As previously reported, the Environmental Protection Agency (EPA) is re-evaluating its March 6, 2008 denial of California’s waiver request to enforce greenhouse gas emission standards on automobile manufacturers.  The proposed emission standard is an important piece of California’s plan to reduce greenhouse gas emissions to 1990 levels by 2020 (accounting for almost 20 percent of the planned reductions).  To address California’s “compelling and extraordinary conditions,” as well as automaker’s concerns regarding a patchwork of federal and state emission standards, various commentators have predicted that the administration will soon announce a compromise deal whereby the federal government would enforce a new fortified fuel efficiency standard (i.e., CAFE standard).  In turn, California would agree to modify its regulation to create a pathway for automakers to meet its rules through compliance with the nationwide standard.

Several sticking points exist before a deal can be reached.  To be palatable to California, the federal CAFE standard would have to provide for at least the same level of emission reductions as California’s emission standard.  In addition, California would want to preserve its legal right under the Clean Air Act to go further in the future.  From automakers’ perspective, the deal would have to create a single nationwide standard.  The Detroit automakers would also want to utilize an attribute-based system for measuring fuel efficiency requirements.  Under an attribute-based system, target fuel economies are set based on a particular vehicle attribute (current CAFE standards use the vehicle’s footprint).  In contrast to California’s emission standard, which uses class-based emission targets, the attribute-based system would give each automaker a separately calculated target, based on its particular vehicle mix.  According to one study, this type of system could yield dramatically different impacts for the competitive position of individual automakers.  In particular, Detroit automakers would stand to receive most of the profit gains from higher attribute-based CAFE standards.

If a deal were to be reached, the Administration would need to act soon.  The National Highway Traffic Safety Administration is currently developing CAFE standards for model year 2012-2016.  This lengthy rulemaking process must be completed at least 18 months before the beginning of model year 2012, or by the end of March 2010.

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