In a landmark decision, the Ninth Circuit Court of Appeals overturned automobile fuel economy standards issued by the National Highway Traffic Safety Administration (NHTSA) on climate change grounds. Center For Biological Diversity v. National Highway Traffic Safety Administration, No. 06-71891 (9th Cir. November 15, 2007). Citing climate change as an economic and environmental issue that NHTSA must consider when it issues new rules, the court made it clear that consideration of climate change in rulemaking proceedings is no longer optional for federal agencies.

The case involved a challenge to the most recent fuel economy standards for so-called “light trucks” – a category that includes mini-vans, sport-utility vehicles, and most pick-up trucks. NHTSA issued new standards for light trucks in 2006, calling for a modest increase in fuel economy, to be implemented for model years 2008-2011.

The plaintiffs challenged the standards on several grounds, the most significant of which concerned the process used by the agency to balance the costs and benefits of enacting a new standard. The lead plaintiff, the Center for Biological Diversity, argued that NHTSA’s failure to assign a monetary value to the reduction of carbon dioxide emissions resulting from increased fuel economy made the agency’s action arbitrary and capricious. The Ninth Circuit agreed, holding that federal law requires NHTSA to consider energy conservation when balancing the costs and benefits of fuel economy standards – including the value of the carbon dioxide emissions that would be reduced by setting the fuel economy standards at different levels.

The court also held that NHTSA’s decision that the rules would not have a substantial impact on the environment violated the National Environmental Policy Act (NEPA), and ordered that the agency to produce an Environmental Impact Statement addressing the role that vehicle emissions play in global climate change.

This case is likely to have significant ripple effects on federal activities from issuance of federal permits to approval of federal funding for a myriad of activities. The court took a serious look at carbon emissions, and held an agency accountable for assessing the climate impact of the actions of the industry it regulates:

“the fact that climate change is largely a global phenomenon that includes actions that are outside of the agency’s control . . . does not release the agency from the duty of assessing the effects of its actions on global warming within the context of other actions that also affect global warming.”

While the case largely involved one specific set of federal regulations, the court’s rationale may be applicable to other regulatory programs implemented by other and agencies. Even more significantly, environmental and other interest groups’ seeking to stop infrastructure projects will likely seize upon the court’s NEPA ruling. Federal agencies, project developers, the investment community and other interested parties must be prepared to consider climate change issues and defend the decisionmaking process in court.

NHTSA may seek reconsideration of the panel’s decision, En Banc review by the entire 9th Circuit, or petition the Supreme Court for certiorari. If the Supreme Court were to accept the case, it would likely be the preeminent case involving environmental law issues in the Court’s Term.

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