What impact will cutting fuel economy rules have?

First, what is the California waiver and why does the state have this waiver?

The waiver has a long history. In 1970, the federal government enacted the Clean Air Act, which addressed both “stationary sources” like power plants and industrial facilities and “mobile sources,” which are basically moving vehicles. Congress wanted a single, uniform national standard for mobile sources; it didn’t want auto manufacturers having to comply with different vehicle emissions standards in different states. So the Clean Air Act preempts states from setting their own mobile source standards.

But Congress created an exemption process for California. Why? Because back in the 1960s, when smog had become an enormous problem in the Los Angeles basin, California was moving ahead of the federal government in trying to reduce air pollution. In order to avoid backsliding on the state’s efforts and to allow California to address what was the nation’s most serious local air pollution problem, the Clean Air Act allowed California—but only California qualified—to seek a “waiver” from the preemption provision.

That waiver provision is written in a way that is deferential to the state and requires that the EPA Administrator “shall” grant a waiver request unless she makes a finding that the California program is not as protective as the national standards, that California has not demonstrated a compelling need for the waiver, or that a waiver is inconsistent with the Clean Air Act’s mobile source requirement to provide manufacturers with sufficient lead time to come into compliance. That places the burden on the EPA to show why a waiver should not be granted.

Has the waiver always been granted? Has it ever been rejected?

For the first thirty years or so, the EPA granted all of the dozens of waivers California sought for different types of vehicles in connection with traditional air pollutants, like nitrogen oxides and carbon monoxide, that contribute to smog and local public health problems. Then around 2005, as policymakers were turning their attention to global warming and greenhouse gas emissions, California sought its first Clean Air Act waiver related to the emission of carbon dioxide.

Unlike other vehicle emissions, carbon dioxide emissions cannot be reduced by putting a piece of equipment on the tailpipe, like the catalytic converter that [was] so effective at reducing smog first in California and then across the nation. Really the only practical way to reduce carbon dioxide emissions from the burning of gasoline in internal combustion engines is to increase efficiency—that is, to increase the miles traveled per gallon of fuel burned. So California requested a Clean Air Act waiver that would allow it to set increasingly stringent fuel economy standards as a way to reduce carbon emissions from vehicles.

The Bush Administration first refused to act on the waiver and then later denied the request on the theory that greenhouse gas emissions were something quite different than traditional smog-producing pollutants and that California could not show a unique, compelling need for different standards.

How was the Bush administration’s rejection of the waiver resolved?

There was a lot of jockeying, and litigation, between California and the Bush EPA, but while all of that was playing out, the Supreme Court ruled that greenhouse gases are covered by the Clean Air Act, a decision that weakened EPA’s legal position.

The other big things happening in 2008, of course, were the start of the recession and the election of President Obama. By 2009, the auto industry was teetering on the brink of extinction and needed a big federal taxpayer bailout. These various events came together in a way that allowed a historic deal to be struck on fuel economy standards, avoiding further litigation over EPA’s refusal to grant the waiver.

That deal had several components. First, the Obama EPA granted California’s request for a Clean Air Act waiver related to carbon emissions and fuel standards—and that waiver was later expanded to cover all new vehicles through 2025. Second, the federal government harmonized federal fuel economy standards (both the EPA and the National Highway Traffic Safety Administration set slightly different standards) with California’s standards so that there would essentially be a single national standard. As part of that harmonization, the uniform fuel efficiency standards rose somewhat slowly between 2012 and 2016 and then were slated to rise more rapidly after that, reaching 54.5 miles per gallon by 2025. (With allowed offsets, that translates into real world fuel efficiency in the range of 36-38 miles per gallon.)

So California basically held off from trying to set higher fuel economy standards in the early years in return for more progress in later years, with the curve bending upwards more sharply after 2016. This gave the auto industry a uniform target and time to do the technological and production development to get there, and it gave California the assurance of progress in the near future without the need for further litigation over the waiver.

When and why did they pass?

The concept of CAFE standards actually came into existence in 1975 as a direct result of the energy crisis during that period, not originally as a climate issue. With the US at that time dependent to a large extent on foreign oil production—and with long lines at gas pumps—Congress got interested in increasing the fuel efficiency of new passenger vehicles and passed the Energy Policy and Conservation Act. Under that law, it is actually the NHTSA (National Highway Traffic Safety Administration) that sets and administers the CAFE program, setting standards on a miles-per-gallon basis. Historically, the NHTSA program has focused on what, technologically, the auto industry has said it was capable of achieving.

During the 1970s, 1980s, and 1990s, EPA was focused on setting pollution emission standards under the Clean Air Act, which does not speak to fuel economy. Thus, EPA’s efforts centered on reducing carbon monoxide, hydrocarbon, nitrogen oxides, and lead emissions from the burning of fossil fuel in vehicles; the agency was not setting any standards for carbon dioxide emissions.

These two strands came together once the Supreme Court held in 2007 that carbon dioxide, as the primary greenhouse gas, is a pollutant regulated under the Clean Air Act, and thus EPA had to start paying attention to reducing emissions of that pollutant. But it wasn’t really until the Obama Administration struck a deal with the auto industry and California, which was finalized in 2010, that EPA got more directly involved in setting tailpipe emission standards for carbon dioxide. The two agencies, EPA and NHSTA, now work jointly to set standards, although much of the public attention is focused on EPA.

How big is the California + 12 (states that follow California’s environmental standards lead) market for automobiles?

It is pretty significant. To understand this issue, just a bit more background is necessary. A few years after Congress first adopted the Clean Air Act, it amended the statute to allow other states to adopt California’s emissions standards in lieu of the federal standards. Some other states were clamoring to set more stringent vehicle emissions standards and Congress responded to that pressure by allowing other states to choose to comply with either the national standards or the California standards. Other states still cannot set their own, different standards, however.

Historically, a handful of states exercised this ability by adopting various of California’s more stringent vehicle standards. Once the 2010 deal was struck, a dozen other states then amended their own state laws to incorporate the California standards. Thus, roughly 30 percent of the new passenger/light duty vehicle market has adopted the California standards.

As long as the national standards and California standards remain harmonized, as they are under the existing rules enacted as part of the Obama EPA deal, that market share really doesn’t matter. But if EPA rolls back the national standards, then we will have nearly a third of the new vehicle market subject to the more stringent California standards.

What kind of an impact, in the US and around the world, might these Obama-era fuel emission standards have? How important are these standards for reducing green house emissions and climate change? Would cutting the standards be a big deal?

Two thoughts on this question. First is the change in actual emissions if the US rolls back its standards. The answer depends on the magnitude of the rollback, but public reports suggest that the rollbacks will be substantial.

The fuel economy standards are a cornerstone of California’s program, and nationwide, the transportation sector accounts for about 40 percent of our greenhouse gas emissions. The current rule was projected to reduce carbon emissions by several billions of tons, so a substantial rollback could have a considerable impact on the level of greenhouse gas emission in the US.

Second, when you ease the regulatory pressure and incentives to innovate, the industry responds by doing less innovation. California’s standards are pushing not only technological progress on internal combustion engines, but importantly, also driving innovation in electric, hybrid, hydrogen, and other alternatives to the internal combustion engine. And it is not just the vehicles themselves, but the infrastructure that supports these alternatives, including battery technology, charging options, etc. A rollback of national standards will undoubtedly mean that at least some domestic manufacturers make less progress than they otherwise might have, while other countries, perhaps most notably China, are ramping up their efforts in this area.

All of that bodes ill for the domestic manufacturing industry, which has badly miscalculated in the past and seems likely to be doing so again now by pushing EPA to roll back standards.

Time will tell whether the Trump administration’s approach is an economically sound one, but just as in the field of renewable energy development, my guess is that current policy will turn out to be a huge boon for foreign competitors at the expense of American jobs, not to mention a setback for domestic climate policy.

And what about the threat of litigation from California to push back on a loosening of the standards? I’ve read that the proposal from the Trump administration’s EPA goes further than the automakers wanted—so far that they risk a backlash from consumers and serious litigation from California.

I think there is no question that California will be in the middle of any litigation around the rollback in fuel economy standards. If EPA actually moves forward and finalizes a rule that lowers the national standards for the 2022-2025 model years, the first thing that happens is a judicial challenge, probably in the DC Circuit. My guess is that the plaintiffs in that lawsuit, which would likely involve a number of states as well as other stakeholders, will seek to enjoin any new standards pending resolution of the case. Even if the litigation is expedited, it will take quite a while to resolve the claims. And then someone will inevitably seek Supreme Court review.

Does cutting greenhouse gas emissions hurt economic growth?

So there is still a fairly long road to getting lawful replacement standards in place. And the question of whether and how California will then exercise its waiver—and what EPA will do about that—is another can of worms opened up by EPA if the California and national standards are no longer harmonized. Lots of litigation to come, I’m afraid.

How strong a case does California have?

Most lawyers evaluating a challenge to new standards think the plaintiffs, including California, will probably have a pretty strong case, based on the structure of the Clean Act Act (which puts the burden on EPA) and the record that exists today. But in the end, it will depend on what rationale and analysis that EPA puts forward to justify a rollback.

Unquestionably, EPA is working with the industry right now to develop that rationale and analysis. If the rhetoric in the media is any guide, at least part of the argument will be that it is infeasible to achieve the existing standards, even though the industry agreed to them years ago and clearly has the actual technology to comply, because consumers don’t want to buy more fuel efficient or alternative fuel vehicles. In addition, EPA and the industry will likely revive the old argument, which was first advanced during the Bush administration, that there is no compelling need for California to have more stringent standards.

In the end, I agree that the challengers have the better arguments, but it is hard to crystal ball the outcome before we see EPA’s justifications.