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EPA action on auto emissions could tee up 'long, messy' legal battle

SNL Image

President Donald Trump, second from left, tours the American Center for Mobility, on March 15, 2017. Accompanying him are, from left: GM CEO Mary Barra, EPA Administrator Scott Pruitt, Michigan Gov. Rick Snyder, former Ford CEO Mark Fields, Transportation Secretary Elaine Chao and Fiat Chrysler CEO Sergio Marchionne.
Source: AP Photo

The U.S. Environmental Protection Agency will soon release details of its regulatory review of emissions standards for cars and light-duty trucks, a decision that could set up a "long, messy" legal battle with California regulators, according to one observer.

In one of its last acts, the Obama administration in January 2017 finalized its midterm review of fuel economy standards for cars and light-duty trucks and required automakers to ramp up to an average 54.5 miles per gallon fuel economy rate for years 2022 through 2025 to help control greenhouse gas emissions. The review capped off former President Barack Obama's effort to regulate greenhouse gases, which included extending California's tough emissions requirements to all other states as part of the auto industry financial bailout in 2009.

However, newly installed EPA Administrator Scott Pruitt and U.S. Department of Transportation Secretary Elaine Chao in early 2017 announced that the new Trump administration would reopen the midterm review, arguing that the standards are costly for automakers. The agencies, which each regulate vehicles for emissions, are required to complete the analysis by April 1.

On the eve of that deadline, some industry watchers worry the agency will attempt to revoke California's right to set its own emissions standards and decouple the federal and California state standards, setting off a complex, lengthy legal battle with national implications.

And greenhouse gases, too

From as far back as the 1950s California has taken the lead in trying to clamp down on motor vehicle pollution. Stanford Law Professor Deborah Sivas, who has litigated the vehicle emissions standards, said the state was struggling to control pollution that was choking the Los Angeles Valley and therefore rolled out its own program for cutting down on smog-forming pollutants.

Federal lawmakers in the late 1960s recognized California's unique problem and therefore allowed the state to set its own standards for nitrogen oxide, sulfur dioxide and other pollutants so long as the standards were at least as strong as any federal ones. All California had to do was apply for a waiver and show that the different, tougher standard was necessary. Other states could adopt California's standards or follow the federal ones, but could not establish their own unique standards to avoid creating a patchwork of regulation across the country, said Sivas.

For decades the EPA granted California the waivers it requested. But that changed after California in 2005 sought permission to set its own greenhouse gas emissions standards, including average mile per gallon requirements. After reviewing the request for more than three years the George W. Bush administration rejected it, sparking a legal battle that spilled over into the 2008 financial crises and eventually came under the purview of the Obama administration. Sivas was one of the attorneys who worked on the case.

The courts never ruled on the matter because the Obama administration in 2009 brokered a deal between industry, environmental groups and the federal government. The package of reforms included a bailout for the auto industry, which agreed to harmonize the federal auto standards with California's and address greenhouse gases too. Sivas explained that the new regulations, which were finalized in 2012, allowed automakers to transition to the tougher standards, making slow progress in the early years and then ramping up quickly after 2017. The deal also included a midterm review of the standards.

But just as the curve on the auto emissions requirements was about to ramp up, President Donald Trump was ushered into the White House and Sivas said the auto industry found more sympathetic leadership at the EPA.

'Analysis rather than politics'

The EPA declined to comment on how the agency plans to tweak the vehicle standards, but EPA spokeswoman Liz Bowman said a draft determination has been sent to the White House Office of Management and Budget for interagency review and the final determination will be signed by April 1, as expected. Bloomberg, however, reported March 23 that the EPA has agreed with some automakers that the standards are too aggressive and will seek to revise them.

Several major American automakers have publicly offered support for maintaining the current standards, albeit with some new flexibilities. Ford Motor Co. Executive Chairman Bill Ford and President and CEO Jim Hackett wrote in a March 27 op-ed published on the Medium social journalism platform that the company supports the existing fuel economy standards and is not seeking a rollback of the near-term standards. "We want one set of standards nationally, along with the additional flexibility to help us provide more affordable options for our customers," the executives wrote.

General Motors Co. Chairman and CEO Mary Barra similarly on March 7 told the CERAWeek energy conference in Houston that the company's "commitment to an all-electric, zero-emissions future is unwavering, regardless of any modifications to future fuel economy standards."

But auto industry groups, such as the Alliance of Automobile Manufacturers of which both Ford and GM are members, have pressured the EPA to relax the standards. The Alliance lobbied the EPA to reopen the mid-term review, with its CEO Mitch Bainwol suggesting that "analysis rather than politics" should decide the future of the standards. Other members of the Alliance include Fiat Chrysler Automobiles, BMW Group, Mazda, Mercedes Benz, Toyota Motor Corp. and other major automakers.

"Auto manufacturing is highly competitive, so seldom do the world's automakers come together. But they did in February [2017] when 18 automakers wrote President Trump," Bainwol said. "They were united in their support for putting the process back on track without predetermining any outcome."

The Association of Global Automakers in comments filed in the reopened review docket similarly criticized the Obama administration for cutting short the midterm review and rushing out a flawed final determination. The group asked that EPA's standards be better harmonized with the DOT's similar standards issued under the National Highway Traffic Safety Administration and to keep California's waiver intact. But they also urged EPA to nix California's Zero Emission Vehicle mandate, which the group said "forces automakers to use one of the most expensive technologies" to reduce greenhouse gases. The group also said that consumer demand for the fuel-efficient technologies created by the standards "is stagnant, declining, or at best underwhelming."

Cooperative federalism

However, Sivas asserted that the 2012 standards include certain exemptions for a lack of consumer demand. And she believes the industry has had plenty of time to prepare for the ramped-up standards.

Natural Resources Defense Council Attorney Irene Gutierrez said the automakers are seeking aggressive reforms at their own peril because while the Trump administration has turned a sympathetic ear towards industry, leadership can change.

"It's a risky bet in some ways because things could change in four years or ... eight years," Gutierrez said. "At some point, there will be an administration in place that ... continues to set progressive standards."

Sivas does not believe the EPA will touch California's existing right to seek a waiver. But she said the agency could require the state to seek another for the next round of standards beyond 2025, which Pruitt could reject. Pruitt, she said, is "savvy," and aware that revoking the existing waiver would be tougher legally than waiting for a new application to come across his desk.

Pruitt told the U.S. Senate's Environment and Public Works committee in January that having just one national program for vehicle emissions is "essential." But he also argued that California' should not be setting the pace for the rest of the country. "Federalism doesn't mean that one state can dictate to the rest of the country," Pruitt said, acknowledging California's special status that was granted by Congress.

Conversely, Pruitt has often touted states' rights and a cooperative federalism model for his agency. Sivas and Gutierrez said Pruitt's actions towards the California waiver are out of step with that philosophy. Should Pruitt indeed revamp the standards or revoke California's waiver, Gutierrez expects "a long, messy legal battle" with a legal and regulatory history that tips in California's favor.

Gutierrez also noted that while the waiver specifically speaks to California, over a dozen states adopted those standards before the harmonization took place as part of the 2009 deal. Thus, about a third of all Americans drive cars that would still be subject to California's regulations.

"It's not just a fight against California. It's a fight against all these other clean car states, so I think both politically and legally it'll be a tough battle for the administration," Gutierrez said.

The California Air Resources Board did not return a request for comment as of publication, but Gov. Jerry Brown has previously pledged to fight against any efforts to weaken the vehicle emissions standards.

"Your action to weaken vehicle pollution standards — standards your own members agreed to — breaks your promise to the American people," Brown told automakers in March 2017. "Please be advised that California will take the necessary steps to preserve the current standards and protect the health of our people and the stability of our climate."