WASHINGTON — EPA Administrator Scott Pruitt, departing from his federalist track record, has launched a first strike against the so-called California waiver, publicly questioning the state's right under the Clean Air Act to set stricter air-quality standards than the rest of the nation.
How well that waiver withstands the federal fire could have big implications for the auto industry and the administration's effort to relax emissions and fuel economy rules.
In announcing his decision last week to rewrite the nationwide emissions standards negotiated with the auto industry under the Obama administration for 2022-25 vehicles, Pruitt signaled that his idea of a revised harmonized program would require California to buckle to national standards developed by the EPA and NHTSA, rather than a compromise among the parties on tweaks that would still give automakers more flexibility with compliance.
"Cooperative federalism doesn't mean that one state can dictate standards for the rest of the country," Pruitt said in a statement. "EPA will set a national standard for greenhouse gas emissions that allows auto manufacturers to make cars that people both want and can afford — while still expanding environmental and safety benefits of newer cars."
Yet the pro-business EPA chief, who faces battles on a number of fronts, is also mindful of automakers' desire for a program that would allow them to sell the same vehicles in all 50 states. Agency officials were continuing to negotiate with California regulators last week on how to preserve some measure of uniformity under relaxed federal standards, The New York Times reported.
The most potent bargaining chip — for both sides — is the California waiver. As long as California has one for emissions rules, it can complicate the administration's efforts to relax the 2022-25 standards. But as long as the EPA has some power to revoke the waiver, it can try to persuade California to stand down.
Never tried
How the EPA would go about revoking California's waiver is unclear. The 1970 Clean Air Act doesn't specify such a process, and it has never been tried. Over five decades, the California Air Resources Board has received more than 100 waivers, including ones to regulate particulate emissions and, in 2009, greenhouse gas emissions from vehicles.
Granting a waiver requires the EPA to offer it for public comment before making a final decision, "so I would think they would have to go through a similar process" to cancel one, said Janet McCabe, a senior law fellow at the Environmental Law & Policy Center who was acting chief of the EPA's Office of Air and Radiation under President Barack Obama.
The only criteria under which the EPA can deny a waiver application are if the proposed program is "arbitrary and capricious," doesn't meet an urgent need or doesn't fall within the EPA's jurisdiction.
When EPA Assistant Administrator Bill Wehrum, who now heads the air pollution office, had the same job during the Bush administration, he blocked California from enacting stricter regulations on greenhouse gas emissions from vehicles on the grounds that the state wasn't suffering uniquely from climate change. The Obama administration eventually granted the waiver.
"If anything, California's argument for addressing this is even stronger now with the extended drought and longer fire seasons" the state has experienced in recent years, said David Cooke, senior vehicles analyst at the Union for Concerned Scientists.
CARB is working to ramp up its emissions requirements beyond 2025 and eventually will seek a waiver for those rules.
Some experts see Pruitt's pointed message as an attempt to gain leverage in bargaining with California to accept some relaxation of the existing standards and maintain a unified emissions regime. CARB officials have signaled some willingness to consider changes to the program in exchange for extending the national program through 2030.
A breakdown in those negotiations would likely lead the EPA to seek to withdraw the waiver. If that happens, attorneys general from California and the dozen states that follow its emission rules have vowed to sue the EPA. A lengthy court battle could lead to an extended period of uncertainty for automakers that have long lead times for development and production planning.
Legal challenges will likely claim that the EPA lacks the statutory authority to revoke the waiver and that such a move is contrary to administrative law principles, said Mark LeBel, a staff attorney with the Acadia Center, a clean-energy research and advocacy organization.
"The EPA would have to survive the first two hurdles before the courts would even consider the underlying substantive issues," he said.
Dual markets
If California prevails, there could be two markets for automakers to manage. States that follow California's rules represent nearly 40 percent of U.S. auto sales. While that's not optimal for the industry, it's not unprecedented either.
"There was a previous period where automakers had two standards and managed to comply," LeBel said. "It's not ideal, but large manufacturing businesses comply with hundreds of regulations across dozens of different jurisdictions. It is totally possible to make that work."
Cooke noted that automakers essentially follow a two-market strategy in deciding how to deploy their zero-emission vehicles, because of mandates in California and nine other states.
Because the fuel economy rules cover fleet averages, automakers could adapt by rebalancing how many low-mileage and high-mileage vehicles they offer to meet the overall target. That likely means fewer sales of pickups, unless a company buys offsetting credits from other companies or is willing to pay a penalty for each vehicle that exceeds the target. Company strategies would differ based on how much emissions technology they've developed and other factors, industry officials and experts say.
Automakers might also adapt by importing smaller engines for certain models from Europe or other regions to comply with the higher targets, Cooke said.
"The simplest way to comply is to focus electric vehicle sales there to counterweight the rest of the fleet," he said. "And then they can sell whatever they want in the rest of the country."
A Pruitt decision to limit California's power over environmental policy within its borders contradicts his track record on state rights when he was attorney general of Oklahoma. In that office, he sued the EPA more than a dozen times trying to block its authority to enforce pollution regulations, arguing that states should set their own rules on environmental matters.
Meanwhile, Pruitt is under mounting pressure to resign or be fired after numerous disclosures about conflicts of interest, excessive travel spending, abuse of power, cronyism and other alleged ethical lapses. President Donald Trump has voiced support for him.
Even if Pruitt is sidelined, the EPA's direction is unlikely to change. Andrew Wheeler, nominated to be deputy administrator, is a former coal lobbyist who worked as an aide to Sen. James Inhofe, R-Okla., a vocal skeptic of the science on man-made climate change, and shares Pruitt's goal of reducing the agency's oversight of industry. He and other political appointees are expected to continue carrying out Pruitt's deregulatory agenda.
You can reach Eric Kulisch at ekulisch@crain.com
