California’s Voluntary Framework and the Brewing Storm of GHG Emissions Litigation
California has played a unique role in the development of greenhouse gas emissions standards for motor vehicles. With the EPA now on the verge of implementing rules that would loosen federal standards imposed under the previous administration, California remains at the center of attention. The latest, widely reported development is a voluntary framework agreement between the state and four major automakers on what the California Air Resources Board describes as “an alternative path forward for clean vehicle standards nationwide.” But will California’s new framework have an impact on the Trump Administration’s efforts to relax GHG emissions standards, or is it — in the words of EPA’s press secretary — just a “ PR stunt”?
The Story So Far
The unfolding fight between California and the federal government takes place against a complex legal and historical backdrop. Some background on this broader context is required to understand the significance of California’s new framework and the ways in which that framework may (or may not) change the state of play.
The National Highway Traffic Safety Administration (NHTSA) has long regulated fuel economy under its Corporate Average Fuel Economy (CAFE) program pursuant to the Energy Policy and Conservation Act (EPCA) enacted in 1975. Under EPCA, states are forbidden from setting standards “related to fuel economy.”
Separately, the Environmental Protection Agency (EPA) sets emission standards for new motor vehicles under Section 202(a) of the Clean Air Act (CAA). Under CAA Section 209, states are generally not allowed to adopt standards “relating to the control of emissions from new motor vehicles,” but California can apply for a waiver if it determines that its standards will be at least as protective of public health and welfare as the applicable federal standards. A waiver cannot be granted if the EPA Administrator finds that California’s determination is arbitrary and capricious, that California does not need its own standards to meet compelling and extraordinary conditions, or that California’s standards are not consistent with Section 202(a). Finally, Section 177 of the CAA allows other states to adopt California’s standards if they wish to do so.
In the early 2000s, EPA took the view that it lacked authority to regulate greenhouse gases (GHGs) under the CAA. California sought to take action where EPA would not, promulgating its own GHG emissions standards in 2004 and seeking a waiver of Section 209 preemption from EPA. But EPA denied California’s request for a waiver on grounds that California did not need its GHG standards to meet compelling and extraordinary conditions. And despite the Supreme Court’s holding in Massachusetts v. EPA1 that the CAA authorizes EPA to regulate greenhouse gas emissions from new motor vehicles, the federal agency did not impose regulations of its own.
Things changed dramatically during the Obama presidency. EPA granted California a Section 209 waiver (technically, multiple waivers) for its GHG emissions standards. EPA issued light-duty vehicle GHG emission standards for model years 2012-2025, and NHTSA promulgated consistent CAFE standards for model years 2012-2021 as well as non-binding “augural” standards for model years 2022-2025. Under these standards, increasingly stringent levels of CO2 control are required for each new model year. In addition, California agreed to treat compliance with the federal standards as compliance with California standards — the so-called “deemed-to-comply option.” One important goal of this “National Program,” and particularly the federal government’s coordination with California, was to help ensure that automakers could produce a single fleet that would satisfy all of the federal and California requirements.
The Proposed SAFE Vehicles Rule and Withdrawal of California’s Waiver
After President Trump took office, the picture altered again. EPA determined in April 2018 that the existing GHG standards for model years 2022-2025 should be revised. And in August 2018, EPA and NHTSA jointly issued a notice of proposed rulemaking outlining a proposed “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks.” Although the agencies took comments on a range of alternatives, the proposed rule would maintain the CAFE and GHG standards applicable in model year 2020 for model years 2021-2026. In other words, the standards would be frozen in place rather than mandating progressively more stringent year-over-year controls.
EPA also proposed to withdraw California’s Section 209 waiver, offering several independent grounds on which to do so. First, NHTSA separately proposed to find that California’s GHG standards are preempted under EPCA (which, unlike the CAA, does not allow for a waiver of preemption),2 and EPA in turn proposed to conclude that state standards preempted under EPCA cannot be afforded a valid waiver under CAA Section 209. Second, EPA proposed to conclude that California’s standards are not necessary to meet “compelling and extraordinary circumstances” because they are not directed to California-specific (but rather global) environmental issues. Third, EPA proposed to find that California’s GHG standards are not consistent with Section 202(a) because they are technologically infeasible and, more particularly, provide inadequate lead time to automakers.
The response by California (and other interested stakeholders) to these initial steps was swift. Just weeks after the EPA issued its April 2018 determination that the existing federal standards should be revised, a coalition of states led by California filed a petition for review in the U.S. Court of Appeals for the D.C. Circuit seeking to have that determination vacated.3 EPA responded that the case is not justiciable because its April 2018 determination is not a final, reviewable agency action (and, in the alternative, that it should be sustained on its merits). That case remains pending and is scheduled for oral argument in early September.
In addition, the California Air Resource Board amended its regulations to clarify that its “deemed to comply” provision would cover only vehicles meeting the existing federal standards and not the less stringent standards currently proposed.4 This raises at least a possibility (depending on how the final federal rules, and judicial review thereof, ultimately shake out) that automakers might have to contend with two very different sets of standards: federal standards applicable nationwide, and California standards applicable only in California and states that choose to adopt the California standards under CAA Section 177.
EPA and NHTSA have not yet taken final action to amend the federal GHG and CAFE standards or withdraw California’s Section 209 waiver — the proposed SAFE Vehicles Rule remains just a proposal for now — but the final rulemaking may come in the near future.
The Voluntary California Framework
On July 25, 2019, the California Air Resources Board announced that “a consortium of automakers and California have agreed on a voluntary framework to reduce emissions that can serve as an alternative path forward for clean vehicle standards nationwide.” Four major automakers — Ford, Honda, BMW of North America, and Volkswagen Group of America — joined the framework. Among other things, the agreement calls for standards with additional lead time and somewhat less aggressive (but still increasingly stringent) year-over-year emissions reductions compared to existing standards, and provides that California will accept the terms of the framework as compliance with its own regulatory program. A significant advantage of this framework for automakers, and a likely motivation for those that have joined it, is that it provides the relative certainty of a middle-ground solution for an industry with a long development cycle that gains little benefit from lessened regulation if it comes too late or is subject to serious litigation risk.
The announcement of the voluntary framework comes on the heels of a letter submitted by 17 major automakers to the White House earlier this summer, which urged the President to resume discussions with California and seek to reach “a broadly supported final rule” that “would provide regulatory certainty and enhance [automakers’] ability to invest and innovate by avoiding an extended period of litigation and instability.” And in the wake of the framework’s announcement, 30 Senate Democrats and eight House Democrats sent letters to other automakers urging them to join the agreement.
Implications for Rulemaking and Litigation
California’s announcement of this voluntary framework has elicited a great deal of attention and commentary, but the forward-looking implications are hard to predict. Assuming EPA and NHTSA wish to proceed with the proposed revisions to federal standards and the withdrawal of California’s waiver, a voluntary agreement between California and four automakers creates no inherent barrier to doing so.
Although it seems likely that EPA and NHTSA will have something to say about the voluntary framework in their final rulemaking, nothing prevents them from ultimately writing it off as little more than a distraction. Nor does the voluntary framework have any apparent bearing on at least some of EPA’s stated grounds for withdrawing California’s Section 209 waiver. For example, EPA’s proposed conclusion that California’s standards are not needed to meet “compelling and extraordinary circumstances” (because climate change is a global, rather than California-specific, environmental problem) may or may not withstand judicial review, but the merits of such a determination would not seem to be affected by automakers’ cooperation with California on stricter standards. It would therefore be surprising if this latest development caused EPA to change its current plan to withdraw California’s waiver.
That said, the voluntary framework does plausibly weaken the case both for freezing the federal standards and for withdrawing California’s waiver. Questions of technological feasibility and economic practicality play a crucial part in much of EPA’s and NHTSA’s reasoning as to both the federal standards and California’s waiver. If at least four of the largest automakers are prepared to agree to standards broadly similar to (if somewhat less aggressive than) the existing standards that EPA and NHTSA have proposed to find infeasible and/or impractical, that raises at least prima facie doubts about the federal agencies’ reasoning. And while the agencies may disagree that the California framework raises doubts about the soundness of their proposed findings, they will ultimately have to defend their reasoning in federal court — where the federal government may face tough questions about why its aggressive stance is necessary given major automakers’ willingness to work with California and agree to stricter standards.
The other interesting question is whether EPA’s and NHTSA’s positions will be determinative of the future makeup of the vehicle fleet in the U.S. While a withdrawal of California’s waiver that withstands judicial review would preclude a legally binding set of alternative vehicle GHG emission standards, the automakers in the voluntary agreement have made a very public commitment to reducing their GHG emissions. As such, although they could not be legally compelled to comply if the California waiver were revoked, it could be very difficult from an investor and consumer relations perspective to pursue a different course. This raises the possibility that major automakers might voluntarily over-comply even if the revocation of California’s waiver is sustained.
Regardless of the approach EPA and NHTSA adopt in their final rulemaking, litigation is a virtual certainty. And while the voluntary framework California has developed will almost certainly have some impact on that litigation, the final outcome is very much up in the air. At the very least, however, California’s voluntary framework has changed the playing field.
2 The basic proposed theory of EPCA preemption is that GHG standards are, as a practical matter, inherently “related to fuel economy” because reducing CO2 emissions necessarily improves fuel economy (and vice versa).
3 California v. EPA, No. 18-1114 (D.C. Cir.).
4 See Cal. Code Regs. tit. 13, § 1961.3.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.