On March 30, 2020, the United States Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the Department of Transportation, finalized the long-signaled rule establishing new carbon dioxide and fuel economy standards for light-duty vehicles. Per the final rule, carbon dioxide (“CO2“) emission standards and corporate average fuel economy (“CAFE”) standards for light-duty vehicles will now increase in stringency at 1.5 percent per year over the course of model years 2021 through 2026. The final rule significantly changes the emission and fuel efficient standards previously set in 2012 by the EPA and the NHTSA during the Obama administration. For example, the amended standards are projected to require, on an average industry fleet-wide basis, 40.5 miles per gallon (mpg) efficiency in model year 2030, whereas previously the standards would require a range from 40.3 to 41.0 mpg in model year 2021 and 48.7 to 49.8 mpg by model year 2025.
In the preamble, the EPA and NHTSA state that they believe these amended standards reflect new information and analysis made available to the agencies regarding fuel economy and emission technologies as well as the “diminishing returns” of increasingly stringent standards. The agencies also cite to “fundamental structural shifts” since 2012 in the global oil markets, noting that “relatively low fuel prices” have created “greater difficulty for automakers to find a market of consumers willing to buy vehicles that meet the increasingly stringent standards.”
Separate from the CO2 emission and CAFE standards, the final rule also retains certain flexibilities that were initially proposed for removal. Prior to amendment, automakers were allowed to recognize only the tailpipe emissions of full battery-electric vehicles and not calculate any upstream emission caused by the electricity usage of these vehicles when demonstrating compliance with the CAFE and CO2 standards (known colloquially as the “0 g/mile assumption”). In the August 2018 Notice of Proposed Rulemaking for this rule, EPA and NHTSA had requested comments on whether it would be appropriate to balance fewer flexibilities, e.g. removal of the 0 g/mile assumption, with less stringent standards. In this final rule, EPA decided to extend the ability of automakers to use the 0 g/mile assumption through to model year 2026. However, EPA declined to include any additional flexibilities or incentives for the development of alternate technologies, such as changing or increasing “multiplier” incentives for electric or fuel-cell vehicles.
These rules make up the second half of the Safer Affordable Fuel-Efficient (“SAFE”) Vehicles Rule and are part of a broader effort to reverse greenhouse gas emission requirements set during the Obama administration, both on a federal and state level. The first half of the SAFE Vehicles Rule, which was finalized on November 27, 2019, established EPA and NHTSA’s justification for preemption of state tailpipe emission standards and withdrew a waiver previously provided to California under the Clean Air Act that empowered California to set state tailpipe CO2 standards and establish a more stringent Zero Emission Vehicle mandate for in-state manufacturers. Following publication, California and 23 other states challenged EPA’s withdrawal of the waiver; many of the same challengers also filed suit against NHTSA’s preemption determination. Both challenges remain ongoing.
The standards and requirements set in this final rule will become effective sixty days after the date of the rule’s publication in the Federal Register. States and NGOs have already signaled that they will challenge the new rules, based on their own calculations of the financial benefit and scientific analysis of the safety findings. One of the key issues for any challenger to consider, given the COVID-19 epidemic and the financial realities facing the auto industry, is whether to seek a stay of the rule pending the challenge. Additionally, it will be interesting to see how automakers react to the new standards even without a stay or revocation. For example, in 2019, BMW, Honda, Ford, and Volkswagon committed to California that they will continue to meet the higher standards set in 2012 voluntarily. Following news of the final rule on Tuesday, Volvo announced that it too is in talks with California to adopt a similar voluntary agreement.