Economy & Business

Trump Takes on Car Regulations

Toyota Prius hybrid vehicles at a dealership in El Cajon, Calif., in 2010 (Mike Blake/Reuters)
It’s good to roll back red tape — but the administration is undermining federalism, too.

Last week, the Environmental Protection Agency and the Department of Transportation proposed unwinding a major part of the Obama administration’s environmental legacy. In the name of consumer choice and auto safety, the administration is proposing to freeze federal automotive fuel-economy and greenhouse-gas-emission standards — and to prevent California from adopting more stringent standards of its own. Assuming the rule is finalized, legal challenges are sure to follow, presenting a significant test of the Trump administration’s ability to enact meaningful regulatory reforms.

The centerpiece of the new proposal is a freeze on fuel-economy standards for cars and light trucks — so-called Corporate Average Fuel Economy (CAFE) standards, which double as greenhouse-gas (GHG) standards. As a general matter, the most effective way to reduce automotive GHG emissions is to increase fuel economy, and the EPA is required to adopt automotive GHG-emission standards under the Clean Air Act by the Supreme Court’s decision in Massachusetts v. EPA.

Rules finalized by the Obama administration would have forced automakers to steadily increase fuel economy to approximately 54 miles per gallon (mpg) by the 2025 model year, sacrificing other vehicle features consumers demand along the way. The Trump proposal, by contrast, would freeze the standards at the 2020 level of approximately 37 mpg.

As Transportation Secretary Elaine Chao and acting EPA Administrator Andrew Wheeler explained in a Wall Street Journal op-ed, freezing the standards will result in safer and more affordable cars for consumers. “The standards implemented by the previous administration raised the cost and decreased the supply of newer, safer vehicles,” they wrote. Because one way to increase automotive fuel economy is to make vehicles smaller and lighter, because higher prices keep families from buying new cars with better safety features, and because vehicles with lower fuel economy are more expensive to drive on a mile-by-mile basis, the administration hopes relaxing the standards will help reduce highway fatalities. Automakers, however, are lukewarm on the proposal, partly because they had already begun preparing for the more stringent rules, and partly because they fear the regulatory uncertainty that could result from protracted litigation over a dramatic change in the rules.

The Trump administration does not stop at reducing the federal regulatory burden. It seeks to reduce the regulatory burden imposed by states as well, California in particular. For several decades the Golden State has adopted more stringent vehicle-emission standards than those imposed by federal law. Indeed, Sacramento began regulating tailpipe emissions well before Washington, D.C., got into the act. At least where greenhouse gases are concerned, the Trump administration would like this to come to an end.

Under the Clean Air Act, states are generally precluded from adopting their own vehicle-emission standards. In Congress’s judgment, allowing different states to adopt different rules would create a costly and confusing regulatory patchwork for automakers and increase prices. Indeed, the automakers’ desire to avoid the possibility of variable state standards is the reason Congress adopted preemptive federal vehicle-emission standards in the first place.

California, however, is a special case. Because California adopted its first vehicle emission controls before the CAA was adopted, it gets something of a pass. Specifically, the CAA allows California to obtain a waiver of preemption from the EPA for standards that are more stringent than those adopted by the EPA, provided that certain conditions are met, including a demonstration that California “need[s] such State standards to meet compelling and extraordinary conditions.” Once a waiver is obtained, and only then, other states have the option of adopting California’s standards as their own.

For decades, when California has sought a waiver for vehicle-emission standards, the EPA has obliged, largely owing to California’s distinct — and distinctly severe — urban air-pollution problems. Although the automakers typically object, allowing California to adopt specialized rules to address smog and soot is in line with the CAA. GHG regulations, however, present different considerations because their effects, unlike those of particulates or smog-forming emissions, are not localized.

Global climate change is a global phenomenon. The relevant airshed is not the Los Angeles basin or South Coast Air Quality Management District, but earth’s entire atmosphere. California may face specific threats from the effects of global warming, but carbon dioxide and other greenhouse gases are dispersed throughout the world, no matter where they were originally emitted. Thus even if statewide GHG controls were likely to reduce greenhouse warming, they would not address any distinctly California-based concern.

The Bush administration denied California’s first request for a GHG-emission waiver, largely on the grounds that the relevant CAA standards were not met. Yet the Obama administration reversed course, moving to grant the waiver and then strong-arming automakers to accept more stringent nationwide rules in return for California’s agreement to accept the federal standard.

Like the Bush administration, the Trump administration will defend revoking California’s most recent wavier on the grounds that the relevant CAA standards cannot be met. In addition, the Trump administration maintains that any state-level GHG-emission standards are preempted by the Energy Policy and Conservation Act, which precludes any state rules “relating to” to fuel economy. Because vehicular GHG standards operate as fuel-economy rules, the administration will argue they are precluded even if the CAA’s waiver standards are met.

These legal arguments for preemption are plausible, but there’s a catch. The Trump administration is proposing to do more than preempt California’s GHG standards. It is proposing to preempt separate rules that require the sale of “Zero Emission Vehicles” (ZEVs, typically electric cars) as well. Here is where the proposal is most vulnerable.

California’s ZEV requirement forces automakers to sell a minimum number of ZEVs as a percentage of their overall vehicle sales within the state. In practice, this forces automakers to sell ZEVs at artificially low prices and make up any losses by increasing prices on other vehicles.

Understandably, these rules are not popular with the major automakers. But they fit more comfortably with the CAA’s waiver provisions than do GHG-emission controls. This is because ZEVs do far more than reduce GHG emissions. They dramatically cut back on traditional pollutants as well, including those that contribute to California’s notorious smog problem. Thus California has a strong argument that these standards are needed to control pollution within the state, and the administration’s claim that the rule is “related to” fuel economy is more of a stretch.

Apart from the legal questions, there is something odd about an administration that has proclaimed its support for “cooperative federalism” now bending over backwards to preclude individual states from making their own regulatory decisions. Trump’s first EPA administrator, Scott Pruitt, routinely inveighed against the Obama EPA’s regulatory imperialism and pledged to give states more leeway. Now, however, the Trump administration is contending that such leeway is only for states that seek less regulation.

California’s waiver should not be the end of state-level environmental innovation. It should be the beginning.

Those who support the administration’s move will argue that it is California, and not the federal government, that threatens state autonomy, because California’s standards could become de facto national rules. Rather than make different cars from different markets, automakers may choose to sell California-compliant vehicles nationwide. Perhaps, but the nature of the rules at issue make this unlikely. Insofar as the relevant standards impose requirements on the fleet average of vehicles sold, automakers have more flexibility than some suppose. If it is less expensive to offer different vehicle mixes in different states, that’s what the automakers will do. If not, they won’t. Either way, no other state will be forced to adopt California’s rules.

The automakers, however, have a strong preference for national uniformity. Just as they sought to stave off variable state vehicle-emission standards with a nationwide rule in the 1960s, they are likely to accept more stringent federal requirements if California agrees to play along. This political dynamic gives California unique leverage in federal environmental policy and pushes policymakers to care more about what’s convenient for carmakers than about what is good for consumers.

Allowing different jurisdictions to adopt different rules may well impose costs on nationwide firms, but that’s a cost of doing business in a diverse compound republic. The reality is that California has different environmental problems and different environmental preferences from other states. Just as California should not be able to impose its preferences on the rest of the nation, it should not be prevented from adopting the rules California voters are willing to accept — and if automakers were willing to let California consumers bear the costs of their state’s own policies, that might temper their environmental appetites.

If there is a problem in federal environmental law, it is not that California is given too much autonomy to adopt its own environmental rules, but that other states are given too little. If anything, the CAA waiver provisions are too narrow, insofar as they apply only to one specific regulatory program within the broader federal regulatory monolith. A broader waiver provision that gave states more leeway to experiment with alternative approaches to environmental protection across the board would do more to encourage regulatory innovation and defuse political conflicts.

Alas, the Trump administration does not appear particularly interested in regulatory federalism when it comes to environmental protection. That is a missed opportunity. In its zeal to reduce regulatory burdens across the board, the Trump administration is inviting legal trouble and missing opportunities to make the case for broader reforms. California’s waiver should not be the end of state-level environmental innovation. It should be the beginning.

Jonathan H. Adler is the Johan Verhiej Memorial Professor of Law and Director of the Center for Business Law and Regulation at the Case Western Reserve University School of Law.

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