07/26/2019 - Legal Analysis

Looking Forward from California’s Historic Agreement with Automakers

by Caitlin McCoy

On July 25, California announced that it had reached an agreement with four automakers, Ford, BMW, Volkswagen, and Honda, on compromise standards for fuel efficiency and GHG emissions for model years 2022-2026 of cars and light trucks.

This agreement is significant because four automakers have sided with California and voluntarily agreed to comply with more ambitious standards than those proposed and soon to be finalized by the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA). The four automakers will sell more efficient cars across the U.S., not only in California, which is notable because they account for about 30% of vehicle sales in the country.

California has been clear that it will challenge the weakened EPA and NHTSA standards if they are finalized. California will also defend its authority under the Clean Air Act (CAA) if EPA and NHTSA finalize their proposal to preempt California’s legal authority to set its own vehicle emissions standards and to withdraw its waiver to enforce those standards.

The four automakers explained in a joint statement, “These terms will provide our companies much-needed regulatory certainty by allowing us to meet both federal and state requirements with a single national fleet, avoiding a patchwork of regulations while continuing to ensure meaningful greenhouse gas emissions reductions.” The determination to market “a single national fleet” and “avoid[] a patchwork of regulations” has been central to the industry’s approach to tailpipe emissions regulation for decades.

That determination was critical to the industry’s agreement on GHG regulations with the Obama administration and California in 2009 and again in 2012, avoiding the risk of California setting its own separate standards. The Obama-era regulations that emerged from the second agreement in 2012 are the ones the Trump administration is now proposing to weaken. Since the auto industry depends on long-range planning, it wants to avoid the uncertainty generated by litigation over the new rules that are openly in conflict with California’s standards and objectives.

The agreement is a great step, but the climate impacts of the upcoming federal rules and what’s at stake in the litigation still loom large. EPA has responded to California’s announcement by confirming they will move forward with final rules that reflect the agenda in the proposed rules. EPA spokesman Michael Abboud said, “Today’s announcement from CARB [California Air Resources Board] has no impact on EPA’s regulation of greenhouse gas emissions under the Clean Air Act. This voluntary framework is a PR stunt that does nothing to further one national standard….”

Abboud also said, “The Trump Administration is pursuing one national standard and certainty for the entire auto market that will provide safe, affordable vehicles for consumers while also improving environmental outcomes.” This seems to confirm that the administration will be finalizing the rules with the key elements from the proposed rules: preemption of California’s GHG standards, revocation of California’s waiver under Section 209 of the CAA, a re-interpretation of Sec. 177 of the CAA to make it impossible for other states to follow California’s standards if they are reinstated through litigation, and weakened fuel economy and GHG standards for new cars and light trucks.

When the final rules are eventually released, perhaps by the end of September, California and other states will be preparing for a legal challenge. This case has the potential to be even more captivating in light of the agreement. It was already unlikely that automakers would side with the Trump administration fully in the litigation after recent developments like the June 6 letter where 17 automakers requested that the Trump administration reconsider the fuel efficiency and GHG standards to avoid a clash with California.

Now, at least four automakers have forged their own path to side with California and the court will take note of that as it considers the Trump administration’s arguments about the impossibility of compliance with the Obama-era standards and the need to weaken the standards. It remains to be seen whether the four companies will intervene on behalf of California to support its arguments to maintain its authority under the CAA or what approach they will take.

California and the other states are likely to challenge the final rules under Section 706(2)(A) of the Administrative Procedure Act (APA) which allows a court to invalidate a final agency action, like a regulation, that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The court will review the factual basis for the rules and can strike down the regulation if it finds the underlying rationale or factual assertions to be unreasonable.

It’s important to keep in mind that an extensive technical and factual record exists from the time the Obama-era regulations were created that extended all the way out to 2025. The Trump administration is already defending its decision to depart from the Obama-era GHG standards and initiate a new rulemaking process. However, there is more at stake here than the 2021-2026 model year standards for fuel economy and GHG emissions.

The Trump administration’s real target is California’s authority to set its own GHG standards for vehicles, under Sec. 209 of the Clean Air Act. The administration is determined to strip California of its long-standing authority and abolish the ability of other states to follow California’s GHG emissions standards. The court’s determination of the legality or illegality of the administration’s interpretation of the Energy Policy and Conservation Act (which governs fuel economy standards) as pre-empting California’s authority to set its own GHG standards under Sec. 209 of the CAA will be the most crucial piece of the decision.

However, the case will take time to litigate and given the timing of the final rules, it may not be argued until after the 2020 elections take place. This means that a new administration could ask the court to hold the litigation before the case is decided in contemplation of withdrawing the Trump administration rules.

In the meantime, what about other automakers? Major companies in the U.S. auto market like General Motors and Toyota featured prominently in this summer’s efforts to make the Trump administration change course on the rollbacks, but they are noticeably absent from the California agreement. Indeed, California Governor Gavin Newsom called on the rest of the auto industry to join the agreement.

GM has responded by saying they are “continuously improving fuel economy” and committed to “an all-electric future.” GM is holding out hope that an agreement can still be reached with the federal government, “Our focus remains on working with all parties on a solution that would involve a 50-state solution and a national electric vehicle program.” Toyota said it continues to support pursuing a single national standard agreed to by the federal government, California, and the entire auto industry. It remains to be seen whether public pressure or other forces could come to bear on other automakers and result in them joining the agreement as well.

As we continue to await the final rules and the inevitable legal challenges, one thing is certain, there is a long, fascinating road ahead with a lot at stake for the climate and the balance of legal authority over vehicle standards in the U.S.

UPDATE:

On August 2, EPA and NHTSA sent the final standards for greenhouse gas emissions and fuel economy to the White House Office of Management and Budget for review. This is typically the last step before the final rules are published in the Federal Register and go into effect. The final rules will be substantially similar to the proposed rules and will take action against California’s waiver authority and existing waiver under the Clean Air Act.

On August 20, Mercedes-Benz was reported to be joining the California agreement along with another automaker- either Toyota, Fiat Chrysler or General Motors. Now, the six manufacturers who will be part of the agreement account for more than 40% of all cars sold in the U.S.