On March 31, 2020, the Environmental Protection Agency (EPA) and the Department of Transportation, acting through the National Highway Traffic Safety Administration (NHTSA), finalized a rulemaking that the agencies described as “the largest deregulatory initiative of this administration.” The final regulation is Part II of the Safer Affordable Fuel Efficient Vehicles (SAFE) Rule. SAFE Part II sets carbon dioxide (CO2) emissions standards and corporate average fuel economy (CAFE) standards for passenger vehicles and light duty trucks, covering model years (MYs) 2021-2026. In the joint rulemaking, the Trump Administration completed the dual goals of establishing “one national program” governing vehicle greenhouse gas emissions and fuel economy standards and rolling back the more stringent standards established during the Obama Administration.
The stage for SAFE Part II was set in September 2019 with the issuance of SAFE Part I, whereby EPA withdrew the waiver the Obama Administration had previously granted to California under section 209 of the Clean Air Act1. That waiver allowed California to set its own, more stringent standards governing vehicle CO2 emissions, which other states could then adopt2. As part of the overall Obama-era regulatory program, California agreed to align its CO2 emissions regulations with those of the federal government to achieve one national standard. The California waiver revocation announced by EPA in SAFE Part I was immediately challenged judicially. That litigation is ongoing3. Similarly, SAFE Part II will also almost certainly be challenged in court.
A. Key Provisions of SAFE Part II
The critical feature of SAFE Part II is its relaxation of stringency standards put in place by the Obama Administration. SAFE Part II does, however, retain some of the key compliance and flexibility components (for example, credit banking and counting improvements to air conditioning refrigerant leakage) from the previous rule.
1. Lowering the required annual stringency increase
Under the new SAFE rule, both CAFE and CO2 emissions standards will increase in stringency by 1.5 percent per year from 2021 through 2026 over MY 2020 levels. While the SAFE standards are significantly less stringent than the five percent annual increases required under the Obama rule, they represent a change from the Trump Administration’s initial proposal of zero percent year-over-year increase in stringency, which would have essentially frozen fuel economy and CO2 standards at 2020 levels through 2026. EPA and NHTSA describe the 1.5 percent increases as “gradual, tough, but feasible stringency increases that take into account real world performance, shifts in fuel prices, and changes in consumer behavior toward crossovers and SUVs and away from more efficient sedans.”4
EPA and NHTSA’s announcement of the new rule asserts that the costs of complying with the Obama CAFE standards would have been too high for both the automotive industry and consumers and predicts that the cost savings under the new SAFE rule will enable consumers to purchase new vehicles more frequently, thus increasing safety by allowing the fleet to turn over to “newer, safer, and cleaner vehicles.” Through a complex cost-benefit analysis published with the final rule, the agencies estimate that SAFE Part II will decrease regulatory costs by $86 to $126 billion through 2029 and reduce the amount consumers pay for new vehicles by around $1,000 per vehicle.5 And while the agencies estimate that the new rule will result in the consumption of approximately 2 billion additional barrels of oil as compared to the previous standards, EPA and NHTSA believe the overall benefits of the rule outweigh the costs of additional oil consumption.6
2. Compliance and flexibility components
The Obama-era rule included several compliance and flexibility components that allowed automakers to achieve the required standards by implementing clean technologies, such as more efficient air conditioning systems and electric vehicles. EPA and NHTSA considered eliminating many of these compliance flexibilities in SAFE Part II, but ultimately elected to retain most of them.7 Significantly:
- EPA retained the air conditioning refrigerant and leakage and CH4 and N2O standards set forth in 2012 for MYs 2021 and beyond. This allows automakers to continue to count reductions in those chemicals toward their CO2 compliance.
- EPA extended the “0 grams/mile” assumption for electric vehicles through MY 2026, thereby declining to count the upstream emissions caused by the electricity usage of those vehicles.
- EPA is increasing and extending a “multiplier” for natural gas vehicles through the 2026 model year. However, EPA is not extending existing multipliers for electric vehicles, hybrids, and fuel-cell vehicles that are set to expire in 2021. (“Multipliers” allow manufacturers to count certain vehicles as more than one vehicle in emissions compliance calculations.)
- Under the EPA program, CO2 credits for over compliance may be carried forward, or banked, for a period of five years. (Manufacturers gain credits for use or trade when the performance of a fleet exceeds its required CO2 fleet average standard.)
B. Next Steps
The final SAFE Part II will be published in the Federal Register in the coming days and will go into effect sixty days later. Upon publication in the Federal Register, the rule will likely be challenged in court.8 This was signaled by a coalition of twenty Democratic state AGs, led by Massachusetts AG Maura Healey. When the agencies issued the proposed SAFE rule in August 2018, the AG coalition pledged to challenge the final rule in court.9 Also, immediately following the issuance of SAFE Part II, representatives of environmental organizations made similar comments.
Plaintiffs may seek to stay SAFE Part II while the litigation is ongoing, which introduces uncertainty about its near-term fate. And, the legal challenges to the California waiver revocation in SAFE Part I are not close to resolution, adding an additional layer of complexity for automakers and consumers to navigate. Considering that automobiles require long lead times for design, development and production, the uncertainty resulting from litigation is a complicating factor for the industry.