data (including lower than anticipated oil prices), updated assumptions and analysis – about whether adjustments to the National Program should be made.

EPA stated its intent to issue a proposed determination on whether to adjust the standards in mid-2017 at the same time that NHTSA expected to issue a proposed rule setting standards for the same MYs.  Both agencies publicly reiterated their intent to take final action (EPA with a final determination and NHSTA with a final rule) in April 2018.

EPA’s November 30, 2016 proposed determination concludes that the final GHG standards for LDVs manufactured in MYs 2022-2025 remain appropriate and no adjustments are necessary.  NHSTA made no comparable announcement, and EPA’s proposed determination does not explain whether, and if so to what extent, EPA will continue efforts to harmonize its standards with NHTSA’s CAFE standards.

What’s Next?

EPA’s action is likely motivated by concerns that the incoming Administration may attempt to roll back regulations that have driven some of the significant progress that has been made on reducing GHG emissions from the transportation sector.  EPA will likely assert that the GHG standards for MYs 2022-2025 are immune from judicial challenge under the Administrative Procedure Act and Congressional review under the Congressional Review Act because the Agency finalized the rules in 2012.  Regardless, it is reasonable to anticipate judicial, administrative, and political challenges that raise concerns about potentially incompatible regulatory programs and renew debates on whether EPA or NHTSA should have sole authority to set tailpipe standards or continue to share that responsibility.  Additionally, EPA’s action may prompt efforts to reopen the discussion of whether California should continue to have unique authority under the CAA to set its own standards.

Interested parties have 30 days to comment on EPA’s proposed determination.

Learn more about the EPA regulations.

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