Automotive fuel economy standards have been a part of U.S. energy policy since 1978, after being mandated by the Energy Policy and Conservation Act of 1975 (EPCA). The Act assigned the authority to set CAFE standards to the Secretary of Transportation, who has delegated it to NHTSA. Although EPCA specified a minimum level of 27.5 mpg as the fuel economy standard for cars, NHTSA had the legal responsibility to set higher standards if such standards were feasible. However, standards for cars were not increased above 27.5 mpg, and legislative attempts to raise them were unsuccessful, leaving them unchanged throughout the 1990s. Figure 6-1 shows the historic levels of the CAFE standard for cars, along with the actual average fuel consumption of new cars.
In 2002, the state government of California passed Assembly Bill No. 1493, which required CARB to promulgate standards for the maximum permissible levels of per- mile greenhouse gas (GHG) emissions of vehicles sold in the state. Under §209 of the federal Clean Air Act (42 USC §7543), California has the right to set its own emissions standards for motor vehicles, as long as those standards are at least as stringent as any comparable federal standards, are not set arbitrarily, and are necessary to meet “compelling and extraordinary conditions” in the state. In addition, such standards must be consistent with the regulatory authority laid out in §202 of the Clean Air Act (42 USC §7521), which includes a requirement that the emissions in question “endanger public health or welfare.” Under §177 of the Clean Air Act (42 USC §7507), other states can opt to follow California’s standards instead of the corresponding Federal standards. By 2009, 13 states and the District of Columbia had opted into California’s “Pavley standards,” (named after the sponsor of A.B. 1493), meaning that approximately 40% of new vehicles sold in the U.S. would be subject to these tighter standards (EPA, 2009b).
Figure 6-1: Corporate Average Fuel Economy standards (expressed as fuel consump- tion) for new cars, 1978–2025, and average fuel consumption of new U.S. cars, 1975– 2011.
USC §32919 states that “When an average fuel economy standard prescribed under this chapter is in effect, a State or a political subdivision of a State may not adopt or enforce a law or regulation related to fuel economy standards or average fuel economy standards for automobiles covered by an average fuel economy standard under this chapter.” Since a large majority of automotive GHG emissions come directly from the combustion of fuel, the argument went, regulating GHG emissions was tantamount to regulating fuel economy and was therefore pre-empted.
The pre-emption issue was still under dispute in 2009, when the Obama adminis- tration took office. The new administration granted California the necessary waiver
under §209 (EPA, 2009a), while simultaneously brokering a deal between various stakeholders that essentially tightened the federal fuel economy rules to be as strin- gent as the California GHG standards. The terms of this deal were laid out in commitment letters from major automobile manufacturers, their trade associations, and CARB, as documented on the EPA’s website (EPA, 2013c). Key commitments from the auto industry included the following:
• A stay of all pending litigation challenging California’s regulations, including challenges claiming pre-emption of state GHG regulations under EPCA;
• A commitment not to contest EPA’s granting of a waiver to California under §209 of the Clean Air Act;
• A commitment not to contest CAFE or GHG standards promulgated by NHTSA or EPA, respectively, if those standards were substantially similar to those sketched out in the May, 2009 Notice of Intent to propose rules;
• A commitment not to renew or initiate such litigation in relation to vehicles from model years 2009-2016.
In return, the auto industry obtained the following commitments:
• EPA and NHTSA would propose national GHG and CAFE standards substan- tially similar to those outlined in the May, 2009 Notice of Intent;
• For model years 2009–2011, California would revise its automotive GHG stan- dards such that they would be applied to the combined fleet of vehicles sold in California and other states adopting California’s standards pursuant to §177 of the Clean Air Act;
• An assurance that federal CAFE testing procedures could be used to demon- strate compliance with California’s standards.
This agreement effectively created a ceasefire, whereby disputes over California’s authority to regulate GHG emissions were suspended but not actually resolved. An additional deal with broadly similar terms and covering model years 2017–2025 was subsequently announced in 2011 (EPA, 2013c). However, the 2017–2025 rulemaking included provisions for a mid-term review of the feasibility of the standards in for 2022–2025, citing the long lead time and associated uncertainty.2 Both California and the automobile manufacturers reserved the right to contest final rules based on the outcome of this mid-term review.
Nested state and federal GHG standards remain an important topic. While it is difficult to say how the courts would have resolved the pre-emption issue, it is certainly possible that if not for this deal, we might now be living in a world where there were two sets of standards: a more lax federal standard and a more stringent standard with the subset of the states following California’s standards. In addition, nested standards could return following the outcome of the mid-term review, or upon the expiry of the current deal in 2025. Goulder and Stavins (2011) have observed that “The coexistence of state and federal programs is likely to continue in the context of US climate change policy.” Referring specifically to the Pavley initiative, they concluded that given uncertain federal and state rulemakings, “the leakage issue remains very much alive.”