One State Should Not Dictate Nationwide Fuel Economy Standards

By W. David Montgomery

A few weeks ago, the Administration announced its intention to revoke a waiver that allows California to set its own fuel economy standards for motor vehicles. This action is the final step needed to correct a series of decisions made in the Bush and Obama administrations that would have put undue burdens on auto manufacturers and drastically increased costs and limited choices for motorists.

About one year ago, the Department of Transportation (DOT) and Environmental Protection Administration (EPA) announced revised fuel economy standards for passenger cars and light trucks to be applied in model years 2021 – 2026. The revised standards would replace standards set by the same two agencies in 2012, well before the revolution in oil drilling technology that moved the U.S. to the top of the list of oil producing countries and caused gasoline prices to fall dramatically. I wrote about these standards in the Talbot Spy at the time, and summarize those opinions here.

The revised Federal standards provided some good news for car buyers, U.S. industry and the economy. If implemented uniformly across the entire country, they would slow the rate of increase in new car prices and allow buyers greater freedom to choose among gasoline consumption, performance and amenities. EPA and DOT also concluded that they would make new cars safer.

They would be good for the economy because on balance the reduction in traffic fatalities, moderation of regulatory distortions to consumer and manufacturer decisions, and lower new car costs would more than offset higher gasoline expenditures and modest increases in emissions.

Nevertheless, the revised standards put the auto industry in an awkward position that could have undone their good effects. California was granted a waiver by the Obama Administration allowing it to set its own, tighter fuel economy standards, and the California standards have been adopted by 13 other states. In a classic example of upside-down Federalism, the Obama Administration set Federal standards to match those increasingly ambitious state standards. 

By replacing the Obama-era standards that required a fleet average of 50 mpg by 2026 with a freeze on the standard at the 2020 level of 37 mpg, the revised standards would have created one standard for 37 states and another for 13. Some manufacturers, led by GM, are adamant that there must be a single 50-state standard because of the cost of producing different vehicles for two separate markets. The necessary fix is to tell California and the 13 other states that their fuel economy standards are pre-empted by the Federal standard, a fix that is fully justified under the Clean Air Act.

The waiver granted to California in 2009 was one of a series of decisions that misused the Clean Air Act to declare greenhouse gases – principally carbon dioxide — to be pollutants that EPA could regulate under the authorities granted by the Act. Leaving aside the controversial decision that greenhouse gas emissions pose a threat to health and welfare in the United States sufficient to justify regulation (the “endangerment finding” also issued by EPA in 2009), the decision to grant a waiver for California to set fuel economy standards was a casuistic misapplication of EPA’s waiver authority.

California was in the past granted waivers to set standards tighter than Federal standards for the smog-causing emissions listed in the Clean Air Act. These waivers fully satisfied the criteria that California’s standards must protect public health and welfare at least as strictly as federal law, and their standards must be necessary “to meet compelling and extraordinary conditions.” Waivers to allow California to solve its unique smog problem made sense. When the Clean Air Act was passed, smog in California was the worst in the nation. The combination of explosive growth in population and driving and meteorological and topographic conditions that trapped pollutants in the South Coast Air Basin created a unique problem in California. Moreover, it was a problem that California could – and did – largely solve with regulations within the state.

Fuel economy standards are a costly and inefficient method of controlling greenhouse gas emissions, and the law authorizing fuel economy standards explicitly states that they may only be set by the Federal government. The questionable legal rationale for using authorities under the Clean Air Act to grant California a waiver was that the purpose of California’s tighter fuel economy standards was to reduce greenhouse gas emissions. 

But the bigger problem is that the waiver does not satisfy even the Clean Air Act criteria for granting a waiver. Greenhouse gas emissions are not the same as smog-forming emissions that are trapped over California’s cities. Unlike smog-forming pollutants, carbon dioxide has no direct effect on human health or welfare at any conceivable concentration that could occur in the atmosphere. Rather, the predicted contribution of carbon dioxide to global warming was the basis for the endangerment finding. 

Moreover, carbon dioxide and other greenhouse gases are dispersed globally in the atmosphere, and carbon dioxide from California cars and trucks does no more harm to California than carbon dioxide from powerplants in India. California’s carbon dioxide emissions are just over 1% of total greenhouse gas emissions, so that even reducing California carbon dioxide to zero would have no material effect on the potential harm that greenhouse gases cause in California.

From these numbers, 99% of the damage that California attributed to global warming in its application for a waiver is caused by emissions outside California. Carbon dioxide emissions from California cars and trucks have no direct effect on California and California cannot meaningfully reduce its exposure to global warming by reducing those emissions. There is no nexus between California greenhouse gas emissions and potential impacts of climate change on California. Thus the waiver violates the Clean Air Act prohibition of waivers if the “State does not need such State standards to meet compelling and extraordinary conditions.”

Since greenhouse emissions are global in their effect, none of the geographic and demographic conditions that give California an extraordinary problem with smog apply to greenhouse gases. That makes the waiver that allowed California to set its own fuel economy standards a mistake in the first place, and the Administration is taking the logical next step by revoking the waiver.

David Montgomery is Managing Editor of the Chesapeake Observer.  During his consulting career, he conducted many studies of fuel economy standards and of California emissions regulations, often collaborating with Professor Jim Sweeney of Stanford University.

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