Takeaways

EPA formally announced its decision to withdraw California’s 2013 Clean Air Act waiver, which allowed the state to set its own tailpipe greenhouse gas emission standards for new motor vehicles.
EPA’s action brings friction between the Trump Administration and the State of California regarding tailpipe emissions regulation to a head.
A lengthy legal battle has begun; it will create regulatory uncertainty in the auto industry.

On September 19, 2019, the United States Environmental Protection Agency (EPA) finalized the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule Part One: One National Program” rule, in which EPA announced its decision to formally withdraw the waiver of preemption EPA granted in January 2013 that allowed California to set its own tailpipe greenhouse gas (GHG) emission standards for new motor vehicles under Section 209(b) of the federal Clean Air Act (CAA) [42 U.S.C. § 7543(b)]. The following day, September 20, California and a coalition of 22 other states filed a lawsuit in the United States District Court for the District of Columbia challenging that action and arguing that EPA lacks the legal authority to withdraw the California waiver – setting the stage for a case of first impression over the scope of EPA’s power to constrain independent California regulation of tailpipe emissions that has been permitted for more than a half-century.

Announced by President Trump on Twitter on September 18, the final rule declares that EPA has the authority to withdraw the 2013 waiver and any other previously-granted waiver of preemption to California under CAA 209(b), and reflects the Administration’s position that the Energy Policy and Conservation Act (EPCA) preemption of state fuel economy regulations also effectively preempts any state program to regulate tailpipe GHG emissions, including state zero-emission vehicle (ZEV) programs. According to the Administration, the goal of the SAFE Rule is to enable the federal government to provide “one national program” of uniform fuel economy and GHG emission standards for passenger cars and light-duty trucks. Secretary of Transportation Elaine L. Chao commented: “Today’s action meets President Trump’s commitment to establish uniform fuel economy standards for vehicles across the United States, ensuring that no State has the authority to opt out of the Nation’s rules, and no State has the right to impose its policies on the rest of the country.”

The Trump Administration’s move is the culmination of an escalating clash between California and the federal government over regulation of vehicle tailpipe emissions. EPA and the National Highway Traffic Safety Administration (NHTSA) have been working to finalize the SAFE Rule since the rule was jointly proposed by the two agencies in August 2018, leading to submittal of over 12,000 public comments on the proposed rule. The proposed rule drew nationwide interest in large part due to its implications beyond California; thirteen other states and the District of Columbia, collectively accounting for about 40 percent of the United States’ automobile market, have exercised their right under CAA Section 209(b) to enforce California’s new motor vehicle tailpipe emissions standards.

Over the past year, Administration efforts to relax corporate average fuel economy (CAFE) standards resulted in lawsuits by California and other states to stop the rollbacks, an increasingly strident war of words between California air regulators and EPA, and pleas from regulated automakers for the two sides to reach some agreement to provide certainty to the industry. In February of this year, the Administration terminated informal talks with California aimed at reaching agreement on common tailpipe standards. In recent months, the California Air Resources Board has warned that relaxation of federal tailpipe standards and the denial of a California waiver could lead the state to take more extreme measures to address air pollution, including fee hikes on cars and trucks, prohibitions against some types of products and vehicle, and even outlawing internal combustion engines entirely. The uncertainties led four large automakers to enter into an agreement with California in July of this year to follow more stringent California tailpipe standards even if the SAFE Rule were to proceed. The final SAFE Vehicles Rule, and EPA’s withdrawal of California’s January 2013 waiver, have now brought these conflicts to a head.

The Clean Air Act Waiver Provision and EPA’s Bases for Proposed Withdrawal

Although the CAA generally preempts state regulation of new motor vehicle tailpipe emissions, California is specially empowered to apply for a waiver from this preemption, which must be granted by EPA unless certain conditions are triggered. The waiver issued by the Obama EPA to California in January 2013 permitted California to set stricter tailpipe GHG and conventional pollutant standards than the corresponding federal standards to facilitate California’s Advanced Clean Car (ACC) program, ZEV mandate, and GHG tailpipe emissions standards applicable to model years 2021-2025.

Under Section 209(b)(1), the federal government must grant California a waiver unless: (A) California’s determination that its standards are at least as strict as the federal government’s is arbitrary and capricious; (B) California does not need the standards to meet compelling and extraordinary conditions; or (C) the standards and accompanying enforcement procedures are not consistent with Clean Air Action section 202.

Now, EPA proposes to withdraw California’s waiver, citing three legal bases under CAA section 209.

  • First, EPA proposes a finding under CAA section 209(b)(1)(B) that California does not need its GHG and ZEV standards to meet compelling and extraordinary reasons because the standards address environmental problems (namely, global climate change caused by greenhouse gas emissions) that purportedly (1) are not particular or unique to California, (2) are not caused by emissions or other factors unique or specific to California, and (3) will not be remedied by the standards.
  • Second, EPA proposes a finding under CAA section 209(b)(1)(C) that California’s GHG and ZEV standards are inconsistent with feasibility requirements under CAA section 202(a) because the standards are not technologically feasible and do not provide sufficient time for the development of the technology necessary to attain the standards, taking compliance costs into account.
  • Finally, NHTSA proposes a finding that California’s GHG and ZEV standards are preempted under EPCA, which regulates fuel economy. EPA is soliciting public comment on whether preemption by EPCA, if finalized by NHTSA, would provide a separate basis for withdrawal of the California waiver.

Each of these legal bases is likely to be challenged by California. In particular, California previously has argued that standards are necessary to address compelling and extraordinary conditions that are unique and particular to California. While EPA has argued that GHG emissions contribute to a global climate change problem that is not unique to California, California has pointed out that the waiver withdrawal will inhibit the enforcement of California’s ZEV program, which was originally adopted to address not only GHGs but also toxic and CAA “criteria” pollutants such as oxides of nitrogen (NOx), particulate matter (PM) and carbon monoxide (CO). Although the ZEV program may help mitigate climate change, it also serves the purpose of helping California maintain ozone levels below the federal ozone standards. California has argued that, with some of the worst smog pollution in the nation, it needs regulations like the ZEV program to meet federal air quality standards. California also has argued that it is disproportionately affected by the effects of climate change caused by GHGs due to its vulnerability to wildfires, sea level rises, and other effects of climate change impacting both California’s coastal cities and vital agricultural sector.

California also likely will argue that its GHG and ZEV standards are technologically feasible and not preempted by EPCA. California has pointed out that the United States Supreme Court has already declined to hold that EPCA preempts EPA’s authority to regulate tailpipe greenhouse gas emissions. See Massachusetts v. EPA, 549 U.S. 497, 531-32 (2007) (“EPA . . . argues that it cannot regulate carbon dioxide emissions from motor vehicles because doing so would require it to tighten mileage standards, a job (according to EPA) that Congress has assigned to [the Department of Transportation (DOT)] . . . But that DOT sets mileage standards in no way licenses EPA to shirk its environmental responsibilities. EPA has been charged with protecting the public’s ‘health’ and ‘welfare,’ 42 U.S.C. § 7521(a)(1), a statutory obligation wholly independent of DOT’s mandate to promote energy efficiency [citing EPCA]. The two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations yet avoid inconsistency.”)

EPA’s Authority to Withdraw the 2013 Waiver

The question of whether the CAA grants EPA the power to “withdraw” a CAA section 209(b) waiver once granted is a novel question for the federal courts. Indeed, EPA has never attempted to revoke one of the 50 waivers it has granted to California under CAA section 209(b). Only in 2008 did the Bush administration issue its first denial of a California waiver request. Although California challenged this decision with a lawsuit, the case was never decided because Barack Obama became president, announced new national greenhouse gas standards, granted California’s waiver, and announced a bailout for the auto industry.

One of California’s principal arguments likely will be that EPA does not have authority to revoke or “withdraw” the 2013 waiver because the CAA does not contain any provisions expressly authorizing the revocation or withdrawal of a waiver. While EPA cannot point to a statutory provision authorizing withdrawal of a waiver, it will likely cite to a Senate Report on the bill that would become the Air Quality Act of 1967, which preceded the CAA. This Senate Report contained a single sentence regarding withdrawal: “Implicit in this provision is the right of the Secretary to withdraw the waiver at any time after notice and an opportunity for public hearing [if] he finds that the State of California no longer complies with the conditions of that waiver.” S. Rep. No. 90-403, at 34 (1967). The Senate Report did not elaborate on whether the “conditions” of the waiver refer to the condition that the California standards simply be at least as protective of public health and welfare as the federal government’s, or whether it refers to the conditions EPA must establish for denial of the waiver.

In 1977, Congress substantially revised the waiver provision to “expand the deference accorded to California.” Ford Motor Co. v. EPA, 606 F.2d 1293, 1303 (D.C. Cir. 1979); see also H. Rep. No. 95-294, at 301-02 (1977). In contrast with the 1967 version of the waiver provision, the 1977 version vested California state officials—not the federal government—with the authority to determine whether California’s standards were sufficiently protective of public health and welfare. It also strengthened the statutory language limiting EPA’s ability to evaluate California’s entitlement to a waiver to after California has made a determination regarding the protectiveness of the standards, but before a waiver is granted. (A waiver must be granted “if the State determines that the State standards will be . . . at least as protective . . . as applicable Federal standards,” and “[n]o such waiver shall be granted if” EPA finds any of the three conditions described above. (Emphasis added.)) The Congressional reports that accompanied the 1977 amendments, unlike the 1967 Senate Report, made no mention of waiver withdrawal authority.

Moreover, there is a strong presumption that waiver requests by California should be granted if California makes the requisite finding that the proposed regulation will be at least as protective of public health and welfare as the corresponding federal standards. See Motor and Equipment Manufacturers’ Ass’n v. EPA, 627 F.2d 1095, 1120-21 (D.C. Cir. 1979) (finding that burden of proving waiver should be denied falls on the party seeking denial). A House Report in support of the 1977 Clean Air Act Amendments explained that in order to deny a waiver and find California’s findings arbitrary and capricious, EPA would need “clear and compelling evidence that the State acted unreasonably in evaluating the relative risks of various pollutants in light of the air quality, topography, photochemistry, and climate in that State.” H. Rep. No. 95-294, at 302 (1977).

EPA also may argue that it has the inherent authority to revoke any waiver as it would with any previous regulatory action. However, although the granting of a waiver is an informal adjudication that might typically be subject to reconsideration by EPA under its inherent authority, courts usually require that such reconsideration occur in a short and reasonable timeframe, which several courts have quantified in weeks, as opposed to the five years that have elapsed here. Courts also tend to consider reliance interests as weighing against a finding of inherent authority, and California undoubtedly will argue that it has reasonably relied on the 2013 waiver for five years in the development of its state environmental goals and Clean Air Act compliance, with 13 other states following suit.

Finally, it is likely the parties will litigate the issue of whether “Chevron deference” under Chevron v. NRDC, 467 U.S. 837, 863-64 (1984), mandates that a reviewing court defer to EPA’s interpretation of CAA section 209(b) as allowing withdrawal of a previously-granted waiver, so long as the court finds that EPA has interpreted the statutory ambiguity of section 209(b) reasonably. Proponents of the 2013 waiver may argue that EPA’s revised interpretation of the statute is unreasonable. Moreover, in light of the Supreme Court’s recent Kisor v. Wilkie decision, 588 U.S. ___ (2019), it is possible that a majority of the Court might be inclined to revisit Chevron in this case, which provides a potential opportunity for the Court to determine whether an EPA interpretation of its section 209(b) waiver authority is the type of agency decision deserving of such judicial deference.

The Battle Ahead

The Administration’s plan to revoke California’s 2013 waiver, and the immediate multi-state lawsuit led by California, mark the beginning of a lengthy legal battle that will almost certainly create regulatory uncertainty around passenger car and light-duty emissions standards for at least the next few years. Members of the automobile industry have submitted comments to EPA on the proposed SAFE Rule making clear that such uncertainty is not in the best interests of the industry, and urging EPA and California to come to some agreement on California GHG tailpipe standards.

Observers speculate that the Trump Administration has taken action now in the hope that the legal challenges over withdrawal of the waiver will come before the Supreme Court prior to the next presidential election, before a possible change in Administrations could lead to EPA deciding to abandon the waiver and/or refuse to defend against the lawsuit.

It is unclear what will happen as this legal battle unfolds. A change in Administration in 2020 likely would result in EPA abandoning the waiver withdrawal effort and the SAFE Rule entirely. But even a court decision upholding the waiver withdrawal may not have an immediate impact on passenger cars and light-duty trucks already planned for production in the next several years. Some automakers that have already invested significant resources into making vehicles that comply with the Obama-era CAFE standards and similar international GHG standards have signaled their desire to continue on that trajectory regardless of any relaxation of U.S. federal standards, with the expectation that consumer preferences will still make these vehicles profitable and that attempts to change production now will be extremely costly to the industry (and may be a futile effort if a future Administration restores more stringent standards anyway). In contrast, other automakers remain supportive of the SAFE Rule and uniform national tailpipe standards, while still others continue to work to broker a solution between California and EPA.

This uncertainty has been further complicated by the fact that the Department of Justice has now initiated an antitrust investigation of the four large automakers that support the 2013 waiver into their agreement with California to maintain higher fuel efficiency standards. This type of investigation will only increase pressure on the regulated industry to “choose sides” in the battle, while doing little to afford industry the future certainty it desires. In any event, 2020 could very well see simultaneous battles on legal, regulatory and political fronts over the future of tailpipe emission regulation not only in California, but throughout the United States.