January 2012

A front-burner issue facing Environmental Protection Agency (EPA) Administrator Lisa Jackson is whether to grant a waiver under the Clean Air Act allowing the California Air Resources Board (CARB) to implement first-ever greenhouse gas (GHG) emission standards for new motor vehicles. Thirteen other states are poised to adopt the CARB program if Jackson grants the waiver. In all, about 40% of the U.S. auto market would come under the CARB rules.

Jackson’s predecessor, Stephen Johnson, rejected CARB’s application  in December 2007.  His reasons, published in the Federal Register in March 2008, may be summarized as follows. EPA’s historic practice has been to grant CARB waiver requests to address air pollution threats arising from circumstances specific to California–its topography, regional meteorology, and number of vehicles. In contrast, global climate change is, well, global. Conditions associated with global climate change in California are not sufficiently different from those in other states to justify a separate emissions program.

This argument, which is tantamount to saying that EPA won’t allow CARB to combat global warming because global warming is bad for people everywhere, predictably elicited scorn from California politicians and environmental groups.

“Patchwork Proven,” a new report by the National Automobile Dealers Association (NADA), presents two compelling arguments against granting the waiver that Johnson should have made.

First, granting the waiver would violate the Energy Policy and Conservation Act (EPCA), which prohibits states from adopting laws or regulations “related to fuel economy.” Yes, I’m well aware that in Central Valley Chrysler-Jeep, Inc. v. Goldstone (2006), the U.S. District Court for Eastern California held that EPCA does not preempt CARB from establishing GHG standards for new motor vehicles. However, the Court’s reasoning was spurious, and Johnson should not have given it a free pass.

The CARB emissions program is essentially fuel economy regulation by another name. CO2 comprises 97% of the GHG emissions from motor vehicles. Since there is no commercial technology for capturing or filtering out motor vehicle CO2 emissions, the chief way to decrease CO2-equivalent grams per mile (that’s how the CARB GHG standards are calibrated) is to decrease fuel consumption per mile, i.e., increase fuel economy.

As “Patchwork Proven” points out, the relationship between fuel economy and tailpipe CO2 emissions is so close that EPA tests compliance with federal fuel economy standards by measuring vehicular CO2 emissions. The bottom line: “Absent a significant increase in new vehicle fleet fuel economy, it is impossible to comply with CARB’s regulation.” So the CARB emissions program is substantially “related to fuel economy.” As such, it is prohibited by EPCA.

Alas, in this day and age of judicial activism and global warming hysteria, we should not expect Jackson to pay heed to the spirit of EPCA.  However, she and other Obama Administration officials should be worried about havoc that the waiver would wreak on the distressed U.S. auto industry.

CARB and its allies repeatedly deny that granting the waiver would create a regulatory “patchwork,” with automakers required to comply in different ways in different states. According to them, there would be at most two programs: the federal program and the California program.  A dual system of regulating air pollution from vehicles has been in place since the start of the Clean Air Act. Vehicles built to federal standards are “federal cars” and vehicles built to CARB standards are “California cars.” Automakers have had no trouble building  cars that meet two different emission standards. Promulgating GHG emission standards would merely update a system that has worked well for decades, CARB contends.

The fundamental flaw in this argument is that CO2 is not like the air-quality damaging pollutants subject to existing EPA and CARB emission standards.  For smog-forming pollutants such as nitrogen oxides, both EPA and CARB specify how many grams per mile individual vehicles may emit. That’s not how CARB regulation of GHG emissions would work. There would not be two types of vehicles, “California” and “federal.” Rather, the CARB standards specify the CO2-equivalent grams per mile that each automaker must attain on average for the fleet it delivers for sale. In other words, the CARB program implicitly specifies fleet-average fuel economy.

This is a radical departure from previous EPA and CARB emission standards, and it inexorably produces a regulatory patchwork.

Here’s why. Consumer preferences and the corresponding mix of vehicles delivered for sale differ from state to state. For example, in 2007, the Dodge Ram (with a fuel economy rating of 18.7 mpg) accounted for 20.66% of all Chrysler vehicles sold in California, but only 9.46% of all Chrysler vehicles sold in Rhode Island, and 8.43% in New Jersey. In contrast, the Jeep Grand Cherokee (with a fuel economy rating of 20.2 mpg), accounted for only 5.23% of Chrysler vehicles sold in California but 11.23% of Chrysler vehicles sold in Rhode Island, and 16.26% in New Jersey.

The number and percentage of vehicle models an auto company “delivers for sale” differ from state to state.  For any auto fleet, no two states are likely to have the same average fuel economy or CO2-equivalent grams per mile.

Thus, to comply with the CARB standards, automakers would have to adjust the “mix” of vehicles offered for sale in each state adopting those standards. In each such state, an automaker would have to “deliver for sale” enough vehicles with CO2-equivalent per mile (fuel economy) ratings above the CARB standard to offset vehicles delivered for sale with ratings below. The “mix-shuffling” required for compliance  in State A would likely be different from that required for compliance in State B, C, and so on.

Note that the CARB program would create a vehicle-rationing patchwork even if there were no competing federal fuel economy standards. As the NADA report puts it, “If CARB’s regulation were to take effect in all 50 states, the resulting 50-state patchwork would require automakers to manage 50 unique state fleets and to individually meet CARB’s standard 50 different ways.”

Since the current mix in each state is determined by consumer preference, the adjusted mix would clash with consumer preference. The most likely compliance strategy would involve “rationing larger vehicles, discounting smaller models for quick sale, or other pricing strategies that distort the market,” the NADA report warns. Is that any way to rescue the auto industry?

Adding insult to injury, it’s not even clear that the CARB standards would achieve any significant reduction in emissions. CARB claims that adoption of its standards by 13 states would eliminate 59% more CO2 emissions in 2020 than would compliance with federal fuel economy rules. But companies forced to “deliver for sale” smaller, lighter, more fuel-economical vehicles in the CARB states would be allowed, under the federal fuel economy program, to sell more large, heavy, gas-guzzling vehicles in non-CARB states.

Moreover,  if CARB rules restrict the supply and increase the cost of gas-guzzlers “delivered for sale” in California, for example, Californians would still be free to buy lower-priced gas guzzlers in Nevada and bring them back home. Emissions in California might go down somewhat, but auto sales, jobs, and tax revenues might go down even faster.

California politicians and environmental lobbyists talk about the CARB emissions program as if it were the greatest thing since sliced bread. Lisa Jackson would be well advised to read “Patchwork Proven” before deciding on CARB’s waiver request.