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Reforming U.S. Fuel Economy Standards

New York Law Journal

January 2, 2008
by Stephen L. Kass and Jean McCarroll

In the last six weeks, there have been three long-awaited actions on automobile fuel economy standards in the United States, actions that involved the courts, the Congress and the executive branch. On Nov. 15, 2007, the U.S. Court of Appeals for the Ninth Circuit ruled in Center for Biological Diversity v. National Highway Traffic Safety Administration,[1] that the rule issued by the National Highway Traffic Safety Administration (NHTSA) setting new corporate average fuel economy (CAFE) standards for light trucks, minivans, and pickup trucks[2] violated both the Energy Policy and Conservation Act of 1975 (EPCA)[3] and the National Environmental Policy Act (NEPA).[4] 

Most recently, Congress passed and the President George W. Bush signed an energy bill that includes the first increase in statutory fuel economy standards since 1975. At virtually the same time, the Environmental Protection Agency (EPA) denied a Clean Air Act waiver to California’s proposed vehicle emissions standards, which would require higher fuel efficiency than the new federal requirements.

This column briefly reviews these new developments and suggests some of the questions likely to be debated, and litigated, as the United States begins to grapple with both energy efficiency and climate change.

The Ninth Circuit’s Decision

In the Center for Biological Diversity case, five nonprofit public interest organizations, 11 states, the District of Columbia, and New York City challenged the NHTSA’s final rule requiring gradual modest increases in fuel economy standards up to approximately 24 miles per gallon by 2011 for light trucks, with standards being set for individual vehicle models and no fleetwide fuel economy requirement. The petitioners criticized the NHTSA’s cost-benefit analysis and calculations; the agency’s failure to require a minimum average fuel economy standard, or “backstop,” the perpetuation of the “SUV loophole,” by which SUVs, minivans, and pickup trucks were allowed to meet a less stringent fuel economy standard than cars, even though such vehicles, like cars, are used primarily to carry passengers; and the failure to regulate most vehicles weighing between 8,500 and 10,000 pounds. They also argued that the NHTSA’s environmental assessment of the rule failed to satisfy NEPA because it did not take a “hard look” at greenhouse gas issues and inadequately addressed alternatives and cumulative impacts. 

The Ninth Circuit accepted most of the petitioners’ criticisms of the NHTSA’s rule and held the rule to be arbitrary and capricious and in violation of the EPCA and NEPA. First, the court found that the NHTSA’s rule violated the EPCA by failing to “monetize” the benefits of greenhouse gas emissions reduction. It noted that, in its cost-benefits analysis, the agency analyzed the costs to automobile manufacturers of more stringent fuel economy -- such as employment and sales impacts -- but did not analyze the benefit of carbon emissions reduction. The agency argued that the value of reducing emissions of carbon dioxide (CO2) and other greenhouse gases was too uncertain to put in monetary terms, even though numerous commenters provided monetary values. The court noted that the NHTSA chose the cost-benefit analysis as the methodology for setting CAFE standards, and found that, having done so, the agency could not “put a thumb on the scale” by refusing to quantify the value of carbon dioxide emissions reduction.[5]

Second, the court found that, although the EPCA did not require the NHTSA to adopt a “backstop,” the agency was arbitrary and capricious in failing to consider the statutory factors in deciding whether to adopt a backstop. Congress “directed the agency to set the average fuel economy level for light trucks at the ‘maximum feasible’ level, ... considering technological feasibility, economic practicability, the need of the nation to conserve energy, and the effect of other motor vehicle standards of the government.”[6] The agency, however, believing that a required fleetwide average could cause manufacturers to produce more small vehicles (with higher fuel economy), declined to adopt a backstop, in order to avoid limiting consumer choice. The court said that energy conservation, not consumer choice, was the “fundamental purpose” of the statute and “an explicit statutory factor that NHTSA ‘shall’ consider,” and found that the agency did not adequately consider energy conservation and or even contend that a backstop “would be technologically infeasible or economically impracticable.”[7] 

Third, the Ninth Circuit faulted the NHTSA for failing to revise the definitions of “passenger automobile” and “light truck” so as to eliminate the “SUV loophole.” When the definitions were originally set in the 1970s, the distinction between passenger automobiles and light trucks was clearer than it is now. Today, many “light trucks,” especially SUVs, are designed and used primarily for transporting passengers. Accordingly, the petitioners argued and the court agreed, such vehicles should be classified as passenger automobiles and thus subjected to the more stringent CAFE standards for cars. 

Fourth, the court held that the NHTSA’s decision not to regulate the fuel economy of most vehicles weighing between 8,500 and 10,000 pounds was arbitrary and capricious. According to the EPCA, vehicles weighing between 6,000 and 10,000 pounds are “automobiles” for the purpose of fuel economy regulation if (1) setting an average fuel economy standard is feasible, and (2) such a standard for the vehicle “will result in significant energy conservation or the vehicle is substantially used for the same purpose as a vehicle” weighing not more than 6,000 pounds.[8] The NHTSA defines vehicles of 8,500 pounds or less as automobiles, but, with one exception, declined to expand the definition in its new rule to include the heavier vehicles. Rejecting the NHTSA’s explanations of the difficulties of setting standards for the heavier vehicles, and finding that setting such standards would result in significant energy conservation and that the heavier vehicles are used for substantially the same purposes as lighter vehicles, the Ninth Circuit panel held the agency’s decision not to set average fuel economy standards for all vehicles between 8,500 and 10,000 pounds to be arbitrary and capricious. 

The Ninth Circuit panel also found the NHTSA’s environmental review of its new rule insufficient. The agency prepared an environmental assessment (EA), not an environmental impact statement (EIS); the EA quantified the amount of CO2 emitted from light trucks, but did not calculate the “‘incremental impact’ that these emissions will have on climate change or on the environment more generally.”[9] The court found that the “impact of greenhouse gas emissions on climate change is precisely the kind of cumulative impacts analysis that NEPA requires agencies to conduct.”[10]

The NHTSA’s alternatives analysis was also too narrow according to the court, varying only slightly from the option chosen. The court rejected the agency’s argument that the EPCA provided it with no discretion to consider setting higher CAFE standards. The court noted: “NHTSA argues both that it has broad discretion to balance the factors of 49 U.S.C. § 32902(f) in setting fuel economy standards and that the EPCA constrains it from considering more stringent alternatives in the EA. NHTSA can’t have it both ways.”[11]

Throughout its discussion of the deficiencies of the NHTSA’s environmental review, particularly with regard to greenhouse gas emissions, the Ninth Circuit panel referred repeatedly to Massachusetts v. EPA,[12] in which the U.S. Supreme Court last April held that the EPA has authority under the Clean Air Act to regulate greenhouse gas emissions from motor vehicles. The court quoted the Supreme Court’s conclusion that “‘the United States transportation sector emits an enormous quantity of carbon dioxide into the atmosphere ... more than 6 percent of worldwide carbon dioxide emissions .... Judged by any standard, U.S. motor-vehicle emissions make a meaningful contribution to greenhouse gas concentrations and hence, ... to global warming.’”[13] 

The court further noted the Supreme Court’s finding that the fact that the Department of Transportation, of which the NHTSA is a part, sets CAFE mileage standards “in no way licenses EPA to shirk its environmental responsibilities. The EPA has been charged with protecting the public’s health and welfare ... a statutory obligation wholly independent of DOT’s mandate to promote energy efficiency. The two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.”[14] Thus, both the EPA and the NHTSA must regulate greenhouse gas emissions in order to protect the public’s health and welfare, promote energy efficiency, and retard global warming. 

The Ninth Circuit panel concluded by vacating the NHTSA’s finding of no significant impact (FONSI) as arbitrary and capricious and ordered that an EIS be prepared to remedy the EA’s deficiencies in its cumulative impacts and alternatives analyses, particularly with regard to the rule’s impact on greenhouse gas emissions and global warming. 

Legislative Action

The decision in the Center for Biological Diversity case was handed down in a period of long-awaited action in Congress on fuel economy standards and other energy-related matters. On Dec. 6, the House of Representatives passed the Energy Independence and Security Act of 2007, which includes the first congressional mandate for higher fuel economy standards since 1975. The Senate approved the legislation on Dec. 18, and the president signed it the next day. The legislation raises the CAFE standards for cars and trucks from an average of 25 miles per gallon to 35 miles per gallon by 2020. 

Of particular relevance to the Center for Biological Diversity case was the threat of President Bush to veto the new legislation if it was not amended to make the Department of Transportation solely responsible for regulating both fuel efficiency and greenhouse gas emissions, despite the Supreme Court’s ruling in Massachusetts v. EPA that the EPA had the authority and responsibility to address greenhouse gas emissions from motor vehicles. The impetus for that proposed amendment apparently originated with Representative John D. Dingell, D-Mich., home of much of the automobile industry. The NHTSA’s fuel economy rule at issue in the Center for Biological Diversity case makes clear why the automobile industry prefers the jurisdiction of the NHTSA to that of the EPA. Section 102 of the legislation, as enacted, gives the secretary of Transportation, “after consultation with” the secretary of Energy and the administrator of the EPA, the power to set fuel economy standards.

Of course, increasing fuel economy to 35 miles per gallon by 2020 is a monumental achievement only in comparison with the lack of any legislatively mandated improvement in the CAFE standards in the previous 32 years. A standard of 35 miles per gallon will put the United States in 2020 only where China is now and below the average of 40 miles per gallon where European auto companies are required to be today. Unless significantly improved in the future, the much-touted advances of this new legislation may be seen in time to have created yet another safe harbor for the recalcitrant U.S. auto industry that insulates it from future efforts to compel more significant responses to both global warming and U.S. energy profligacy. 

EPA Action

On the same day the president signed the energy bill, Stephen L. Johnson, the EPA administrator, denied California’s request to be allowed to set its own standards for greenhouse gas emissions from cars and trucks, as authorized under a provision of the Clean Air Act that has long permitted California (whose air quality laws predate that act) to establish more stringent air quality standards. The proposed California standards would mandate 30 percent reductions in CO2 emissions by 2016, effectively requiring autos to achieve 43miles per gallon by that date.  The proposed California rules, said the EPA administrator, were “made moot by the energy bill.”[15] That position was promptly challenged by California and other states (including New York) hoping to adopt the California standards and by several environmental organizations, all of which contend that California’s right to control CO2 pollution is broader than, and thus not preempted by, the new energy conservation statute. This dispute too seems headed for court and, ultimately, the U.S. Supreme Court.

International Action

While the U.S. Congress was struggling to enact higher CAFE standards and other measures intended to increase energy efficiency and reduce dependence on fossil fuels, delegates from 187 countries were meeting in Bali to begin creating a new global warming treaty to replace the Kyoto Protocol, and, as The New York Times wrote, the Bush administration’s delegates “were in full foot-dragging mode.”[16] Although the U.S. delegates were shamed into agreeing to negotiate a new treaty by 2009, they refused to commit to any reductions in U.S. greenhouse gas emissions. As soon as the Bali conference was over, the administration began to backtrack even on the commitment to negotiate a new treaty by 2009, unless developing countries, i.e., China and India, agreed to significant cuts in their greenhouse gas emissions.[17]

Conclusion

The growing recognition that global warming poses major risks to our planet and is significantly affected by human activity is finally being reflected in federal court decisions and congressional action, even as the current administration seeks to slow that momentum through Executive Branch actions at home and abroad. Although the initial steps being taken are unlikely to result in the radical reductions of fossil fuel use and greenhouse gas emissions needed to avert dramatic alterations in the Earth’s climate, they are certain to provide a continuing source of controversy for policymakers, environmental lawyers and the courts.


Stephen L. Kass and Jean M. McCarroll, together with Clifford P. Case and Michael C. Davis, direct the Environmental Practice Group at Carter Ledyard & Milburn LLP.

Reprinted with permission from the January 2, 2008 edition of The New York Law Journal  © 2008 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

Endnotes


[1]

[2] Average Fuel Economy Standards for Light Trucks, Model Years 2008-2011, 71 Fed. Reg. 17,566 (Apr. 6, 2006), codified at 49 C.F.R. Part 533.

[3] 49 U.S.C. §§ 32901-32919 (2007).

[4] 42 U.S.C. §§ 4321-4347 (2007).

[5] 2007 WL 3378240, at *16, *17 note 47, and *18.

[6] Id. at *21.

[7] Id.

[8] 49 U.S.C. § 32901(a)(3)(B).

[9] 2007 WL 3378240, at *31.

[10] Id. at *32.

[11] Id. at *28.

[12] 127 S. Ct. 1438 (2007). We reported on that decision: Stephen L. Kass and Jean M. McCarroll, “The Supreme Court’s Greenhouse Gas Decision,” NYLJ, Apr. 27, 2007, at 3, col. 1.

[13] 2007 WL 3378240, at *30 note 68.

[14] Id. at *34 (quoting Massachusetts v. EPA, 127 S. Ct. at 1462).

[15] John M. Broder and Felicity Barringer “ E.P.A. Says 17 States Can’t Set Greenhouse Gas Rules for Cars,” New York Times, Dec. 20, 2007, at A1, col. 1.

[16] New York Times, Dec. 17, 2007, at A30, col. 1.

[17] John Vidal, “US pours cold water on Bali optimism,” The Guardian, at http://www.guardian.co.uk/environment/2007/dec/17/bali.climatechange.

 __ F.3d __, 2007 WL 3378240 (9th Cir. Nov. 15, 2007).

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