Cars in rush hour with traffic at dawn

In the midst of the COVID-19 pandemic, US EPA and the US Department of Transportation (DOT) issued the final rule rolling back greenhouse gas (GHG) emissions standards for vehicles. This long-awaited final rule was proposed in August 2018 and represents the culmination of an extended and controversial rulemaking. We have previously covered the rollback and related issues, in posts from April 2018, June 2018, December 2018, and November 2019.

The final rule, called the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule, implements the agencies’ goal of setting nationwide standards for automobile fuel economy and carbon dioxide emissions standards. As part of this “One National Program” effort, the agencies issued a rule withdrawing California’s authority to set its own emissions standards under the Clean Air Act, as previously reported. The final SAFE rule is virtually certain to be challenged in court – which will continue the regulatory uncertainty for automakers now compounded by the economic uncertainty related to the COVID-19 pandemic. In addition to the likely challenges by environmental groups to the rollback of emission standards set by the rule, the rule’s cost benefit-analysis, which acknowledges that the rule could result in up to $22B in net costs to society, is also a source of initial scrutiny from critics.

The final SAFE rule establishes corporate average fuel economy (CAFE) and GHG emissions standards that will increase in stringency at 1.5% per year from MY 2020 levels over MYs 2021 – 2026. For comparison, the previous Obama-era rule would have required increases of about 5% per year. These standards apply to light-duty vehicles, which under US EPA rules includes passenger cars, light-duty trucks, and medium-duty passenger vehicles such as sport-utility vehicles. This increasing-stringency approach is a change from the proposed rule, which included a range of alternatives and favored freezing the standards at MY 2020 levels. The 1.5% stringency increase was not among the original proposed alternatives, but is consistent with a number of alternatives which proposed a range of  yearly stringency increases between 0.5% and 3%. In the final rule, the agencies state that the final rule’s approach is consistent with discussions with both agencies and commenters, citing the benefits of standards that increase at the same rate for all fleets. Many automakers opposed the proposed freeze; the final rule notes the intent that the increasing-stringency approach will ensure that the benefits of reduced GHG emissions and fuel consumption are achieved with less disruption to automakers.  The incremental annual increases may also help the agency defend the rule, though it remains to be seen whether the rule is truly less disruptive if automakers are forced to endure regulatory uncertainty as to the applicable standards during the litigation that is likely to ensue.

The cost-benefit analysis for the rule is also expected to be a source of controversy. In the development of the SAFE rule, the agencies used a different model than had been used in prior vehicle emissions rules, including the Obama-era rule.  Using this changed modeling approach, the final rule predicts benefits that are “very small” relative to the scale of reduced required technology costs and reduced fuel savings. The rule also estimates that it could impose $22B in net costs under the highest-cost scenario. However, the agencies provide support for their analysis by emphasizing that it uses the best available science, evidence, and methodologies for conducting such an assessment and includes a quantification of the sales and scrappage impacts of the rule, whereas previously the agencies used an assumption for this input. Concern over the modeling approach and assumptions underlying the rule has already resulted in litigation in which environmental groups pressed US EPA to release the latest version of the standard model that had been used prior to the SAFE rule. US EPA withheld the model, citing the deliberative process exemption of FOIA. On April 1, 2020, the Second Circuit Court of Appeals ordered US EPA to release a model used as part of its analysis for the rule. The disclosure of the standard model could be used by potential plaintiffs to inform a challenge to the final SAFE rule on the basis of the cost-benefit analysis.

Given the expected challenges to the SAFE rule, as well as the ongoing litigation regarding the withdrawal of California’s Clean Air Act waiver, it is likely that the auto industry will be without clarity for some time. We will continue to follow and update readers on the development of this issue.