08/05/2019 - Regulatory Tracker

Corporate Average Fuel Economy Penalties

by EELP Staff

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Why it Matters

Penalties provide automakers with greater incentive to make their cars and trucks more fuel-efficient, saving consumers money on fuel and reducing greenhouse gas emissions. The penalty rate applies to every 0.1 mile per gallon car models exceed the Corporate Average Fuel Economy (CAFE) standards. The penalty rate is important because some automakers have opted to pay fines, even when they reach billions of dollars, instead of producing more fuel-efficient vehicles. The ample profit margins on less fuel efficient vehicles allow automakers to absorb these penalties, which is why the National Highway Traffic Safety Administration (NHTSA) under the Obama administration moved to increase the penalties in order to make them impactful.

Current Status

Under former President Trump, NHTSA sought to indefinitely delay and then reverse the Obama-era penalties. On July 26, 2019, NHTSA published a final replacement rule that did not raise penalties for noncompliance, keeping the preexisting penalty rate of $5.50 per every 0.1 mpg over the standard. The Second Circuit vacated the final rule on Aug. 31, 2020. In the final days of the Trump administration, NHTSA published an interim final rule declining to increase penalties until model year 2022. In response, several environmental groups and 15 Democratic attorneys general sued NHTSA alleging the interim final rule fails to comply with fuel emissions goals. On August 20, 2021 NHTSA published a supplemental notice of proposed rulemaking to consider whether to withdraw the January 14, 2021 interim final rule and revert to the December 2016 final rule that would apply the inflation adjustment beginning with MY 2019.

History Obama administration
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July 5, 2016 NHTSA adopts an interim final rule, enhancing penalties for noncompliance with fuel efficiency standards up to $14 for every 0.1 mile per gallon over the standards.

Aug. 1, 2016 Two auto industry trade groups, the Alliance of Automobile Manufacturers and Association of Global Automakers, petition NHTSA for reconsideration.

Dec. 28, 2016 NHTSA publishes a final rule, granting the industry petition in part. NHTSA had intended to apply the $14 rate to any penalties assessed on and after August 4, 2016, beginning with penalties applicable to violations for model year 2015, and violations from prior model years that resulted from recalculation of a manufacturer’s previous CAFE levels. The industry asserted that manufacturers had already set their product and compliance plans for model years 2017 and 2018 based on the CAFE penalty provisions in place prior to July 2016. NHTSA reconsidered its plan in light of the information in the auto industry petition for reconsideration and decides to only apply the $14 penalty rate to model year 2019 and after. NHTSA, however, leaves the door open to adjust the $14 rate for inflation between now and then. The rule is effective January 27, 2017.

Trump administration
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July 12, 2017 NHTSA announces a plan to reconsider enhanced penalties, delays the effective date for the Obama-era rule, and seeks public comment through Oct. 10, 2017.

Sep. 7, 2017 NRDC and other environmental groups sue NHSTA over the delay in implementing and enforcing the penalties while it reconsiders them. NRDC v. NHTSA, No. 17-2780 (2d Cir.).

Sep. 11, 2017 New York, California, Vermont, Pennsylvania, and Maryland sue NHSTA as well. New York v. NHTSA, No. 17‐2806 (2d Cir.).

April 2, 2018 NHTSA publishes a Notice of Proposed Rulemaking that rejects the Obama administration’s final rule increasing penalties for noncompliance. This proposal is open for comment until May 2, 2018.

April 23, 2018 The U.S. Court of Appeals for the Second Circuit grants petitions to review the attempt to infinitely delay the rulemaking and vacates NHTSA’s July 2017 delay rule. NRDC v. NHTSA, No. 17-2780 and New York v. NHTSA, No. 17‐2806 (2d Cir.).

June 29, 2018 The U.S. Court of Appeals for the Second Circuit issues its opinion and confirms that NHTSA does not have the authority to indefinitely delay the effective date of the increased penalties. NRDC v. NHTSA, No. 17-2780 and New York v. NHTSA, No. 17‐2806 (2d Cir.).

July 12, 2019 NHTSA releases a final rule that does not raise penalties for noncompliance, keeping the preexisting penalty rate of $5.50 per every 0.1 mpg over the standard. The final rule is published in the Federal Register on July 26, 2019 and effective Sep. 24, 2019.

Aug. 2, 2019 California, New York, and 11 other states file suit in the Second Circuit Court of Appeals challenging NHTSA’s reduction of penalties for automakers that fail to meet the CAFE standards. The states make a number of arguments, including that the penalty rollback violates the Inflation Adjustment Act, which mandates that public agencies update their civil penalties to account for inflation over time. New York v. NHTSA, No. 19-02395 (2d Cir.). 

Aug. 12, 2019 NRDC and Sierra Club also file suit against NHTSA for its final rule reducing penalties for noncompliance. NRDC v. NHTSA, No. 19-02508 (2d Cir.). 

April 15, 2020 The U.S. Department of Justice suspends the collection of civil penalties through at least May 31, 2020 in an attempt to alleviate the financial impact of the coronavirus pandemic.

Aug. 31, 2020 The Second Circuit vacates NHTSA’s final rule after finding that the CAFE penalty qualifies as a civil monetary penalty under the Improvements Act, meaning that it must be updated to account for inflation and the penalty can only be reconsidered within a short window of time, one that NHTSA improperly exceeded when it reconsidered the penalty from 2016 in 2019. New York v. NHTSA, No. 19-02395 (2d Cir.).

Jan. 14, 2021 NHTSA publishes an interim final rule declining to increase penalties until model year 2022. Comments are due by January 25, 2021.

Biden Administration
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Jan. 25, 2021 Environmental groups sue NHTSA alleging the interim final rule fails to comply with fuel emissions goals. Natural Resources Defense Council et al. v. NHTSA, [Docket No. Pending] (2d Cir.).

Feb. 16, 2021 Fifteen Democratic attorneys general sue NHTSA over the interim final rule. State of New York et al., v. NHTSA, [No. Pending] (2d Cir.). In their comments on the interim final rule, the coalition of states argued that the rule violates NHTSA’s statutory duty to raise the “long-stagnant CAFE penalty,” and that NHTSA violated the APA by making the repeal effective immediately without notice and comment. 

March 15, 2021 NHTSA submits a proposed rule addressing CAFE Civil Penalties to the Office of Information and Regulatory Affairs (OIRA).

April 12, 2021 17 Democratic lawmakers send a letter to NHTSA Deputy Administrator Steven Cliff urging the agency to rescind the Trump-era interim final rule delaying higher penalties for automakers.

Aug. 20, 2021 NHTSA publishes a supplemental notice of proposed rulemaking to consider whether to withdraw the January 14, 2021 interim final rule and revert to the December 2016 final rule that would apply the inflation adjustment beginning with MY 2019, which NHTSA indicates would be consistent with the Second Circuit’s case law. (Nat. Res. Def. Council v. Nat’l Highway Traffic Safety Admin., 894 F.3d 95, 116 (2d Cir. 2018); New York v. Nat’l Highway Traffic Safety Admin., 974 F.3d 87, 101 (2d Cir. 2020).)