October 26, 2020

Volume X, Number 300

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October 23, 2020

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EPA and NHTSA Finalize Rollback of Vehicle Fuel Economy and GHG Standards

Key Takeaways

  • Regulatory Action: Vehicle fuel economy and greenhouse gas emissions standards will increase in stringency by 1.5 percent per year from Model Years (MY) 2021-2026, as compared to MY 2020 levels. But this increase is far less than the 5 percent annual increase under the Obama Administration’s rule. It is also less than the 3.7 percent per year reduction in greenhouse gas emissions required under a 2018 voluntary agreement between California and four major automakers.

  • Key Issues for Regulated Entities:

    • Compliance flexibilities largely remain in place: automakers can continue to take advantage of credits for electric and natural gas vehicles, for example.

    • Because the rule inevitably will be challenged, OEMs face significant regulatory uncertainty as they must presently design vehicle models to satisfy the potentially applicable future standards.

  • Timeline: The final rule becomes effective 60 days after publication in the Federal Register. States, environmental groups, and trade groups will seek judicial review.

SAFE Rule

On March 31, 2020, the U.S. Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) finalized new standards for corporate average fuel economy (CAFE) and greenhouse gas (GHG) emissions for MY 2021 through 2026 passenger cars and light trucks.

This final rule is Part II of the Safer Affordable Fuel-Efficient (SAFE) Rule. As detailed in our earlier alert, Part I was finalized in September 2019 and rescinded EPA-issued waivers authorizing California to set more stringent GHG standards and to enforce its Zero Emission Vehicles (ZEV) mandate. Part I also posited that state GHG and ZEV regulations are preempted by federal law. Litigation brought by twenty-four states and environmental groups challenging Part I is ongoing. States and environmental groups have already pledged to also challenge Part II.

New CAFE and GHG Standards

The CAFE and GHG emissions standards established by the final SAFE rule will increase in stringency by 1.5 percent per year from MY 2020 levels over MYs 2021-2026. But these standards are less stringent than the 5 percent annual increase required by the rule promulgated during the Obama Administration, although more stringent than the 0 percent increase in the proposed SAFE Rule. According to EPA and NHTSA, the standards “fit the pattern of gradual, tough, but feasible stringency increases that take into account real world performance, shifts in fuel prices, and changes in consumer behavior toward crossovers and SUVs and away from more efficient sedans.”  

EPA and NHTSA project that the new standards will require automakers to achieve fleet averages of 201 grams per mile (g/mi) of CO2 and 40.5 miles per gallon (mpg) by MY 2030. The agencies note that real-world CO2 is typically 25 percent higher and real-world fuel economy is typically 20 percent lower due to compliance flexibilities and limitations of regulatory test procedures. Accordingly, the agencies project a real-world average of 33.2 mpg versus about 39 mpg under the Obama-era rule.

Changes to Compliance Flexibilities

EPA is not changing the vast majority of existing compliance flexibilities, which allow automakers to achieve compliance with the CAFE and GHG standards through use of clean technologies, credit trading, and other mechanisms. Notably, the new rule:

  • Continues to offer credits for reducing leakage of air conditioning GHGs.

  • Extends the “0 grams/mile” assumption for electric vehicles through MY 2026. This means EPA will not count the upstream emissions caused by the electricity usage of electric vehicles.

  • Ends credits for producing full-size pickup trucks that are hybrids or otherwise outperform their GHG targets starting in MY 2022.

  • Adds a 2.0 credit multiplier for natural gas vehicles through MY 2026. The 2.0 credit multiplier allows automakers to double count these vehicles for emissions compliance calculations. The rule does not extend the credit multipliers for electric vehicles and fuel cell vehicles that are scheduled to phase out after MY 2021.

Outlook

Part II of the SAFE Rule will go into effect sixty days after publication in the Federal Register. States and environmental groups have already pledged to challenge the final rule in court.

Litigation of the SAFE Rule will lead to ongoing regulatory uncertainty. Automakers who elect to disregard the California GHG and ZEV standards and rely exclusively on the new CAFE and GHG standards do so at their own risk. Should there be a change in administration or should litigation ultimately invalidate the rules, automakers may find themselves left scrambling to comply with stricter standards given the long lead times for vehicle development and production.

Automakers would face a significant challenge if a court upheld only Part II of the SAFE Rule but not Part I. In that scenario, the California waiver would be left intact, allowing California—and the 13 states that have adopted California standards—to impose stricter GHG standards than the rest of the country. This would be an unfavorable outcome for automakers who have strived for years to ensure that California’s standards are harmonized with the federal standard to maintain one national standard.

As we detailed earlier, the uncertain future of the SAFE Rule and desire for predictability in meeting California’s requirements have already spurred Volkswagen, Ford, Honda, and BMW to enter a voluntary agreement with California requiring GHG reductions at a compromise level of 3.7 percent per year through MY 2026. The agreement’s credit multipliers also differ from those in the SAFE Rule in that the agreement allows double credit for battery and fuel cell electric vehicles and 1.6x credit for plug-in hybrid electric vehicles through MY 2024. It remains to be seen whether states that have adopted California standards will pursue similar agreements and whether additional automakers will seek to join those agreements. At any rate, automakers must now evaluate numerous litigation and rulemaking scenarios in determining their fuel economy and GHG compliance strategies.

© 2020 Beveridge & Diamond PC National Law Review, Volume X, Number 104
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Joshua H. Van Eaton Environmental Litigation Attorney Beveridge & Diamond Washington, DC
Principal

Joshua H. Van Eaton helps clients resolve high-stakes compliance, enforcement, and litigation matters.

He brings the perspective gained from a distinguished U.S. government service career to provide clients with strategic counsel on air, water, and waste issues with a focus on mobile source emissions. He also litigates those matters and advises on proactive environmental compliance strategies.

Prior to joining Beveridge & Diamond, Josh served as Senior Trial Attorney in the Environmental Enforcement Section of the Environment and Natural Resources Division (ENRD) of the U...

202-789-6033
Daniel B. Schulson Environmental & Administrative Attorney Beveridge & Diamond Washington, DC
Principal

Daniel Schulson applies the insight and experience he gained from working in the Office of General Counsel at the U.S. Environmental Protection Agency to clients’ challenges on a broad array of issues.

He assists clients with many aspects of environmental and administrative law, including compliance counseling, permitting, due diligence, audits, commenting on agency rulemakings, administrative enforcement defense, and litigation.

Examples of Dan’s experience include:

  • Providing counsel to the U.S. government-appointed Independent Compliance Monitor and Auditor in conjunction with the Volkswagen “Dieselgate” plea agreement and consent decree.
  • Resolving issues for automotive manufacturers including those involving vehicle and engine certification, and compliance with EPA and California Air Resources Board requirements for obtaining Certificates of Conformity and Executive Orders.
  • Advising original equipment manufacturers on vehicle import regulations as well as National Highway Traffic Safety Administration motor vehicle safety standards, emissions, and fuel economy requirements.
  • Advising clients on mobile source compliance, including both on-road and non-road requirements.
  • Counseling companies on a wide range of stationary source permitting and compliance issues under the Clean Air Act and comparable state laws.
  • Preparing comments for companies and trade associations on both federal and state proposed air regulations.
  • Counseling clients on “voluntary disclosures” under EPA’s self-disclosure policy and similar state-based policies.
  • Negotiating favorable administrative settlements with EPA and state regulators for alleged violations of environmental statutes, including the Clean Air Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Emergency Planning and Community Right-to-Know Act.
  • Defending a leading crop-protection company in a multi-million dollar EPA administrative enforcement action.
  • Representing leading crop-protection companies in Federal Insecticide, Fungicide, and Rodenticide Act and Endangered Species Act federal litigation challenging product registrations.
  • Advising companies including a global pharmaceutical company and a major oil and gas company on the environmental aspects of corporate transactions and conducting related due diligence.
  • Drafting a successful petition for review and subsequent state supreme court briefs in defense of a solid waste recycling company facing toxic tort claims brought by individuals alleging agricultural operations constituted a nuisance.
     

While at EPA, Dan formulated effective litigation strategies to defend agency actions and advised senior EPA officials on matters arising under a variety of statutes including the Clean Air Act, Clean Water Act, and the Resource Conservation Recovery Act. Dan was awarded an EPA commendation for outstanding counseling on administrative and regulatory law issues, and a Department of Justice commendation for assisting in the successful defense of EPA’s suite of greenhouse gas regulations.

202-789-6007
Jessalee L. Landfried Litigation Attorney Beveridge & Diamond Washington, DC
Associate

Jessalee maintains a general regulatory and litigation practice, with a particular focus on air, climate, subsurface contamination, and environmental compliance assessments.

Jessalee L. Landfried regularly counsels clients in the energy, tech, and automotive sectors on a variety of programs and compliance issues arising under the Clean Air Act, RCRA, and the Clean Water Act. In addition to her regulatory practice, she represents clients in litigation arising under a broad range of federal and state environmental statutes, including environmental class action suits...

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Anthony G. Papetti Environmental Litigation Attorney Beveridge & Diamond New York, NY
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Anthony’s practice focuses on general environmental litigation and automotive regulatory compliance.

For the past two years, his experience has been extensively involved in the Department of Justice-appointed Independent Corporate Compliance Monitor and Audit matter in connection with the Volkswagen AG diesel emissions proceedings. During this experience, Anthony has gained tremendous insight into complex corporate compliance management systems and the automotive product development process, including both domestic and international vehicle emissions certification...

202-789-6042
Grant Tolley Environmental Litigation Attorney Beveridge & Diamond Washington, DC
Associate

Grant Tolley maintains a diverse environmental litigation and regulatory practice, working with clients nationwide across industrial sectors. 

Grant joined the firm following his graduation from the Georgetown University Law Center.

Prior to joining Beveridge & Diamond, Grant served as a law clerk for the Environmental Protection Agency (EPA) and worked as a student attorney for the Institute for Public Representation, Environmental Litigation Clinic, where he prepared an amicus brief in support of EPA’s Cross-State Air Pollution Rule Update in a challenge pending before...

202-789-6063
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