Deep Dive Episode 33 – EPA’s CAFE: What's on the Menu for Fuel Economy and Greenhouse Gas Standards?

Regulatory Transparency Project Teleforum

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EPA Administrator Scott Pruitt and Secretary of Transportation Elaine Chao are proposing to roll back the Obama Administration’s fuel economy and greenhouse gas standards for model years 2022 to 2025. The proposed rollback will have vast political and economic consequences for automakers, auto dealers, and drivers. Is the rollback legally justified and appropriate? Is it good for consumers? Will the proposed rollback prompt California to enforce its own more stringent standards? If so, what are the legal and policy ramifications of overlapping federal and state standards? This teleforum call will discuss these and other questions related to the Trump Administration’s proposed rollback of the fuel economy and greenhouse gas standards.


  • Sean H. Donahue, Partner, Donahue, Goldberg & Weaver, LLP
  • Jacqueline Glassman, Partner, King & Spalding, LLP
  • [Moderator] James Conde, Associate, Boyden Gray & Associates, PLLC

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Event Transcript

[Music and Narration]

Operator:                                 This is Free Lunch, the podcast of The Federalist Society's Regulatory Transparency Project. All expressions of opinion on this podcast are those of the speakers.

Mr. Devon Westhill:               Good afternoon, everyone, and welcome to another episode of The Federalist Society's Free Lunch podcast for the Regulatory Transparency Project. Please visit the RTP website at or to subscribe to our newsletter and to follow us on Facebook, Twitter, and LinkedIn. My name is Devon Westhill. I'm the director of the RTP and the host of the Free Lunch podcast.

                                                In this Free Lunch podcast, we take a trip to the EPA's CAFE. That is, we'll examine the Environmental Protection Agency's regulatory policies regarding Corporate Average Fuel E9conomy and greenhouse gas standards. I'm pleased to say that we have three excellent speakers today to brief us on this important and increasingly complex subject. Joining us today are James Conde, Jacqueline Glassman, and Sean H. Donahue.

                                                Jimmy Conde is our moderator today and an attorney at the law firm of Boyden Gray & Associates, where his practice focuses on regulatory and administrative law. Jimmy joined the firm after earning his law degree with honors from Scalia Law.

                                                Jackie Glassman is a partner at King & Spalding where she specializes in motor vehicle and consumer safety, vehicle fuel economy, and other transportation issues. However, her career has spanned corporate, government, and private practice. For example, immediately prior to returning to private -- the, uh, sector, Jackie was Chief Counsel at the National Highway Traffic Safety administration where, among other initiatives, she led the reform of the vehicle fuel efficiency program.

                                                Finally, Sean Donahue is a partner at the firm of Donahue, Goldberg & Weaver, LLP, where his practice includes representing environmental organizations in federal and state litigation and administrative proceedings. Previously, he taught environmental law and other subjects at the law schools at the University of Iowa, Washington and Lee, and Georgetown; serving the appellate section of the Justice Department's Environment and National Resources Division; and practice as an associate at Jenner and Block. After graduating from the University of Chicago Law School, he started as a law clerk for then D.C. Circuit Judge Ruth Bader Ginsburg and the United States Supreme Court Justice John Paul Stevens.

                                                In just a minute, I’ll turn the floor over to Jimmy. Before I do, I remind everyone that The Federalist Society takes no position on particular legal or public policy initiatives, and therefore, all expressions of opinion on Free Lunch podcasts are those of the featured speakers. Also, as usual, our speakers will take questions after their remarks, so please be prepared with any questions that you might have prior to the start of the Q&A period.

                                                Jimmy, Jackie, and Sean, thank you so much for joining us today as our Free Lunch podcast guests. Jimmy, I will turn the floor over to you now, sir.

Mr. James Conde:                   Um, thank you, Devon. And thank you to The Federalist Society and the Regulatory Transparency Project for hosting this podcast. So, um, they way we're going to divide our call today, is first, I'm going to provide a little, short background history for our general audience, and then I'll turn and ask the experts on the call some questions about the state of play on fuel economy standards and where we might be heading from here.

                                                So on top of Watergate, a crisis of confidence, and bellbottom jeans, the 1970s brought fuel economy regulation to America. In 1973, the United States experienced an oil shock as a result of the Arab oil embargo. As gasoline prices more than doubled, drivers accustomed to cheap gas prices demanded action, and Congress responded in 1975 by requiring the Department of Transportation to impose stringent fuel economy regulations on auto makers. These regulations, known as Corporate Average Fuel Economy standards, or CAFE for short, required car makers to roughly double the average fuel economy of their new vehicles by 1985.

                                                By 1985, however, it was morning in America again, and as global oil prices collapsed, the CAFE standards lost political support. Drivers started to focus again, as in the good old days with cheap gas prices, on vehicle attributes like price, power, comfort and looks, and, uh, average fuel economy fell as auto makers managed to convince millions of Americans to buy newly invented mini vans, SUVs, pickup trucks, which w-, which were more lightly regulated than passenger cars under the CAFE standards.

                                                Things swung again in the opposite direction by the mid-2000s as oil prices climbed to $100 a barrel, and U.S. net oil imports reached their peak at about 60 percent of U.S. consumption. Congress responded to high oil prices and increasing oil imports with a 2007 Energy Independence and Security Act, which required the Department of Transportation to promulgate new CAFE regulations that would require auto makers to increase vehicle average fuel economy to at least nominally 35 miles per gallon by 2020 and to achieve maximum feasible fuel economy by 2030.

                                                At the same time, fuel economy standards got wrapped up in the politics of global warming. In 2007, the Supreme Court ruled, to the surprise of many, uh, including myself, that EPA had authority to regulate motor vehicle carbon dioxide emissions under Section 202(a) of the Clean Air Act. Because fuel consumption is almost perfectly inversely related to carbon dioxide emissions, that ruling meant that EPA would effectively become a second national fuel economy regulator.

                                                At the same time, many states were eager to demonstrate their climate change, uh, bona fides, so California promulgated its own new greenhouse gas car regulations in the mid-2000s, which were adopted in turn by 13 states. Those rules were held up in court proceedings before the -- because they were preempted under the Clean Air Act. But in 2009, after President Obama was sworn into office, EPA granted California a waiver that exempted California's greenhouse gas regulations from preemption, thus removing a key obstacle to California regulation.

                                                The Obama administration's waiver put auto makers in a tough spot. They faced the possibility of two inconsistent regulators at the federal level and regulation in 13 states. To avoid that possibility, the auto makers cut a deal with California and the Obama administration. They agreed to drop their lawsuits against California and agreed not to sue EPA or DOT. In return, DOT and EPA agreed to issue a joint rule setting stringent standards for fuel economy and greenhouse gas emissions, and California agreed to be in compliance with the federal rules as sufficient to comply with its own state regulations. The result was a joint fuel economy and greenhouse gas rule known as the National Program, uh, which roughly requires auto makers to double average fuel economy from 12 -- 2012 to 2025.

                                                However, given the long time frame of the rules, and given the fact that the Department of Transportation can only set standards for five years, California and EPA agreed to conduct a mid-term evaluation which would reassess de novo whether the standards for model years for 2022 to 2025 were still appropriate by April of 2018. This is the process that Administrator Pruitt recently concluded.

                                                To discuss what happened during the mid-term evaluation, we have the privilege of having with us Jackie Glassman, who's one of the leading experts on this issue. So Jackie, let me turn to you. Ca-, can you please briefly describe for our audience what happened during the mid-term evaluation?

Ms. Jacqueline Glassman:       Sure. Thank you, Jimmy. As Jimmy described, the mid-term evaluation hails back to the rulemaking from 2012 when the auto industry pointed out that compliance with these programs is typically dependent, in part, not only on technology application, but also on market conditions and macro-economic conditions which are hard to predict as far into the future as far as the 2012 rule was trying to reach. And so the deal that was cut was to have a mid-term evaluation.

                                                And it was hotly negotiated at the time. The factors that would be considered were, were negotiated and put into regulations. The time table was negotiated and put into regulations. The implications for the future after the mid-term review were also considered, and to some extent, put into the, the commitment letters that the manufacturers, the -- in California signed.

                                                Fast-forwarding a few years, the mid-term review started as it was intended. Uh, it started with a Draft Technical Assessment Report that was published by EPA, NHTSA and CARB in July of 2016. Uh, this was a detailed consideration of various technical factors that would go into the extent to which the standards remained appropriate or maybe needed to be changed. And as is typical, this was already a controversial document. Uh, there are many who thought that the costs that were anticipated in the Draft TAR, Technical Assessment Report, were understated. There were those who thought that they were overstated, and the same with the benefits.

                                                As that debate was beginning to rage, the 2016 election took place, and that changed the course of the mid-term evaluation. After the election, EPA decided to make its voice heard and to try to do it in a way that would have continuing resonance after the inauguration. And so EPA quickly, uh, issued a proposed determination, which they called an adjudication, uh, evaluating, from EPAs perspective, whether the standards remained appropriate or should be evaluated. Uh, EPA saw comment on their proposed determination. The comment period was quite short, less than 30 days, and on the last, the EPA received a large number of comments, many of which were very substantial in length.

                                                EPA was able to propose it -- to, to issue its final determination in mid-January, just 14 days after the comment period ended. And in that determination, the then EPA Administrator Gina McCarthy made her final determination that the standards from 2012 remained feasible, practical, and appropriate, and after considering the factors that had been negotiated in 2012, that the standards need not be revised.

                                                After the inauguration, the Trump administration took the normal course of starting to evaluate the regulatory actions, major regulatory actions, that had been, uh, promulgated in the last days of the administration. And then in March, they issued a proposed notice that they were going to, uh, consider withdrawing the final determination. And, of course, in April, uh, Administrator Pruitt issued his notice of withdrawing that, uh, determination that had been made in January.

                                                So now we have a set of proposed standards that are being -- going through the regulatory process. Uh, we should see those shortly. They're over at OMB for review. Uh, but we have essentially two views and two determinations that are at play with each other on whether the original standards were appropriate or whether they should have been revised.

Mr. James Conde:                   Thank you, Jackie. And with that, let me turn to Sean. Uh, so Sean, what are the main reasons that Pruitt gives in his final determination for revisiting the greenhouse gas standards, and what is your general reaction to, to the final determination?

Mr. Sean H. Donahue:            Sure. Um, and, uh, I'll echo my, uh, colleagues in, in thanks for, for holding this discussion today. Um, so the, uh, the April, um, uh, revised final determination, uh, both, uh, makes a new determination that, contrary to what, uh, Gina McCarthy had found, um, the, uh, existing regulations for standards for, uh, 2022 to 2025 model years are not appropriate. Um, and that is under these regulations that were, uh, put in place as part of the 2012 rulemaking.

                                                Um, the reasons for that finding are that in several respects, uh, um, Administrator Pruitt, um, uh, concludes that the, uh, that EPA was too optimistic in some of its findings about available technology and cost, um, or that there is, in many cases, sort of uncertainty about, uh, some of the issues that, uh, he wants to take a, take another look at. Um, I think, uh, in, in many, many respects, the revised final determination, um, sort of, uh, quotes or, or cites, um, uh, arguments made by, uh, industry trade associations, usually, and kind of says their concerns. There are people who say, "This costs too much, or re-, re-, require too much, uh, electrification of vehicle fleets, and we want to take another look at this."

                                                And, and I think a, a problem that we have with this is that the, um, mid-term evaluation regulations, uh, were set up to, uh, and, and contemplate this kind of pretty structured and formal, uh, agency decision-making process. And Pruitt's revised determination doesn't really do what the regs contemplate, which is review the record and give detailed reasons for finding one way or another on the various factors, and, and for the bottom-line judgement. It is the kind of thing that one might see if an agency said, um, "We just want to take another look at, at existing regulations." That would be fine. Uh, that would not be something that you could challenge in court.

                                                Um, uh, but these regulations that the agency, uh, established, um, contemplate, uh, something else, and that's not, we think, what, what, uh, the, the revised finding, uh, does. It, it, it, uh, sets aside a, an agency decision that was based on thousands of pages of, of record materials and extensive public comment and, whether right or wrong, lots of specific technical findings. And in almost every instance, uh, the April 2018 document sort of doesn't grapple with the specific record evidence and, and findings in the way that, uh, under, you know, pretty settled, uh, administrative law, you, you would expect. Um, uh, so, uh, so that's kind of, you know, we, we think it, it sort of doesn't, uh, doesn't do what, what EPA's own regs contemplate. Um, and, and it's on that basis that, that, you know, we, we've challenged it.

Mr. James Conde:                   Thanks. Jackie, any response to anything that Sean just said, or any additional, uh, points?

Ms. Jacqueline Glassman:       Yeah, I mean, I think Sean raises an interesting point, which is did the full-fledged determination and discussion need to take place at that point in time, or can the administration undertake that more substantial review as part of its rulemaking effort as it considers what the appropriate standards, uh, it thinks should be, uh, going forward. Um, both the initial, uh, final determination and the ultimate final determination, uh, were done fairly quickly, and, you know, both are subject to some, uh, criticism for appearing somewhat political. And both of them make some effort to look into the record and evaluate whether, you know, the extent to which the record supports the findings. But they are pretty much pitted against each other and set up the rulemaking process that is going on now.

Mr. Sean H. Donahue:            To give, to give one example, so the Pruitt determination starts out with saying, "Well, gas prices are a good deal lower than they were in 2012, and that, you know, bears on, uh, consumer behavior and, and benefits of, of regulation, etc. And, uh, because we live in a new, lower gas-cost world, you know, we should take another look." He doesn't address at all the fact that, uh, the, uh, January 2017 determination did look at the decline in gas prices and considered it, acknowledged that it, you know, changes some of the calculations, but that even with lower gas prices, the, the rules are massively cost beneficial and worth, uh, and worth retaining.

                                                Um, now, one, one could dispute that, uh, but, uh, uh, Administrator Pruitt's final determination doesn't. Uh, it just kind of, uh, acts as if it -- that, that finding and analysis was never, never there. So then I think there're a whole bunch of issues where that problem recurs.

Mr. James Conde:                   Would, uh, would Administrator Pruitt respond as, as I think Jackie mentioned, that, "Look, we're just taking another look here, and maybe we just need more time. And we're going to go through the regular rulemaking process and, and revisit all these issues again." Would -- do you think that would be his, his reaction, if he could defend himself?

Mr. Sean H. Donahue:            Yeah, I, I think if this were nothing more than an agency deciding to consider possible amendments to rules, um, then that would be fine, say, "We're going to do the work later." Um, the MTE regs, mid-term evaluation regulations, though, contemplate a formal finding with detailed reasons that it was, as Jackie pointed out, largely at the request of auto manufacturers that there be this structured decision-making process in, in the mid, uh, mid-course of this, uh, lengthy period of, of the life of these regulations. And I think it's very hard to say that what he did, which might be fine if we weren't in this world of, of a structured decision-making process, uh, con-, conforms to that, uh, those, those requirements.

Mr. James Conde:                   Um, just, uh, another question about the, the court challenge, uh, that you and, uh, on behalf of Environmental Defense Fund and several others are bringing to this. What, what, uh, type of, uh, judicial remedy do you think would be appropriate here, because it's a little bit of an awkward posture in which, you know, they're reopening a rulemaking, um, and, um, you know, it's, it's hard for a court to say, "No, you can't revisit your, your rules," right? So I'm, I'm, I'm just, I'm not sure what the remedy would be in this kind of situation.

Mr. Sean H. Donahue:            Yeah, and, and, and this is admittedly an unusual, uh, sort of scenario, um, but I think, you know, the remedy would include, uh, declaring that the revised final determination, uh, is arbitrary and capricious because it doesn't contain, um, reasoning, or, or confront the record on numerous key issues. Um, and also, so it would in-, include setting it aside, and also setting aside the, uh, um, the withdrawal of the, uh, January 2017 final determination as, as unsupported.

                                                Now, what the implications of that would be before, uh, a rulemaking that presumably will have commenced by then with a proposed rule that is, um, coming soon, uh, um, I, you know, I think that will remain to be seen. But, uh, I do note that EPA, you know, is purporting to follow this process. The auto manufacturers have insisted on the sort of sanctity of the mid-term evaluation, and that's all they want, um, and, you know, they, they want a sort of, uh, fidelity to, to the agreed process. And I think, you know, a fair appraisal of what the Administrator have done -- has done is that he really didn't follow the process.

                                                And if you imagine that it had been done on the other side, and I understand, as Jac-, Jackie notes, the, the companies did have some concerns about the McCarthy determination which they, you know, could have brought to court. Um, uh, you know, it, it, it wouldn’t -- something this kind of cursory would, would never have, uh, been acceptable had it been on the other side.

                                                So, so we'll see. There are some interesting, geeky, ad-law issues, um, and everybody agrees that, you know, uh, the, the parties that are challenging the mid-term evaluation, which include not only a bunch of health and environmental groups, but, uh, states, uh, including, um, California and New York and others, you know, will also be participating very actively in the uh, um, in the, in the, in the rulemaking, um, that is, that is going to be starting soon.

Mr. James Conde:                   All right. Well, let, let's transition to the proposed rule. Uh, Jackie, cou-, -- what do we expect from the Administrator, Administrator, uh, in terms of what the proposed rule will look like, both, I guess, NHTSA and EPA, which will be, I suppose, issuing a joint proposed rule?

Ms. Jacqueline Glassman:       Right. Uh, and I think they are, in part, trying to figure that out now as they go through the OMB review process. And the way this typically works is that EPA issues its rule under its statutory authority, and NHTSA issues its rule under its EPCA statutory authority. And they tend to publish them together, but they're just pretty much attached to each other. Uh, and they try to make them as harmonized as they can make them under each of their, their statutory laws.

                                                Uh, there's, there's a couple of approaches that the administration can take. They can pick, uh, a number, they can pick an approach and try to justify that, or they can put out a proposal, and this is typically done in fuel economy standards. They can, they can put out a proposal, but also propose a range of alternatives and discuss varying alternatives. Um, and the extent to which they really discuss them and, and try to justify and discuss the benefits and costs of each of those alternatives tells you how open they are to considering that into the final rule, or whether they're, you know, putting out their proposal and looking to justify that proposal into the final role.

                                                Um, one of, one benefit of putting out a true range of alternatives with some openness and flexibility is that it allows the regulated industry, here the, mostly the auto industry, to try to figure out what is the level of stringency that the industry as a whole thinks it can work with. What are the set of flexibilities or credit programs that are going to allow them to comply with that stringency levels, and can they reach a figure and a structure that they can live with, and that California can live with as well? And that's the, that's the, the effort here is to try to, uh, reach all of these constituencies and bring California into, onto, back to the table in addition to the federal agencies.

Mr. James Conde:                   Right. So le-, let me ask you a question now about how -- what, what standard really applies under each, uh, statute, uh, in terms of, you know, wh-, what would justify a rollback of the regulations, which is what most people are expecting. Um, so, under the -- let's start with the Clean Air Act. So in Michigan v. EPA, the Supreme Court held that the terms appropriate and necessary in a different section of the Clean Air Act, in, in, in a different context, required consideration of the costs and benefits of, of the rule. So in-, interestingly that the word appropriate as, um, you know, mentioned in the mid-term evaluation, also appears in Section 202(a) of the Clean Air Act, which instructs EPA to give appropriate consideration to the cost of compliance in setting lead time for the standards.

                                                So Sean, could you, as our Clean Air Act expert, tell us whether -- do you think EPA would be justified in rolling back the standards if it concluded, uh, that the costs exceed the benefits, or do you think EPA has to conclude that the standards cannot be met with the available technology and resources, or really, what's the standard of, of review here for, for the courts?

Mr. Sean H. Donahue:            We think that on the record and the experience, and, of course, we have the benefit of an empirical test of the standards. And admittedly, they get more stringent with time. And it might be that all of a sudden, uh, technology that is driving, uh, improvements in controlling emissions and improvements in fuel economy, all of a sudden, we've sort of thought of, of everything and, and all of a sudden it becomes impossible to make further improvements.

                                                There's no reason to think that's the case. There was extensive looking at that and, and I note that, uh, California's Air Resources Board was a partner in the original mid-term evaluation. It was not a partner in the, the review, um, but, but it's, it's clear that, um, technologies improved greatly, um, and, and we just don't think there's a basis for rolling back the standards as, as Scott Pruitt has announced it is his intention to do.

                                                Um, so, I, I, I note that, that the relevant Clean Air Act provision, Section 202, applies to, uh, air pollution that has been found to endanger public health and welfare. So one key factor has to be, uh, reducing, uh, emissions that are endangering the public. And, you know, that, so far as we've been able to see from this administration, uh, that, uh, statutory, uh, objective value is, is being completely, uh, ignored on purpose. And this is part of a broad, uh, effort across, uh, you know, the entire administration, the same one that pulled out of the Paris agreement, to, uh, you know, get out of the business of regulating greenhouse gas emissions.

                                                And, uh, that's what's driving this. It's not technical, uh question -- maybe, maybe some of the manufacturers have genuine concerns about, uh, technical issues and want a little flexibility here and there. They say that they are, uh, committed to reducing emissions and to meeting the climate threat, uh, but this is, this is part of a, a broad policy. And what we're expecting, uh, is, uh, an effort to essentially, uh, render the Massachusetts decision and EPA's obligation to protect the public health and welfare under Section 202, essentially meaningless by, uh, by kind of asserting that, uh, well, we want to harmonize with, with NHTSA and, uh, and there's really no, um, you know, no way we can, we can achieve further emissions reductions.

                                                So we think that'll be really contrary to the record and that it's contrary to the statutory mandate, which, which is there whether, whether one likes it or not. Um, so we're, you know, uh, very concerned about what we hear is in the works, and, and -- but very, um, ready to, to challenge it if it, if it indeed is what, what is, uh, rumored to be coming.

Mr. James Conde:                   Uh, I guess my question really is, uh, if, let's just assume hypothetically, even if you don't think this is possible, uh, EPA would -- were to conclude that the costs are greater than the benefits, would EPA still have to act to protect the public welfare by requiring more string-, more stringent greenhouse gas regulations? I'm just hypothetically speaking.

Mr. Sean H. Donahue:            Well, yeah. I mean, so on, on your question about the, the Michigan case, I mean, this, this statute does require consideration of costs, and EPA historically has considered costs, um, and, and did in this rule, and in the, uh, the, the, um, you know, um, mid-term evaluation of it. Um, you know, I, I think that one couldn't get to that result without engaging in some analytical, uh, summersaults that would not stand up to, uh, scrutiny, uh, including, uh, you know, uh, jiggering the analysis to, to, to remove, um, health and environmental benefits. Um, so, you know, in, in, in a different world on a different record, uh, could the result be different? Yes, but I, but I think, um, the facts wouldn't support that.

Mr. James Conde:                   All right. J-, Jackie, let, let me turn to you now because you're our NHTSA expert. The, the, the CAFE statute has a different standard. It says, uh, EPA, I mean, NHTSA, or really, the Department of Transportation has to promulgate regulations that ensure maximum feasible fuel economy by 2030, which seems quite stringent, but it then waters that down by telling them to consider other factors like economic practicablilites. So d-, do you think NHTSA itself would be justified, uh, in concluding that a rollback is appropriate if it were to, uh, conclude that the costs exceed the benefits?

Ms. Jacqueline Glassman:       And so maximin feasibility is not exactly the same as cost benefit analysis, and it's not that it has to be maximum feasible and then there are other factors. The consideration of maximum feasibility is a balancing of four factors that are laid out in the statute. The two most significant ones are technological feasibility and economic practicability. They are part and parcel of the maximum feasible determination.

                                                Many, many years ago in the early years of the fuel economy program, for a variety of reasons, maximum feasibility was linked to the short-term product plans of the big three car companies in Detroit, and that was really before the CAFE freeze. After the CAFE freeze was lifted in 2002 and rulemaking began again on CAFE, the approach started down a different path.

                                                And both NHTSA and EPA have developed computer models that allow them to look much further into the future and to look at various technological issues, and a lot of the considerations that Sean has mentioned, and to put them into these computer models, which of course, you know, the e-, efficacy of the computer models depends on how you develop them, what assumptions you make in them, what data and factors you put into them.

                                                And there's been a lot of discussion amongst the technical geeks on all of those issues, but the determination of maximum feasible, as well as looking at the costs and looking at the benefits, are being driven, at least in part, through these computer models. Uh, and to the extent that there are top-down directives from a, from a pure, uh, policy or political perspective, they'll have to at least -- they'll have to be consistent with the bottoms-up analyses that are coming from the computer models.

                                                But maximum -- NHTSA will make a maximum feasible determination, but it's going to be looking at all of these different factors, and it's going to include things like what's a rebound effect, what's a discount rate, how much technology can be expected to continue to develop, what's the appropriate baseline fleet? It’s a whole bunch of very detailed, technical considerations that go into that.

Mr. James Conde:                   All right, since we're on the topic of, of, uh costs and feasibility, I, I'd like to ask a question about what, what I think is one of the main problems with the Obama administration's regulations. And so a lot of people don’t realize this, but, um, a bunch of the benefits of the 2012 rule, uh, actually 70 to 80 percent, or, or perhaps even more, are benefits from assorted fuel savings that, uh, vehicle purchasers would save at the pump over the life of the more fuel efficient vehicles that would be supplied by auto makers due to the regulations.

                                                So EPA a-, assumes the existence of a market failure which it calls, and is known widely in the literature as an energy gap. This gap exists, EPA claims, because consumers irrationally failed to buy fuel efficient vehicles even though they would save money by doing so. Um, so critics, of, of EPA's approach like to say that EPA has too readily assumed—EPA and NHTSA, by the way— have too readily assumed the existence of an energy gap. And, uh, one thing that is interesting is that Pruitt's final determination cites comments by the Auto Alliance, which in turn cite this empirical study by Resources for the Future, which, I think, calls the energy gap into question.

                                                So the -- just for our audience, this, this, this study says that, um, studies that the Obama administration relied upon failed to consider other performance attributes like acceleration and horsepower. And it's been well documented in the literature that when auto makers have to implement technologies that increase fuel economy, they feel to -- they fail to increase other attributes that consumers value highly, like horsepower and acceleration.

                                                Um, so, uh, the study actually concludes that when you control for those foregone performance benefits, tighter standards are, quote, "unlikely to substantially improve consumer welfare," and quote, "[the] central estimate is that tighter standards have approximately zero," unquote, benefits to consumers, meaning they don't improve consumer welfare as EPA claimed, EPA and NHTSA. So, uh, Jackie, do, do you, do you think that is true, um, and do you think that's an important consideration going forward?

Ms. Jacqueline Glassman:       You know, it's, it's always been true that consumers really only value fuel economy when gas prices are really high. And as you pointed out, when gas prices are high, there's a lot of pressure put on. When gas prices go down, people tend to not value fuel economy as much, and they might value -- and it, and it gets reflected a lot in the choices between buying fuel efficient cars or somewhat less fuel efficient, uh, like trucks.

                                                And their choices of what vehicles to buy changes, and it's -- there's always been a raging debate in the fuel-economy world, uh, on, you know, should there be a sort of command and control regulation trying to change that consumer choice, or should there be sort of market driven approaches like feebates or gas taxes that try to impact the consumer choice? Um, it's -- that has always been there, but the -- in gas taxes, raising gas taxes has always been very unpopular. Um, feebates have never really gone anywhere.

                                                And so we continue with a regulatory structure that's trying to sort of push consumers in a, in a particular direction without trying to change the marketplace itself. And this energy gap conversation sort of part and parcel of that traditional problem with the fuel economy regulatory structure.

Mr. James Conde:                   Do you think that a temporary rollback would be at least warranted, uh, until we have maybe more compelling information, uh, showing that a, that an energy gap exists, or what is your take on that?

Mr. Sean H. Donahue:            Can I, can I address this?

Mr. James Conde:                   Yeah, go ahead.

Mr. Sean H. Donahue:            So a couple things, first of all, so you're, uh, citing to a document that was cited in industry comments that is cited but not really discussed in the, the mid-term evaluation of Pruitt.

Mr. James Conde:                   Right, that's true. Yeah.

Mr. Sean H. Donahue:            Um, this is a good example of what's wrong with that document. This stuff is complicated and there are a lot of -- this is a study that relies on a, on a new methodology, really hasn't been vetted very much, uh, so that is the kind of thing that under the mid-term evaluation process ought to be put out there, uh, take comment on it, and, and have the agency really issue, you know, do detailed findings if it's going to rely on it. I don't think one can say that even, even the mid-term evaluation final determination really relies on it.

                                                Um, but, but a couple other points, I mean, uh, the Clean Air Act provision is now, uh, pollution, uh, eliminating or reducing, uh, dangerous pollution. And the, the premise of regulation is that the market is not giving you the outcomes that you want for public health and welfare. And EPA certainly didn't rely on, on the notion that, uh, you know, that -- I think, at, at most, this is a concept that's relevant to the, uh, to the EPCA, uh, Department of Transportation part, part of the, the inquiry, and that the Clean Air Act is, uh, uh, also applicable here.

                                                And to say that, "Well, consumers don't really want to reduce, uh, pollution," is never a good, a good answer. Um, and I, and I think, uh, that study is going to get a lot of attention, um, and, and I think that there's a lot of countervailing, uh, information that people actually do like having more dollars in their pocket from saving, saving fuel. So, so certainly this will be a topic for the, for the, uh, uh, coming rulemaking.

                                                The -- one other thing, like, it sounds like we're talking about whether to, uh, repeal or amend EPCA, not, uh, whether --

Mr. James Conde:                   -- Yeah.

Mr. Sean H. Donahue:            -- uh, EPCA, in fact, uh, requires, um, or, you know, establishes reduction in the use of, of, uh, fuel as a, as an objective for the agency. One can argue that the market would do it better, or some other, uh, structure would, would be better, but, but the agency's job for now is to apply the law that, that's in place.

Mr. James Conde:                   Good point. Uh, le-, le-, -- I, I want to turn to questions soon, but let's turn, uh, to the elephant in the room for a second, which is California, um, before we turn to questions. So Sean, if, if you -- le-, let's assume hypothetically that a, a rollback is what the administration ends up, uh, implementing. Full rollback, meaning we go back to 2021 standards. Uh, what do you think California and, uh, its allies are likely to do, um, and, uh, what, uh, legal approaches do you think the Trump administration will take to, to, to stop whatever California attempts to do?

Mr. Sean H. Donahue:            Right. Well, California currently has its own standards that, uh, you know, are aligned with and were, as an accommodation to industry, uh, um, established to be co-, you know, coincidental and, and, uh, equivalent stringency to, to the federal standards. If the federal standards are rolled back, uh, the California standards will, uh, will continue to govern, uh, cars sold in California. The, uh, the emission reductions achieved by those standards is vital to California's own goals, and this is pursuant to Section 209 of the Clean Air Act, which is -- since before the modern Clean Air Act was, was enacted in 1970, uh, has recognized California's, uh, unique role in regulating, uh, vehicle emissions, and it's been really critical.

                                                This is the waiver provision you referred to at the beginning. Um, and California's very committed to, uh, continuing to reduce greenhouse gas emissions from cars. It's vital. You can't really deal with the climate problem without dealing with, with vehicle emissions. And so California and its allies will fight any effort, and we do expect to see an effort to revive, uh, arguments that, uh, that EPCA preempts state regulation of greenhouse gas emissions from cars.

                                                Uh, that's a, an issue that was sort of litigated, um, in, uh, the mid-00s. Uh, it yielded a couple of district court decisions that found no preemption, um, but that may come back, uh, and there's even a, a possibility that, that EPA will attempt to do what it has never done, which is withdraw a waiver previously granted. Um, and that would be for these, uh, these model year, uh, standards for, for the California Clean Car standards. And that, that would be, you know, a, a really extraordinary and, and, uh, event, and, and it would, I would think, uh, you know, represent for, you know, in, in some ways, for the, for the vehicle manufacturers, it would be a win, but it would also align them with a, with a really, um, unprecedented assault on, on, on California's, um, authority and on the effort to deal with climate change.

Mr. James Conde:                   Uh, Jackie, quick thoughts before we turn to the audience?

Ms. Jacqueline Glassman:       Yeah, I mean, I think the Ca -, -- if California moves forward with, uh, revoking the "deemed to comply" provisions, if the standards are changed, that's going to be a very interesting, um, legal issue as to, you know, what does that mean -- what did the mid-term evaluation, and what, what did the commitment letters that were drafted and agreed to in 2012, what significance did they have, and to what extent does -- can California say, "Well, we thought 'deemed to comply' would apply even though, we s-," -- in that commitment letter that California signed in 2012, it said, "Well, we will continue to comply with that if the standards are amended."

                                                California will take the position that it was the initial determination in January that should prevail and not the, not the subsequent determination and, uh, industry forces, and, and there's more than just the auto industry at play here. And a lot of what Sean is talking about may be pursued, um, if not by the auto industry, may be pursued by other industry elements.

                                                Uh, but industry is likely to say, "Well, it was the final decision-making that should govern that and not, um, and not the, the initial determination. So it's going to be -- the "deemed to comply" provision, I think, is very interesting, and it'll be interesting to see how that plays out, and if there are efforts to try to undo the waiver, revoke the endangerment findings, those obviously are going to, as, as Sean suggests, are going to be ruled on by the courts, ultimately.

Mr. James Conde:                   All right. Devon, can we turn to, to the audience now?

Mr. Devon Westhill:               I think we should go to audience questions.

Mr. James Conde:                   Yeah.

Mr. Devon Westhill:               Um, what I'm going to do now is just open up the line so everyone, uh, on the line's going to hear a prompt here pretty soon that the floor mode has been turned on. After that, to request the floor, just enter star and then pound on your telephone keypad, and we'll get you in the queue. Just one second.

                                                Okay, the floor mode has been turned on now. We still have about 15 minutes left, uh, for any audience questions that might be out there. Uh, when we get to your request, you'll hear a prompt and then, uh, you can ask your question. We'll answer all the questions in the order in which, um, I, I receive them. Again, if you'd like to ask a question of our, uh, experts today, uh, enter star and then pound on your telephone keypad.

                                                Um, not seeing any questions queued up currently. Uh, Jimmy, I, I might turn back to you and, and, um, and, and the question that you, you were going to pose to Sean.

Mr. James Conde:                   Sure.

Mr. Devon Westhill:               I'll keep a lookout for the queue here.

Mr. James Conde:                   Sure. So, uh, the question I was going to ask is, uh, so the Energy Policy Act preemption provision says that, uh, if a, uh, regulation or law or whatever is, quote, "related to fuel economy or average fuel economy, it's preempted." And that seems pretty clear as far --

Mr. Sean H. Donahue:            -- Yeah, it says related to, uh, fuel economy standards.

Mr. James Conde:                   Right, right.

Mr. Sean H. Donahue:            Um, so it, uh, so, so this issue, as I noted, came up before, uh, about a decade ago, um, and, uh, there, there's a, uh, case called Central Valley Buick, um, uh, -- is it Buick or Chrysler, Jackie?

Ms. Jacqueline Glassman:       Uh, Buick.

Mr. Sean H. Donahue:            Uh, Buick. Um, and, uh, the court, um, relied in, in part on the discussion in the Massachusetts v. EPA case where one of the arguments that the Federal Government, in trying to resist regulation of greenhouse gas emissions under Section 202, the Clean Air Act, said, "Well, uh, the, the, the principal way to reduce greenhouse gas emissions from cars is to, to, uh, control the amount of fuel they use, and that's, uh, DOT's job under EPCA." And the court said, "No, regulating pollution is a different thing than regulating fuel economy, and there's no reason, uh, that, that -- they're directed at different, uh, you know, goals, and there's no reason that, uh, you know, you can't have both."

                                                And the court, in, in the California case said, uh, you know, that is highly instructive for the preemption question that, that, uh, that the preemption prevision, uh, does not speak to and does not proport to preempt, uh, state, uh, pollution laws that are otherwise proper. Um, and, and I think that would be, that would be the question if that is raised. Does the fact that regulating air pollution, uh, you know, has an effect on fuel economy, um, uh, suffice for, for preemption? And I think that the right answer will be no, but that'll be, you know, that's -- that issue will be, uh, presumably raised again.

Mr. James Conde:                   Jackie, do you have any thoughts on, on, uh, the likelihood that, uh, the administration would succeed on this theory?

Ms. Jacqueline Glassman:       I think the administration's likely to pursue it, but, uh, a, as Sean has pointed out, I mean, both agencies have to be able to justify their decisions under the statutes that they're operating under. And the Supreme Court in Mass. v. EPA made a pretty clear statement that both of them should be able to operate, and, and they should be able to coordinate. Now, it is possible that, that in following those two directives, they're not harmonizing as much as they can, as they could otherwise, and we've already seen some of that. There's some disharmony between the programs, and most of that's pretty technical and trying to be, be worked out.

                                                Uh, but I think in the big picture, certainly for the auto industry, um, that was a big fight, uh, as Sean has noted in the 00s, um, but I think that they like the one National Program, and the effort would be really to mo-, to try to move forward and, and bring all of the U.S. regulators together into some program that everybody can live with, and hopefully, one that can tack onto a global regulatory structure as well so they can have the feasibility of meeting all these programs and also, um, being able to continue investing in automation and, and other, um, other futures that they're, they're trying to invest in.

Mr. James Conde:                   So, um, let me ask another question, unless we have any audience questions. Um…

Mr. Devon Westhill:               Yeah, thanks for checking in, Jimmy. We -- I don't see any audience questions, uh, right now, but I will make, uh, another, uh, another call for any questions. Uh, what you need to do if you'd like to enter the, the floor is to enter star and then pound on your telephone keypad if you have a question in the audience.

                                                Uh, go ahead, Jimmy.

Mr. James Conde:                   So, uh, le-, let me ask you how likely do you really think it is that, uh, Administrator Pruitt would revoke the waiver? As you said, this has never been done before, and I think it poses a lot more legal risks than, uh, EPCA preemption. And one disbenefit to this tactic would be that, you know, the next administrator could just either reinstate the waiver or approve another waiver on a different theory, whereas, of course, if a court concludes that the greenhouse gas standards are preempted under EPCA, that's sort of the end of the game for California. So, uh, wh-, wh-, what do you -- how likely do you think that is, uh, Sean?

Mr. Sean H. Donahue:            Um, well, I mean, based on what we've seen so far and some of the things he's said, uh, I am, unfortunately, uh, would, would not be surprised at all to see a maximalist strategy of trying to get EPA out of the business of regulating, uh, greenhouse gas emissions from automobiles, notwithstanding Mass. v. EPA, uh, by any possible hook. And that would, um, that would mean, uh, you know, uh, weakening federal standards; uh, asserting, uh, arguments that California lacks authority; and, uh, and trying to pull, pull the waiver.

Mr. James Conde:                   Um-hmm.

Mr. Sean H. Donahue:            I agree it, it, it's legally very risky, uh, in part because it hasn’t been done before, but also because the case law and EPA precedent on administrations of both parties --

Mr. James Conde:                   Um-hmm.

Mr. Sean H. Donahue:            -- is very much along the lines of this Section 209 waiver provision is a key part of the Clean Air Act. It has always been since before there was extensive federal involvement in this area, recognition of California's authority to, to do what it can to protect its citizens. So it's really a s-, a blow at a key structural provision, um, and so it will be, uh, all-out, you know, legal, political, public relations war.

Mr. James Conde:                   Um-hmm. Yeah.

Mr. Sean H. Donahue:            And, and, you know, the manufacturers, um, you know, are describing a, a world where regulators all get together, and maybe there's some adjustments, and a, and a kind of clear, predictable path forward, and, and, this, this would be really the opposite of that.

Mr. James Conde:                   Yeah. So let, let me ask you a follow-up question on that. I know the Bush administration initially denied, uh, California's waiver. Um, and the theory was that under Section 209, um, the statute requires that California demonstrate that, um, extraordinary, uh, conditions, uh, compelling and extraordinary conditions, if I remember correctly, uh, justify, uh, the, the standards. And, uh, the Bush administration, I think, reasoned that, "Look, you know, global warming's a global problem, and the, the, the conditions of global warming are not particularly extraordinary in California, and, um, so, uh, therefore, uh, we're not going to approve the waiver."

                                                Uh, and, and then, the Obama admin-, Obama administration came in and said that historically, uh, the, the provision has been interpreted to mean that as long as California has an ozone problem, it can pretty much promulgate any regulations it wants so long as it satisfies the other waiver criterions. And, and that seems to me, uh, a little overbroad. I mean, is, is it really true that as long as California has an ozone problem, it can, uh, it can prom-, promulgate whatever motor vehicle standards it wants without any risk of preemption, or -- what's your take on it?

Mr. Sean H. Donahue:            Um, there, there's a really strong, uh, statutory plain language argument that that's the correct reading because the statute refers to the, the, um, uh, California program as a whole. And that is historically California -- uh, EPA's, uh, reading, um, but, but the, in, in granting the waiver, EPA also found that even if it evaluated the question solely with respect to the greenhouse gas standards, it would find that California meets the standard. I mean, California does have, uh, by virtue of its size and topography and population, uh, really extreme, uh, ex-, existing, and, and even greater, uh, you know, uh, impending, uh, harms from, from climate change, one of which is that ozone -- the ozone problem is exacerbated by warming itself. Um, the, the effects and intensity of, of smog, uh, are related to temperature.

                                                Um, so, so I, I think that's a really tough one on, on the record, and I think particularly coming from an administration that is doing everything it can to get out of the business of doing anything about climate change. It would be one thing if EPA were able to say, "We have got this problem in hand. We're doing all these other things. California, you're, you're not that different. Let us do it." But, w-, w-, w-, -- they're, you know, at the same time, uh, dismantling federal protections and then telling the state, um, "You can't do anything, either." That's a very difficult and quite un-, unappealing position.

Mr. James Conde:                   All right. Well, if we have no questions, we only have about three minutes left, so why don't I just let first Jackie, uh, give any closing thoughts she wants, and, and then Sean.

Ms. Jacqueline Glassman:       And so, I mean, all the uncertainty around the waiver and California, um, really lends towards the renewed significance of NHTSA's regulatory program. Uh, ever since Mass. v. EPA, NHTSA's been sort of a second cousin or a junior cousin in this process. And I think the, the uncertainty surrounding the EPA actions and the California actions and the independence of the fuel economy program sort of bring a renewed importance to those.

                                                And it doesn't necessarily mean they're going to be -- those standards are more or less stringent than what EPA might otherwise do, but they're simply evaluated slightly differently, um, and evaluated -- but evaluated in much the same ways, uh, leaning towards a different public policy, uh, objective. But, uh, as we move forward, the NHTSA standards are going to be sort of the, the core baseline as the fighting over the waiver and endangerment finding and the role of California continue.

Mr. James Conde:                   Sean?

Mr. Sean H. Donahue:            And I would just say, I mean, if we're in a world of where the gas, uh, you know, prices are lower than at least in sort of the crisis years of the 70s, um, and there are questions about whether the CAFE program is the optimal way to regulate, uh, if that were true, it, it would not be a reason to use CAFE to override EPA's obligations to protect the public. And I think to the extent, uh, the administration tries to do that, um, it will face, uh, very strong sort of legal and record objections that, uh, it's sort of trying to write, uh, the Clean Air Act and, and the Massachusetts case, uh, out of this, uh, whole, uh, picture.

Mr. Devon Westhill:               Outstanding. Thanks so much, Jimmy. Thanks, Sean. Thanks, Jackie, for joining us today. Um, and, uh, thanks to the audience for joining us. On behalf of The Federalist Society's Regulatory Transparency Project, I do want to thank you, uh, for joining us, and, uh, hopefully we'll see you again next time. Until then, so long, everyone. Goodbye.

Operator:                                 On behalf of The Federalist Society's Regulatory Transparency Project, thanks for tuning in to Free Lunch. As always, you can subscribe on iTunes and Google Play to get new episodes of Free Lunch when they're published. Also, visit our website at That's R-E-G project dot org. There, we regularly upload content in addition to our podcasts, such as short videos and papers. And you can join the discussion by sharing your story of how regulation has personally affected you. Until next time, remember, there's no such thing as a free lunch.

Operator:                                 This has been a FedSoc audio production.