United States: Negotiations Idle Between EPA, California Over Emissions Standards

As President Trump's nominee to head the Environmental Protection Agency, Andrew Wheeler, cleared a key committee vote this week, a conflict between EPA and the State of California over tailpipe greenhouse gas emissions shows no signs of movement, even as a deadline looms to finalize the Trump administration's revised tailpipe emissions rules.

The drama began this past April, when EPA and NHTSA proposed a rule that would roll back Obama-era fuel efficiency measures by proposing to cap the standards at a 37-mpg fleet average from 2020 through 2026 – substantially lower than the 50 mpg average imposed by 2025 under the existing rules. Perhaps even more controversially, the Trump administration also signaled that it would consider revoking the waiver granted to the State of California under the federal Clean Air Act (CAA) that allows the state to impose – with EPA's approval – stricter standards for tailpipe GHG emissions for new vehicles than what the federal government requires.

California has consistently invoked its waiver authority since the 1970s. EPA has routinely granted the requested waivers on grounds that California has particularly severe air pollution challenges that are exacerbated by tailpipe emissions. California's most recent waiver request was granted by the Obama administration in 2013. It specifically addresses GHG emissions, allows the state to limit carbon emissions, and requires automakers to sell a certain number of low-emission and zero-emission vehicles in the state. The CAA permits other states to follow California's rules, and 13 of them, plus the District of Columbia, have chosen to do so – collectively representing almost 40% of the U.S. market for new vehicles.

The EPA's proposed rule – initially framed by EPA officials as a starting point for negotiations with California – has instead led to a stalemate. As a compromise, California initially proposed that the Obama-era fuel efficiency rules remain in place until 2025, but the state would then make it easier for automakers to meet those rules by taking advantage of existing loopholes in the law. In exchange, the Trump administration would agree not to revoke or otherwise challenge California's waiver rights. But the EPA – led by Acting Administrator Wheeler – rejected this proposal, and has only upped its rhetoric in recent days. "This is not a two-sided negotiation for a national standard," Wheeler told Bloomberg News on February 4. While calling California an "important player", Wheeler reiterated the Trump administration's position that the state should not have the authority to dictate national standards for tailpipe GHG emissions. The result, in Wheeler's own words, is that the two sides remain "pretty far apart" in the search for a 50-state solution.

The lack of progress has caused anxiety among automakers, who might have been expected to wholeheartedly back the Trump administration's proposal. Instead, some have suggested that revoking California's waiver authority is a step too far, and have advocated for compromise. That concern doesn't necessarily reflect a desire to keep the Obama-era standards in place – carmakers have criticized them as too burdensome – but rather the desire to avoid a protracted legal battle between the federal government and California. If EPA does indeed revoke the waiver, California will unquestionably sue – and some experts have already observed that EPA's legal grounds for revocation are shaky at best. But win or lose, a court battle would result in regulatory uncertainty at the same time as automakers are readying their offerings for model years 2020 and beyond. Bolstering this anxiety is the fact that time may be running out – Wheeler has set early April 2019 as a "hard deadline" for finalizing its draft rules so that they can take effect by 2021. That leaves very little time to bridge what for now is a very significant divide.

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