In 2002 the California legislature passed A.B. 1493. This law commanded the California Air Resources Board (“CARB”) to fix and then enforce the “maximum feasible” regulations controlling greenhouse gas emissions (“GHGs”) from new motor vehicles. Generally speaking, the states are precluded from setting their own emissions standards; only EPA can do so on a national basis. Hence, after designing the relevant regulations, which require extreme levels of improvement in the fuel economy of vehicles, California applied for a waiver of Clean Air Act preemption in 2005.i That waiver provision operates as an unusual exception in the annals of federal law that allows California, and no other state, to design its own emission regulations, assuming it can meet a tripartite statutory test for doing so, as controlled by EPA.ii Other states are then permitted to choose between the EPA system of regulation or the California system of regulation.iii

The Bush Administration announced that it would deny the waiver application in December 2007, sending a letter to that effect to Governor Schwarzenegger. A written decision providing the legal rationale for denying the waiver was later published in March 2008.iv As established in 1967, the congressional logic behind granting California a power unmatched among the states to issue its own vehicle emissions standards was that California faced unique local smog problems, especially given the topography of the Los Angeles basin. Soon the Obama Administration will have to face the decision whether to grant a waiver.

The California GHG Standards.

Critics of a waiver have suggested that there are two basic problems with the California GHG standards. First, they say the standards cannot meet the three-part criteria for preemption waivers under the Clean Air Act, in large measure because GHG emissions are not the type of localized pollutant that Congress had in mind when it decided to authorize California to set its own emissions standards in certain circumstances. Second, they maintain that the California standards amount to de facto fuel economy standards. On this view, they are thus also separately preempted by the Energy Policy and Security Act of 1975.v Both of these contentions are summarized further below.

Meeting the Clean Air Act Criteria: To secure a Clean Air Act preemption waiver, the California GHG standards must: (1) be consistent with EPA GHG emission standards, (2) be at least as protective of the environment as federal emission standards, and (3) be needed by California to meet “compelling and extraordinary conditions” in California. Waiver critics and skeptics believe that California’s GHG standards can meet none of those criteria. No EPA emission standards have been set by EPA in response to the Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007). Indeed, even the first step on the road to such standards—EPA’s making of an “endangerment finding,” under Clean Air Act Section 202—has not yet occurred. Hence, it is impossible at this juncture to assess either whether the California standards are consistent with nonexistent EPA GHG emission standards, or are equally as protective as federal standards.

Most importantly to the critics’ argument —and this is the basis on which the Bush Administration denied a waiver to California under the Clean Air Act—California does not need its own standards to meet “compelling and extraordinary conditions” in that state. Climate change is, by definition, a global matter. And environmental conditions of concern vis-à-vis climate change in California are no more connected to new motor vehicle emissions in that State than to emissions from new or old vehicles, from factories, or from homes in Shanghai, China, or Djibouti, Africa. Greenhouse gases mix evenly throughout the global atmosphere, so any program that would even have any pretense to reduce such emissions to a sufficient degree to move the dial of world temperatures would have to operate on a global, or at least a national, scale.

Are California’s GHG Standards Preempted Fuel Economy Standards?: The California standards regulate carbon dioxide emissions, which is an inevitable by-product of any type of combustion (including the processes of energy consumption in the human body—i.e., the simple act of exhaling a breath). Hence, the only way to meet the California standards is by improving the fuel economy of new motor vehicles—the amount of fuel burned per mile of travel. At first, California attempted to assert that its regulations were not fuel economy regulations. In internal documents, it referred to “fuel economy” as the “dreaded two words,” and attempted to avoid them because it was aware that state fuel economy regulation is clearly preempted by the Energy Policy and Conservation Act (“EPCA”).vi Since then, California has conceded that its regulations directly control fuel economy and indeed has even boasted that its regulations achieve superior fuel economy reductions as compared to those mandated by Congress in the Energy Independence and Security Act of 2007 (“EISA”), Public Law 110-140 (Dec. 19, 2007).

Opponents of a waiver have maintained that, in addition to being expressly preempted by EPCA, the California GHG standards conflict with the goals and purposes behind federal fuel economy regulation under EPCA and EISA. The original EPCA regime Congress designed in 1975 penalized domestic manufacturers for a period of 30 years. Because the focus was on regulating a manufacturer’s entire fleet, and not individual vehicles, it imposed regulatory costs only on full-line domestic manufacturers, yet allowed new Japanese entrants focusing on smaller vehicles (which can more easily meet fuel economy targets), and later new Korean entrants, to produce vehicles that were not faced with any increased regulatory costs under EPCA.vii The Bush Administration introduced “Reformed CAFE”viii in 2005-2006, and, in EISA (passed at the end of 2007), Congress later mandated use of that improved system, eliminating that competitive “tax” on domestic industry EPCA caused from 1975-2006. The California GHG or fuel economy standards are still in an unreformed state, and thus would unfairly penalize domestic industry.

The California regulations, when adopted by other states under Clean Air Act Section 177, requires manufacturers to satisfy state-by-state fuel economy fleet targets. Now that at least a dozen other ates have adopted the California standards, if those standards become operative, instead of having to plan for one, national fuel economy averaging system, manufacturers would have to rebalance their fleet sales in every such state individually. The burdens of doing this are enormous because manufacturers cannot control how many of which types of vehicles consumers will buy. ix

Finally, it has been suggested that any increase in fuel economy standards, especially those of an unreformed nature like California’s, unambiguously increase highway deaths and injuries, because such standards incentivize manufacturers to build smaller, lighter vehicles that are less safe in crashes as a matter of basic principles of physics.x

Current Status:

In the Appropriations Bill that just passed Congress and was signed by the President, there is a provision that directs EPA to reconsider whether to grant California a Clean Air Act waiver of preemption for its GHG standards, and to do so on or before June 30, 2009. The provision regarding the California waiver received little debate, though California has conceded in a number of contexts that its standards will have no effect on temperatures in that state, even if every country in the world adopted its emissions standards.xi

It is not clear whether, at a time when the automobile is suffering so badly during the recession that California will be empowered to impose massive new regulatory costs on that industry.

i See Clean Air Act Section 209(b), 42 U.S.C. § 7543(b).

ii See Clean Air Act Section 209(b)(1)(A)-(C), 42 U.S.C. § 7543(b)(1)(A)-(C).

iii See Clean Air Act Section 177, 42 U.S.C. § 7507.

iv See 73 Fed. Reg. 12,156 (Mar. 8, 2008).

v See 49 U.S.C. § 32919(a).

vi See http://vermontco2.com/wp-content/uploads/2007/04/albuclip1.pdf. Regarding fuel economy preemption, see 49 U.S.C. §32919(a) (“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.”).

vii David Vogel, “Trouble for Us and Trouble for Them: Social Regulations as Trade Barriers,” in COMPARATIVE DISADVANTAGES? SOCIAL REGULATIONS AND THE GLOBAL ECONOMY, at 104 (Pietro S. Nivola, ed. 1997, Brookings Institute Press) (“However, CAFE soon became a source of competitive advantage for the Japanese”) (noting credits effortlessly earned under the CAFE system in the 1970s financed the expansion of the Japanese luxury brands Lexus and Acura (full-sized cars) in the 1980s, 1990s, and beyond). See http://books.google.com/books?id=djanEyeGuvwC&pg=PT1&dq=comparative+disadvantage+and+brookings.

viii CAFE stands for “corporate average fuel economy,” and is the common acronym used to refer to the federal fuel economy system.

ix See National Automobile Dealers Association, PATCHWORK PROVEN, http://www.nada.org/NR/rdonlyres/DBCC625E-2E8E-4291-8B23-B94C92AFF7C4/0/patchworkproven.pdf.

x See National Center for Public Policy Research, CAFE Kills, and Then Some: Six Reasons to Be Skeptical of Fuel Economy Standards (June 17, 2007), available at http://www.nationalcenter.org/TSR061907.html.

xi 11 See http://vermontco2.com/wp-content/uploads/2007/06/presentation_waiver_may-30-07.ppt.