CAFE Standards and the California Preemption Plan

This is an update to our previous post, California, CAFE Standards, and the Energy Policy and Conservation Act.

August 24, 2018

Summary

  • The Federal Register has published the Trump administration’s proposed fuel economy and greenhouse gas emissions standards for cars and light trucks.
  • The National Highway Traffic Safety Authority (NHTSA) and the Environmental Protection Agency (EPA) have proposed to treat California’s greenhouse gas standards as preempted by the Energy Policy and Conservation Act (EPCA).
  • EPA proposes to withdraw the waiver it granted to California in 2013 to implement its standards by arguing that standards preempted by EPCA cannot be afforded a valid waiver under the Clean Air Act. Alternatively, EPA points to two other bases in the Clean Air Act for withdrawing the waiver
  • EPCA governs the Corporate Average Fuel Economy (CAFE) standards and preempts state laws or regulations “related to fuel economy standards or average fuel economy standards.”
  • NHTSA and EPA argue that California’s Advanced Clean Cars program regulations are “related to fuel economy standards” and are thus preempted.
  • NHTSA and EPA disagree with both of the federal court decisions finding no EPCA preemption of California’s standards.
  • EPA and NHTSA advance arguments to preempt California’s Advanced Clean Cars Program that
    • conflict with their past practices and legal determinations.
    • rely on novel interpretations of the legal limitations placed on the agencies and California by EPCA and the Clean Air Act.
    • require finding that two federal district courts incorrectly interpreted EPCA and the relationship between the standards adopted under EPCA and the Clean Air Act.
    • raise questions about how NHTSA can change course after years of adopting standards in harmony with the EPA and California, and how EPA can change course after years of approving waivers for California’s vehicle standards.

On August 2, 2018, EPA and NHTSA released proposed rules for fuel economy and greenhouse gas (GHG) emissions standards. NHTSA proposes that the Energy Policy and Conservation Act preempts California’s GHG emissions standards. EPA, in turn, proposes withdrawing California’s Clean Air Act waiver, granted under section 209 of the Clean Air Act in 2013.

The EPA proposal suggests two approaches to withdrawing the waiver. First, if NHTSA makes the EPCA preemption determination in a final rule, EPA will withdraw the waiver on that basis. Alternatively, if NHTSA does not finalize a preemption determination, EPA will apply its findings under sections 209(b)(1)(B) and (C) of the Clean Air Act to withdraw the waiver.

As an update to our examination of the law of preemption under the Energy Policy and Conservation Act, we will walk through the preemption analysis laid out in the proposed rules to explain how the agencies are approaching the issue.

Interpretation of the phrase: “related to”

In a nutshell, this is the agencies’ proposed preemption argument: The Energy Policy and Conservation Act has a broad, clear preemption provision which preempts state laws or regulations “related to fuel economy standards or average fuel economy standards” and California’s Advanced Clean Cars program regulations are “related to fuel economy standards” and are thus preempted.

NHTSA has been clear in the past that EPCA preemption operates only when a state issues a “regulation that relates to fuel economy and which addresses the same public policy concern as the CAFE statute.”[1] This assertion undercuts the preemption argument NHTSA and EPA make in the current proposal.

To support its new interpretation of EPCA’s preemption provision, NHTSA cites Supreme Court cases that have interpreted the phrase “relates to” where state laws relating to federal laws are preempted. NHTSA points to Shaw v. Delta Airlines, Inc.[2] but incorrectly quotes from that case, stating that a state law “relates to” a federal law if it “has a connection with or refers to” the subject of the federal law.[3] In fact, the opinion states: “A law ‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.”[4]

This is questionable precedent for the EPCA preemption argument because the California GHG standards arguably do not have “a connection with or reference to” the CAFE standards. The California standards, targeting reductions in GHG emissions for the purpose of protecting public health, are rendered effective once a waiver is granted under the Clean Air Act. The CAFE standards adopted under EPCA are focused on fuel economy for the purpose of improving energy efficiency of motor vehicles to conserve energy.[5] The fact that EPA and NHTSA have promulgated their respective standards at the same time since 2010 does not seem to establish the connection identified in Shaw.

NHTSA and EPA conclude by conflating the regulation of CO2 emissions with the regulation of fuel consumption, stating that “…Congress has expressly preempted any state laws or regulations relating to fuel economy standards. A state requirement limiting tailpipe CO2 emissions is such a law or regulation because it has the direct effect of regulating fuel consumption.”  In fact, car owners are free to consume as much fuel as they wish, but the CO2 emissions standards are in place to ensure that for every mile they drive, they are only emitting a certain number of grams of CO2.

Addressing Federal court decisions: Green Mountain Chrysler and Central Valley Chrysler-Jeep

NHTSA and EPA also address the two federal court decisions, Green Mountain Chrysler and Central Valley Chrysler-Jeep, which held that EPCA did not preempt California’s greenhouse gas emissions standards for motor vehicles. The cases and resulting opinions are discussed in our previous post. In the proposal, NHTSA and EPA argue that the courts “erroneously concluded that the ‘related to’ language in EPCA’s preemption clause should be construed ‘very narrowly’, and adopted a novel interpretation of ‘related to.’”[6] Also, NHTSA and EPA characterize EPCA preemption of California standards as their “longstanding position” despite the fact that this is the first time the agencies have attempted to preempt California standards using EPCA. [7]

NHTSA and EPA set out a “statutory test” for “…whether the state standards are ‘related to’ the Federal standards…” that “…is met by showing that the state GHG emission standards are not simply related to, but actually the functional equivalent of, the Federal fuel economy standards.”[8] Here, NHTSA and EPA seem to change course or provide a back-up argument from their earlier discussion of the meaning of the phrase “related to.” The agencies also state that “…the operation of EPCA’s express preemption provision does not require … that the Federal and state standards serve the same purpose.”[9] However, the Supreme Court found that NHTSA and EPA or California standards can co-exist because they serve different purposes and NHTSA itself advanced that argument in 2002, as cited above.

The potential for fuel economy standards and emissions standards to co-exist

The proposal briefly discusses Massachusetts v. EPA, noting that the Supreme Court did not rule on the question of whether EPCA can preempt state laws regulating CO2 emissions from vehicles. It even cites the Court’s finding that EPA and NHTSA’s respective vehicle standards can co-exist harmoniously.[10] The proposal does not provide a rebuttal to the Supreme Court’s finding, which was made when EPA was engaged in its longstanding practice of granting waivers to California for its standards.

The proposal cites occasions in previous rulemakings when NHTSA has commented on the possibility of preempting other standards. However, there is no explanation of how those past comments are relevant to its current preemption argument.[11]

NHTSA’s mandate to consider “other Federal motor vehicle standards” in setting CAFE standards

EPCA required the Department of Transportation, now NHTSA, to consider “…the effect of other Federal motor vehicle standards on fuel economy…” [12] when setting the CAFE standards. A section of EPCA defined the phrase “other Federal motor vehicle standards” to include standards adopted according to a waiver under Section 209 of the Clean Air Act, that is,  California’s emissions standards.[13] The section of EPCA containing that definition was deleted when the law was recodified in 1994 because it dealt with an exemption for model years 1978-1980. The mandate to consider other standards was re-worded to read “…the effect of other motor vehicle standards of the Government on fuel economy….”[14] Despite the recodification act’s statement of purpose “…to revise, codify, and enact without substantive change…”[15] the provisions of the law involving fuel economy standards, NHTSA and EPA now argue that the deletion of that definition is evidence that Congress did not consider California’s standards to be “other Federal motor vehicle standards” under EPCA.  According to this interpretation, NHTSA does not have to consider California standards when creating the CAFE standards, although it has been doing that for decades. NHTSA tries to explain this reversal of its past practice and implicit interpretation by stating that the “[t]he recodification to rescind this subsection, which had no substantive significance for 14 years, was entirely non-substantive.” [16]

The relationship between EPCA preemption and the waiver granted under the Clean Air Act

EPA notes that it “has historically declined to consider as part of the waiver process whether California standards are constitutional or otherwise legal under other Federal statutes apart from the Clean Air Act….”[17] However, “…EPA believes that this notice presents a unique situation and that it is appropriate to consider the implications of NHTSA’s proposed conclusion as part of EPA’s reconsideration of the waiver.”[18]

EPA proposes to withdraw California’s waiver on the basis of NHTSA’s preemption determination according to a novel theory- “…that state standards preempted under EPCA cannot be afforded a valid waiver of preemption under CAA 209(b).”[19] EPA then lays out its three-part attack. First, “…if NHTSA finalizes a determination that California’s GHG and ZEV standards are preempted, then it would be necessary to withdraw the waiver….” Second, EPA will use section 209(b)(1)(B) as a separate basis for withdrawing the waiver. Third, EPA will use section 209(b)(1)(C) as another potential basis for withdrawing the waiver.[20]

Earlier drafts of the proposal included a section that explained that EPA could only deny waiver requests based on the criteria set out in section 209(b) of the Clean Air Act, and that inconsistency with EPCA is not one of those criteria.

Notably, the proposal leaves unanswered what would seem to be central, even threshold questions: Does EPA have the authority to revoke a waiver it has already granted? Are the criteria for denying a waiver in the first instance the criteria the agency must use to withdraw a waiver after it has been granted? The Institute for Policy Integrity at New York University School of Law has written a detailed report addressing these questions and others about the waiver that are beyond the scope of this post.

Conclusion

As noted at the beginning, EPA and NHTSA advance arguments to preempt California’s Advanced Clean Cars Program that conflict with their past practices and legal determinations. Many of these arguments rely on novel interpretations of the legal limitations placed on the agencies and California by EPCA and the Clean Air Act. The arguments require finding that two federal district courts incorrectly interpreted EPCA and the relationship between the standards adopted under EPCA and the Clean Air Act. There are many outstanding questions about how NHTSA can change course after years of adopting standards in harmony with the EPA and California, and how EPA can change course after years of approving waivers for California’s vehicle standards – including the 2013 waiver now being proposed for withdrawal.

[1] National Highway Traffic Safety Administration, Light Truck Average Fuel Economy Standards Model Years 2005-07, 67 Fed. Reg. 77,025 (Dec. 16, 2002) (emphasis supplied).

[2] 463 U.S. 85, 97 (1983).

[3] National Highway Traffic Safety Administration and Environmental Protection Agency, Proposed Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks (“Proposed rules”), p. 523.

[4] Shaw v. Delta Airlines, Inc., 463 U.S. 85, 97 (1983). The case involved the federal Employee Retirement Income Security Act (ERISA) which contains a provision preempting state laws that “relate to” employee benefit plans in ERISA.

[5] Energy Policy and Conservation Act, Pub. L. No. 94–163, § 2(5) (1975) (codified at 42 U.S.C. § 6201).

[6] Proposed rules, p. 529.

[7] Proposed rules, p. 530 (“NHTSA and EPA disagree with the conclusion of these decisions and reaffirm the longstanding position that state standards regulating tailpipe GHG emissions, such as the standards challenged in the California and Vermont district court cases, are preempted by EPCA because they ‘relate to’ fuel economy standards.”).

[8] Proposed rules, p. 531.

[9] Id.

[10] Massachusetts v. EPA, 549 U.S. 497, 532 (2007) (“The two obligations may overlap, but there is no reason to think the two agencies cannot both administer their obligations and yet avoid inconsistency.”).

[11] Proposed rules, p. 519.

[12] Energy Policy and Conservation Act, Pub. L. No. 94–163, § 502(e)(3) (1975).

[13] Energy Policy and Conservation Act, Pub. L. No. 94–163, § 502(d)(3)(D) (1975) (“(D) Each of the following is a category of Federal standards; “(i) Emissions standards under section 202 of the Clean Air Act, and emissions standards applicable by reason of section 209(b) of such Act.”.

[14] 49 U.S.C. § 32902(f)

[15] Revision Of Title 49, United States Code Annotated, “Transportation”, Pub. L. 103-272 (1994).

[16] Proposed rules, p. 534.

[17] Proposed rules, p. 542.

[18] Id.

[19] Id.

[20] Id.

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