2007 was an up-and-down year for the auto industry, with regards to court decisions and agency actions affecting auto makers and dealers. A recap of the year’s activities, beginning in March with Massachusetts v. EPA and concluding with EPA’s denial of California’s Clean Air Act waiver request, follows.

March - Massachusetts v. EPA - The Supreme Court sided with the Commonwealth of Massachusetts, and against the EPA (the auto industry submitted an amicus brief on behalf of the EPA). In this case, the court held that EPA has the statutory authority to regulate carbon dioxide emissions and other greenhouse gases (GHG) as “pollutants” under the Clean Air Act. The court also ruled that “EPA has offered no reasoned explanation for its refusal to decide whether GHGs cause or contribute to climate change. Its action was therefore ‘arbitrary, capricious, . . . or otherwise not in accordance with law.’”

The decision did not actually mandate that EPA enact regulations in this area. Rather, if EPA determines that the scientific uncertainty surrounding climate change is too great, then the Agency has the opportunity on remand to show that it was unable to make a reasoned judgment about how to proceed with regulation. In other words, “EPA must ground its reasons for action or inaction in the statute.”

September - California v. General Motors - A federal district court in California threw out a nuisance suit against the six largest automakers. The State claimed that auto emissions, in contributing to global climate change, constitute a public nuisance, and sought money damages and a declaratory judgment for future expenses incurred by California to deal with “the nuisance of global warming.” The court ruled that the suit raised non-justiciable political questions, and dismissed the suit. The judge indicated that the solutions to climate change must come from the political branches of government - the President and Congress. The courts are the wrong venue to set national standards for pollution and GHG emissions. Because the judge felt he was not in a position to “reach a ruling that is ‘principled, rational, and based upon reasoned distinctions[,]’” he dismissed the case.

A companion case, Connecticut v. American Electric Power, Inc., in which several states sued power generators under the same nuisance theory, was dismissed by the federal district court in September 2005. That ruling was appealed to the Second Circuit, which requested additional submissions by the parties in the wake of Massachusetts v. EPA. The Second Circuit’s decision in this case is expected early in 2008.

September - Green Mountain Chrysler Plymouth Dodge v. Crombie - A federal district court in Vermont upheld Vermont’s right to adopt the auto emissions standards enacted by California. Under the Clean Air Act, only California has the right to develop its own standards, while the other 49 states may adopt either the federal government’s or California’s standards. In this case, the auto industry argued that California’s attempt to develop its own standards (and for Vermont to adopt them) is preempted by federal law - specifically, the Energy Policy and Conservation Act (EPCA), which authorizes the federal government to develop fuel economy (CAFE) standards. The text of the EPCA does, in fact, preempt State action: “a State or a political subdivision of a State may not adopt or enforce a law or regulation related to fuel economy standards or average fuel economy standards for automobiles covered by an average fuel economy standard[.]” However, the court held that “the GHG regulations embrace much more than a simple requirement to improve fuel economy, cloaked in the rhetoric of reducing carbon dioxide emissions.” That is, the states’ regulations are not a perfect proxy for fuel economy standards, as emissions are a function of three major factors: fuel economy standards, vehicle miles traveled, and fuel composition. Because the regulations only affect one of the three components, they are not preempted by the EPCA.

This auto industry also claimed that the emissions standards interfere with foreign policy, which is the sole responsibility of the federal government. “Specifically they claim[ed] that the regulation conflicts with the United States’ pursuit of multilateral agreements to reduce international GHG emissions, diminishes its bargaining power, and ‘interferes with the ability of the United States to speak with one voice upon matters of global climate change.’” The court rejected this argument as well, noting that there is no “express national foreign policy against adopting unilateral binding limitations on GHG emissions in favor of a comprehensive international response to the issue.”

November - Center For Biological Diversity v. National Highway Traffic Safety Administration - The Ninth Circuit Court of Appeals struck down the National Highway Traffic Safety Administration’s (NHTSA) CAFE standards for “light trucks” (SUVs, mini-vans, smaller pick-up trucks) with model years 2008 to 2011. The auto industry had supported the standards rejected in this case. The court held that the process used by NHTSA was flawed because it did not assign a monetary value to the reduction of carbon dioxide emissions resulting from increased fuel economy in its cost-benefit analysis of potential new standards.

What may turn out to be most significant aspect of this case, in terms of its precedential value, was the court’s ruling that NHTSA violated the National Environmental Policy Act (NEPA) by deciding that the new rules would not have a substantial impact on the environment. NHTSA is now required to prepare an environmental impact statement that addresses the role vehicle emissions play in global climate change. Going forward, this decision can provide a new line of attack against governmental decisions - the argument that the agency involved did not adequately account for its (and its projects’) impacts on climate change.

December - Central Valley Chrysler-Jeep v. Goldstone - A federal district court in California upheld the State’s right to enact auto emissions regulations that are more stringent than the federal government’s standards. This case was basically a replay of the Green Mountain Chrysler Plymouth Dodge case that was decided in September. This case is arguably the more important one, given that it was ruling on California’s right to develop tougher standards, rather than on another State’s right to adopt California’s regulations. The most interesting aspect of this case was that the judge, in a January 2007 ruling to stay the proceedings pending the decision in Massachusetts v. EPA, originally appeared to be sympathetic to the auto industry’s arguments. However, once Mass v. EPA was decided, the judge repudiated his earlier line of analysis and sided with the State of California.

December - California’s Clean Air Act Waiver - The EPA announced that it will deny California’s application for a waiver under the Clean Air Act to enact its own auto emissions regulations. No written decision has been issued yet by the EPA, but the EPA Administrator indicated that California did not meet the requirements of Section 209(b) of the Clean Air Act. Under that provision, the Administrator “shall waive application of this section” if the standards “are at least as protective of public health and welfare as applicable Federal standards.” But, “[n]o such waiver shall be granted if the Administrator finds that - (A) the determination of the State is arbitrary and capricious, (B) such State does not need such State standards to meet compelling and extraordinary conditions, or (C) such State standards and accompanying enforcement procedures are not consistent with [Federal guidelines].”

The EPA has indicated that its decision is based on the fact that California did not meet the “compelling and extraordinary conditions” prong of the test. This decision was based partly on the fact that climate change is a global problem, not a localized issue, and partly on the President’s recent signing of a new energy bill that includes increased fuel economy standards.

California has already indicated that it will appeal the decision to the DC Circuit Court. In addition, the House Oversight Committee, led by Democrat Henry Waxman, intends to hold hearings about the denial, which marked the first time that EPA has rejected a waiver application from California under this provision.

For further information about this topic, please contact Akin Gump.