Carmakers and California Agree on Emissions Rules

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

Four major carmakers – BMW, Ford, Honda, and Volkswagen – agreed last week to comply “voluntarily” with tougher California state emissions rules.

These carmakers account for 30% of the global car market, according to The Verge, Major automakers buck Trump’s emissions rollback by signing deal with California.

As I’ve written previously, the Trump Administration was on a collision course with the state over its August 2018 plans to rollback standards previously due to come into force in 2021 (see Trump Regulators and California on Collision Course on Rolling Back Fuel Efficiency Standards).

As the Wall Street Journal reports in Auto Makers Agree to Stricter California Tailpipe-Emissions Standards:

The Trump administration last year proposed easing Obama-era fuel-economy standards by freezing them at the 2020 levels, or around 37 miles a gallon, through 2026. The current rules, implemented in 2012, call for increases in fuel economy of around 5% annually through mid-decade, to a level of 46.7 miles a gallon.

The Feds and California had been engaged in negotiations to agree a compromise, but those talks collapsed in February, according to an Ars Technica report, Car makers, California agree to emissions rules Trump admin is trying to kill.

California Standards

The California standards with which the four carmakers have now agreed to comply are looser than the rules that were supposed to come into effect in 2021, but tighter than the proposed Trump rollback.  According to a statement released last week by the California Air Resources Board (CARB), California and major automakers reach groundbreaking framework agreement on clean emission standards:

The terms of the framework will deliver the same greenhouse gas reductions in five years as the original Obama standards would have achieved in four. This provides a path forward that allows California and other states to meet their climate and clean air goals, and maintains a national approach for participating automakers who will sell these cleaner cars nationwide. The framework also supports the long-term electrification goals of California and the carmakers.

CARB outlined a summary of the specifics of the agreed emissions framework:

The framework agreed to by the automobile companies and California benefits the country by achieving continuous annual reductions in greenhouse gas emissions and criteria pollutants while saving consumers money. Its terms include the following:

• Extend the current 2025 model year standard until 2026 and smooth out the interim years from 2022 through 2025 to provide additional lead time and slightly less aggressive year-over-year reductions. (That is, changing the original year-over-year 4.7 percent GHG reduction over four years to 3.7 percent over five years.)

• Support the transition to electric vehicles by rewarding companies that sell more EVs with additional credits to meet the GHG standard for their entire fleet, while ensuring that gas and diesel vehicles also get progressively cleaner over time.

• Provide an incentive to car companies to install more GHG-reducing technologies (such as making the car more aerodynamic at highway speeds or improving the vehicle’s internal temperature control) by modestly revising limitations on their usage, and streamlining agency review and approval for new technologies.

• Simplify compliance by removing the requirement to consider upstream GHG emissions associated with the production of the electricity used by electric vehicles when calculating the GHG emissions for a car maker’s fleet.

California Clean Air Act Waiver

Under the terms of the 1970 Clean Air Act, California enjoys a waiver to set its own tougher emissions standards. California has particular air quality concerns, and this provision means it sets nationwide emissions standards, de facto – as carmakers don’t want to produce separate model cars to comply with varying state standards. Additionally, “ [a] dozen states follow California’s lead on emissions rules, and Canada has recently agreed to as well,” according to The Verge.

The Trump emissions policy proposed last year sought to eliminate California’s special status under the Clean Air Act. Yet California has challenged this agenda and has litigated, aggressively  and largely successfully, on this and other environmental issues, according to the LA Times, In California vs. Trump, the state is winning nearly all its environmental cases. There has been concern expressed that allowing California to maintain higher standards could lead to bifurcation of the market. This is not necessarily the case when carmakers choose to comply with a tougher California standard that would be the single standard, for the US and Canada.

One goal of the agreed framework is to solidify California’s status under the Clean Air Act. As CARB notes:

The terms of the framework also make it clear that California must maintain its authority under the Clean Air Act to establish emissions rules because of its unique air quality, public health and climate challenges. “California’s authority to set tough vehicle emission standards has been good for California and the country,” said Governor Newsom. “This agreement affirms the fact that retaining that authority is a crucial element in our ability to make progress with cleaner cars.”

States Will Drive Any Possible Short-Term Progess on Climate Change Policy

The Trump administration is ignoring climate change concerns, and is instead pursuing policies that cater to fossil fuel interests. As The Verge reports:

“The Trump administration is hell bent on rolling [emissions standards] back. They are in complete denial about climate change,” California Governor Gavin Newsom said on a call with reporters. “I don’t know if they’re sincere about that, but for whatever reason, politically, they think it’s advantageous.”

Yet CARB recognizes the existence of broader opposition to the Trump administration’s proposed emissions standards rollback:

The rollback has faced growing opposition from a broad array of governors and mayors, auto companies, labor, consumer groups, public health organizations, and environmental groups. Earlier this month, a bipartisan coalition of 24 governors representing more than half the U.S. population came together in calling for a stronger, national clean car standard.

The latest move by carmakers is intended to prod the Trump administration and California to agree to common national rules – without resort to the delays and uncertainty of protracted litigation, according to the WSJ:

The move by the four auto makers marks an escalation by the industry to nudge the Trump administration and California toward cooperation. Industry executives have expressed concern that a protracted legal battle over the standards would hamstring their vehicle-development plans.
“A 50-state solution has always been our preferred path forward and we understand that any deal involves compromise,” the car companies wrote in a joint statement. “These terms will provide our companies much-needed regulatory certainty by allowing us to meet both federal and state requirements with a single national fleet.”

In particular, according to CARB:

In a letter last month, 17 worldwide automakers appealed to the White House and California to work together on a single national standard, warning of uncertainty for the auto market and noting that auto industry jobs are at stake.

Carmakers wish to forestall litigation and to reduce regulatory uncertainty. CARB’s chair has nonetheless made clear that California will play hardball if the Trump administration insists proceeding with its rollback plan, according to the CARB statement:

“This agreement represents a feasible and acceptable path to accomplishing the goals of California and the automobile industry,” said California Air Resources Board Chair Mary D. Nichols. “If the White House does not agree, we will move forward with our current standards but work with individual carmakers to implement these principles. At the same time, if the current federal vehicle standards proposal is finalized, we will continue to enforce our regulations and pursue legal challenges to the federal rule.”