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Since the birth of the modern Clean Air Act in 1967, California and only California has had the authority to deviate from federal rules to set its own standards for tailpipe emissions from motor vehicles. To be enforceable, California’s standards must be more stringent than federal rules and must be granted an EPA waiver after the agency determines that California faces “compelling and extraordinary” conditions. Other states can then choose between following the federal standards and the California standards.

To date, the EPA says it has granted California about 50 such waivers and denied it just one–the state’s most recent request to regulate greenhouse gas emissions from motor vehicles.

The EPA issued its long-awaited written decision Feb. 29 detailing why California lacked the “compelling and extraordinary” conditions to merit the waiver. The decision itself was no surprise–EPA Administrator Stephen Johnson had months earlier written a letter to California Gov. Arnold Schwarzenegger informing the governor of his intentions. California had even filed a lawsuit in January against the EPA challenging its denial.

Although the decision blocked just one rule, it represented a roadblock to state efforts to fight climate change, a movement growing in response to a federal government that so far seems reluctant to directly address greenhouse gas emissions. And the subsequent lawsuit marks another round in the states’ struggle to aggressively push forward with climate change regulations as the federal government pushes back.

“The auto industry is so large and affects so many people that how this turns out in its own right will be important,” says Adam Kahn, coordinator of Foley Hoag’s environmental practice group in Boston. “The larger context is an increasing focus in the courts, in the states and in the federal government on climate change regulation, and this is one more step.”

Agency Inaction

California, though, is one step ahead. In July 2002, five years before President Bush would direct federal agencies to regulate greenhouse gases, California’s then-Gov. Gray Davis signed into law AB 1493. While previous state and federal regulations had addressed nonwarming air pollutants such as particulate emissions, AB 1493 for the first time set forth regulations aimed directly at greenhouse gases, which trap heat in the atmosphere, thus contributing to global warming. Carbon dioxide, the primary greenhouse gas produced by fossil fuel combustion, accounts for 84 percent of California greenhouse gas emissions. Since the bill’s passage, at least 19 other states have adopted or pledged to adopt the standards.

“Historically, California has often set [tailpipe pollutant] standards which are then adopted nationally and over time become international standards,” says David Doniger, policy director of the Natural Resources Defense Council’s climate center and former director of climate change policy at the EPA. “We see California playing the same leadership role with global warming emissions.”

California’s so-called Clean Car law would require cars sold in California and adopting states to begin reducing carbon dioxide and other global warming emissions in model year 2009 vehicles, with the goal of cutting greenhouse gas emissions 30 percent by 2020. The backlash from automakers was immediate, and so were the lawsuits, which charged federal regulations pre-empted the rule.
As for the EPA, it appeared to do nothing at all.

California first asked the EPA for a waiver to enforce its Clean Car regulations in December 2005. The EPA maintained it didn’t have jurisdiction to regulate greenhouse gases, but the Supreme Court rejected this argument in April 2007 in Massachusetts v. EPA.

The landmark decision said the EPA can and must regulate greenhouse gases, marking the first time the High Court had addressed global warming and coming as a rebuke for a government marked by climate change inaction.

“In my mind, [California's suit against the EPA] is really an indication of EPA’s current thinking about how much it wants to embrace the meaning of Massachusetts v. EPA,” Kahn says. “The Court essentially said EPA must adopt regulations, yet six months later EPA denies California’s request to regulate greenhouse gases from tailpipe emissions.”

Objections to the Rules

Johnson’s Dec. 19 letter outlined the final decision he would release Feb. 29.

“Unlike air pollutants covered by previous waivers [the EPA has granted California],” Johnson wrote, “greenhouse gases … harm the environment in California and elsewhere regardless of where the emissions occur.” Johnson also said the regulations would create a “confusing patchwork of state rules” that could be avoided by approaching global warming regulation from a federal standpoint–using new Corporate Average Fuel Economy (CAFE) standards contained in the Energy Act Bush signed into law the same day as the EPA letter’s issuance.

Fourteen days after Johnson released the letter, California sued the EPA in the 9th Circuit, challenging its decision. The state was soon joined by the other adopting states, and environmental groups filed their own suit.

“To evaluate merits of the lawsuit is a little premature in my view,” says Jonathan Martel, a partner in Arnold & Porter’s Washington office. “It’s just politics at this point. Climate change is getting a lot of political attention … and California’s perceived as moving ahead when the Bush administration has failed to act.”

Given the fact that automakers lobbied the White House aggressively prior to Johnson’s decision, even meeting with Vice President Dick Cheney to discuss the California standards, it isn’t completely surprising that Johnson’s arguments for denying the waiver echo concerns from automakers.

“Frankly, across the industry, the companies cannot meet and don’t expect to be able to meet the California standards,” says David Leitch, general counsel of Ford Motor Co. “The planning we face through measures that were adopted without regard to technical and economic reality is difficult.”

Doniger says automakers can easily overcome difficulties associated with cost. For one, he says, the California program would create emissions allowances for manufacturers to alleviate the costs of compliance. And he claims consumers will actually come out on top–California’s Air Resources Board calculated savings in gasoline as exceeding the extra cost of leasing a fuel-efficient car.

“We’re waiting for some of the automakers to get the logic here,” Doniger says. “It should be a good deal for [automakers] and the public, but instead it’s a big fight.”

Looking Forward

For now, with a lawsuit beginning its journey through the courts and contention brewing on both sides, that seems unlikely to change. The EPA’s waiver denial sparked outrage and a Congressional investigation after reports from within the EPA surfaced claiming Johnson had acted against the agency’s recommendations.

If the reports are proven true, they will surely bolster California’s lawsuit. In any event, all is not lost for California and the states that have adopted its standards. California could succeed in its lawsuit, for one, or Congress could pass the bill introduced in the House March 6 seeking to reverse the EPA’s decision. Johnson could also backtrack and reverse his decision. More likely, however, politics will step in.

“It’s unlikely that [Administrator Johnson] will wake up one day and decide to change his mind,” Martel says. “However, as we all know there’s an election coming up in November.” And the new president will appoint a new EPA administrator, who could reconsider a very similar waiver if California reapplied.
Whatever the outcome, the case serves as a potential preview of how future regulation could play out and embodies how climate change concerns have worked their way through society.

“It’s very clear to me that with this lawsuit and with many others, the climate change debate has moved out of the laboratory, out of academia, and into the day to day operations of the boardrooms of America and companies internationally,” Kahn says.