Document ID: EPA-HQ-OAR-2006-0173-16137
Agency: epa
Document Type: Notice
Title: California State Motor Vehicle Pollution Control Standards; Notice of Decision Granting a Waiver of Clean Air Act Preemption for California's 2009 and Subsequent Model Year Greenhouse Gas Emission Standards for New Motor Vehicles
Posted Date: 2009-07-08T04:00Z

[Federal Register: July 8, 2009 (Volume 74, Number 129)]
[Notice]               
[Page 32743-32784]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy09-131]                         

[[Page 32743]]

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Part III

Environmental Protection Agency

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California State Motor Vehicle Pollution Control Standards; Notice of 
Decision Granting a Waiver of Clean Air Act Preemption for California's 
2009 and Subsequent Model Year Greenhouse Gas Emission Standards for 
New Motor Vehicles; Notice

[[Page 32744]]

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-8927-2]

 
California State Motor Vehicle Pollution Control Standards; 
Notice of Decision Granting a Waiver of Clean Air Act Preemption for 
California's 2009 and Subsequent Model Year Greenhouse Gas Emission 
Standards for New Motor Vehicles

SUMMARY: The Environmental Protection Agency (EPA) is granting the 
California Air Resources Board's (CARB's) request for a waiver of Clean 
Air Act preemption to enforce its greenhouse gas emission standards for 
model year 2009 and later new motor vehicles. This decision is under 
section 209(b) of the Clean Air Act (the ``Act''), as amended. This 
decision withdraws and replaces EPA's prior denial of the CARB's 
December 21, 2005 waiver request, which was published in the Federal 
Register on March 6, 2008.

DATES: Petitions for review must be filed by September 8, 2009.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2006-0173. All documents and public comments in the 
docket are listed on the www.regulations.gov Web site. Publicly 
available docket materials are available either electronically through 
www.regulations.gov or in hard copy at the Air and Radiation Docket in 
the EPA Headquarters Library, EPA West Building, Room 3334, 1301 
Constitution Ave., NW., Washington, DC. The Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding holidays. 
The telephone number for the Reading Room is (202) 566-1744. The Air 
and Radiation Docket and Information Center's Web site is http://
www.epa.gov/oar/docket.html. The electronic mail (e-mail) address for 
the Air and Radiation Docket is: a-and-r-Docket@epa.gov, the telephone 
number is (202) 566-1742 and the fax number is (202) 566-9744.

FOR FURTHER INFORMATION CONTACT: Specific questions may be addressed to 
David Dickinson, Office of Transportation and Air Quality, Compliance 
and Innovative Strategies Division (6405J-NLD), EPA, 1200 Pennsylvania 
Ave., NW., Washington, DC 20460, telephone: (202) 343-9256, e-mail: 
Dickinson.David@epa.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. Background
    A. California's Greenhouse Gas Program for New Motor Vehicles
    B. EPA's Consideration of CARB's Request
III. Analysis of Preemption Under Section 209(a) of the Clean Air 
Act
    A. Clean Air Act Preemption Provisions
    B. Deference to California
    C. Burden of Proof
IV. California's Protectiveness Determination
    A. What Are ``Applicable Federal Standards''?
    1. Are ``Applicable Federal Standards'' Limited to Clean Air Act 
Emission Standards or Do They Include NHTSA's Fuel Economy 
Standards?
    2. If EPA Did Consider CAFE Standards as ``Applicable Federal 
Standards,'' Are the CAFE Standards More Stringent Than California's 
Greenhouse Gas Emission Standards?
    B. How Does EPA Evaluate Impacts on Other States?
    C. Is California's Protectiveness Determination Arbitrary and 
Capricious?
    1. Based on EPA's Traditional Analysis, Is California's 
Protectiveness Determination Arbitrary and Capricious?
    2. Is California's Protectiveness Determination Arbitrary and 
Capricious Based on the Real-World In-Use Effects of California's 
Greenhouse Gas Standards?
    a. Fleet Turnover/Delayed Scrappage
    b. The ``Rebound Effect''
    c. Upstream Emissions Impacts
    D. Section 209(b)(1)(A) Conclusion
V. Does California Need Its Standards To Meet Compelling and 
Extraordinary Conditions?
    A. Basis of March 6, 2008 Denial
    B. Should EPA Review This Criterion Based on the Need for 
California's Motor Vehicle Program or the Need for the GHG 
Standards?
    1. Comments Supporting a Review of the Entire Program
    2. Comments Supporting a Review of the GHG Standards Separately
    3. Decision
    C. Does California Need Its Motor Vehicle Program To Meet 
Compelling and Extraordinary Conditions?
    D. Does California Need Its Motor Vehicle GHG Standards To Meet 
Compelling and Extraordinary Conditions?
    1. Are California's GHG Standards Designed in Part To Address an 
Air Pollution Problem That is Local or Regional in Nature?
    2. Do the Impacts of Climate Change in California Support a 
Denial of the Waiver?
    a. What Test Applies Under This Alternative Approach?
    b. Would a Waiver Be Denied Under This Alternative Approach?
    3. Must California's GHG Standards Achieve a Demonstrated 
Reduction in GHG Atmospheric Concentrations or Impacts Under Section 
209(b)(1)(B)?
    E. Section 209(b)(1)(B) Conclusion
VI. Are the California GHG Standards Consistent With Section 202(a) 
of the Clean Air Act?
    A. Historical Approach: The Standard of Review for Consistency 
With Section 202(a)
    B. CARB's Assessment of the State of Development of GHG 
Reduction Technology and Comments Supporting CARB's Assessment
    1. Development of GHG Reduction Technology
    2. Overview of Technologies and Their Projected Applications
    3. CARB's Update on Technological Development
    4. Manufacturers' Comments on the Technological Feasibility of 
the GHG Standards
    C. Technological Feasibility and the Cost of Compliance
    1. Historical Approach
    2. Technology Cost Information in This Proceeding
    3. Consistency of Certification Test Procedures
    4. Safety Implications of the CARB GHG Standards
    E. Conclusion on Technological Feasibility
    F. Other Issues Related to Consistency With Section 202(a)
    1. Impacts of EPA's March 6, 2008 Denial on Lead Time
    2. Endangerment of Public Health or Welfare
    a. Is it Appropriate To Review Endangerment of Public Health or 
Welfare Under the ``Consistency With Section 202(a)'' Criterion?
    b. Parties Opposing the Waiver Have Not Met Their Burden of 
Showing Lack of Endangerment to Public Health or Welfare
    G. Section 209(b)(1)(C) Conclusion
VII. Additional Issues Raised
    A. EPA's Administrative Process for Evaluating California's 
Waiver Request
    1. Public Comment Process
    2. EPA's Reconsideration Process
    3. Is a Waiver Required Before California or Section 177 States 
Adopt California's Motor Vehicle Emission Standards?
    B. Scope of EPA's Waiver Review
    1. Relevance of the Energy Policy and Conservation Act (EPCA) to 
the Waiver Decision
    2. Do California's GHG Emission Standards Create an 
Impermissible ``Patchwork''?
    3. What Impact Does Granting California a Waiver for Its GHG 
Emission Standards Have on PSD Requirements for GHGs?
VIII. Decision

I. Executive Summary

    Today, I, as Administrator of the Environmental Protection Agency, 
am granting California's request for a waiver of Clean Air Act 
preemption for California's greenhouse gas emission standards for 2009 
and later model years of new motor vehicles, adopted by the California 
Air Resources Board on September 24, 2004. This decision withdraws and 
replaces EPA's previous March 6, 2008 Denial of California's waiver 
request.
    In the March 6, 2008 Denial, EPA determined that one of the three 
criteria for denial of a waiver had been met, namely, that California 
did not need its

[[Page 32745]]

State standards to meet compelling and extraordinary conditions. I have 
reconsidered that determination, which was based on an interpretation 
of section 209(b)(1) of the Clean Air Act that I now reject. Based on a 
review of the statutory language, legislative history, and the comments 
received, I am returning to EPA's traditional interpretation of this 
provision. Applying EPA's traditional interpretation I have determined 
that the waiver should not be denied under this criterion. Since the 
March 6, 2008 Denial did not evaluate or make any determinations 
concerning either of the other two waiver criteria, I have evaluated 
those criteria and determined that the waiver should not be denied 
under either of them. This includes careful consideration of all of the 
evidence presented concerning technological feasibility of the model 
year 2009 and later model year standards, considering lead time and the 
cost of implementation.
    The legal framework for this decision stems from the waiver 
provision first adopted by Congress in 1967, and later modified in 
1977. Congress established that there would be only two programs for 
control of emissions from new motor vehicles--EPA emission standards 
adopted under the Clean Air Act and California emission standards 
adopted under its state law. Congress accomplished this by preempting 
all state and local governments from adopting or enforcing emission 
standards for new motor vehicles, while at the same time providing that 
California could receive a waiver of preemption for its emission 
standards and enforcement procedures. This struck an important balance 
that protected manufacturers from multiple and different state emission 
standards, and preserved a pivotal role for California in the control 
of emissions from new motor vehicles. Congress recognized that 
California could serve as a pioneer and a laboratory for the nation in 
setting new motor vehicle emission standards. Congress intentionally 
structured this waiver provision to restrict and limit EPA's ability to 
deny a waiver, and did this to ensure that California had broad 
discretion in selecting the means it determined best to protect the 
health and welfare of its citizens. Section 209(b) specifies that EPA 
must grant California a waiver if California determines that its 
standards are, in the aggregate, at least as protective of the public 
health and welfare as applicable Federal standards. EPA may deny a 
waiver only if it makes at least one of three findings specified under 
the Clean Air Act (including whether California's ``protectiveness 
finding'' noted above is arbitrary and capricious). Therefore, EPA's 
role upon receiving a request for waiver of preemption from California 
is to determine whether it is appropriate to make any of the three 
findings specified by the Clean Air Act and if the Agency cannot make 
at least one of the three findings then the waiver must be granted. The 
three waiver criteria are properly seen as criteria for a denial--EPA 
must grant the waiver unless at least one of three criteria for a 
denial is met. This is different from most waiver situations before the 
Agency, where EPA typically determines whether it is appropriate to 
make certain findings necessary for granting a waiver, and if the 
findings are not made then a waiver is denied. This reversal of the 
normal statutory structure embodies and is consistent with the 
congressional intent of providing deference to California to maintain 
its own new motor vehicle emissions program.
    The three criteria for denial of a waiver are: First, whether 
California's determination that its standards are, in the aggregate, at 
least as protective as applicable Federal standards is arbitrary and 
capricious (Section 209(b)(1)(A)); second, whether California has a 
need for such standards to meet compelling and extraordinary conditions 
(Section 209(b)(1)(B)); and third, whether California's standards are 
consistent with Section 202(a) of the Act (Section 209(b)(1)(C)). EPA 
has consistently interpreted the waiver provision as placing the burden 
on the opponents of a waiver to demonstrate that one of the criteria 
for a denial has been met. In this context, since 1970, EPA has 
recognized its limited discretion in reviewing California waiver 
requests. EPA has granted over 50 waivers of preemption and has only 
fully denied one waiver request, the decision under reconsideration 
here.
    In this case, California first requested that EPA waive preemption 
for its new motor vehicle greenhouse gas emission standards on December 
21, 2005. EPA did not begin its formal consideration of the waiver 
request until after the Massachusetts v. EPA decision in April 2007, in 
which the Supreme Court determined that greenhouse gases are air 
pollutants within that term's meaning in the Clean Air Act. On March 6, 
2008, after an administrative process that included two public hearings 
and a written comment period, EPA published its final decision denying 
California's request. EPA's waiver denial was based on the second 
waiver criterion, with EPA determining that California did not need its 
greenhouse gas standards to meet compelling and extraordinary 
conditions. EPA did not address the other two waiver criteria.
    The reconsideration process started early this year. On January 21, 
2009, California Governor Schwarzenegger sent a letter to President 
Obama, and the California Air Resources Board sent a letter to 
Administrator-designee Jackson, requesting the Agency reconsider the 
prior denial. After reviewing CARB's reconsideration request and the 
concerns raised by many different parties, EPA found that there were 
significant issues regarding the Agency's denial of the waiver. The 
denial was a substantial departure from EPA's longstanding 
interpretation of the Clean Air Act's waiver provision and EPA's 
history of granting waivers to California for its new motor vehicle 
emissions program. Many different parties, including California, states 
that have adopted or are interested in adopting California's standards, 
members of Congress, scientists, and other stakeholders, had expressed 
similar concerns about the denial of the waiver. Based on this, EPA 
believed there was merit to reconsidering its decision denying 
California's waiver request and on February 12, 2009, EPA published a 
Federal Register notice announcing its reconsideration of California's 
greenhouse gas waiver request. EPA held a public hearing on March 5, 
2009, and received written comments through April 6, 2009.
    EPA received substantial comment on each of the three waiver 
criteria. The entire administrative process in consideration of 
California's request provided the Agency with extensive legal argument 
and evidence, including oral testimony from three public hearings and 
nearly 500,000 written comments. This material has been substantive and 
invaluable in the Agency's review. EPA has received extensive comments 
from many states; federal, state and local officials; industry; 
environmental groups; scientists; and other stakeholders. The vast 
majority of comments EPA received were in support of the waiver.
    After a thorough evaluation of the record, I am withdrawing EPA's 
March 6, 2008 Denial and have determined that the most appropriate 
action in response to California's greenhouse gas waiver request is to 
grant that request. I have determined that the waiver opponents have 
not met their burden of proof in order for me to deny the waiver under 
any of the three criteria in section 209(b)(1). The findings I have 
made concerning each of the criteria are summarized below.

[[Page 32746]]

    Concerning the criterion with respect to the protectiveness of 
California's standards in the aggregate, I find that the opponents of 
the waiver have not met their burden to demonstrate that California's 
determination was arbitrary and capricious. This evaluation can 
properly by made in situations where EPA has not issued its own 
standards, and this finding is appropriate whether or not comparison is 
made to EPA's current emissions standards or the National Highway 
Transportation Safety Administration's (NHTSA's) fuel economy 
standards, and whether or not it includes an evaluation of the real-
world in-use effect of California's greenhouse gas standards on its 
broader motor vehicle program.
    With respect to the criterion concerning the need for California's 
state standards to meet compelling and extraordinary conditions, I have 
found that the March 6, 2008 Denial was based on an inappropriate 
interpretation of the waiver provision. The March 6, 2008 Denial 
determined that Congress intended to allow California to promulgate 
only those state standards that address pollution problems that are 
local or regional, and this provision was not intended to allow 
California to promulgate state standards designed to address global 
climate change problems. In the alternative, EPA found that the effects 
of climate change in California are not compelling and extraordinary 
compared to the effects in the rest of the country.
    The text of section 209(b) and the legislative history, when viewed 
together, lead me to reject the interpretation adopted in the March 6, 
2008 Denial, and to apply the traditional interpretation to the 
evaluation of California's greenhouse gas standards for motor vehicles. 
If California needs a separate motor vehicle program to address the 
kinds of compelling and extraordinary conditions discussed in the 
traditional interpretation, then Congress intended that California 
could have such a program. Congress also intentionally provided 
California the broadest possible discretion in adopting the kind of 
standards in its motor vehicle program that California determines are 
appropriate to address air pollution problems and protect the health 
and welfare of its citizens. The better interpretation of the text and 
legislative history of this provision is that Congress did not use this 
criterion to limit California's discretion to a certain category of air 
pollution problems, to the exclusion of others.
    Under that interpretation, I cannot find that opponents of the 
waiver have demonstrated that California does not need its state 
standards to meet compelling and extraordinary conditions. The 
opponents of the waiver have not adequately demonstrated that 
California no longer has a need for its motor vehicle emissions 
program. I have also determined that even under the interpretation 
announced in the March 6, 2008 Denial, opponents of the waiver have not 
demonstrated that California does not need its greenhouse gas emission 
standards to meet compelling and extraordinary conditions. In addition, 
I have interpreted the ``compelling and extraordinary conditions'' 
criterion to not properly include a consideration of whether the 
impacts from climate change are compelling and extraordinary in 
California. Nevertheless, I have evaluated the comments received and 
evidence in the record and have determined that the opponents of the 
waiver have not met their burden in demonstrating why evidence such as 
the impacts of climate change on existing ozone conditions in 
California along with the cumulative impacts identified by proponents 
of the waiver (e.g., impacts on snow melt and water resources and 
agricultural water supply, wildfires, coastal habitats, ecosystems, 
etc.) is not compelling and extraordinary.
    Concerning the criterion with respect to consistency of the 
greenhouse gas emission standards with section 202(a), EPA has reviewed 
extensive comments and records received from California and from the 
regulated community concerning the kinds of technology needed to comply 
with California's standards, including costs and lead time, as well as 
evidence concerning the current compliance status of manufacturers. In 
light of the previous waiver denial, EPA specifically asked for comment 
on how lead time should be evaluated as part of the Agency's 
reconsideration. Based on all of that information, I cannot find that 
opponents of the waiver have demonstrated that the greenhouse gas 
emission standards are inconsistent with section 202(a). While I 
believe that a grant of the waiver for model year 2009 would not be a 
retroactive change in the law, to limit any potential concerns that 
have been raised by the manufacturers over their potential reliance 
upon EPA's previous waiver denial, my decision provides that CARB may 
not hold a manufacturer liable or responsible for any noncompliance 
civil penalty action caused by emission debits generated by a 
manufacturer for the 2009 model year.
    EPA finds that those opposing the waiver request have not met the 
burden of demonstrating that California's regulations do not satisfy 
the statutory criteria of section 209(b). For this reason, I am 
granting California's waiver request to enforce its greenhouse gas 
motor vehicle emission regulations.

II. Background

A. California's Greenhouse Gas Program for New Motor Vehicles

    As further explained below, CARB has adopted amendments to title 
13, California Code of Regulations (CCR), sections 1900 and 1961, and 
established standards to regulate greenhouse gas (GHG) emissions from 
new passenger cars, light-duty trucks and medium-duty vehicles in a new 
section 1961.1.
    California's GHG standards are included as part of its second 
generation low-emission vehicle program known as LEV II. EPA previously 
issued a waiver for the LEV II program and also issued a waiver for 
CARB's zero-emission vehicle program (known as ZEV) through the 2011 
model year (MY).\1\ By Resolution 04-28, CARB approved the GHG 
standards for motor vehicles on September 24, 2004, and California's 
Office of Administrative Law approved the regulations on September 15, 
2005.\2\
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    \1\ 68 FR 19811 (April 22, 2003) and 71 FR 78190 (December 26, 
2006).
    \2\ California Air Resources Board, EPA-HQ-OAR-2006-0173-0004.2.
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    CARB's regulation covers large-volume motor vehicle manufacturers 
beginning in the 2009 model year, and intermediate and small 
manufacturers beginning in the 2016 model year and controls greenhouse 
gas emissions from two categories of new motor vehicles--passenger cars 
and the lightest trucks (PC and LDT1) and heavier light-duty trucks and 
medium-duty passenger vehicles (LDT2 and MDPV). The regulations add 
four new greenhouse gas air contaminants (carbon dioxide 
(CO2), methane (CH4), nitrous oxide 
(N2O), and hydrofluorocarbons (HFCs)) to California's 
existing regulations for criteria and criteria-precursor pollutants and 
air toxic contaminants. There are separate fleet average emission 
standards for the two vehicle size categories and within each category 
the sales-weighted average of a manufacturer's vehicles is required to 
comply with the standard. The regulations establish a manufacturer 
declining fleet average emission standard for these gases (expressed as 
grams of carbon dioxide equivalent per mile (``gpm'')), with separate 
standards for each of the two categories of passenger vehicles noted 
above. CARB places the declining standards into two phases: near-term 
standards phased in

[[Page 32747]]

from the 2009 through 2012 model years, and mid-term standards, phased 
in from the 2013 through 2016 model years. Manufacturers may receive 
credits for meeting the standards before model year 2009, for 
surpassing the standards in later model years, and for selling 
alternative fuel vehicles. These credits may be banked for later use, 
transferred between vehicle categories, or sold to another 
manufacturer. If a manufacturer fails to meet the standard in a 
particular model year, it will begin to accrue debits. At that point it 
will have five years to make up for the debits, either by generating 
credits, or by purchasing credits from another manufacturer.

B. EPA's Consideration of CARB's Request

    By letter dated December 21, 2005, CARB submitted a request 
(``Waiver Request'') seeking a waiver of Section 209(a)'s prohibition 
for its motor vehicle GHG standards.\3\ On February 21, 2007, EPA 
notified the Executive Officer of CARB that the timing of EPA's 
consideration of the GHG waiver request was related to the then-pending 
Massachusetts v. EPA case before the United States Supreme Court. EPA 
stated that the decision in that case could potentially be relevant to 
issues EPA might address in the context of the GHG waiver proceeding. 
The Supreme Court issued its Massachusetts v. EPA decision on April 2, 
2007, finding that greenhouse gases are air pollutants under the Clean 
Air Act, and that EPA is required to decide the pending rulemaking 
petition under section 202(a) of the Act, based on the statutory 
criteria of whether, in the Administrator's judgment, emissions of 
greenhouse gases from new motor vehicles cause or contribute to air 
pollution that may reasonably be anticipated to endanger public health 
or welfare.\4\
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    \3\ California Air Resources Board, EPA-HQ-OAR-2006-0173-0004.
    \4\ Massachusetts v. EPA, 549 U.S. 497, 127 S. Ct. 1438 (2007). 
On April 24, 2009, EPA issued ``Proposed Endangerment and Cause or 
Contribute Findings for Greenhouse Gases under Section 202(a) of the 
Clean Air Act'' at 74 FR 18885 (April 24, 2009).
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    On April 30, 2007, a Federal Register notice was published 
announcing an opportunity for hearing and comment on CARB's request.\5\ 
EPA subsequently held two public hearings on May 22, 2007, in 
Washington, DC, and on May 30, 2007, in Sacramento, CA. The written 
comment period closed on June 15, 2007. On several occasions, EPA 
received requests to extend or re-open the comment period; however, the 
Agency did not extend the June 15, 2007 deadline. The Agency instead 
indicated that consistent with past waiver practice it would continue, 
as appropriate, to communicate with stakeholders and evaluate any 
comments submitted after the close of the comment period to the extent 
practicable. By letter dated December 19, 2007, EPA notified California 
Governor Schwarzenegger that EPA would be denying the waiver.\\ On 
March 6, 2008, EPA published its decision denying California's waiver 
request (March 6, 2008 Denial).\6\
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    \5\ 72 FR 21260 (April 30, 2007).
    \6\ 73 FR 12156 (March 6, 2008). The State of California brought 
litigation against EPA in the United States Court of Appeals, DC 
Circuit. This litigation is held in abeyance pending further order 
of the court. (February 25, 2009).
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    EPA's March 6, 2008 Denial was based on a finding that California 
did not need its GHG standards for new motor vehicles to meet 
compelling and extraordinary conditions. Because this finding was 
sufficient to deny California's waiver request, the Administrator found 
it unnecessary to determine whether the criteria for denial of a waiver 
under sections 209(b)(1)(A) and (C) had been met.
    On January 21, 2009, CARB submitted a request for EPA to reconsider 
its March 6, 2008 Denial (``Reconsideration Request'').\7\ CARB's 
Reconsideration Request stated its belief that EPA has the inherent 
authority to reconsider its previous waiver denial and EPA should do so 
in order to restore the Agency's interpretations and applications of 
the Clean Air Act to continue California's longstanding leadership role 
in setting emission standards. Specifically, CARB noted several bases 
for the reconsideration centered on EPA's misinterpretation of the 
Clean Air Act to set new flawed tests and misapplication of facts to 
those tests.
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    \7\ California Air Resources Board, EPA-HQ-OAR-2006-0173-7044.
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    President Obama issued a Presidential Memorandum to the 
Administrator of the Environmental Protection Agency on January 26, 
2009, stating that ``In order to ensure that the EPA carries out its 
responsibilities for improving air quality, you are hereby requested to 
assess whether the EPA's decision to deny a waiver based on 
California's application was appropriate in light of the Clean Air Act. 
I further request that, based on that assessment, the EPA initiate any 
appropriate action.'' \8\
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    \8\ 74 FR 4905 (January 28, 2009).
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    Subsequently, EPA published a Federal Register notice on February 
12, 2009, which responded to CARB's reconsideration request and 
announced that EPA would fully review and reconsider its March 6, 2008 
Denial.\9\ The February 12, 2009 notice specifically sought comment on: 
any new or additional information regarding the three section 209(b) 
waiver criteria; whether EPA's interpretation and application of 
section 209(b)(1)(B) in the March 6, 2008 Denial was appropriate; and, 
the effect of the waiver denial on whether CARB's GHG standards are 
consistent with section 202(a), including lead time. After holding a 
public hearing on March 5, 2009, the written comment period closed on 
April 6, 2009.
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    \9\ 74 FR 7040 (February 12, 2009).
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III. Analysis of Preemption Under Section 209(a) of the Clean Air Act

A. Clean Air Act Preemption Provisions

    Section 209(a) of the Act provides:

    No State or any political subdivision thereof shall adopt or 
attempt to enforce any standard relating to the control of emissions 
from new motor vehicles or new motor vehicle engines subject to this 
part. No State shall require certification, inspection or any other 
approval relating to the control of emissions from any new motor 
vehicle or new motor vehicle engine as condition precedent to the 
initial retail sale, titling (if any), or registration of such motor 
vehicle, motor vehicle engine, or equipment.\10\
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    \10\ Clean Air Act section 209(a).

    Section 209(b)(1) of the Act requires the Administrator, after an 
opportunity for public hearing, to waive application of the 
prohibitions of section 209(a) for any State that has adopted standards 
(other than crankcase emission standards) for the control of emissions 
from new motor vehicles or new motor engines prior to March 30, 1966, 
if the State determines that its State standards will be, in the 
aggregate, at least as protective of public health and welfare as 
applicable Federal standards.\11\ However, no such waiver shall be 
granted by the Administrator if she finds that: (A) The protectiveness 
determination of the State is arbitrary and capricious; (B) the 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 section 202(a) of the Act. In 
previous waiver decisions, EPA has stated that Congress intended EPA's 
review of California's decision-making be narrow. This has led EPA to 
reject arguments that are not specified in the statute as grounds for 
denying a waiver:
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    \11\ California is the only State which meets section 
209(b)(1)'s requirement for obtaining a waiver. See S. Rep. No. 90-
403 at 632 (1967).

[[Page 32748]]

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    The law makes it clear that the waiver requests cannot be denied 
unless the specific findings designated in the statute can properly 
be made. The issue of whether a proposed California requirement is 
likely to result in only marginal improvement in air quality not 
commensurate with its cost or is otherwise an arguably unwise 
exercise of regulatory power is not legally pertinent to my decision 
under section 209, so long as the California requirement is 
consistent with section 202(a) and is more stringent than applicable 
Federal requirements in the sense that it may result in some further 
reduction in air pollution in California.\12\
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    \12\ 36 FR 17458 (Aug. 31, 1971). Note that the more stringent 
standard expressed here, in 1971, was superseded by the 1977 
amendments to section 209, which established that California must 
determine that its standards are, in the aggregate, at least as 
protective of public health and welfare as applicable Federal 
standards.

Thus, my consideration of all the evidence submitted concerning a 
waiver decision is circumscribed by its relevance to those questions 
that I may consider under section 209(b).

B. Deference to California

    In previous waiver decisions, EPA has recognized that the intent of 
Congress in creating a limited review based on the section 209(b)(1) 
criteria was to ensure that the federal government did not second-guess 
the wisdom of state policy. This has led EPA to state:

    It is worth noting * * * I would feel constrained to approve a 
California approach to the problem which I might also feel unable to 
adopt at the federal level in my own capacity as a regulator. The 
whole approach of the Clean Air Act is to force the development of 
new types of emission control technology where that is needed by 
compelling the industry to ``catch up'' to some degree with newly 
promulgated standards. Such an approach * * * may be attended with 
costs, in the shaped of reduced product offering, or price or fuel 
economy penalties, and by risks that a wider number of vehicle 
classes may not be able to complete their development work in time. 
Since a balancing of these risks and costs against the potential 
benefits from reduced emissions is a central policy decision for any 
regulatory agency under the statutory scheme outlined above, I 
believe I am required to give very substantial deference to 
California's judgments on this score.\13\
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    \13\ 40 FR 23103-23104; see also LEV I Decision Document at 64.

    EPA has stated that the text, structure, and history of the 
California waiver provision clearly indicate both a congressional 
intent and appropriate EPA practice of leaving the decision on 
``ambiguous and controversial matters of public policy'' to 
California's judgment.\14\
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    \14\ 40 FR 23104; 58 FR 4166.
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    The House Committee Report explained as part of the 1977 amendments 
to the Clean Air Act, where Congress had the opportunity to restrict 
the waiver provision, it elected instead to explain California's 
flexibility to adopt a complete program of motor vehicle emission 
controls. The amendment is intended to ratify and strengthen the 
California waiver provision and to affirm the underlying intent of that 
provision, i.e., to afford California the broadest possible discretion 
in selecting the best means to protect the health of its citizens and 
the public welfare.\15\
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    \15\ MEMA I, 627 F.2d at 1110 (citing H.R. Rep. No. 294, 95 
Cong., 1st Sess. 301-02 (1977).
---------------------------------------------------------------------------

C. Burden of Proof

    In Motor and Equip. Mfrs Assoc. v. EPA, 627 F.2d 1095 (DC Cir. 
1979) (MEMA I), the U.S. Court of Appeals stated that the 
Administrator's role in a section 209 proceeding is to:

consider all evidence that passes the threshold test of materiality 
and * * * thereafter assess such material evidence against a 
standard of proof to determine whether the parties favoring a denial 
of the waiver have shown that the factual circumstances exist in 
which Congress intended a denial of the waiver.\16\
---------------------------------------------------------------------------

    \16\ MEMA I, 627 F.2d at 1122.

    The court in MEMA I considered the standards of proof under section 
209 for the two findings necessary to grant a waiver for an 
``accompanying enforcement procedure'' (as opposed to the standards 
themselves): (1) Protectiveness in the aggregate and (2) consistency 
with section 202(a) findings. The court instructed that ``the standard 
of proof must take account of the nature of the risk of error involved 
in any given decision, and it therefore varies with the finding 
involved. We need not decide how this standard operates in every waiver 
decision.'' \17\
---------------------------------------------------------------------------

    \17\ Id.
---------------------------------------------------------------------------

    The court upheld the Administrator's position that, to deny a 
waiver, there must be `clear and compelling evidence' to show that 
proposed procedures undermine the protectiveness of California's 
standards.\18\ The court noted that this standard of proof also accords 
with the congressional intent to provide California with the broadest 
possible discretion in setting regulations it finds protective of the 
public health and welfare.\19\
---------------------------------------------------------------------------

    \18\ Id.
    \19\ Id.
---------------------------------------------------------------------------

    With respect to the consistency finding, the court did not 
articulate a standard of proof applicable to all proceedings, but found 
that the opponents of the waiver were unable to meet their burden of 
proof even if the standard were a mere preponderance of the evidence. 
Although MEMA I did not explicitly consider the standards of proof 
under section 209 concerning a waiver request for ``standards,'' as 
compared to accompanying enforcement procedures, there is nothing in 
the opinion to suggest that the court's analysis would not apply with 
equal force to such determinations. EPA's past waiver decisions have 
consistently made clear that: ``[E]ven in the two areas concededly 
reserved for Federal judgment by this legislation--the existence of 
compelling and extraordinary' conditions and whether the standards are 
technologically feasible--Congress intended that the standards of EPA 
review of the State decision to be a narrow one.'' \20\
---------------------------------------------------------------------------

    \20\ See, e.g., 40 FR 21102-103 (May 28, 1975).
---------------------------------------------------------------------------

    Finally, opponents of the waiver bear the burden of showing that 
the criteria for a denial of California's waiver request has been met. 
As found in MEMA I, this obligation rests firmly with opponents of the 
waiver in a section 209 proceeding, holding that: ``[t]he language of 
the statute and it's legislative history indicate that California's 
regulations, and California's determinations that they must comply with 
the statute, when presented to the Administrator are presumed to 
satisfy the waiver requirements and that the burden of proving 
otherwise is on whoever attacks them. California must present its 
regulations and findings at the hearing and thereafter the parties 
opposing the waiver request bear the burden of persuading the 
Administrator that the waiver request should be denied.'' \21\
---------------------------------------------------------------------------

    \21\ MEMA I, 627 F.2d at 1121.
---------------------------------------------------------------------------

    The Administrator's burden, on the other hand, is to make a 
reasonable evaluation of the information in the record in coming to the 
waiver decision. As the court in MEMA I stated, ``Here, too, if the 
Administrator ignores evidence demonstrating that the waiver should not 
be granted, or if he seeks to overcome that evidence with unsupported 
assumptions of his own, he runs the risk of having his waiver decision 
set aside as `arbitrary and capricious.' '' \22\ Therefore, the 
Administrator's burden is to act ``reasonably.'' \23\
---------------------------------------------------------------------------

    \22\ Id. at 1126.
    \23\ Id. at 1126.
---------------------------------------------------------------------------

    EPA received comment suggesting that the burden of proof upon 
reconsideration of EPA's March 6, 2008 Denial should be reversed and 
placed on California.\24\ It is not clear whether

[[Page 32749]]

the commenter is also suggesting that the entire burden of proof now 
shifts to California in that ``[s]uch an allocation of the burden of 
proof ensures that decisions in which EPA has invested time and 
resources are not lightly overturned, and that those decisions enjoy 
the finality to which they are entitled.'' Moreover, the commenter 
suggests that EPA carries a separate responsibility, in order to 
reverse its prior decision, to explain why its first decision on the 
waiver request is no longer the correct one. The commenter cites 
several cases for the proposition that ``[A]n agency changing its 
course * * * is obligated to supply a reasoned analysis for the change 
beyond that which may be required when an agency does not act in the 
first instance'' and that an agency must offer sufficient explanation 
to ensure the court that it is not ``repudiating precedent to conform 
with shifting political mood.'' \25\
---------------------------------------------------------------------------

    \24\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-0173-
8994 at 6-7.
    \25\ Id.
---------------------------------------------------------------------------

    EPA believes that, regardless of the previous waiver denial, once 
California makes its protectiveness determination the burden of proof 
falls on the opponents of the waiver. This burden is inherent in the 
statutory requirement that EPA grant the waiver unless it makes one of 
the specific negative findings in section 209(b)(1).\26\ This is 
consistent with the legislative history, which indicates that Congress 
intended a narrow review by EPA and to preserve the broadest possible 
discretion for California.\27\
---------------------------------------------------------------------------

    \26\ MEMA I, 627 F.2d at 1121.
    \27\ MEMA I, 627 F.2d at 1110-11, citing H.R. Rep. No. 294, 95th 
Cong., 1st Sess. 301-02 (1977).
---------------------------------------------------------------------------

    As EPA explained in the previous waiver denial, the Agency did not 
address the section 209(b)(1)(A) and (C) criteria in its decision; 
therefore EPA is not in a position of reversing any interpretations or 
evidentiary findings. As further discussed in section VI, although 
commenters argue various adverse effects of the prior waiver denial on 
lead time, the burden remains on the opponents of the waiver to 
demonstrate why California's GHG standards are not consistent with 
section 202(a). With regard to section 209(b)(1)(B) and EPA's prior 
waiver denial, EPA has provided a reasoned analysis and explanation for 
any reversal of positions taken in this new decision. In the context of 
this reasoned explanation, EPA believes it is only required to 
demonstrate that it is aware that it is changing positions and that 
there are good reasons for the change in position.\28\ As discussed 
above, the burden of proof under section 209(b)(1)(B) still falls on 
those who wish EPA to deny the waiver, based on the statutory structure 
of section 209(b)(1) and the legislative history. This requirement is 
not disturbed by EPA's initial denial.
---------------------------------------------------------------------------

    \28\ Federal Communications Commission v. Fox Television 
Stations, Inc., 129 S.Ct. 1800, 1809 (2009).
---------------------------------------------------------------------------

IV. California's Protectiveness Determination

    Section 209(b)(1)(A) of the Act requires EPA to deny a waiver if 
the Administrator finds that California was arbitrary and capricious in 
its determination that its State standards will be, in the aggregate, 
at least as protective of public health and welfare as applicable 
Federal standards. EPA recognizes that the phrase ``States standards'' 
means the entire California new motor vehicle emissions program. 
Therefore, as explained below, when evaluating California's 
protectiveness determination, EPA compares the California-to-Federal 
standards. That comparison is undertaken within the broader context of 
the previously waived California program, which relies upon 
protectiveness determinations that EPA have previously found were not 
arbitrary and capricious.\29\
---------------------------------------------------------------------------

    \29\ In situations where there are no Federal standards directly 
comparable to the specific California standards under review, the 
analysis then occurs against the backdrop of previous waivers which 
determined that the California program was at least as protective of 
the federal program ((LEV II + ZEV) + GHG). See 71 FR 78190 
(December 28, 2006), Decision Document for Waiver of Federal 
Preemption for California Zero Emission Vehicle (ZEV) Standards 
(December 21, 2006).
---------------------------------------------------------------------------

    Traditionally, EPA has evaluated the stringency of California's 
standards relative to comparable EPA emission standards.\30\ That 
evaluation follows the instruction of section 209(b)(2), which states: 
``If each State standard is at least as stringent as the comparable 
applicable Federal standard, such State standard shall be deemed to be 
at least as protective of health and welfare as such Federal standards 
for purposes of [209(b)(1)].''
---------------------------------------------------------------------------

    \30\ 36 FR 17458 (Aug. 31, 1971). (``The law makes it clear that 
the waiver requests cannot be denied unless the specific finding 
designated in the statute can properly be made. The issue of whether 
a proposed California requirement is likely to result in only 
marginal improvement in air quality not commensurate with its cost 
or is otherwise an arguably unwise exercise of regulatory power is 
not legally pertinent to my decision under section 209, so long as 
the California requirement is consistent with section 202(a) and is 
more stringent than applicable Federal requirements in the sense 
that it may result in some further reduction in air pollution in 
California.''). The ``more stringent'' standard expressed here in 
1971 was superseded by the 1977 amendments to section 209, which 
established that California's standards must be, in the aggregate, 
at least as protective of public health and welfare as applicable 
Federal standards. The stringency standard remains, though, in 
section 209(b)(2).
---------------------------------------------------------------------------

    To review California's protectiveness determination in light of 
section 209(b)(2), EPA conducts its own analysis of the newly adopted 
California standards to comparable applicable Federal standards. 
Reviewing that comparison quantitatively answers whether the new 
standards are more or less protective than the Federal standards. That 
comparison of the newly adopted California standards to the comparable 
applicable Federal standards is conducted in light of prior waiver 
determinations. That is, the California-to-Federal analysis is 
undertaken within the broader context of the previously waived 
California program, which relies upon protectiveness determinations 
that EPA has not found arbitrary and capricious.\31\
---------------------------------------------------------------------------

    \31\ In situations where there are no Federal standards directly 
comparable to the specific California standards under review, the 
analysis then occurs against the backdrop of previous waivers which 
determined that the California program was at least as protective of 
the federal program ((LEV II + ZEV) + GHG). See 71 FR 78190 
(December 28, 2006), Decision Document for Waiver of Federal 
Preemption for California Zero Emission Vehicle (ZEV) Standards 
(December 21, 2006).
---------------------------------------------------------------------------

    A finding that California's determination was arbitrary and 
capricious under section 209(b)(1)(A) must be based upon ```clear and 
compelling evidence' to show that proposed [standards] undermine the 
protectiveness of California's standards.'' \32\ Even if EPA's own 
analysis of comparable protectiveness or that suggested by a commenter 
might diverge from California's protectiveness finding, that is not a 
sufficient basis on its own for EPA to make a section 209(b)(1)(A) 
finding that California's protectiveness finding is arbitrary and 
capricious.\33\
---------------------------------------------------------------------------

    \32\ MEMA I, 627 F.2d at 1122.
    \33\ ``Once California has come forward with a finding that the 
procedures it seeks to adopt will not undermine the protectiveness 
of its standards, parties opposing the waiver request must show that 
this finding is unreasonable.'' MEMA I, 627 F.2d at 1124.
---------------------------------------------------------------------------

    California made a protectiveness determination with regard to its 
greenhouse gas regulations in Resolution 04-28, adopted by the 
California Air Resources Board on September 23, 2004.\34\ Included in 
that Resolution were several bases to support

[[Page 32750]]

California's protectiveness determination. Most generally, CARB made a 
broad finding that observed and projected changes in California's 
climate are likely to have a significant adverse impact on public 
health and welfare in California, and that California is attempting to 
address those impacts by regulating in a field for which there are no 
comparable federal regulations.\35\ CARB also found that its greenhouse 
gas standards will increase the health and welfare benefits from its 
broader motor vehicle emissions program by directly reducing upstream 
emissions of criteria pollutants from decreased fuel consumption.\36\ 
Beyond that analysis of the new regulations' impact on its broader 
program, CARB projected consumer response to the greenhouse gas 
regulations. With respect to consumer shifts due to a potential 
``scrappage effect'' (the impact of increased vehicle price on fleet 
age) and ``rebound effect'' (the impact of lower operating costs on 
vehicle miles travelled), CARB found minor impacts--but net 
reductions--on criteria pollutant emissions.\37\ Further, even assuming 
larger shifts in consumer demand attributable to the greenhouse gas 
emission standards, CARB found that the result remains a net reduction 
in both greenhouse gas emissions and criteria pollutant emissions.\38\ 
That is, CARB found that the addition of its greenhouse gas emission 
standards to its larger motor vehicle emissions program (LEV II), which 
generally aligns with the federal motor vehicle emissions program (Tier 
II), renders the whole program to be more protective of public health 
and welfare. CARB noted that EPA has already determined that California 
was not arbitrary and capricious in its determination that the pre-
existing California standards for light-duty vehicles and trucks, known 
as LEV II, is at least as protective as comparable Federal standards, 
the Tier II standards.\39\ Implicit in California's greenhouse gas 
protectiveness determination, then, is that the inclusion of greenhouse 
gas standards into California's existing motor vehicle emissions 
program will not cause California's program to be less protective than 
the federal program.
---------------------------------------------------------------------------

    \34\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.107, ``Resolution 04-28, State of California, Air Resources 
Board, September 23, 2004'' (``BE IT FURTHER RESOLVED that the Board 
hereby determines that the regulations approved herein will not 
cause California motor vehicle emission standards, in the aggregate, 
to be less protective of public health and welfare than applicable 
federal standards.'').
    \35\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.107 at 9 (``Over the last hundred years, average temperatures 
in California have increased 0.7% F, sea levels have risen by three 
to eight inches, and spring run-off has decreased 12 percent. These 
observed and future changes are likely to have significant adverse 
effects on California's water resources, many ecological systems, as 
well as on human health and the economy. The signs of a global 
warming trend continue to become more evident and much of the 
scientific debate is now focused on expected rates at which future 
changes will occur.''); California Air Resources Board, EPA-HQ-OAR-
2006-0173-0010.107 at 13 (``There are no comparable federal 
regulations that specifically require the control of greenhouse gas 
emissions from motor vehicles.'').
    \36\ ``The establishment of greenhouse gas emission standards 
will result in a reduction in upstream emissions (emission due to 
the production and transportation of the fuel used by the vehicle) 
of greenhouse gas, criteria and toxic pollutants due to reduced fuel 
usage.'' EPA-HQ-OAR-2006-0173-0010.107 at 8.
    \37\ ``Supplemental analysis of the potential response of 
consumers (consumer response) to the regulations was performed as 
part of the staff evaluation. The evaluation of consumer response 
indicates that the impact of vehicle price increases on fleet 
turnover (changes to the average age of the motor vehicle fleet) as 
well as the impacts of lower operating costs on vehicle miles 
traveled (rebound effect) by consumers have minor impacts (less than 
one percent of the passenger vehicle emissions inventory) on 
criteria pollutant emissions.'' EPA-HQ-OAR-2006-0173-0010.107 at 12.
    \38\ ``Taking into account the penetration of 2009 and later 
vehicles meeting the new standard, the proposed regulation will 
reduce greenhouse gas emission by an estimated 87,700 
CO2-equivelent tons per day statewide in 2020 and by 
155,200 CO2-equivelent tons per day in 2030. This 
translates into an 18 percent overall reduction in greenhouse gas 
emissions from the light duty fleet in 2020 and a 27 percent overall 
reduction in 2030; Taking into account the penetration of 2009 and 
later vehicles meeting the new standard, the proposed regulation 
will reduce upstream emissions of non-methane organic gases (NMOG) 
by 4.6 tons per day statewide in 2020 and 7.9 tons per day statewide 
in 2030, and will reduce upstream emissions of NOX by 1.4 
tons per day statewide in 2020 and 2.3 tons per day statewide in 
2030. The regulation will provide a criteria pollutant benefit even 
taking into account possible pollutant increases due to consumer 
response.'' EPA-HQ-OAR-2006-0173-0010.107 at 15.
    \39\ 68 FR 19811 (April 22, 2003), Decision Document for Waiver 
of Federal Preemption for Low Emission Vehicle Amendments (LEV II) 
(April 11, 2003).
---------------------------------------------------------------------------

A. What Are ``Applicable Federal Standards''?

    EPA has received comments suggesting that the section 209(b)(1)(A) 
comparison to ``applicable Federal standards'' should include corporate 
average fuel economy (CAFE) standards promulgated, or that in the 
future may be promulgated, by the National Highway Traffic Safety 
Administration under the Energy Policy and Conservation Act of 1975 
(EPCA), as amended by the Energy Independence and Security Act of 2007 
(EISA).\40\ That suggestion departs from EPA's traditional analysis. 
EPA has always interpreted ``applicable Federal standards'' as limiting 
EPA's inquiry to motor vehicle emission standards established by EPA 
under the Clean Air Act. After a thorough examination of the text and 
legislative history of the section 209(b) waiver provision, EPA has 
determined that it should continue to interpret ``applicable Federal 
standards'' to mean motor vehicle emission standards established by EPA 
under the Clean Air Act that apply to the same cars and the same air 
pollutants or group of air pollutants as considered in California's 
aggregate protectiveness finding. Additionally, EPA has determined that 
even if it were appropriate to take NHTSA's fuel economy standards into 
account as ``applicable Federal standards,'' the waiver opponents have 
not met their burden of proof to demonstrate that California's 
protectiveness determination was arbitrary and capricious. No waiver 
opponent has demonstrated that existing or proposed fuel economy 
standards are more stringent or more protective of the public health 
and welfare than California's greenhouse gas emission standards.
---------------------------------------------------------------------------

    \40\ Association of International Automobile Manufacturers, 
Inc., EPA-HQ-OAR-2006-1073-9005 at 13-14; Alliance of Automobile 
Manufacturers, EPA-HQ-OAR-2006-0173-8994 at 16-23.
---------------------------------------------------------------------------

1. Are ``Applicable Federal Standards'' Limited to Clean Air Act 
Emission Standards or Do They Include NHTSA's Fuel Economy Standards?
    Section 209(b)(1)(A) requires EPA to evaluate whether California's 
determination regarding the comparative level of protectiveness of its 
standards of the public health and welfare was ``arbitrary and 
capricious.'' California's standards act to improve air quality, and 
thus benefit the public health and welfare, by establishing limits for 
emissions of air pollutants from new motor vehicles and new motor 
vehicle engines. California is then required to compare these new motor 
vehicle standards in the aggregate to ``applicable Federal standards'' 
to determine the relative protectiveness of California's standards. 
Depending on whether the waiver is granted or denied, vehicle 
manufacturers will either have to meet California standards for those 
new vehicles subject to its standards and EPA standards for others, or 
EPA standards for all of the new vehicles.
    The most straightforward reading of the comparison called for by 
the statute, between California and Federal standards, is an ``apples 
to apples'' comparison. California has standards that apply to new 
motor vehicles and the standards set limits for emissions of air 
pollutants. California would then compare its standards to the same 
kind of Federal standard--Federal standards that apply to the same new 
motor vehicles and also set limits for emissions of air pollutants. The 
term ``applicable'' has to refer to what the Federal standards apply 
to, and the most straightforward meaning is that they apply in the same 
way that the

[[Page 32751]]

California standards apply, by setting limits on emissions of air 
pollutants from specified new motor vehicles. ``[A]pplicable Federal 
standards'' would be standards that impose a requirement on new motor 
vehicles and that directly establishes limits on emissions of air 
pollutants, as do the California standards. The ``applicable'' Federal 
standards are those set by EPA that directly apply by regulation to the 
same vehicles and, like the California regulations, set limits for the 
same air pollutants.
    This is a straightforward and logical approach that provides clear 
guidance for California on what standards to compare. It avoids an 
open-ended inquiry into what other potential Federal standards might 
regulate different vehicles or regulate different aspects of the 
vehicles than emissions, and instead focuses the comparison on a 
clearly-defined and identifiable set of Federal standards that are 
parallel to the California standards at issue.
    This interpretation also ties the comparison to the only Federal 
standards that are affected by the results of the comparison. If the 
California comparison shows it is more protective and the waiver is 
granted, the California standards would apply to the vehicles under 
section 209(b) and compliance with the California's standards will be 
deemed to mean compliance with the EPA standards under section 
209(b)(3). If the California comparison is arbitrary and capricious and 
a waiver is denied, then EPA's Federal emission standards apply to 
those vehicles and California's standards do not. The applicability of 
emission standards under section 209(b) that results from the waiver 
decision is parallel to and fully consistent with the comparison made 
between the California and applicable Federal standards.
    EPA has always limited its interpretation of the section 209(b) 
waiver provision to the scope of section 209(a)'s preemption.\41\ 
Section 209(a) creates the explicit preemption of state emission 
standards, and at the same time leaves EPA to set federal emission 
standards, under the authority of section 202(a). Within the context of 
section 209, and the preemption of 209(a), section 209(b)'s waiver 
provision allows California the ability to set its own emission 
standards. Notably, section 209(b) merely gives back to California what 
was taken away by section 209(a)--the ability to adopt and enforce its 
own state emission standards. This interaction between sections 209(a) 
and 209(b) supports interpreting the ``applicable Federal standards'' 
mentioned in section 209(b)(1)(A) to mean the same types of emission 
standards as the emission standards that are actually set by California 
are preempted under section 209(a), and are the subject of a waiver 
request under section 209(b).
---------------------------------------------------------------------------

    \41\ ``The legislative history of section 209 supports the 
Administrator's interpretation that the waiver provision is 
coextensive with the preemption provision, thereby permitting the 
Administrator to consider waiving preemption of California's entire 
program of emissions control.'' MEMA I, 627 F.2d 1095, 1108.
---------------------------------------------------------------------------

    Additionally, EPA's construction of ``applicable Federal 
standards'' provides a single, consistent usage of that phrase in the 
context of the section 209(b) waiver provision. In section 209(b), the 
phrase ``applicable Federal standards'' appears three times. The first 
two instances appear in sections 209(b)(1) and 209(b)(2) and pertain to 
EPA's review of California's protectiveness determination and the 
relative stringency of California's standards, as has been discussed 
above. The third instance occurs in section 209(b)(3) and specifically 
contemplates treatment of waived California standards for the purpose 
of Clean Air Act compliance. Section 209(b)(3) states: ``in the case of 
any new motor vehicle or new motor vehicle engine to which State 
standards apply pursuant to a waiver granted under paragraph (1), 
compliance with such State standards shall be treated as compliance 
with applicable Federal standards for purposes of this title.'' 
(Emphasis added) The reference to Title II of the Clean Air Act in 
section 209(b)(3) is further reason to limit the construction of 
``applicable Federal standards'' to comparable Clean Air Act emission 
standards in sections 209(b)(1) and 209(b)(2). All three occurrences of 
``applicable Federal standards'' in section 209(b) are then given the 
same meaning, in a context where all three occurrences function 
interactively to allow California to enforce its own emission 
standards.
    The textual structure and legislative history of the waiver 
provision also support EPA's interpretation of ``applicable Federal 
standards.'' The structure of section 209(b) is notable in its focus on 
limiting the ability of EPA to deny a waiver and preserving ``the 
broadest possible discretion'' for California to construct its motor 
vehicle program as it deems appropriate to protect its public health 
and welfare.\42\ Where, as in this case, California's emission 
standards are specified in terms of direct regulation of emissions from 
new motor vehicles, it is most clearly reasonable for EPA to limit its 
review under this criterion to those federal standards that likewise 
set limits for the same air pollutant emissions from the same motor 
vehicles. This is consistent with Congress' intent to provide 
California the broadest discretion and avoids limiting California's 
authority and frustrating this congressional intent.\43\ EPA, thus, has 
determined it is reasonable to interpret ``applicable Federal 
standards'' to mean those EPA standards under the Clean Air Act that 
apply in the same manner as the California emission standards, 
regulating emissions of air pollutants from new motor vehicles.\44\ 
Under this approach, any EPA standard that, like California's 
standards, sets limits for motor vehicle emissions could be considered 
an ``applicable Federal standard'' for the purpose of California's 
protectiveness determination.\45\
---------------------------------------------------------------------------

    \42\ H.R. Rep. No. 294, 95th Cong., 1st Sess. 301-302 (1977); 
MEMA I, 627 F. 2d at 1110-11.
    \43\ See MEMA I, 627 F. 2d at 1111.
    \44\ Entergy Corp. v. Riverkeeper, Inc., 129 S.Ct. 1498 (2009) 
(``That view governs if it is a reasonable interpretation of the 
statute--not necessarily the only possible interpretation, nor even 
the interpretation deemed most reasonable by the courts. Chevron 
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 
837, 8430844 (1984).'').
    \45\ In this waiver there are no EPA or other Federal standards 
that have been identified that explicitly and directly regulate 
emissions of GHGs from new motor vehicles. While emission standards 
promulgated by EPA have always been treated as applicable Federal 
standards because they explicitly regulate the same vehicles and air 
pollutants, there is the possibility that another Federal agency 
could have a standard that also directly and explicitly regulates 
emissions from some new motor vehicles. EPA is not aware of any such 
circumstances at this time, but reserves the right to consider in 
the future whether such a non-EPA Federal standard would be 
considered an ``applicable Federal standards'' for the purpose of a 
CAA waiver determination.
---------------------------------------------------------------------------

    Applying this interpretation, Federal fuel economy standards issued 
by NHTSA would not be considered ``applicable Federal standards'' for 
purposes of this waiver criterion. In contrast to standards set limits 
for emissions from new motor vehicles, corporate average fuel economy 
(CAFE) standards set limits on fuel efficiency, to reduce fuel 
consumption. In contrast to EPA's and California's emission standards, 
which typically establish grams per mile (``gpm'') levels of acceptable 
pollutant emissions, CAFE standards establish ``miles per gallon'' 
(``mpg'') levels of acceptable fuel efficiency. Standards that set 
limits for emission levels and standards that set limits for fuel 
efficiency apply different legal requirements. The two kinds of 
standards can overlap significantly, in that the technology used to 
increase fuel efficiency will also lead to reductions in emissions of 
one of the GHGs--CO2--

[[Page 32752]]

but they are not the same legal requirements and the regulations do not 
apply in the same manner.\46\ Fuel economy standards do impact the 
levels of one GHG--CO2--that is emitted from motor vehicles. 
But fuel economy standards do not set limits on emission levels of 
CO2 or any other air pollutant, as do California's 
standards. Lacking that kind of regulation of emissions of an air 
pollutant, fuel economy standards are not ``applicable Federal 
standards.''
---------------------------------------------------------------------------

    \46\ The Supreme Court acknowledged this ``overlap'' between 
fuel economy and emission standards in Massachusetts v. EPA, 127 S. 
Ct. at 1438. (``[T]hat DOT sets mileage standards in no way licenses 
EPA to shirk its environmental responsibilities. EPA has been 
charged with protecting the public's `health' and `welfare.' 42 
U.S.C. 7521(a)(1), a statutory obligation wholly independent of 
DOT's mandate to promote energy efficiency. See Energy Policy and 
Conservation Act, section 2(5), 89 Stat. 874, 42 U.S.C. 6201(5). The 
two obligations may overlap, but there is no reason to think the two 
agencies cannot both administer their obligations and yet avoid 
inconsistency.'')
---------------------------------------------------------------------------

    The difference between emission standards and fuel economy 
standards is highlighted by comparing the two sets of standards at 
issue here. California's greenhouse gas emission standards establish 
allowable grams per mile (``gpm'') levels for greenhouse gas emissions, 
including tailpipe emissions of carbon dioxide (CO2), 
nitrous oxide (N2O), and methane (CH4) as well as 
emissions of CO2 and hydrofluorocarbons (HFCs) related to 
operation of the air conditioning system. By regulating emissions of 
four different greenhouse gas pollutants, the standards do more than 
reduce tailpipe CO2 emissions resulting from fuel 
combustion. They do not directly equate to miles per gallon fuel 
economy reductions. Fuel economy standards, on the other hand, directly 
control miles per gallon (``mpg'') fuel economy levels. CO2 
reductions will occur, but they are an expected indirect effect of 
improved fuel economy standards because the same technology that 
improves fuel economy effectively reduces CO2 emissions.
    There is no doubt that a CAFE standard would clearly produce 
companion reductions in CO2 as fuel economy improves, given 
the technology used to improve fuel economy. However, for the reasons 
described above EPA believes the better interpretation of section 
209(b)(1)(A) is to look at whether the Federal standard is applicable 
to the same vehicles and air pollutants as the California standards, by 
considering whether they directly regulate the same vehicles and air 
pollutants. It is clear that a CAFE standard does not meet this test. 
While there is a large but non-identical overlap in effect between a 
CAFE standard and a GHG emission standard with respect to emissions of 
CO2, the CAFE standards do not set limits on emissions of 
CO2 or any other GHG. There also remain important areas 
where there is no overlap at all with the California standards, 
including the regulation of greenhouse gas pollutants other than 
CO2. Instead of making an exception to its interpretation of 
``applicable Federal standards'' for NHTSA's CAFE fuel economy 
standards, EPA believes it is more appropriate to apply its traditional 
interpretation, for all of the reasons discussed above. Therefore, EPA 
has determined that NHTSA's CAFE standards are not ``applicable Federal 
standards'' for purposes of this waiver criterion.
2. If EPA Did Consider CAFE Standards as ``Applicable Federal 
Standards,'' Are the CAFE Standards More Stringent Than California's 
Greenhouse Gas Emission Standards?
    Even if EPA were to take fuel economy standards into consideration 
as ``applicable Federal standards,'' opponents of the waiver have not 
met their burden of proof to demonstrate that California's 
protectiveness determination was arbitrary and capricious. No waiver 
opponent has demonstrated that existing CAFE standards are more 
stringent or more protective of the public health and welfare than 
California's greenhouse gas emission standards.
    EPA has consistently stated in prior waiver determinations that 
California's protectiveness determination must consider the 
``applicable Federal standards'' in existence at the time of EPA's 
waiver decision.\47\ Standards in existence at the time of a waiver 
decision have only included finalized emission standards that EPA has 
promulgated through its rulemaking process and pursuant to its Clean 
Air Act authority.
---------------------------------------------------------------------------

    \47\ See e.g., Authorization of California's Under 25 Horsepower 
Utility Lawn and Garden Equipment Engine Exhaust Emission Standards 
(ULGE) (July 5, 1995) at 18. (``CARB's protectiveness determination 
must be judged on the standards that are in existence at the time 
EPA makes it authorization determination. However, as CARB correctly 
states, until EPA's rules become final no changed circumstances 
exist that affect CARB's protectiveness determination, and that it 
would be premature to make a protectiveness comparison with non-
finalized federal standards.'')
---------------------------------------------------------------------------

    Applying that approach here, if EPA were to take NHTSA's fuel 
economy standards into account when reviewing California's 
protectiveness determination, our inquiry would be limited to those 
final fuel economy standards that are currently in existence at the 
time of the waiver decision. Although NHTSA is required by the EISA to 
promulgate more stringent fuel economy standards in the future, the 
only final fuel economy standard under EISA that is currently in 
existence is that for the 2011 model year.\48\ Additionally, although 
EPA and the Department of Transportation (DOT) have issued a notice of 
intent to engage in a joint rulemaking, with NHTSA issuing fuel economy 
standards under the EISA for the 2012 through 2016 model years and EPA 
issuing greenhouse gas standards under the CAA for those same model 
years, those standards are neither proposed nor final at this time.\49\ 
To consider CAFE standards that have been proposed or those standards 
that may be proposed would be speculative about what standards will be 
adopted, and EPA has consistently found it inappropriate to engage in 
that speculation with respect to either EPA's or California's future 
standards in prior waiver decisions.
---------------------------------------------------------------------------

    \48\ 74 FR 14196 (March 30, 2009).
    \49\ 74 FR 24007 (May 22, 2009).
---------------------------------------------------------------------------

    Further, it is reasonable to limit our consideration of 
``applicable Federal standards'' to those final standards that are in 
existence, in light of the range of options that remain for California 
and EPA after a decision on this waiver. If federal greenhouse gas 
standards are promulgated in the future, and if such standards bring 
this determination into question, then EPA can revisit this decision at 
that time. The legislative history of section 209(b) makes clear that 
Congress considered section 209(b) as including the authority for EPA 
to withdraw a waiver if circumstances occur in the future that would 
make this appropriate: ``Implicit in this provision is the right of the 
[Administrator] to withdraw the waiver at any time [if] after notice 
and an opportunity for public hearing he finds that the State of 
California no longer complies with the conditions of the waiver.\50\ 
EPA need not decide now what action might be authorized or appropriate 
under section 209(b) if EPA adopts greenhouse gas emission standards in 
the future, as that is best decided when EPA takes such action. 
Additionally, the possibility that CARB may revise its standards is 
always present. Such a revision would be considered by EPA in a future 
waiver proceeding. EPA would then determine whether those changes are 
within-the-scope of its prior waiver or if a new, full waiver 
determination would need to be made, as would be required if California

[[Page 32753]]

decided to increase the stringency of its greenhouse gas standards.
---------------------------------------------------------------------------

    \50\ S. Rep. No. 403, 90th Cong. 1st Sess. (1967), at 33-34.
---------------------------------------------------------------------------

    California's greenhouse gas emission standards begin with the 2009 
model year and increase in stringency through the 2016 model year. For 
that same time period, fuel economy standards only exist for the 2009 
through 2011 model years. An appropriate comparison between 
California's greenhouse gas standards and NHTSA's fuel economy 
standards, then, would compare California's standards for the 2009 and 
later model years to NHTSA's fuel economy standards for the 2009 
through 2011 model years.
    In his December 19, 2007 letter notifying California Governor 
Schwarzenegger that California's waiver request would be denied, former 
EPA Administrator Johnson stated that the EISA ``establishes an 
aggressive standard of 35 miles per gallon for all 50 states, as 
opposed to the 33.8 miles per gallon in California and a patchwork of 
other states.'' California prepared and documented a technical 
evaluation comparing federal fuel economy standards to its own 
standards.\51\ Accounting for the differences between the two sets of 
standards, CARB attempted an ``apples to apples'' comparison of the 
standards and made several assumptions to that end. For its own 
standards, CARB assumed its current greenhouse gas regulations--at 
issue here--were in effect for the 2009 through 2016 model years and 
that those standards increased in stringency for the 2016 through 2020 
model years (its ``Pavley 2'' standards that are not at issue in this 
waiver proceeding). Because EISA does not set standards, but directs 
NHTSA to issue standards that increase fuel economy to a minimum of 35 
miles per gallon by the 2020 model year, CARB projected that the new 
CAFE standards would proportionally increase by 3.44 percent each year 
after the 2011 model year. Also, because EISA allows a fuel economy 
credit up to 1.2 miles per gallon for use of flexible fuel vehicles 
(FFVs) that can operate on high-blend ethanol, such as E85, based on 
manufacturer statements that they would produce large numbers of FFVs, 
CARB assumed maximum use of that credit. CARB also took into account 
differences in fleet mix in California and the other 49 states. To 
compare this range of years of the California greenhouse gas emission 
standards to the corresponding range of years of EISA fuel economy 
standards, CARB translated the miles per gallon standards from EISA 
into greenhouse gas emission rates. The rates of greenhouse gas 
emission reduction from each set of standards were then compared from 
2009 through 2020.\52\ CARB found that in California in 2016, its 
greenhouse gas emission standards would achieve 51.9 million metric 
tons of greenhouse gas emission reductions compared to 23.7 million 
metric tons from federal fuel economy standards. By 2020, CARB found 
100.5 million metric tons of greenhouse gas emission reductions from 
its standards compared to 59.5 million metric tons of greenhouse gas 
emission reductions from the federal fuel economy standards.\53\ Both 
sets of reductions follow a similar pattern because both sets of 
standards are relatively similar in stringency in the near-term (2009-
2011), with California's standards ramping up in the mid-term (2012-
2016), just as the proposed EISA standards begin to increase their 
stringency. While both sets of standards gain stringency in the long-
term (2016 and beyond), California found that its standards are more 
stringent sooner and in the long-term and, furthermore, that its 
standards are more protective of its public health and welfare because 
they achieve greater greenhouse gas reductions.
---------------------------------------------------------------------------

    \51\ California Air Resources Board, Comparison of Greenhouse 
Gas Reductions for the United States and Canada under U.S. CAFE 
Standards and California Air Resources Board Greenhouse Gas 
Regulations, February 25, 2008, available at http://www.arb.ca.gov/
cc/ccms/reports/pavleycafe_reportfeb25_08.pdf.
    \52\ The 2009 through 2020 model year standards are not a 
straightforward comparison of California's greenhouse gas standards 
to EISA standards because the years do not align. The California 
greenhouse gas standards at issue, here, are for the 2009 and later 
model years, whereas EISA was enacted in 2007 and mandates standards 
to reach 35 miles per gallon by the 2020 mode year, but as of yet 
have only been promulgated for the 2011 model year. The 2009 and 
2010 MY federal fuel economy standards were pre-EISA standards. 
Neither California nor NHTSA has yet promulgated standards for the 
2017-2020 model years: California greenhouse gas standards for those 
years are currently proposed in California (as ``Pavley 2'' 
standards), as are all the EISA standards from the 2012 through 2015 
model years.
    \53\ California Air Resources Board, Comparison of Greenhouse 
Gas Reductions for the United States and Canada under U.S. CAFE 
Standards and California Air Resources Board Greenhouse Gas 
Regulations, (February 25, 2008), at 13-14.
---------------------------------------------------------------------------

    EPA notes that this comparison requires speculation regarding what 
final CAFE standards will be promulgated by NHTSA for the 2012-2020 
model years, and what final GHG standards may be promulgated by CARB 
for the 2017-2020 model years. If the comparison were truly between 
final, promulgated standards of California GHG-to-CAFE, it would 
compare California standards for the 2009 through 2016 model years to 
the lone NHTSA fuel economy standard for the 2011 model year, and the 
preexisting standards for the 2009-2010 model years. This highlights 
that the appropriate approach is to compare standards that are final as 
of the time of the waiver decision. However, California's approach 
indicates that its standards are more stringent than federal CAFE 
standards even if CAFE standards increased in the 2012 through 2016 
model years. Therefore, this approach also would indicate that 
California's standards, reviewing only those standards that are final 
at this time, are more stringent in the aggregate.
    No commenter has presented evidence that questions CARB's claim 
that its greenhouse gas emission standards are more stringent than 
EISA. Most commenters opposing the waiver do not focus on the 
comparative stringency of the two sets of standards, but instead focus 
on EISA's mandate for more stringent fuel economy standards as 
undermining the currency of California's protectiveness determination 
or California's ``need'' for its greenhouse gas emission standards. For 
example, AIAM has argued that the increased stringency of CAFE 
standards due to the EISA removes the basis for California's 
protectiveness determination.\54\ Similarly, the Alliance argues that 
``CARB erred in a fundamental way when it chose to ignore the impact of 
the federal CAFE standards generally and EISA's passage in specific on 
California's outdated protectiveness determination.'' \55\ These 
arguments assume that CAFE standards are ``applicable Federal 
standards'' and that non-final standards may be taken into 
consideration at the time of a waiver determination. As explained in 
detail above, those assumptions are not consistent with EPA's 
interpretation of the section 209(b)(1)(A) criterion. Notably though, 
neither argument presents a factually-based analysis of the stringency 
of California's greenhouse gas emission standards as compared to 
existing fuel economy standards that undermines California's 
protectiveness determination.\56\ Such an

[[Page 32754]]

analysis would be necessary for EPA to make a section 209(b)(1)(A) 
finding, if EPA were to depart from its traditional review of 
California's protectiveness determination and interpret ``applicable 
Federal standards'' to include NHTSA's fuel economy standards. As noted 
below, the Alliance points to an analysis of the relative stringency of 
the two sets of standards to find that: ``the combined vehicle-fuel 
program created by the EISA would result in greater life-cycle GHG 
reductions than the state standards that are the subject of this 
proceeding by the end of the decade.'' That analysis, however, is 
flawed for the purpose of this waiver consideration because it 
speculates as to NHTSA standards that are not yet finalized, or even 
proposed. Additionally, it infers that California's standards are more 
protective until 2017.\57\
---------------------------------------------------------------------------

    \54\ Association of International Automobile Manufacturers, 
Inc., EPA-HQ-OAR-2006-0173-9005 at 13-14.
    \55\ Alliance of Automobile Manufacturers, EPA, HQ-OAR-2006-
0173-8994 at 20.
    \56\ The Alliance's comments received April 6, 2009 state: ``It 
should be noted that * * * it is also true that the fuel economy 
improvements required by the California GHG standards are more 
stringent, overall, for the industry than the CAFE standards in many 
jurisdictions in which the state GHG standards would apply compared 
to the CAFE standards. CARB does not disagree with this point. See 
CARB, Comparison of Greenhouse Gas Reductions for the United States 
and Canada Under U.S. CAFE Standards and California's Air Resources 
Board Greenhouse Gas Regulations: An Enhanced Assessment, at 8 
(February 25, 2008).'' Alliance of Automobile Manufacturers, EPA-HQ-
OAR-2006-0173-8994 at 20, note 4.
    \57\ Id.
---------------------------------------------------------------------------

    Based on the above, and recognizing that federal fuel economy 
standards are not ``applicable Federal standards,'' EPA notes that even 
if the stringency of CAFE standards are considered in context of the 
section 209(b)(1)(A) waiver criterion, the opponents of the waiver have 
not presented sufficient evidence to show that California's 
protectiveness determination is arbitrary and capricious. No commenter 
has shown that California's determination was arbitrary and capricious 
in finding that NHTSA's fuel economy standards are not in the aggregate 
more protective of human health and welfare than California's 
greenhouse gas standards, whether one considers just the CARB and NHTSA 
standards that are currently finalized, or one considers possible 
future standards that either agency might adopt.

B. How Does EPA Evaluate Impacts on Other States?

    Several comments have suggested that EPA should consider the 
impacts of California's greenhouse gas standards on other states.\58\ 
At present time, thirteen other states and the District of Columbia 
have already adopted California's greenhouse gas emission standards 
pursuant to section 177 of the Act.\59\ These comments raise two 
objections concerning other states adoption of California's greenhouse 
gas emission standards. First, these comments suggest that state-by-
state compliance with each state's adopted set of California standards 
presents an unworkable compliance ``patchwork'' for automobile 
manufacturers.\60\ Second, and related, the comments suggest that 
enforcement of California's greenhouse gas standards in other states 
will lead to ``environmental disbenefits'' in those states.\61\ EPA 
takes no position on the merits of either argument because these 
arguments are outside the scope of our section 209(b)(1) waiver 
criteria. EPA's evaluation of California's waiver request is limited to 
the State of California.\62\ To the extent that these comments raise 
issues regarding the environmental impacts of consumer shifts within 
California they are evaluated below.
---------------------------------------------------------------------------

    \58\ Association of International Automobile Manufacturers, EPA-
HQ-OAR-2006-0173-7176.11, p. 1-2, 24-25; National Automobile Dealers 
Association, EPA-HQ-OAR-2006-0173-7176.1, EPA-HQ-OAR-2006-0173-8956; 
NERA Economic Consulting and Sierra Research, EPA-HQ-OAR-2006-0173-
9053.1.
    \59\ New York (6 NY Code, Rules & Regs., Part 218-8.3), 
Massachusetts (310 Code of Mass. Regs. 7.40(2)(a)(6)), Maryland 
(Code of Md. Regs. Sec.  26.11.34), Vermont (Vt Air Poll. Ctrl 
Regs., Subchapter XI, 5-1106(a)(5)), Maine (06 Code of Maine Rules 
Sec.  127), Connecticut (Conn. Admin. Code Sec.  22a-174-36b), 
Arizona (18 A.A.C. 2), New Jersey (NJ Admin. Code Sec. Sec.  7:27-
29.13), New Mexico (20 NM Admin. Code, Chapter 2, Part 88), Oregon 
(Or. Admin. Rules Sec.  340-257), Pennsylvania (36 Pa.B. 7424), 
Rhode Island (RI Air Poll. Ctrl Reg. 37.2.3), Washington (Wash. 
Admin. Code Sec.  173.423-090(2), and Washington, DC (DC Law 17-
0151) have adopted California's greenhouse gas emission standards. 
See also http://www.pewclimate.org/what_s_being_done/in_the_
states/vehicle_ghg_standard.cfm. Four more states, including 
Florida, Colorado, Utah, and Montana are poised to adopt the 
standards.
    \60\ National Automobile Dealers Association, EPA-HQ-OAR-2006-
0173-7176.1, EPA-HQ-OAR-2006-0173-8956.
    \61\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-0173-
8994 at 22.
    \62\ These states and the District of Columbia have acted 
pursuant to section 177 of the Clean Air Act, which is not relevant 
to this proceeding, and that any issues commenters have regarding 
section 177 and state compliance with that statutory provision, is 
not appropriate for this proceeding. EPA notes that the language of 
section 209(b(1) refers to the ``State'' in several instances but in 
no instance does it refer to ``states'' or other areas of the 
country.
---------------------------------------------------------------------------

C. Is California's Protectiveness Determination Arbitrary and 
Capricious?

1. Based on EPA's Traditional Analysis, Is California's Protectiveness 
Determination Arbitrary and Capricious?
    As described above, EPA's traditional analysis has been to evaluate 
California's protectiveness determination by comparing the new 
California standards to applicable EPA emission standards for the same 
pollutants.\63\ In the context of greenhouse gas emissions this 
analysis is simple. EPA has already determined that California was not 
arbitrary and capricious in its determination that the pre-existing 
California standards for light-duty vehicles and trucks, known as LEV 
II, is at least as protective as comparable Federal standards, known as 
the Tier II standards.\64\ In the context of the ZEV proceeding, EPA 
conducted its traditional analysis to compare California's newly 
enacted ZEV standards to a similar lack of applicable Federal 
standards. At that time, California found, and EPA deemed reasonable, 
that the addition of the ZEV standards did not render California's LEV 
II program, for which a waiver had previously been granted, less 
protective than the Federal Tier II program. In addressing the 
Alliance's petition for reconsideration with respect to this issue, EPA 
stated that ``the words `standards' and `in the aggregate' in section 
209(b)(1)(A) * * * . at minimum, include all the standards relating to 
the control of emissions for a category of vehicles (e.g. passenger 
cars, etc.) subject to CARB regulation, particularly where the 
standards are designed to respond to the same type of pollution.'' \65\
---------------------------------------------------------------------------

    \63\ See CAA section 209(b)(2).
    \64\ 71 FR 78190 (December 28, 2006) and Decision Document for 
Waiver of Federal Preemption for California Zero Emission Vehicle 
(ZEV) Standards (December 21, 2006); 68 FR 19811 (April 22, 2003) 
and Decision Document for Waiver of Federal Preemption for Low 
Emission Vehicle Amendments (LEV II)(April 11, 2003).
    \65\ EPA's August 13, 2008 Response to Petition for 
Administrative Reconsideration of EPA's ZEV Waiver Decision (through 
the 2011 Model Year) published on December 28, 2006, at 3.
---------------------------------------------------------------------------

    California's greenhouse gas standards are also an addition to its 
existing LEV II program. Since the greenhouse gas standards add onto 
California standards that have already been determined to be as least 
as protective, and since there are no applicable federal greenhouse gas 
emission standards, the point of comparison, here, is between 
California's greenhouse gas standards and an absence of EPA greenhouse 
gas emission standards. Comparing an absence of EPA greenhouse gas 
emission standards to the enacted set of California greenhouse gas 
emission standards provides a clearly rational basis for California's 
determination that the California greenhouse gas emission program will 
be more protective of human health and welfare than non-existent 
applicable federal standards. California directly addressed this 
traditional analysis in its finding that ``[t]here are no comparable 
federal regulations that specifically require the control of greenhouse 
gas emissions from motor vehicles.'' \66\
---------------------------------------------------------------------------

    \66\ Id. at 13.
---------------------------------------------------------------------------

    EPA received comments suggesting that this type of traditional 
comparison is inappropriate, even ``impossible,'' in

[[Page 32755]]

the absence of Federal greenhouse gas emission standards.\67\ Such an 
argument is contrary to legislative intent and EPA's practice.\68\ This 
is not the first time that California has enacted emission standards in 
the absence of Federal standards; in fact, California's pioneering role 
in setting mobile source emission standards is one reason the waiver 
provision exists.\69\ Given that section 209(b)(1) is designed to allow 
California to have standards more stringent than Federal standards, it 
would make little sense to use this provision to prevent California 
from having such standards where the Federal government has not yet 
acted. Moreover, in prior decisions EPA has found that such 
protectiveness determinations by California in the absence of Federal 
standards were reasonable.\70\ Indeed, California standards may be most 
clearly ``at least as protective'' when they are compared to the 
absence of Federal emission standards. This commenter further points to 
the ``tremendous level of current federal activity'' as the primary 
reason why ``it is impossible for EPA to evaluate how the GHG 
Regulations will compare with federal regulation in this field.'' While 
EPA has announced its intention to propose greenhouse gas emission 
standards, EPA has consistently stated that CARB's protectiveness 
determination must consider the Federal standards in existence at the 
time of EPA's waiver decision.\71\
---------------------------------------------------------------------------

    \67\ Alliance of International Automobile Manufacturers, EPA-HQ-
OAR-2006-0173-1455 at 3; Alliance of Automobile Manufacturers, EPA-
HQ-OAR-2006-0173-1297 at 2, 5-7, 11-12; National Automobile Dealers 
Association, EPA-HQ-OAR-0173-1671 at 3.
    \68\ The waiver provision allows California to ``act as a 
testing agent for various types of control and the country as a 
whole will be a beneficiary of this research'' (113 Cong. Rec. 32478 
[1967]); ``act as a laboratory for innovation'' (MEMA I at 1095). 
See Decision Document for Authorization of State Standards for 
Utility Lawn and Garden Equipment (ULGE) (July 5, 1995).
    \69\ California first began regulating motor vehicle emissions 
in 1957, nearly a decade before Congress enacted the Motor Vehicle 
Air Pollution Control Act of 1965, which enabled a federal program.
    \70\ See e.g., Authorization of California's Under 25 Horsepower 
Utility Lawn and Garden Equipment Engine Exhaust Emission Standards 
(ULGE) (July 5, 1995).
    \71\ Id. at 18.
---------------------------------------------------------------------------

    Furthermore, waiting for future federal regulation would be 
contrary to the purpose of the section 209(b) waiver provision--
effectively stalling California's ability to enforce its own program. 
CARB's protectiveness determination was made on September 23, 2004, at 
which time there were no federal greenhouse gas standards. CARB's 
determination, then, correctly compared its standards to the absence of 
federal emission standards. Since that time, there has been no relevant 
intervening ``applicable Federal standard.'' \72\ Although AIAM points 
to the Massachusetts v. EPA decision and Executive Order 13,432, 
neither of those documents, nor any subsequent actions by the Federal 
government,\73\ constitute final EPA regulation of greenhouse gas 
emissions for new motor vehicles that could be used as a comparable 
standard in this waiver proceeding.\74\ The current lack of federal 
greenhouse gas emission standards maintains the factual basis for 
CARB's September 23, 2004 protectiveness determination. As noted above, 
if and when greenhouse gas standards are promulgated by EPA in the 
future, and if such standards bring this determination into question, 
then EPA can revisit this waiver decision at that time. Accordingly, 
applying its traditional comparative analysis, opponents of the waiver 
have not shown flaw or lack of reason in California's protectiveness 
determination; and we cannot find that California's protectiveness 
determination is arbitrary and capricious.
---------------------------------------------------------------------------

    \72\ See section IV.A., regarding ``applicable Federal 
standards.''
    \73\ The Alliance similarly argues that EISA's mandate for 
reformed CAFE standards renders California's protectiveness 
determination ``obsolete'' or ``stale.'' Alliance of Automobile 
Manufacturers, EPA-HQ-OAR-2006-0173-8994 at 21.
    \74\ Likewise, EPA and DOT's ``Notice of Upcoming Joint 
Rulemaking To Establish Vehicle GHG Emissions and CAFE Standards'' 
does not include any final standards which EPA can take into account 
as an ``applicable Federal standards.''74 FR 24007 (May 22, 2009).
---------------------------------------------------------------------------

2. Is California's Protectiveness Determination Arbitrary and 
Capricious Based on the Real-World In-Use Effects of California's 
Greenhouse Gas Standards?
    EPA received comments suggesting the need for and appropriateness 
of applying an alternative interpretation of section 209(b)(1)(A), 
based on an inquiry into the in-use effect of inclusion of greenhouse 
gas standards upon the broader motor vehicle emissions program.\75\ EPA 
does not take a position as to the validity of the suggestion that the 
type of numerical analysis discussed above is insufficient. Noting the 
legislative history and text of section 209(b)(2), EPA would need a 
concrete factual basis to examine the in-use effect of California's 
greenhouse gas standards on its broader LEV II program as compared to 
the Federal Tier II program. We need not take a position on that matter 
because to the extent that the in-use effects of the greenhouse gas 
standards are considered, the waiver opponents do not meet their burden 
to show that CARB's analysis of the effects is unreasonable.
---------------------------------------------------------------------------

    \75\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-0173-
1297 at 5-12, and EPA-HQ-OAR-2006-0173-8994 at 22.
---------------------------------------------------------------------------

    These comments suggest that consumer effects will cause 
California's broader LEV II motor vehicle emissions program to be less 
protective than the Federal Tier II emissions program.\76\ In support 
of this analysis, the Alliance commissioned a study from Sierra 
Research, NERA Economic Consulting, and Air Improvement Resource, Inc. 
entitled ``Effectiveness of the California Light Duty Vehicle 
Regulations as Compared to Federal Regulations,'' which was submitted 
to EPA on June 15, 2007 (``June 2007 AIR/NERA/Sierra Study'').\77\ CARB 
specifically responded to the June 2007 Study in comments it submitted 
to the docket on July 24, 2007 (``CARB's July Comments'').\78\ Next, 
the Alliance submitted a response to California's response prepared by 
NERA Economic Consulting and Sierra Research (``October 2007 NERA/
Sierra Study'').\79\ Most recently, the Alliance submitted another 
study produced by NERA Economic Consulting and Sierra Research entitled 
``Impacts of the California Greenhouse Gas Emission Standards on Motor 
Vehicle Sales'' (``April 2009 NERA/Sierra Study'').\80\ On this issue, 
the Alliance also refers to a study published by the Society of 
Automotive Engineers entitled ``Evaluation of California Greenhouse Gas 
Standards and Federal Independence and Security Act--Part 2: 
CO2 and GHG Impacts'' (``SAE Study'').\81\ At the same time, 
Air Improvement Resource, Inc. has independently submitted comments 
which include its ``Evaluation of California Greenhouse Gas Standards 
and Federal Energy Independence and Security Act'' (``March 2009 AIR 
Study'').\82\
---------------------------------------------------------------------------

    \76\ Id.
    \77\ Sierra Research, Inc., EPA-HQ-OAR-2006-0173-1447, 
1447.1-.5.
    \78\ California Air Resources Board, EPA-HQ-OAR-2006-0173-3601.
    \79\ NERA Economic Consulting, Inc. and Sierra Research, EPA-HQ-
OAR-2006-0173-3651.
    \80\ NERA Economic Consulting and Sierra Research, EPA-HQ-OAR-
2006-0173-9053.
    \81\ Thomas L. Darlington and Dennis F. Kahlbaum, Evaluation of 
California Greenhouse Gas Standards and Federal Independence and 
Security Act--Part 2: CO2 and GHG Impacts, SAE Paper No. 
2008-01-1853 (2008), Alliance of Automobile Manufacturers, EPA-HQ-
OAR-2006-0173-8994 at 20, note 44.
    \82\ Air Improvement Resources, Inc., EPA-HQ-OAR-2006-0173-
13662.
---------------------------------------------------------------------------

    The Alliance has raised this issue before, in its request for 
reconsideration of EPA's waiver for California's ZEV

[[Page 32756]]

standards.\83\ In that reconsideration, the Alliance referred to the 
same June 2007 AIR/NERA/Sierra Study, saying that the California 
program, as a whole, was not at least as protective of public health 
and welfare as comparable federal standards. EPA denied the Alliance's 
request, in particular because the June 2007 AIR/NERA/Sierra Study was 
produced under the assumption that California's ZEV standards would be 
in effect until at least 2020 and that California's greenhouse gas 
standards would also be in effect. As EPA had only granted the ZEV 
waiver through the 2011 model year and had not granted the greenhouse 
gas waiver, EPA found that the study was not based upon the proper 
assumptions for comparing California's standards to federal standards. 
EPA stated at that time: ``[T]o the extent that the real-world emission 
effects of CARB's ZEV program (aggregated with its LEV II standards) 
are relevant, if at all, the Alliance fails to submit sufficiently 
focused information regarding these programs and their associated 
effect on emissions. Thus, no basis exists to reconsider EPA's December 
2006 waiver decision based on the NERA/Sierra/Air report.'' \84\
---------------------------------------------------------------------------

    \83\ Decision Document for Waiver of Federal Preemption for 
California Zero Emission Vehicle (ZEV) Standards (December 21, 2006) 
and EPA's August 13, 2008 Response to Petition for Administrative 
Reconsideration of EPA's ZEV Waiver Decision (through the 2011 Model 
Year) published on December 28, 2006.
    \84\ EPA's August 13, 2008 Response to Petition for 
Administrative Reconsideration of EPA's ZEV Waiver Decision (through 
the 2011 Model Year) published on December 28, 2006, at 17-18. That 
denial further opined: ``In light of the language of section 
209(b)(1)(A) and associated legislative history, it may only be 
necessary to examine the applicable emission limits in determining 
California's ability to set more stringent standards and pursue 
pioneering efforts (which may or may not lead to higher costs and 
associated fleet turnover concerns) under section 209(b)(1)(A). 
Given the legislative history * * * . EPA would need a concrete 
basis to examine the ``real world'' or in-use effect of California's 
standards in comparison to applicable federal standards (in this 
case, a comparison of LEV II + ZEV versus Tier 2). To require CARB 
to justify its standards and policy goals within the context of the 
protectiveness criteria based on waiver opponents' complicated and 
controversial models that apply assumptions that are themselves 
controversial, and where there are no corresponding federal 
standards, raises questions about whether demanding this type of 
review conflicts with Congress' intent to allow California `the 
broadest possible discretion' in fashioning its own motor vehicle 
program without EPA second-guessing California's policy choices.'' 
Id. at 12.
---------------------------------------------------------------------------

    In evaluating its greenhouse gas standards, California's 
protectiveness determination went beyond a simple numerical comparison 
of its greenhouse gas standards to non-existent federal greenhouse gas 
standards. Its protectiveness determination was also based upon its own 
analysis of the impact of its greenhouse gas standards on its larger 
program. California found that its new greenhouse gas standards would 
yield not only reductions in greenhouse gas emissions but also a net 
reduction in criteria pollutant emissions.\85\ Therefore, to the extent 
this analysis is even relevant for an EPA waiver review opponents must 
present ``clear and compelling'' evidence challenging the 
reasonableness of this determination and California's analysis.
---------------------------------------------------------------------------

    \85\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.107 at 15 (``Taking into account the penetration of 2009 and 
later vehicles meeting the new standard, the proposed regulation 
will reduce greenhouse gas emission by an estimated 87,700 
CO2-equivelent tons per day statewide in 2020 and by 
155,200 CO2-equivelent tons per day in 2030. This 
translates into an 18 percent overall reduction in greenhouse gas 
emissions from the light duty fleet in 2020 and a 27 percent overall 
reduction in 2030; Taking into account the penetration of 2009 and 
later vehicles meeting the new standard, the proposed regulation 
will reduce upstream emissions of non-methane organic gases (NMOG) 
by 4.6 tons per day statewide in 2020 and 7.9 tons per day statewide 
in 2030, and will reduce upstream emissions of NOX by 1.4 
tons per day statewide in 2020 and 2.3 tons per day statewide in 
2030. The regulation will provide a criteria pollutant benefit even 
taking into account possible pollutant increases due to consumer 
response.'').
---------------------------------------------------------------------------

    The June 2007 AIR/NERA/Sierra Study prepared for the Alliance 
presents a finding that its results ``indicate that the California 
Program, in the aggregate, is less protective of public health than the 
Federal Program with respect to emissions of ozone precursors and 
several other criteria pollutants.'' The study undertook consumer 
choice modeling to evaluate the effect of the California greenhouse gas 
emission standards on the new motor vehicle fleet and vehicle miles 
travelled (VMT) and compare those effects with fleet and VMT conditions 
were the Federal Program in effect in California. Its results showed 
that compliance with the California greenhouse gas standards would 
raise the cost of new motor vehicles in California, which would then 
lead to higher new vehicle prices, decreased new vehicle sales, 
increased retention of used vehicles (``scrappage effect''), increased 
fuel economy which would lead to increased VMT (``rebound effect''), 
and, finally, increased emissions of ozone precursors and several other 
criteria air pollutants.
    On July 24, 2007, CARB submitted a response to comments received by 
EPA which specifically addressed the June 2007 AIR/NERA/Sierra 
Study.\86\ First, CARB insisted that such a study should have been 
presented for consideration during California's rulemaking process and 
not later during EPA's consideration of California's waiver request. 
Second, CARB substantively responded to the June 2007 AIR/NERA/Sierra 
Study and claimed that its protectiveness determination was proper. In 
sum, CARB objected that the June 2007 AIR/NERA/Sierra Study is 
inappropriate because it is not focused on the relative stringency of 
emission standards, but instead presents ``a series of speculative 
events driven by disputed and unsupported compliance costs that would 
supposedly result--contrary to experience with previous reduction and 
automotive regulatory measures--in a substantial reduction in new motor 
vehicle sales (fleet turnover); and * * * Californians' theoretical 
desire to drive even more miles than already projected to reach 
increasingly distant destinations in the face of increasing traffic 
congestion (rebound effect).'' \87\ CARB further critiqued several 
points of AIR/NERA/Sierra's analysis, including what it viewed as 
``grossly overstated * * * highly speculative cost estimates,'' 
modeling errors, lack of methodological detail, and faulty assumptions. 
CARB asserted that its staff reviewed similar analyses and had provided 
its own analyses that are ``more reasonable and historically reliable'' 
and ``lead to dramatically different outputs.''
---------------------------------------------------------------------------

    \86\ California Air Resources Board, EPA-HQ-OAR-2006-0173-3601.
    \87\ California Air Resources Board, EPA-HQ-OAR-2006-0173-3601 
at 8.
---------------------------------------------------------------------------

    NERA/Sierra responded to that critique on October 29, 2007.\88\ 
That document includes specific responses to criticisms raised by CARB 
and generally defends the integrity of its analyses. NERA/Sierra 
affirmed its conclusions that CARB's protectiveness determination is 
not fully supported because it understates or ignores costs, does not 
consider the combined effects of the ZEV mandate and GHG requirements, 
and does not assure compliance through technological implementation. As 
to the specific modeling issues raised by CARB, NERA/Sierra maintained 
the correctness of its modeling assumptions and estimations with regard 
to technology cost, fleet turnover, rebound effect, and pollutant 
emission effect.
---------------------------------------------------------------------------

    \88\ NERA Economic Consulting, Inc. and Sierra Research, EPA-HQ-
OAR-2006-0173-3651.
---------------------------------------------------------------------------

    NERA/Sierra also submitted an additional study on April 6, 2009, 
presenting many of the same methodological assertions noted above. 
Notably, though, this study is less methodologically clear: It does not 
quantify scrappage or its effects on emissions, assumes technology is 
applied only to meet federal CAFE

[[Page 32757]]

standards (and not beyond that level of stringency), and assumes that 
further compliance is achieved through fleet mix changes combined with 
restrictions on vehicle availability. It is not clear whether and how 
ZEV program requirements are included in this study. Most importantly, 
though, the April 2009 NERA/Sierra Study is outside the scope of this 
proceeding; it presents ``the effects on motor vehicle sales of the 
California Standards, assuming that they are implemented in the 13 
states that have adopted California's standards.'' \89\ That is, the 
April 2009 NERA/Sierra Study seeks to present the effect of 
California's greenhouse gas standards on new motor vehicle sales in 
those 13 states. This is inappropriate because the waiver inquiry is 
limited to the State of California (as noted above) and, even if this 
study had been limited to California, it would still be inadequate 
because it does not connect its findings with regard to depressed 
vehicle sales to increased criteria pollutant emissions.
---------------------------------------------------------------------------

    \89\ NERA Economic Consulting and Sierra Research, EPA-HQ-OAR-
2006-0173-9053 at E-1.
---------------------------------------------------------------------------

    Air Improvement Resources, Inc. (``AIR''), who had originally 
participated in the June 2007 AIR/NERA/Sierra Study but submitted 
comment independently on April 6, 2009, evaluated California's 
greenhouse gas standards as compared to EISA ``standards.'' As noted 
above, this evaluation is not relevant to EPA's section 209(b)(1)(A) 
inquiry because EISA ``standards'' are not ``applicable Federal 
standards'' for the purpose of our waiver inquiry. Nor have any fuel 
economy standards been promulgated beyond the 2011 model year. Those 
underlying inadequacies render this study unpersuasive, if not entirely 
irrelevant. However, it is interesting to note that the primary finding 
of this study is that ``the California program has lower GHG emissions 
until about 2016-2018.'' \90\ AIR also included as an attachment an SAE 
Paper evaluating impacts on new vehicle fuel economy from California's 
greenhouse gas standards and EISA ``standards.'' The finding of this 
paper is that California's greenhouse gas standards will lead to higher 
fuel economy than EISA ``standards'' until the 2017 model year.\91\ The 
findings of both reports are based on inconsistent assumptions that 
California's greenhouse gas standards will not become more stringent 
after the 2016 model year, (because this waiver request ends with the 
2016 model year standards) but the federal fuel economy standards will 
become more stringent even though there are not yet any federal fuel 
economy standards past the 2011 model year. As stated above, EPA is not 
including fuel economy standards in its consideration of ``applicable 
Federal standards.'' But, even if EPA were to engage in that analysis, 
it can only consider standards in existence at the time of a waiver 
decision, as stated above. Since no federal fuel economy standards 
exist yet beyond the 2011 model year, EPA will not make predictions 
about later year fuel economy standards in order to take them into 
account here.
---------------------------------------------------------------------------

    \90\ Air Improvement Resources, Inc., EPA-HQ-OAR-2006-0173-13662 
at 2. Yet this analysis presumes the promulgation of fuel economy 
standards that have not yet been promulgated and does not 
accordingly presume the promulgation of further greenhouse gas 
standards by California, despite the fact that the Pavley law in 
California makes such further standards a significant possibility.
    \91\ Air Improvement Resources, Inc., EPA-HQ-OAR-2006-0173-
13662.
---------------------------------------------------------------------------

    As discussed below, EPA has evaluated both sets of analyses (from 
CARB and NERA/Sierra) and makes note of the following with regard to 
(1) fleet turnover/delayed scrappage, (2) the rebound effect, and (3) 
upstream emissions impacts.\92\
---------------------------------------------------------------------------

    \92\ EPA's role in reviewing California's waiver request is 
limited to finding whether opponents have shown that California's 
protectiveness determination is arbitrary and capricious. In making 
its protectiveness determination, CARB included these analyses and 
the studies noted above have included similar analyses based on 
diverging assumptions. EPA has evaluated these analyses to 
demonstrate that CARB's protectiveness determination was not 
arbitrary and capricious. This evaluation is separate and distinct 
from any analysis that EPA would conduct in promulgating its own 
regulation. Nothing in this evaluation should be construed as an 
endorsement of CARB's or any other analysis or any particular 
assumption they rely upon.
---------------------------------------------------------------------------

a. Fleet Turnover/Delayed Scrappage
    The Alliance argues that California's greenhouse gas standards will 
cause delayed fleet turnover and, thus, increase criteria air pollutant 
emissions. Delayed fleet turnover results when the prices of new 
vehicles increase, causing prices of existing vehicles to increase as 
well. A consumer's decision to scrap an existing vehicle depends upon 
the trade-off between the value of existing vehicle in its working 
condition and its scrappage value. Rising prices of existing vehicles 
lead some consumers to decide to delay scrapping their vehicles. An 
older vehicle stock on the road results in an increase in criteria air 
pollution.
    In conducting its analysis on consumer behavior impacts in its June 
2007 study, NERA/Sierra/AIR evaluated the combined impacts of the 
California greenhouse gas emission standards and the Zero Emission 
Vehicle (``ZEV'') rules. It is difficult to discern the total cost per 
vehicle over various model years of the greenhouse gas versus the ZEV 
portion of the rules and, therefore, determine how much of the consumer 
behavior impacts are appropriately attributable to the greenhouse gas 
standards. Thus, it is difficult to undertake a direct comparison of 
the NERA/Sierra/Air and CARB studies. According to NERA/Sierra/AIR, as 
a result of price increases associated with the greenhouse gas and ZEV 
rules in 2020, they project that new vehicle sales in California will 
fall by approximately 130,000 vehicles. In addition, the number of 
vehicles in the fleet prior to the effective date of the ZEV and GHG 
regulations (i.e., pre-2009 model year vehicles) is more than 250,000 
greater in 2020 than would otherwise be the case under a federal 
program.
    CARB, on the other hand, only looks at the economic impacts of the 
California greenhouse gas standards, independent of the ZEV 
requirements. Without the ZEV requirements, CARB estimates that 
California's greenhouse gas standards will result in an increase in new 
vehicle prices of approximately $1,000 per vehicle (i.e., $1,064 for 
passenger vehicles, small trucks and sport utility vehicles (SUVs) and 
$1,029 for certain medium-duty trucks/SUVs).\93\ Using a consumer 
choice model, CARBITS, CARB estimated new vehicle sales from California 
standards would increase in the near-term, resulting in accelerated 
fleet turnover, but see declines in fleet turnover in the longer-term, 
with a loss of vehicle sales of roughly 97,000 in 2020. By 2020, CARB 
estimates that lost vehicle sales would lead to delayed fleet turnover. 
The potential increase in ozone precursor emission in California in out 
years (i.e., 2020) from delayed fleet turnover is about 2.5 tons/day. 
CARB estimates that those ``disbenefits'' of fleet turnover delay are 
more than offset by faster turnover in the early years of the 
California standard and reductions in emissions associated with fuel 
production. The more recent April 2009 NERA/Sierra study projects the 
impacts of the California GHG standards on new motor vehicle sales in 
the thirteen states that have adopted the California standards. Since 
the study only examines the impacts on new vehicle sales, it does not 
provide estimates of ozone precursor impacts of California standards.
---------------------------------------------------------------------------

    \93\ California Air Resources Board, EPA-HQ-OAR-2006-
0173.0010.116.
---------------------------------------------------------------------------

b. The ``Rebound Effect''
    The Alliance contends that criteria air pollutant emissions will 
increase due to

[[Page 32758]]

the so-called vehicle ``rebound effect.'' The rebound effect for 
vehicle fuel economy is defined as the increase in vehicle travel 
resulting from a decrease in the fuel cost per vehicle miles as a 
consequence of an increase in fuel economy. It is projected that 
increasing fuel efficiency lowers the effective cost of driving to the 
consumer, which results in an increase in vehicle usage (holding all 
other factors constant). NERA developed their own econometric estimate 
of the California rebound effect--17%--based on California vehicle 
inspection data from 1983-2003. In addition, NERA re-estimated a CARB-
sponsored study on the rebound effect by Small & Van Dender and NERA 
found the long-run rebound effect in California to be roughly 13%.
    In contrast, CARB used two types of analysis to evaluate the impact 
of the proposed regulations on changes in vehicle miles traveled: 
Econometric work by Small and Van Dender and travel demand modeling 
(Southern California Association of Governor's (SCAG)). The study by 
Small & Van Dender allowed the rebound effect to vary based on changes 
in income and congestion. In addition, the Small & Van Dender study 
also analyzed the impact of higher vehicle costs on VMT. Based on the 
econometric modeling, projected California incomes and transportation 
conditions, Small and Van Dender estimated a dynamic rebound effect of 
approximately 3% for the State of California in 2020. A major 
difference between the NERA and Small and Van Dender study was the way 
nominal income was converted to real income. NERA tried to approximate 
state cost of living adjustments, but had to modify metropolitan cost 
of living adjustments; Small and Van Dender used the national consumer 
price index. Based on the difference in income calculation, NERA found 
that income was no longer statistically significant in explaining 
changes in the rebound effect. Therefore, they removed this term from 
their model. California also used the Southern California Association 
of Governor's (SCAG) travel demand model to project changes in demand 
travel based on declining vehicle operating costs in the context of the 
transportation system in the L.A. South Coast Air Basin. In contrast to 
the econometric study, the travel demand modeling takes into account 
the available transportation infrastructure. CARB examined the emission 
impacts of changes in both the amount and the speed of motor vehicle 
travel, relative to the cost of gasoline per mile traveled. Based on 
the vehicle classes affected by the proposed GHG regulation, the 
results from SCAG indicate an elasticity of VMT to fuel cost (i.e., a 
rebound effect) of roughly 4 percent in 2020.
c. Upstream Emissions Impacts
    California's greenhouse gas standards also will influence the 
amount of fuel going through the petroleum marketing and distribution 
infrastructure in California. This, in turn, will reduce the 
``upstream'' criteria air pollutants from transportation, spills, and 
other events associated with the infrastructure. There were large 
differences between the CARB and NERA/Sierra estimates of upstream 
emissions. NERA, focusing on fuel delivery trucks and transit 
distances, characterized CARB's estimates as significantly flawed. 
However, both estimated upstream emission reductions of ROG and 
NOX, with CARB estimating a 6 ton per day reduction and NERA 
estimating a 1.1-1.5 ton per day reduction. The table below presents 
the rivaling estimates presented by the CARB and NERA/Sierra analyses.

------------------------------------------------------------------------
                                      CARB                  NERA
------------------------------------------------------------------------
Fleet Turnover/Scrappage      Accelerated fleet     Delayed fleet
 Effect.                       turnover in near-     turnover in near
                               term; smaller         term; larger
                               delayed fleet         delayed fleet
                               turnover in out       turnover in out
                               years (e.g., 2020).   years (e.g., 2020).
Rebound Effect..............  3% in 2020..........  17% in 2003, 13% in
                                                     2007.
Upstream Emissions..........  6 tons/day reduction  1.1-1.5 tons/day
                               in ROG+NOx.           reduction in
                                                     ROG+NOx.
------------------------------------------------------------------------

    Additionally, as with our analysis of the AIR/NERA/Sierra analysis 
in the context of the ZEV waiver reconsideration, we note that the 
study included a presumption that the ZEV standards would be in effect 
until at least 2020, and that this assumption appears to have a 
significant effect on other assumptions in the analysis. However, EPA 
explicitly declined to approve its waiver for California's ZEV 
standards beyond the 2011 model year, based in part on concerns that 
echoed comments from the Alliance. This makes the AIR/NERA/Sierra 
analysis an insufficient analysis to base a denial of California's 
waiver request.
    In evaluating the studies prepared by AIR/NERA/Sierra in light of 
California's protectiveness determination, EPA takes important note of 
CARB's response. As stated above, while CARB disagrees that these 
studies are properly before EPA in the waiver proceeding, it points out 
that even if it is proper for EPA to consider the AIR/NERA/Sierra 
studies, they do not provide a basis for finding that California's 
protectiveness determination was arbitrary and capricious. CARB 
maintains that the Alliance has made no attempt to show that CARB's 
analyses are irrational, which CARB states waiver opponents must make 
given the ``arbitrary and capricious'' standard.
    EPA agrees that to make a section 209(b)(1)(A) finding, it is not 
enough for waiver opponents to provide competing analyses that they 
claim are based on a rational set of assumptions. Rather, they must 
show that California's analysis, or the assumptions California relied 
on to support its protectiveness determination were arbitrary and 
capricious. Competing analyses, each based on rational assumptions, are 
not sufficient to deny a waiver.\94\
---------------------------------------------------------------------------

    \94\ EPA's August 13, 2008 Response to Petition for 
Administrative Reconsideration of EPA's ZEV Waiver Decision (through 
the 2011 Model Year) published on December 28, 2006, at 17, note 25.
---------------------------------------------------------------------------

    As previously stated, EPA does not need to decide the validity of 
the suggestion that the traditional numerical analysis is insufficient 
and that EPA must also consider the in-use effects of the standards. 
Given the legislative history and text of section 209(b)(2), EPA would 
need a concrete factual basis to examine the in-use effect of 
California's greenhouse gas standards on its broader LEV II program as 
compared to the Federal Tier II program. We need not take a position on 
that matter because the waiver opponents do not meet their burden to 
show that CARB's analysis of the in-use effects is arbitrary and 
capricious.\95\ Rather, they present

[[Page 32759]]

rivaling analyses--each making different assumptions so that the 
differences in findings can be reduced to differences in assumptions. 
EPA finds that the Alliance has not met its burden of proof that the 
greenhouse gas regulations undermine California's previous LEV II and 
ZEV protectiveness determinations or that California was arbitrary and 
capricious in its greenhouse gas protectiveness determination.
---------------------------------------------------------------------------

    \95\ To the extent that an analysis of the in-use effects of 
California's greenhouse gas standards may be appropriate, then such 
analysis properly includes consideration of the upstream emission 
reduction impacts identified and linked to the standards. A holistic 
examination of the in-use effects of a regulation should naturally 
include those effects that have a plausible connection to the 
standards, including such consequences as indirect upstream emission 
reductions. The March 6, 2008 Denial stated that California may 
otherwise have independent authority to regulate stationary sources 
and therefore there was no basis to include emission reductions from 
such sources as part of a mobile source rulemaking. However, EPA 
believes that the issue under section 209(b)(1)(A) is whether the 
indirect reductions of ozone pollutants from stationary sources 
created by the greenhouse gas emission standards for motor vehicles, 
can reasonably be considered by California in its determination that 
its standards are as protective of public health and welfare as 
applicable federal standards. Given that the effects are reasonably 
related to the regulations, if it is appropriate to consider in-use 
effects then it was not arbitrary and capricious for California to 
include such effects in this analysis.
---------------------------------------------------------------------------

    EPA, therefore, finds that opponents of the waiver have not 
presented clear and compelling evidence that CARB was arbitrary and 
capricious in finding that the real-world effect of its standards ``in 
the aggregate'' would not lead to greater emissions of pollutants than 
the federal program.

D. Section 209(b)(1)(A) Conclusion

    Based on the record before me, I cannot find that CARB was 
arbitrary and capricious in its finding that the California motor 
vehicle emission standards including the greenhouse gas standards are, 
in the aggregate, at least as protective of public health and welfare 
as applicable Federal standards.

V. Does California Need Its Standards To Meet Compelling and 
Extraordinary Conditions?

    Under section 209(b)(1)(B) of the Act, I cannot grant a waiver if I 
find that California ``does not need such State standards to meet 
compelling and extraordinary conditions.'' EPA has traditionally 
interpreted this provision as considering whether California needs a 
separate motor vehicle program to meet compelling and extraordinary 
conditions. However in the March 6, 2008 Denial, EPA limited this 
interpretation to California's motor vehicle standards that are 
designed to address local or regional air pollution problems. EPA 
determined that the traditional interpretation was not appropriate for 
standards designed to address a global air pollution problem and its 
effects and that it was appropriate to address such standards 
separately from the remainder of the program. EPA then proceeded to 
find that California did not need such standards to meet compelling and 
extraordinary conditions. The interpretation adopted in the March 6, 
2008 Denial is now before me for reconsideration.

A. Basis of March 6, 2008 Denial

    In the March 6, 2008 Denial, EPA provided its reasoning for 
changing its long-standing interpretation of this provision, as it 
pertains to California standards designed to address global air 
pollution. EPA described its long-standing interpretation in some 
detail, stating that:

    Under this approach EPA does not look at whether the specific 
standards at issue are needed to meet compelling and extraordinary 
conditions related to that air pollutant. For example, EPA reviewed 
this issue in detail with regard to particulate matter in a 1984 
waiver decision.\96\ In that waiver proceeding, California argued 
that EPA is restricted to considering whether California needs its 
own motor vehicle program to meet compelling and extraordinary 
conditions, and not whether any given standard is necessary to meet 
such conditions. Opponents of the waiver in that proceeding argued 
that EPA was to consider whether California needed these PM 
standards to meet compelling and extraordinary conditions related to 
PM air pollution.
---------------------------------------------------------------------------

    \96\ 49 FR 18887 (May 3, 1984).
---------------------------------------------------------------------------

    The Administrator agreed with California that it was appropriate 
to look at the program as a whole in determining compliance with 
section 209(b)(1)(B). One justification of the Administrator was 
that many of the concerns with regard to having separate state 
standards were based on the manufacturers' worries about having to 
meet more than one motor vehicle program in the country, but that 
once a separate California program was permitted, it should not be a 
greater administrative hindrance to have to meet further standards 
in California. The Administrator also justified this decision by 
noting that the language of the statute referred to ``such state 
standards,'' which referred back to the use of the same phrase in 
the criterion looking at the protectiveness of the standards in the 
aggregate. He also noted that the phrase referred to standards in 
the plural, not individual standards. He considered this 
interpretation to be consistent with the ability of California to 
have some standards that are less stringent than the federal 
standards, as long as, per section 209(b)(1)(A), in the aggregate 
its standards were at least as protective as the federal standards.
    The Administrator further stated that in the legislative history 
of section 209, the phrase ``compelling and extraordinary 
circumstances'' refers to ``certain general circumstances, unique to 
California, primarily responsible for causing its air pollution 
problem,'' like the numerous thermal inversions caused by its local 
geography and wind patterns. The Administrator also noted that 
Congress recognized ``the presence and growth of California's 
vehicle population, whose emissions were thought to be responsible 
for ninety percent of the air pollution in certain parts of 
California.'' \97\ EPA reasoned that the term compelling and 
extraordinary conditions ``do not refer to the levels of pollution 
directly.'' Instead, the term refers primarily to the factors that 
tend to produce higher levels of pollution--``geographical and 
climatic conditions (like thermal inversions) that, when combined 
with large numbers and high concentrations of automobiles, create 
serious air pollution problems.'' \98\
---------------------------------------------------------------------------

    \97\ Id. at 18890.
    \98\ 73 FR 12156, 12159-60 (March 6, 2008).

    The Administrator summarized that under this interpretation the 
question to be addressed in the second criterion is whether these 
``fundamental conditions'' (i.e. the geographical and climate 
conditions and large motor vehicle population) that cause air pollution 
continued to exist, not whether the air pollution levels for PM were 
compelling and extraordinary, or the extent to which these specific PM 
standards will address the PM air pollution problem.\99\
---------------------------------------------------------------------------

    \99\ 73 FR at 12159-60.
---------------------------------------------------------------------------

    However in the March 6, 2008 Denial, EPA limited this 
interpretation to California's motor vehicle standards that are 
designed to address local or regional air pollution problems. EPA 
determined that the traditional interpretation was not appropriate for 
standards designed to address a global air pollution problem and its 
effects.\100\
---------------------------------------------------------------------------

    \100\ EPA recently reaffirmed that the traditional 
interpretation still applied for motor vehicle standards designed to 
address air pollution problems that are local or regional in nature. 
71 FR 78190, 78192 (December 28, 2008); see also 71 FR 78190 and 
Decision Document for Waiver of Federal Preemption for California 
Zero Emission Vehicle Standards, at 34.
---------------------------------------------------------------------------

    With respect to a global air pollution problem like elevated 
concentrations of greenhouse gases, EPA's March 6, 2008 Denial found 
that the text of section 209(b)(1)(B) was ambiguous and does not limit 
EPA to this prior interpretation. In addition, EPA noted that the 
legislative history supported a decision to ``examine the second 
criterion specifically in the context of global climate change.'' The 
legislative history:

    [I]ndicates that Congress was moved to allow waivers of 
preemption for California motor vehicle standards based on the 
particular effects of local conditions in California on the air 
pollution problems in California. Congress discussed ``the unique 
problems faced in California as a result of its climate and 
topography.'' H.R. Rep. No. 728, 90th Cong. 1st Sess., at 21 (1967). 
See also Statement of Cong. Holifield (CA), 113 Cong. Rec. 30942-43 
(1967). Congress also noted the large effect of local vehicle 
pollution on such local problems. See, e.g., Statement of Cong. Bell 
(CA) 113 Cong. Rec. 30946. In particular, Congress focused on 
California's

[[Page 32760]]

smog problem, which is especially affected by local conditions and 
local pollution. See Statement of Cong. Smith (CA) 113 Cong. Rec. 
30940-41 (1967); Statement of Cong. Holifield (CA), id. at 30942. 
See also, MEMA I, 627 F. 2d 1095, 1109 (DC Cir., 1979) (noting the 
discussion of California's ``peculiar local conditions'' in the 
legislative history). Congress did not justify this provision based 
on pollution problems of a more national or global nature in 
justifying this provision.\101\
---------------------------------------------------------------------------

    \101\ 73 FR at 12161.

    Relying on this, and without any further significant discussion of 
either congressional intent or how this new approach properly furthered 
---------------------------------------------------------------------------
the goals of section 209(b), EPA determined that it was appropriate to:

    [R]eview California's GHG standards separately from the 
remainder of its motor vehicle emission control program for purposes 
of section 209(b)(1)(B). In this context it is appropriate to give 
meaning to this criterion by looking at whether the emissions from 
California motor vehicles, as well as the local climate and 
topography in California, are the fundamental causal factors for the 
air pollution problem--elevated concentrations of greenhouse gases--
apart from the other parts of California's motor vehicle program, 
which are intended to remediate different air pollution concerns.

    EPA then proceeded to apply this interpretation to the GHG 
standards at issue in this waiver proceeding, and found that California 
did not need the GHG standards under this interpretation. Having 
limited the meaning of this provision to situations where the air 
pollution problem was local or regional in nature, EPA found that 
California's greenhouse gas standards do not meet this criterion. EPA 
found that the elevated concentrations of greenhouse gases in 
California are similar to concentrations elsewhere in the world, and 
that local conditions in California such as the local topography and 
climate and the number of motor vehicles in California are not the 
determinant factors causing the elevated GHG concentrations found in 
California and elsewhere. Thus, the March 6, 2008 Denial found that 
California did not need its GHG standards to meet compelling and 
extraordinary conditions, and the waiver was denied.
    EPA also considered an alternative interpretation, where EPA would 
consider ``the effects in California of this global air pollution 
problem in California in comparison to the rest of the country, again 
addressing the GHG standards separately from the rest of California's 
motor vehicle program.'' Under this alternative interpretation, EPA 
considered whether the impacts of global climate change in California 
were significant enough and different enough from the rest of the 
country such that California could be considered to need its greenhouse 
gas standards to meet compelling and extraordinary conditions. EPA 
determined that the waiver should be denied under this alternative 
interpretation as well.

B. Should EPA Review This Criterion Based on the Need for California's 
Motor Vehicle Program or the Need for the GHG Standards?

    The essential first question to resolve in addressing whether 
California needs ``such State standards to meet compelling and 
extraordinary conditions'' is whether it is appropriate for EPA to 
evaluate this criterion based on California's need for its motor 
vehicle program as a whole, or to evaluate only the particular 
standards being addressed in this waiver proceeding.
1. Comments Supporting a Review of the Entire Program
    In its initial waiver request, CARB restates its need for its own 
engine and vehicle programs to meet serious air pollution problems. It 
notes that the relevant inquiry is whether California needs its own 
emission control program as opposed to the need for any given standard 
as necessary to meet compelling and extraordinary conditions. CARB 
notes that in prior waivers the Administrator has determined that:

    ``[C]ompelling and extraordinary conditions'' does not refer to 
levels of pollution directly, but primarily to the factors that tend 
to produce them: geographical and climatic conditions that, when 
combined with large numbers and high concentrations of automobiles 
create serious air pollution problems.''
    In its initial waiver request letter, CARB stated:

    California, the South Coast and San Joaquin Air basins in 
particular, continues to experience some of the worst air quality in 
the nation. California's ongoing need for dramatic emission 
reductions generally and from passenger vehicles specifically is 
abundantly clear from its recent adoption of state implementation 
plans for the South Coast and other California air basins. The 
unique geographical and climatic conditions, and the tremendous 
growth in the vehicle population and use which moved Congress to 
authorize California to establish separate vehicle standards in 
1967, still exist today.\102\
---------------------------------------------------------------------------

    \102\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 27.

    CARB notes that these conditions have not changed to warrant a 
change in confirmation by EPA and that the opponents of the waiver bear 
the burden on showing why California no longer has a compelling need, 
informed by its own circumstances and benefits that would accrue to it 
and other states.
    EPA also received comment that the Massachusetts v. EPA holding 
suggests that EPA should treat greenhouse gases just like all other air 
pollutants when evaluating a section 209(b) waiver request for 
greenhouse gases. These comments suggest that once the Supreme Court 
clarified that greenhouse gases are Clean Air Act air pollutants, there 
was no room left to distinguish greenhouse gases from other air 
pollutants when evaluating waiver requests under section 209(b). These 
comments suggest that EPA ought not to treat elevated concentrations of 
greenhouse gases as an air pollution problem different from 
California's traditional air pollution problems. Likewise, the comments 
suggest, greenhouse gas pollutants should be treated just like other 
air pollutants which give rise to the need for California's motor 
vehicle emission program, and, therefore, be subject to EPA's 
traditional section 209(b)(1)(B) analysis.
    Several commenters suggest that review of California's need for its 
motor vehicle emissions program as a whole is not only appropriate but 
is mandated by the statute.
2. Comments Supporting a Review of the GHG Standards Separately
    Several commenters opposing the GHG waiver request have advocated 
that EPA should review California's GHG standards separately under the 
``compelling and extraordinary conditions'' criterion. Essentially, 
this would require that EPA's determination be based on California's 
need for GHG standards in isolation of its need for its own motor 
vehicle emissions program.
    These commenters state that the statute requires a linkage between 
the compelling and extraordinary conditions and the particular 
standards that California wishes to enforce, and that a set of 
standards that cannot be linked to the compelling and extraordinary 
conditions cannot be said to be needed to meet such conditions. The 
commenters note that the statute refers to ``standards''--not to a 
``program''--and that such an approach would shield regulations that 
would not meet the criterion from any review simply by referring to 
other regulations that do meet the criterion. Moreover, they state that 
the need for such standards must be based on the particular 
characteristics (topography, photochemistry) that make California's 
conditions compelling and

[[Page 32761]]

extraordinary, whereas global climate change (and, thus, control of 
GHGs) is not related to such conditions.
    Included among the comments suggesting that section 209(b) was 
intended to allow California to address local air pollution problems 
and not global environmental issues like climate change was an argument 
that the phrase ``need for such State standards to meet compelling and 
extraordinary conditions'' is unambiguous.\103\ That lack of ambiguity, 
according to these comments, compels the conclusion that global warming 
is not the type of condition California was meant to address with its 
motor vehicle emissions program. These commenters further suggest that 
the intent of Congress was to allow California the ability to set its 
own standards to address the state's unique local air pollution 
problems and ``scientific evidence confirms that California's 
temperature trends are neither unique nor particularly distinct from 
those of at least a dozen other States.''
---------------------------------------------------------------------------

    \103\ This comment, suggesting that the ``need for such State 
standards to meet compelling and extraordinary conditions,'' is made 
under Step 1 of the test established under Chevron, USA., Inc. v. 
NRDC.
---------------------------------------------------------------------------

3. Decision
    After reviewing the comments and the March 6, 2008 Denial, I 
believe the better approach is to review California's need for its new 
motor vehicle emissions program as a whole to meet compelling and 
extraordinary conditions, and not to apply this criterion to specific 
standards, or to limit it to standards designed to address only local 
or regional air pollution problems. The traditional approach to 
interpreting this provision is the best approach for considering a 
waiver for greenhouse standards, as well as a waiver for standards 
designed to address local or regional air pollution problems.\104\ 
Therefore, I believe the interpretation that was applied in the March 
6, 2008 Denial should be rejected and no longer be followed.
---------------------------------------------------------------------------

    \104\ The traditional interpretation of section 209(b)(1)(B) is 
certainly not ``unambiguous precluded'' by the language of the 
statute. See Entergy Corp. v. Riverkeeper, Inc., 129 S.Ct. 1498 
(2009)(``That view governs if it is a reasonable interpretation of 
the statute--not necessarily the only possible interpretation, nor 
even the interpretation deemed most reasonable by the courts. 
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 
U.S. 837, 843-844 (1984).'') (``It seems to us, therefore, that the 
phrase ``best available,'' even with the added specification ``for 
minimizing adverse environmental impact,'' does not unambiguously 
preclude cost-benefit analysis.''). Carrow v. Merit Systems 
Protection Board, 564 F.3d 1359 (Fed. Cir. 2009) (``[W]e are 
obligated to give controlling effect to [agency's] interpretation if 
it is reasonable and is not contrary to the unambiguously expressed 
intent of Congress'', citing Entergy Corp.) .
---------------------------------------------------------------------------

    This traditional interpretation is the most straightforward reading 
of the text and legislative history of section 209(b). Congress decided 
in 1977 to allow California to promulgate individual standards that are 
not as stringent as comparable federal standards, as long as the 
standards are ``in the aggregate, at least as protective of public 
health and welfare as applicable federal standards.'' This decision by 
Congress requires EPA to allow California to promulgate individual 
standards that, in and of themselves, might not be considered needed to 
meet compelling and extraordinary circumstances, but are part of 
California's overall approach to reducing vehicle emissions to address 
air pollution problems.
    EPA is to determine whether California's determination is arbitrary 
and capricious under section 209(b)(1)(A), and is to determine whether 
California does not need ``such State standards'' to meet compelling 
and extraordinary conditions. The natural reading of these provisions 
leads EPA to consider the same group of standards that California 
considered in making its protectiveness determination. While the words 
``in the aggregate'' are not specifically applicable to section 
209(b)(1)(B), it does refer to the need for ``such State standards,'' 
rather than ``each State standard'' or otherwise indicate a standard-
by-standard analysis.
    In addition, EPA's March 6, 2008 Denial determined that this 
provision was appropriately interpreted to consider California's 
standards as a group for standards designed to address local or 
regional air pollution problems, but should be interpreted in the 
opposite fashion for standards designed to address global air pollution 
problems. The text of the provision, however, draws no such 
distinction, and provides no indication other than Congress intended a 
single interpretation for this provision, not one that varied based on 
the kind of air pollution problem at issue.
    The March 6, 2008 Denial considered the legislative history, and 
determined that Congress was motivated by concern over local conditions 
in California that lead to local or regional air pollution problems. 
From this, EPA determined that Congress intended to allow California to 
address these kinds of local or regional air pollution problems, but no 
others. In effect, EPA inferred from the discussion in the legislative 
history that Congress intended to limit California's authority in this 
way, and to prohibit a waiver for California standards aimed at global 
air pollution problems.
    This ignores the main thrust of the text and legislative history of 
section 209(b), and improperly reads too much into an absence of 
discussion of global air pollution problems in the legislative history. 
The structure of section 209, both as adopted in 1967 and as amended in 
1977, is notable in its focus on limiting the ability of EPA to deny a 
waiver, and thereby preserves discretion for California to construct 
its motor vehicle program as it deems appropriate to protect the health 
and welfare of its citizens. The legislative history indicates Congress 
quite intentionally restricted and limited EPA's review of California's 
standards, and its express legislative intent was to ``provide the 
broadest possible discretion [to California] in selecting the best 
means to protect the health of its citizens and the public welfare.'' 
\105\ The DC Circuit recognized that ``[t]he history of the 
congressional consideration of the California waiver provision, from 
its original enactment up through 1977, indicates that Congress 
intended the State to continue and expand its pioneering efforts at 
adopting and enforcing motor vehicle emission standards different from 
and in large measure more advanced than the corresponding federal 
program. In short, to act as a kind of laboratory for innovation. * * * 
For a court [to limit California's authority] despite the absence of 
such an indication would only frustrate the congressional intent.'' 
\106\
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    \105\ H.R. Rep. No. 294, 95th Cong., 1st Sess. 301-302 (1977). 
See MEMA, 627 F. 2d at 1110-11.
    \106\ MEMA, 627 F. 2d at 1111.
---------------------------------------------------------------------------

    In this context, it is fully consistent with the expressed 
intention of Congress to interpret section 209(b)(1)(B) the same way 
both for standards designed to address local and regional air pollution 
problems, and standards designed to address global air pollution 
problems. Congress intended to provide California the broadest possible 
discretion to develop its motor vehicle emissions program. Neither the 
text nor the legislative history of section 209(b) indicates that 
Congress intended to limit this broad discretion to a certain kind of 
air pollution problem, or to take away all discretion with respect to 
global air pollution problems.\107\ In

[[Page 32762]]

addition, applying the traditional interpretation to greenhouse gas 
standards does not change the basic nature of the compromise 
established by Congress--California could act as the laboratory for the 
nation with respect to motor vehicle emission control, and 
manufacturers would continue to face just two sets of emissions 
standards--California's and EPA's.
---------------------------------------------------------------------------

    \107\ This broad interpretation of section 209(b) is similar to 
the broad reading the Court provided to section 302(g) of the Clean 
Air Act when it held that the term ``air pollutant'' included 
greenhouse gases, rejecting among other things the argument that 
Congress limited the term to apply only to certain kinds of air 
pollution. Massachusetts v. EPA, 549 U.S. 497, 532 footnote 26.
---------------------------------------------------------------------------

    This interpretation is directly in line with the purpose of 
Congress, as compared to the interpretation adopted in the March 6, 
2008 Denial. The 2008 interpretation relied on the discussion in the 
legislative history of local conditions in California leading to air 
pollution problems like ozone. While this was properly read to support 
the view that this provision should be interpreted to address 
California's need for a motor vehicle program as a whole, the March 6, 
2008 Denial went further and inferred that by discussing such local 
conditions, Congress also intended to limit California's discretion to 
only these kinds of local or regional air pollution problems. The March 
6, 2008 Denial pointed to no particular language in the legislative 
history or the text of section 209(b) indicating such, instead, 
congressional intent to limit California's discretion was inferred from 
the discussion of local conditions. However, basing a limitation on 
such an inference is not appropriate given the express indication that 
Congress intended to provide California the ``broadest possible 
discretion'' in selecting the best means to protect the health of its 
citizens and the public welfare.
    The text of section 209(b) and the legislative history, when viewed 
as a whole, leads me to conclude that the interpretation adopted in the 
March 6, 2008 Denial should be rejected. The better way to interpret 
this provision is to apply the traditional interpretation to the 
evaluation of California's greenhouse gas standards for motor vehicles. 
If California needs a separate motor vehicle program to address the 
kinds of compelling and extraordinary conditions discussed in the 
traditional interpretation, then Congress intended that California 
could have such a program. Congress also intentionally provided 
California the broadest possible discretion in adopting the kind of 
standards in its motor vehicle program that California determines are 
appropriate to address air pollution problems that exist in California, 
whether or not those problems are local or regional in nature, and to 
protect the health and welfare of its citizens. The better 
interpretation of the text and legislative history of this provision is 
that Congress did not intend this criterion to limit California's 
discretion to a certain category of air pollution problems, to the 
exclusion of others. In this context it is important to note that air 
pollution problems, including local or regional air pollution problems, 
do not occur in isolation. Ozone and PM air pollution, traditionally 
seen as local or regional air pollution problems, occur in a context 
that to some extent can involve long range transport of this air 
pollution or its precursors. This long-range or global aspect of ozone 
and PM can have an impact on local or regional levels, as part of the 
background in which the local or regional air pollution problem occurs. 
As discussed later, the effects of global concentrations of greenhouse 
gases can have an impact on local ozone levels. This context for air 
pollution problems supports the view that Congress did not draw such a 
line between the types of air pollution problems under this criterion, 
and that EPA should not implement this criterion in a narrow way 
restricting how California determines it should develop its motor 
vehicle program to protect the health and welfare of its citizens.\108\
---------------------------------------------------------------------------

    \108\ See Massachusetts v. EPA, ``While the Congresses that 
drafted section 202(a)(1) might not have appreciated the possibility 
that burning fossil fuels could lead to global warming, they did 
understand that without regulatory flexibility, changing 
circumstances and scientific developments would soon render the 
Clean Air Act obsolete. The broad language of section 202(a)(1) 
reflects an intentional effort to confer the flexibility necessary 
to forestall such obsolescence. See Pennsylvania Dept. of 
Corrections v. Yeskey, 524 U.S. 206, 212 (1998) (``[T]he fact that a 
statute can be applied in situations not expressly anticipated by 
Congress does not demonstrate ambiguity. It demonstrates breadth'' 
(internal quotation marks omitted)). Because greenhouse gases fit 
well within the Clean Air Act's capacious definition of ``air 
pollutant,'' we hold that EPA has the statutory authority to 
regulate the emission of such gases from new motor vehicles.'' 549 
U.S. 497 at 532.
---------------------------------------------------------------------------

    This approach does not make section 209(b)(1)(B) a nullity, as some 
have suggested. EPA must still determine whether California does not 
need its motor vehicle program to meet the compelling and extraordinary 
conditions discussed in the legislative history. If that is the case, 
then a waiver would be denied on those grounds. As discussed below, 
that is not the case at this point, even though conditions in 
California may one day improve such that it no longer has the need for 
a separate motor vehicle program. The statute contemplates that such 
improvement is possible. In addition, the opponents of a waiver always 
have the ability to raise their legal, policy, and other concerns in 
the State administrative process, or through judicial review in State 
courts. Congress, however, provided EPA a much more limited role under 
section 209(b) in considering objections raised by opponents of a 
waiver.
    For these reasons, I believe that the better approach for analyzing 
the need for ``such State standards'' to meet ``compelling and 
extraordinary conditions'' is to review California's need for its 
program, as a whole, for the class or category of vehicles being 
regulated, as opposed to its need for individual standards.
    Having adopted this interpretation of section 209(b)(1)(B), I apply 
it below to determine whether EPA can find that California does not 
need its motor vehicle program to meet compelling and extraordinary 
conditions. Given the basis for EPA's March 6, 2008 Denial and the 
considerable debate regarding the permissible interpretations of this 
provision, EPA has also evaluated this criterion reviewing the 
greenhouse gas standards separately--using the two interpretations 
discussed in the March 6, 2008 Denial. In either case, EPA also cannot 
deny California's request for a waiver based on a finding that 
California does not need such standards to meet compelling and 
extraordinary circumstances.

C. Does California Need Its Motor Vehicle Program To Meet Compelling 
and Extraordinary Conditions?

    As discussed above, the better interpretation of this criterion, 
adopted herein, is the traditional approach of evaluating California's 
need for a separate program to meet compelling and extraordinary 
conditions. Applying this approach, with due deference to California, I 
cannot deny the waiver.
    CARB has repeatedly demonstrated the need for its motor vehicle 
program to address compelling and extraordinary conditions in 
California. In its Waiver Request letter, CARB stated:

    California--the South Coast and San Joaquin Air basins in 
particular--continues to experience some of the worst air quality in 
the nation. California's ongoing need for dramatic emission 
reductions generally and from passenger vehicles specifically is 
abundantly clear from its recent adoption of state implementation 
plans for the South Coast and other California air basins.\109\ The 
unique geographical and climatic conditions, and the tremendous 
growth in the vehicle population and use which moved Congress to

[[Page 32763]]

authorize California to establish separate vehicle standards in 
1967, still exist today.\110\
---------------------------------------------------------------------------

    \109\ See e.g. Approval and Promulgation of State Implementation 
Plans; California--South Coast, 64 FR 1770, 1771 (January 12, 1999). 
See also 69 FR 23858, 23881-90 (April 30, 2004) (designating 15 
areas in California as nonattainment for the federal 8-hour ozone 
national ambient air quality standard).
    \110\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1, at 16.

    CARB notes in its July 14, 2007 comments that it testified at EPA's 
earlier hearings on this waiver request that ``since nothing has 
changed in the few months since EPA last easily made this determination 
[regarding the need for the motor vehicle emission program] on December 
28, 2006 (71 FR 78190), and since California still has the 
``geographical and climatic conditions that, when combined with the 
large numbers and high concentrations of automobiles, create serious 
pollution problems,'' (49 FR at 18890 (citing legislative history)), 
this is the end of a proper and legal EPA analysis of the extraordinary 
and compelling conditions waiver prong.'' \111\
---------------------------------------------------------------------------

    \111\ California Air Resources Board, EPA-HQ-OAR-2006-0173-1686 
at 7.
---------------------------------------------------------------------------

    EPA has not received any adverse comments suggesting that 
California no longer needs a separate motor vehicle emissions program 
to address the various conditions that lead to serious and unique air 
pollution problems in California.
    Based on the record, I am unable to identify any change in 
circumstances or any evidence to suggest that the conditions that 
Congress identified as giving rise to serious air quality problems in 
California no longer exist. Therefore, using the traditional approach 
of reviewing the need for a separate California program to meet 
compelling and extraordinary conditions, I cannot deny the waiver based 
on this criterion.

D. Does California Need Its Motor Vehicle GHG Standards To Meet 
Compelling and Extraordinary Conditions?

    As discussed above, EPA has also evaluated this criterion under two 
alternative approaches, reviewing the greenhouse gas standards 
separately using the two interpretations discussed in the March 6, 2008 
Denial. While recognizing that they are not the interpretations adopted 
here by EPA, this section discusses the Agency's consideration of these 
alternative interpretations.
1. Are California's GHG Standards Designed in Part To Address an Air 
Pollution Problem That Is Local or Regional in Nature?
    In the March 6, 2008 Denial, EPA interpreted this criterion as 
calling for a review of California's GHG standards separately from the 
remainder of its motor vehicle emission control program. In that 
context, it was determined appropriate to look at whether the emissions 
from California motor vehicles, as well as the local climate and 
topography in California, are the fundamental causal factors for the 
air pollution problem of greenhouse gases. This interpretation limited 
the meaning of this provision to situations where the motor vehicle 
standards at issue were designed to address an air pollution problem 
that was local or regional in nature, such that the local conditions in 
California were the fundamental causes of the air pollution problem.
    The March 6, 2008 Denial applied this interpretation by focusing on 
elevated concentrations of greenhouse gases as the air pollution--a 
global air pollution problem. The March 6, 2008 Denial rejected 
arguments that the GHG standards should also been seen as an ozone 
control strategy, on the grounds that even if elevated concentrations 
of greenhouse gases lead to climate changes that exacerbate ozone, the 
causes of elevated concentrations of greenhouse gases are not solely 
local to California but are global in nature.
    This overly narrow view fails to consider that although the factors 
that cause ozone are primarily local in nature and that ozone is a 
local or regional air pollution problem, the impacts of global climate 
change can nevertheless exacerbate this local air pollution problem. 
Whether or not local conditions are the primary cause of elevated 
concentrations of greenhouse gases and climate change, California has 
made a case that its greenhouse gas standards are linked to 
amelioration of California's smog problems. Reducing ozone levels in 
California cities and agricultural areas is expected to become harder 
with advancing climate change. California and many other commenters 
note that ``California's high ozone levels--clearly a condition 
Congress considered--will be exacerbated by higher temperatures from 
global warming.'' \112\ California also notes that there is general 
consensus that temperature increases from climate change will 
exacerbate the historic climate, topography, and population factors 
conducive to smog formation in California, which were the driving 
forces behind Congress' inclusion of the waiver provision in the Clean 
Air Act.\113\ There is a logical link between the local air pollution 
problem of ozone and California's desire to reduce GHGs as one way to 
address the adverse impact that climate change may have on local ozone 
conditions.\114\ Given the clear deference that Congress intended to 
provide California on the mechanisms it chooses to use to address its 
air pollution problems, it would be appropriate to consider its GHG 
standards as designed in part to help address a local air pollution 
problem, and, thus, a waiver should not be denied even under the narrow 
interpretation employed in the March 6, 2008 Denial.
---------------------------------------------------------------------------

    \112\ California submits evidence that at the national scale, 
using global to regional air quality models, various papers 
demonstrate that climate change alone can worsen summertime surface 
ozone pollution in polluted regions of the United States including 
one finding that ``climate change alone will increase summertime 
ozone in polluted regions by 1-10 ppb over the coming decades, with 
the largest effects in urban areas and during pollution episodes'' 
and therefore ``climate change will partly offset the benefit of the 
emissions reductions.'' See Jacob and Winner (2009), EPA-HQ-OAR-
2006-0173-9010.4. CARB also cites the 2007 Interim Report of the 
U.S. EPA Global Change Research Program Assessment of the Impacts of 
Global Change on Regional U.S. Air Quality, a draft EPA study which 
concludes that climate change may significantly increase ground-
level ozone in areas throughout the nation. See also EPA's final 
April 2009 ``Assessment of the Impacts of Global Climate Change on 
Regional U.S. Air Quality: A Synthesis of Climate Change Impacts on 
Ground-Level Ozone'' which states as one of its general findings: 
``[W]hile these modeling studies cannot tell us what the future will 
hold, they demonstrate the potential for global climate change to 
make U.S. air quality management more difficult, and therefore 
future air quality management decisions should begin to account for 
the impacts of climate change.'' EPA-HQ-OAR-2006-0173-9006 at 7-9.
    \113\ Id.
    \114\ California also submits evidence that its GHG emission 
regulations would result in a slight reduction of ozone precursors. 
EPA-HQ-OAR-2006-0173-9006 at 10.
---------------------------------------------------------------------------

2. Do the Impacts of Climate Change in California Support a Denial of 
the Waiver?
    As part of EPA's March 6, 2008 Denial, EPA also considered an 
alternative interpretation for this criterion, where EPA would consider 
``the effects in California of this global air pollution problem * * * 
in comparison to the rest of the country, again addressing the GHG 
standards separately from the rest of California's motor vehicle 
program.'' EPA considered evidence and arguments submitted by 
commenters concerning whether the impacts of global climate change in 
California were significant enough and different enough from the rest 
of the country such that California could be considered to need its 
greenhouse gas standards to meet compelling and extraordinary 
conditions.\115\ EPA determined in the March 6, 2008 Denial that the 
waiver should be denied under this approach as well.
---------------------------------------------------------------------------

    \115\ 73 FR 12156, 12164.

---------------------------------------------------------------------------

[[Page 32764]]

    As discussed above, this is not the interpretation that EPA now 
adopts. However, even if EPA were to examine the impacts of climate 
change in California under this interpretation, based on a review of 
all the evidence in the record, I cannot deny the waiver.
a. What Test Applies Under This Alternative Approach?
    In the March 6, 2008 Denial, EPA found that legislative intent 
called for particular circumstances in California that are 
``sufficiently different'' from the nation as a whole that justify 
separate standards in California.
    EPA received comment stating that there is no statutory foundation 
for a ``sufficiently different'' test. Commenters noted there is 
nothing in the term ``compelling and extraordinary conditions'' that 
requires a comparison to the rest of the country. Similarly, commenters 
point to EPA's 1984 PM waiver where EPA's Administrator found that 
``there is no indication in the language of section 209 or the 
legislative history that California's pollution problem must be the 
worst in the country for a waiver to be granted.'' EPA also received 
comment that it was not reasonable for EPA to conclude that California 
does not face global warming impacts, including water supply, 
agricultural production, and wildfire seasonal impacts that present 
compelling and extraordinary conditions, since other states will face 
similar impacts. Under this rationale, since states other than 
California are also experiencing serious global warming impacts, 
California could never receive a waiver to combat climate change. 
Commenters find flaw in this rationale: similar impacts in other states 
have never before prevented California from receiving a waiver. Even 
though many states are faced with non-attainment ozone areas and smog 
problems similar to California, California has never had a waiver 
denied based on a finding under section 209(b)(1)(B) that it did not 
need its standards to meet compelling and extraordinary conditions. As 
such, EPA also received comment suggesting that the impacts of climate 
change should be reviewed within the State of California to determine 
their severity, and that such impacts need not be compared to impacts 
experienced or projected to occur elsewhere in the country.
    Several commenters maintain that although the impacts of climate 
change in California may be compelling, they are not extraordinary when 
compared to the rest of the nation.\116\ These commenters point to the 
record and the many submissions from other states, which recount the 
variety of impacts and risks of climate change in their respective 
states and claim that California is no different than any other state.
---------------------------------------------------------------------------

    \116\ Association of International Automobile Manufacturers, 
EPA-HQ-OAR-2006-0173-9005. This comment notes the finding in 
Massachusetts v. EPA that the impacts of global warming are ``widely 
shared'' among the states.
---------------------------------------------------------------------------

    EPA does not need to resolve this issue. As discussed below, EPA 
has evaluated the evidence submitted concerning the observed and 
projected impacts of global climate change in California and other 
states and determined that even under the alternative approach used in 
the March 6, 2008 Denial, EPA cannot deny a waiver.
b. Would a Waiver Be Denied Under This Alternative Approach?
    Commenters supporting the waiver maintain that California has 
clearly demonstrated that the impacts in California of global warming 
are ``compelling and extraordinary.'' Several commenters point to the 
impacts of global warming recited in EPA's March 6, 2008 initial denial 
as evidence that EPA committed an error in judgment by not finding that 
the extreme and various impacts of climate change in California are 
compelling and extraordinary in nature and that, further, California 
clearly satisfied the section 209(b)(1)(B) requirements.\117\
---------------------------------------------------------------------------

    \117\ EPA has not received any comment suggesting EPA's prior 
inventory of evidentiary information is incorrect as set forth in 
its discussion of the ``Relationship of Impacts of Global Climate 
Change in California to the Rest of the Country'' at 73 FR 12156, 
12163-12168. In addition, several new studies have been submitted to 
EPA, including: a recent report from the Pacific Institute examining 
the impacts that sea level rise would have on population, 
infrastructure, and property in California (this report uses 
projections of medium to medium-high greenhouse gas emissions 
scenarios indicating a 1.4 meter rise in the seal level by 2100 with 
480,000 people at risk and $100 million in property at risk from a 
100 year flood event); California's Climate Action Team Reports that 
emphasizes many of the points made in California's waiver request 
including the air quality impacts (``Climate change could slow 
progress toward attainment of health-based air quality standards and 
increase pollution control costs by increasing the potential for 
high ozone and high particulate days.'' The report itself 
synthesizes 37 recent reports that address a wide body of 
information on the range and gravity of the risks that climate 
change poses to California's citizens, natural resources, and 
economy); and the Public Policy Institute of California assessment 
of climate change on public health in California and cites number 
impacts including ``an increase in the frequency and severity of air 
pollution episodes'' and ``an increase in extreme heat events and 
associated increases in heat related morbidity and mortality.'' See 
Environmental Defense Fund, EPA-HQ-OAR-2006-0173-9025 at 15-18; See 
also California Air Resources Board, EPA-HQ-OAR-2006-0173-9006 at 7-
16.
---------------------------------------------------------------------------

    Commenters supporting the waiver, including California, have 
submitted an extensive array of reports and data outlining the risks 
and impacts of climate change on California. EPA received comment 
restating EPA's own statements from its March 6, 2008 Denial, including 
the following:

    California has the largest agricultural based economy (13% of 
the U.S. market value of agricultural products sold) which is 
heavily dependent on irrigation, has the nation's highest crop value 
and is the nation's leading dairy producer. There is improved 
information on how livestock productivity may be affected by thermal 
stress and through nutritional changes in forage caused by elevated 
CO2 concentrations. In addition, wine is California's 
highest value agricultural product, and wine grapes are very 
sensitive to temperature changes. California has the largest state 
coast population, representing 25% of the U.S. oceanic coastal 
population. The conditions which create California's tropospheric 
ozone problems remain (e.g., topography, regional meteorology, 
number of vehicles) and climate change is expected to exacerbate 
tropospheric ozone levels. California's water resources are already 
stressed due to demands from agricultural, industrial and municipal 
uses, and climate change is expected to introduce an additional 
stress to an already over-allocate system by increasing temperatures 
and by decreasing snowpack which is an important water source in 
spring and summer. California has the greatest variety of ecosystems 
in the U.S., and the second most threatened and endangered species 
(of plants and animals combined) and the most threatened and 
endangered animal species, representing about 21% of the U.S. total.

In addition, one commenter suggests that this summary of findings about 
California's special characteristics that differentiate the magnitude, 
intensity and range of impacts of climate change supports that 
assessment. Dr. Stephen Schneider of Stanford University stated that 
``not only are California's conditions `unique and arguably more 
severe' (e.g. temperature impacts from global warming are more certain 
for states like California) but also that no other state faces the 
combination of ozone exacerbation, wildfire emission's contributions, 
water system and coast system impacts and other impacts faced by 
California.'' \118\ Conversely, opponents of the waiver do not contest 
California's claims that the impacts of climate change in California 
and elsewhere are substantial.\119\ Instead,

[[Page 32765]]

opponents of the waiver claim that the impacts in California are not 
unique or extraordinary. EPA received comment suggesting that the 
impacts of climate change in California are not sufficiently different 
from the nation as a whole to warrant a waiver.\120\ Commenters note 
that the ``need'' requirement in section 209(b)(1)(B) authorizes the 
creation of regulatory standards specific to California only in cases 
where it is necessary to meet conditions unique to California. 
Commenters claim that California cannot meet this standard with respect 
to a global problem that does not affect California in a unique way as 
compared to other states. The commenters claim the impacts to 
coastline, ozone levels, and other impacts are not unique to California 
as they affect many other states as well.\121\
---------------------------------------------------------------------------

    \118\ Environmental Defense Fund, EPA-HQ-OAR-2006-0173-9025 at 
11-12.
    \119\ The Association of International Automobile Manufacturers 
notes that although in the March 6, 2008 Denial, ``EPA found that 
there is ample evidence that global warming is `compelling' in the 
sense that it presents serious environmental issues, the agency 
correctly determined that it does not present an extraordinary 
condition in California.'' EPA-HQ-OAR-2006-0173-9005 at 9. EPA did 
receive comment from Air Improvement Resources (AIR) suggesting that 
it might be contesting whether positive feedback from CO2 
concentrations on temperature increases (as seen in the models and 
data submitted to EPA by proponents of the waiver) will be seen in 
certain geographic areas due to an increase in cloudiness. EPA-HQ-
OAR-2006-0173-13662 at 5-6. However, in its same submission it also 
states that while it may be true that California's cities will be 
disproportionately affected by increased temperatures it is by no 
means clear that this will be true in the future. (See p. 7). As 
noted in the text, the burden of proof is on the opponents of the 
waiver to demonstrate that the effects of climate change are not 
compelling or serious. Such opponents have not clearly stated the 
basis for making such a determination nor countered the many studies 
and data submitted by California and other proponents of the waiver. 
For purposes of this waiver proceeding, EPA is not making its own 
judgment with regard to the issues under section 202(a).
    \120\ Association of International Automobile Manufacturers, 
EPA-HQ-OAR-2006-0173-9005 at 9, citing 73 FR 12168--``As the 
discussion above indicates, global climate change has affected, and 
is expected to affect, the nation, indeed the world, in ways very 
similar to the conditions noted in California * * * These identified 
impacts are found to affect other parts of the United States and 
therefore these effects are not sufficiently different compared to 
the nation as a whole. California's precipitation increases are not 
qualitatively different from changes in other areas. Rise in sea 
level in the coastal parts of the United States are projected to be 
severe, or more severe, particularly in consequences, in the 
Atlantic and Gulf Regions than in the Pacific regions, which 
includes California. Temperature increases have occurred in most 
parts of the United States, and while California's temperatures have 
increased by more than the national average, there are other places 
in the United States with higher or similar increases in 
temperature.''
    \121\ Id. at 9-10. The Association of International Automobile 
Manufacturers notes that comments submitted from States supporting 
the waiver include statements such as ``Connecticut faces loss of 
its shoreline and beaches, forest die offs, destruction of shell 
fisheries and marine resources, * * *'' ``Global warming is having a 
serious impact on New Jersey's public health and economy * * *'' 
``Rhode Island * * * As the most densely populated State in the 
country, direct impacts due to climate change, such as heat wave, 
increased fire frequency, increased storm intensity resulting in 
beach erosion, loss of property, and loss of life--pose great 
concerns for us,'' and other concerns expressed by states such as 
Pennsylvania, Maryland, and New Mexico. See also Alliance of 
Automobile Manufacturers, EPA-HQ-OAR-2006-0173-1297 at 14-17 and 
EPA-HQ-OAR-2006-0173-0421-12 at 61-70 and General Motors 
Corporation, EPA-HQ-OAR-2006-0173-1596 at 6-8.
---------------------------------------------------------------------------

    EPA notes that under this alternative approach the opponents of the 
waiver continue to bear the burden of proof to demonstrate their 
claims. Commenters opposing the waiver primarily focus and argue on one 
issue: Whether the effects of climate change in California are 
sufficiently different from the nation as a whole. Opponents of the 
waiver identify singular or multiple impacts in some other states but 
they largely submit conclusions--not factual evidence--as to why such 
adverse impacts demonstrate that California is not sufficiently 
different. On the other hand, California has identified a wide variety 
of impacts and potential impacts within California, which include 
exacerbation of tropospheric ozone, heat waves, sea level rise and salt 
water intrusion, an intensification of wildfires, disruption of water 
resources by, among other things, decreased snowpack levels, harm to 
high value agricultural production, harm to livestock production, and 
additional stresses to sensitive and endangered species and ecosystems. 
Opponents have not demonstrated that any other state, group of states, 
or area within the United States would face a similar or wider-range of 
vulnerabilities and risks. In addition, California has submitted 
information that climate change can impact ozone levels in California 
due to temperature exacerbation effects. Although other areas of the 
country are also projected to experience increases in temperatures 
which may also exacerbate local ozone levels, opponents of the waiver 
have not demonstrated that California's ozone levels should not be 
considered compelling and extraordinary conditions.
    Under this alternative interpretation, the burden of proof is on 
the opponents of the waiver to demonstrate that the impacts of global 
climate change in California are either not significant enough or are 
not different enough from the rest of the country to be considered 
compelling and extraordinary conditions. The opponents of the waiver 
have focused their argument on the latter part of this interpretation, 
whether the impacts in California are sufficiently different from the 
rest of the country. Limiting evaluation to this issue, California has 
presented evidence of a wide variety of vulnerabilities, impacts and 
potential impacts within California, while the opponents have not 
demonstrated that any other state, group of states, or area within the 
United States would face a similar or wider-range of vulnerabilities 
and risks. Therefore, EPA believes that those opposing the waiver have 
not met their burden of proof to demonstrate that the conditions in 
California are not sufficiently different and that a waiver should be 
denied under this alternative approach.
    It is important to note that nothing in this decision or this 
document should be construed as reflecting a judgment concerning the 
issues pending before EPA under section 202(a) of the Act--whether 
emissions of GHGs from new motor vehicles or engines cause or 
contribute to air pollution which may reasonably be anticipated to 
endanger public health or welfare. EPA recently proposed to make an 
affirmative finding under that statutory provision.\122\ The issues 
involved in that proposal are separate and different from those 
involved in this decision on California's request for a waiver under 
section 209(b). Nothing in this decision should be construed as 
reflecting the Agency's judgment regarding any issue relevant to the 
determinations in the pending proposal under section 202(a). The 
statutory provisions and criteria are different, and the judgments 
called for under these provisions are very different in nature. For 
example, in evaluating the alternative section 209(b)(1)(B) 
interpretation, I am not evaluating how serious the impacts or 
potential impacts of global climate change are, either in California or 
the rest of the country, as the opponents of the waiver have not 
focused on that issue. My finding under this alternative interpretation 
is a narrow one, and is limited to finding that the opponents of the 
waiver have not met their burden of proof under this alternative 
interpretation of section 209(b) concerning how the impacts in 
California might differ from the rest of the country.
---------------------------------------------------------------------------

    \122\ See EPA's ``Proposed Endangerment and Cause or Contribute 
Findings for Greenhouse Gases under Section 202(a) of the Clean Air 
Act'' at 74 FR 18886 (April 29, 2009).
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3. Must California's GHG Standards Achieve a Demonstrated Reduction in 
GHG Atmospheric Concentrations or Impacts Under Section 209(b)(1)(B)?
    Regardless of whether EPA examines the need for California's motor 
vehicle emissions program or conversely the need just for the GHG 
emission standards, some commenters suggest

[[Page 32766]]

that the GHG emission standards must be proven to have some mitigative 
effect in order for them to be needed. Some commenters suggest that to 
the extent that California's high ozone levels could be exacerbated by 
higher temperatures from global warming, there is no demonstration in 
the waiver record that implementation of the California GHG standards 
would have any perceptible impact on temperature trends in California. 
Opponents of the waiver have argued that California, therefore, cannot 
show that its GHG emission regulations will achieve a measurable and 
specific temperature reduction in California, and thereby mitigate the 
identified climate change impacts in California.\123\ They maintain 
that California's GHG regulations will not be needed to meet a 
particular condition since there is no analysis suggesting that 
California's GHG standards will have any discernible impact on that 
condition or achieve any perceptible improvement in environmental 
conditions inside California. In terms of GHG concentrations in 
California's atmosphere, EPA received comment stating there is no 
offered proof that a reduction in GHG emissions from California 
vehicles would have any impact on GHG concentrations in California's 
atmosphere compared to the GHG concentration impacts already in the 
record.
---------------------------------------------------------------------------

    \123\ However, the Alliance presented some evidence at the May 
30, 2007 waiver hearing that some temperature reduction may be 
achieved, based on application of the Wigley equation. EPA-HQ-OAR-
2006-0173-0421 at 71.
---------------------------------------------------------------------------

    In response, other commenters supporting the waiver assert that the 
efficacy of California's standards is not at issue in this proceeding. 
There is no requirement in section 209(b)(1)(B) that California prove a 
certain level of environmental benefit. They assert that is 
particularly true in this instance, where the actual and anticipated 
impacts of global warming are complex and historically unprecedented, 
and it is widely-recognized that a number of efforts by governments, 
private entities, and individuals globally will be required to mitigate 
climate change, as no single source of GHG emissions, whether from an 
entire state, sector of the nation's economy, or of individual 
countries, is completely dominant in terms of influencing atmospheric 
concentrations of GHGs. They claim that California need not show that 
the climate will in fact respond to its regulatory action; rather its 
obligation is to show a rational connection between the regulation it 
has promulgated and the problem it seeks to address.
    As noted above, the Agency's inquiry under section 209(b)(1)(B) is 
whether California needs its own motor vehicle emission control program 
to meet compelling and extraordinary conditions. Under this criterion, 
EPA does not consider, for example, the extent to which specific PM 
standards will address the PM air pollution problem.\124\ Under this 
approach, there is no need to delve into the extent to which the GHG 
standards at issue here would address climate change or ozone problems. 
That is an issue appropriately left to California's judgment.
---------------------------------------------------------------------------

    \124\ 74 FR 12156, 12159-60 (March 6, 2008).
---------------------------------------------------------------------------

    Given the comments submitted, however, EPA has also considered an 
alternative interpretation, which would evaluate whether the program or 
standards has a rational relationship to contributing to amelioration 
of the air pollution problems in California. Even under this approach, 
EPA's inquiry would end there. California's policy judgment that an 
incremental, directional improvement will occur and is worth pursuing 
is entitled, in EPA's judgment, to great deference.\125\ EPA's 
consistent view is that it should give deference to California's policy 
judgments, as it has in past waiver decisions, on California's choice 
of mechanism used to address air pollution problems. EPA does not 
second-guess the wisdom or efficacy of California's standards.\126\ EPA 
has also considered this approach with respect to the specific GHG 
standards themselves, as well as California's motor vehicle emissions 
program.
---------------------------------------------------------------------------

    \125\ MEMA I at 1110-11.
    \126\ California Air Resources Board, EPA-HQ-OAR-2006-0173-0004.
---------------------------------------------------------------------------

    After reviewing the arguments, I conclude that California has 
submitted evidence demonstrating not only the causal connection between 
higher temperatures from global warming and its general exacerbation of 
tropospheric ozone, but also the serious effects of that potential 
increase in ozone on the public health and welfare in California. EPA 
notes that several commenters have stated that while California's GHG 
regulations will provide only a small difference in temperatures and/or 
GHG concentrations, there clearly will be some reductions. These 
commenters note that given the numerous sources in California and 
around the world that contribute to GHG concentrations, no single 
regulation could on its own reduce GHG emissions to the levels 
necessary to reduce all concerns, but that every small reduction is 
helpful in reducing these concerns. As noted by the Supreme Court in 
Massachusetts v. EPA, while it is true that regulating motor vehicle 
GHG emissions will not by itself reverse global warming, a reduction in 
domestic automobile emissions would slow the pace of global emissions 
increase no matter what happens with regard to other emissions.\127\ 
Moreover, there is some evidence in the record that proffers a specific 
level of reduction in temperature resulting from California's 
regulations.\128\ EPA believes that under this alternative approach, 
opponents have not met their burden of demonstrating that California's 
motor vehicle program, or its GHG standards, does not have a rational 
relationship to contributing to amelioration of the air pollution 
problems in California.
---------------------------------------------------------------------------

    \127\ Massachusetts v. EPA, 59 U.S. 497, 525-526 (2007).
    \128\ EPA also received comment during the second comment period 
indicating that a local decrease in GHGs can have a direct effect on 
reducing local ozone concentrations, as well as particulate matter 
concentrations, in California, before they mix with other greenhouse 
gases in the upper atmosphere. The comments that address Dr. 
Jacobson's testimony do not dispute these atmospheric reactions and 
the fact that they can increase local temperature which can increase 
ozone concentrations.
---------------------------------------------------------------------------

E. Section 209(b)(1)(B) Conclusion

    With respect to the need for California's state standards to meet 
compelling and extraordinary conditions, I have found that the March 6, 
2008 Denial was based on a departure from the traditional 
interpretation of the waiver provision. An examination of the text of 
section 209(b) and the legislative history, when viewed together, lead 
to the conclusion that the best way to interpret this provision and the 
interpretation I adopt here, is to apply the traditional interpretation 
to the evaluation of California's greenhouse gas standards for motor 
vehicles. As such, if California needs a separate motor vehicle program 
to address the kinds of compelling and extraordinary conditions 
discussed in the traditional interpretation, then Congress intended 
that California could have such a program. The best interpretation of 
the text and legislative history of this provision is that Congress did 
not use this criterion to limit California's discretion to a certain 
category of air pollution problems, to the exclusion of others.
    Under that interpretation, I cannot find that opponents of the 
waiver have demonstrated that California does not need its state 
standards to meet compelling and extraordinary conditions. The 
opponents of the waiver have not adequately demonstrated that

[[Page 32767]]

California no longer has a need for its motor vehicle emission program.
    Separately, even applying the alternative interpretations set forth 
in the March 6, 2008 Denial, I cannot find that that the opponents of 
the waiver have demonstrated that California does not need its 
greenhouse gas emission standards to meet compelling and extraordinary 
conditions. Nor can I find that the opponents of the waiver have 
demonstrated that the impacts from climate change in California are not 
compelling and extraordinary.
    Therefore, upon reconsideration of the March 6, 2008 Denial, I 
determine that I cannot deny the waiver request under section 
209(b)(1)(B).

VI. Are the California GHG Standards Consistent With Section 202(a) of 
the Clean Air Act?

    EPA has reviewed the information submitted to the record of this 
proceeding to determine whether the parties opposing this waiver 
request have met their burden to demonstrate that the GHG standards are 
not consistent with section 202(a). In its submissions, CARB has 
submitted information and argument that these GHG standards do provide 
regulated manufacturers with sufficient lead-time for the near term 
standards regardless of how it is measured and regardless of the waiver 
denial. For the mid-term standards, CARB has stated that initially, 
manufacturers can achieve compliance with credits from the near-term 
production, and subsequently can achieve compliance with refinements to 
existing technology and advanced technology combinations. The industry 
opponents of the waiver have submitted information and argument that 
there is insufficient leadtime for the CARB near-term standards because 
the already short time-frame for technology development was made even 
shorter by EPA's waiver denial. For the mid-term standards, the 
industry stated that it is likely that most large-volume manufacturers 
will be able to comply with the CARB standards only by ``mix-shifting'' 
their products to offer for sale more higher mileage vehicles to ensure 
meeting the CARB fleet average. The industry also submitted information 
and argument that the GHG standards will result in unsafe vehicles 
because vehicles meeting the standards will be lighter and more 
hazardous to occupants in accidents, and will be driven more because of 
higher fuel efficiency, so more accidents will occur. The industry 
argued that these complying vehicles are technologically infeasible 
because of the safety concerns. EPA's analysis of the consistency of 
the CARB standards with section 202(a) of the Act follows.

A. Historical Approach: The Standard of Review for Consistency With 
Section 202(a)

    Under section 209(b)(1)(C), EPA must deny California's waiver 
request if the Agency finds that California standards and accompanying 
enforcement procedures are not consistent with section 202(a) of the 
Act. The scope of EPA's review under this criterion is narrow. EPA has 
previously stated that the determination is limited to whether those 
opposed to the waiver have met their burden of establishing that 
California's standards are technologically infeasible, or that 
California's test procedures impose requirements inconsistent with the 
Federal test procedure.\129\ Previous waivers of federal preemption 
have stated that California's standards are not consistent with section 
202(a) if there is inadequate lead time to permit the development of 
technology necessary to meet those requirements, giving appropriate 
consideration to the cost of compliance within that time.\130\ 
California's accompanying enforcement procedures would be inconsistent 
with section 202(a) if the Federal and California test procedures 
conflict, i.e., if manufacturers would be unable to meet both the 
California and Federal test requirements with the same test 
vehicle.\131\
---------------------------------------------------------------------------

    \129\ MEMA I, 627 F.2d at 1126.
    \130\ See e.g., 38 FR 30136 (November 1, 1973) and 40 FR 30311 
(July 18, 1975).
    \131\ To be consistent, the California certification test 
procedures need not be identical to the Federal test procedures. 
California procedures would be inconsistent, however, if 
manufacturers would be unable to meet both the state and Federal 
requirements with the same test vehicle in the course of the same 
test. See, e.g., 43 FR 32182, (July 25, 1978).
---------------------------------------------------------------------------

    EPA does not believe that there is any reason to review these 
criteria any differently for EPA's evaluation of California's 
greenhouse gas waiver request. There is nothing inherently different 
about how GHG control technologies should be reviewed when making a 
determination about technological feasibility or consistency of test 
procedures.
    In the GHG waiver proceeding, automobile industry opponents of the 
waiver have presented evidence for EPA's consideration which they 
believe will require EPA to make the finding of inconsistency with 
section 202(a), and therefore require EPA to deny this waiver. They 
believe this finding should be made on one or more grounds that there 
is inadequate lead time provided by the CARB standards. EPA's process 
for evaluating lead time is discussed immediately below. The industry 
opponents also raise arguments based on the cost of compliance with the 
standards, and claims of possible significant vehicle safety problems 
caused, at least indirectly, by compliance with the GHG standards, 
which will be discussed in other parts of this section.
    Regarding lead time, EPA historically has relied on two decisions 
from the U.S. Court of Appeals for the DC Circuit for guidance 
regarding the lead time requirements of section 202(a). Section 202(a) 
provides that an emission standard shall take effect after such period 
as the Administrator finds necessary to permit the development and 
application of the requisite technology, giving appropriate 
consideration to the cost of compliance. In Natural Resources Defense 
Council v. EPA (``NRDC''), 655 F.2d 318 (DC Cir. 1981), the court 
reviewed claims that EPA's particulate matter standards for diesel cars 
and light trucks were either too stringent or not stringent enough. In 
upholding the EPA standards, the court concluded:

    Given this time frame [a 1980 decision on 1985 model year 
standards]; we feel that there is substantial room for deference to 
the EPA's expertise in projecting the likely course of development. 
The essential question in this case is the pace of that development, 
and absent a revolution in the study of industry, defense of such a 
projection can never possess the inescapable logic of a mathematical 
deduction. We think that the EPA will have demonstrated the 
reasonableness of its basis for projection if it answers any 
theoretical objections to the [projected control technology], 
identifies the major steps necessary in refinement of the 
technology, and offers plausible reasons for believing that each of 
those steps can be completed in the time available.\132\
---------------------------------------------------------------------------

    \132\ Natural Resources Defense Council v. EPA, 655 F.2d 318, 
331. (emphasis added)

    Another key case addressing the lead time requirements of section 
202(a) is International Harvester v. Ruckelshaus (``International 
Harvester''), 478 F 2.d 615 (DC Cir. 1979). In International Harvester, 
the court reviewed EPA's decision to deny applications by several 
automobile and truck manufacturers for a one-year suspension of the 
1975 emission standards for light-duty vehicles. In the suspension 
proceeding, the manufacturers presented data which, on its face, showed 
little chance of compliance with the 1975 standards, but which, at the 
same time, contained many uncertainties and inconsistencies regarding 
test procedures and parameters. In a May 1972 decision, the 
Administrator applied an EPA

[[Page 32768]]

methodology to the submitted data, and concluded that ``compliance with 
the 1975 standards by application of present technology can probably be 
achieved,'' and so denied the suspension applications.\133\ In 
reviewing the Administrator's decision, the court found that the 
applicants had the burden of coming forward with data showing that they 
could not comply with the standards, and if they did, then EPA had the 
burden of demonstrating that the methodology it used to predict 
compliance was sufficiently reliable to permit a finding of 
technological feasibility. In that case, EPA failed to meet this 
burden.
---------------------------------------------------------------------------

    \133\ International Harvester v. Ruckelshaus, 478 F.2d 615, 626.
---------------------------------------------------------------------------

    With respect to lead time, the court in NRDC pointed out that the 
court in International Harvester ``probed deeply into the reliability 
of EPA's methodology'' because of the relatively short amount of lead 
time involved (a May 1972 decision regarding 1975 model year vehicles, 
which could be produced starting in early 1974), and because ``the 
hardship resulting if a suspension were mistakenly denied outweigh the 
risk of a suspension needlessly granted.'' \134\ The NRDC court 
compared the suspension proceedings with the circumstances concerning 
the diesel standards before it: ``The present case is quite different; 
`the base hour' for commencement of production is relatively distant, 
and until that time the probable effect of a relaxation of the standard 
would be to mitigate the consequences of any strictness in the final 
rule, not to create new hardships.'' \135\ The NRDC court further noted 
that International Harvester did not involve EPA's predictions of 
future technological advances, but an evaluation of presently available 
technology.
---------------------------------------------------------------------------

    \134\ NRDC, 655 F.2d 318, 330.
    \135\ Id. The ``hardships'' referred to are hardships that would 
be created for manufacturers able to comply with the more stringent 
standards being relaxed late in the process.
---------------------------------------------------------------------------

    EPA also evaluates CARB's request in light of congressional intent 
regarding the waiver program generally. This is consistent with the 
motivation behind section 209(b) to foster California's role as a 
laboratory for motor vehicle emission control, in order ``to continue 
the national benefits that might flow from allowing California to 
continue to act as a pioneer in this field.'' \136\
---------------------------------------------------------------------------

    \136\ 40 FR 23102, 23103 (waiver decision citing views of 
Congressman Moss and Senator Murphy) (May 28, 1975).
---------------------------------------------------------------------------

    For these reasons, EPA believes that California must be given 
substantial deference when adopting motor vehicle emission standards 
which may require new and/or improved technology to meet challenging 
levels of compliance. This deference was discussed in an early waiver 
decision when EPA approved the waiver request for California's 1977 
model year standards:

    Even on this issue of technological feasibility I would feel 
constrained to approve a California approach to the problem which I 
might also feel unable to adopt at the Federal level in my own 
capacity as a regulator. The whole approach of the Clean Air Act is 
to force the development of new types of emission control technology 
where that is needed by compelling the industry to `catch up' to 
some degree with newly promulgated standards. Such an approach to 
automotive emission control might be attended with costs, in the 
shape of a reduced product offering, or price or fuel economy 
penalties, and by risks that a wider number of vehicle classes may 
not be able to complete their development work in time. Since a 
balancing of these risks and costs against the potential benefits 
from reduced emissions is a central policy decision for any 
regulatory agency, under the statutory scheme outlined above I 
believe I am required to give very substantial deference to 
California's judgment on that score.'' \137\
---------------------------------------------------------------------------

    \137\ Id. at 23103.

EPA has traditionally considered lead time as starting with the date 
that the rules are adopted and become effective under California state 
law--not from the subsequent date of a request for a waiver or the 
decision on a waiver.\138\ This is consistent with the structure of 
section 209(b), where the waiver criteria are presumed to be met absent 
an affirmative finding that requires EPA to deny it, which gives EPA a 
limited scope of review and affords deference to California. At the 
time that California adopts its rules, manufacturers have clear 
knowledge and are fully on notice of California's requirements and the 
date when such requirements will be implemented. In this case, the CARB 
GHG regulations became final and effective in 2004. This was five years 
before the first phase of compliance (the 2009 model year) and eight 
years before compliance with the ``mid-term'' standards, which include 
the most stringent standards (model year 2016). Because of this large 
amount of lead time available to manufacturers under CARB's regulatory 
schedule, the approach described in NRDC is the most appropriate under 
the circumstances at issue here.
---------------------------------------------------------------------------

    \138\ See e.g., 59 FR 40625 (September 22, 1994).
---------------------------------------------------------------------------

    EPA notes, however, that manufacturers have disputed whether ample 
lead time exists. Because EPA initially denied this waiver request, 
manufacturers have asserted that the lead time should have ``tolled'' 
at the time of the denial, since California could not implement and 
enforce standards which had not received a waiver. This tolling issue 
is discussed below in section VI.F.1. Additionally, if the tolling 
might be considered to cause a reduction in lead time for the CARB 
near-term standards, it could be argued that the International 
Harvester approach, involving circumstances where the lead time is 
short, should apply. CARB, while maintaining that the NRDC approach is 
the correct measurement here, commented that even if International 
Harvester was the correct guide, ``we believe that a combination of 
manufacturers' statements and plans indicated that manufacturers are 
already in, or with minor changes can demonstrate compliance for the 
2009 and 2010 model years.'' \139\ Under International Harvester, the 
burden was on the industry to demonstrate that the evidence supported 
the grant of an extension, then, the burden shifted to EPA to 
demonstrate the reasonableness of its projection. As discussed below, 
the manufacturers have not met their burden to show that the California 
standards are not technologically feasible, considering the lead time 
provided and cost of compliance.
---------------------------------------------------------------------------

    \139\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006, 
at 23.
---------------------------------------------------------------------------

    Under NRDC, when compliance with CARB standards is phased-in over a 
lengthy time period, the reasonableness of a projection of 
technological feasibility can be based on answering any theoretical 
objections to the projected control technology; identifying the major 
steps necessary in refinement of the technology; and offering plausible 
reasons for believing that each of those steps can be completed in the 
time available.\140\ EPA's review of the evidence on the technological 
feasibility of GHG technologies follows.
---------------------------------------------------------------------------

    \140\ NRDC, 655 F.2d 318, 331.
---------------------------------------------------------------------------

B. CARB's Assessment of the State of Development of GHG Reduction 
Technology and Comments Supporting CARB's Assessment

1. Development of GHG Reduction Technology
    Under the terms of Assembly Bill 1493, which is the legislation 
that directed CARB to establish greenhouse gas emission standards, the 
CARB staff was directed to set those standards in a manner that would 
``achieve the maximum feasible and cost-effective reduction of 
greenhouse gas emissions from motor vehicles.'' CARB has

[[Page 32769]]

identified four basic areas of GHG reduction technology: (1) Engine, 
drivetrain and other vehicle modifications; (2) mobile air conditioning 
system modifications; (3) alternative fuel vehicles; and (4) exhaust 
catalyst improvements.
    To accomplish the assessment mandated by AB 1493, CARB staff held 
several meetings and workshops in 2003 and 2004 on GHG vehicle 
technology. Those meetings brought together technology developers, 
researchers from the auto industry, vehicle component suppliers, 
academic participants, and vehicle simulation firms to discuss 
technologies and their potential to reduce climate change emissions 
from motor vehicles. CARB staff presented its preliminary findings in a 
draft technology and cost assessment and held a public workshop to 
receive comments in April 2004. Following that presentation, CARB 
issued a draft proposal on the methodology for developing the GHG 
standards and the preliminary standards themselves, in June 2004. A 
public workshop on this draft was held in July 2004. After considering 
all the comments from these sessions, CARB published its final staff 
proposal in the Staff Report: Initial Statement of Reasons (ISOR) in 
August 2004.\141\
---------------------------------------------------------------------------

    \141\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.44.
---------------------------------------------------------------------------

    The CARB vehicle technology results in the ISOR relied on an 
existing vehicle simulation study (discussed below), as well as other 
existing studies and research, rather than on any sort of primary 
development or engineering work. CARB staff acknowledged that ``because 
powertrain changes will be the focus for obtaining the reductions 
sought in this (GHG) rulemaking rather than aftertreatment 
technologies, staff could not reasonably build prototypes and test them 
in our laboratory. * * * Because building and testing prototypes is so 
expensive, and time consuming, even major automobile manufacturers rely 
on vehicle simulation firms to predict the performance of new 
technology either individually or in combination, and to assess their 
performance and emissions.'' \142\ CARB further commented that the 
advantage of systems modeling ``is to allow a wide diversity of 
combinations of technologies to be modeled together and examine how 
they interact when simulating a vehicle operating on various driving 
cycles.'' \143\
---------------------------------------------------------------------------

    \142\ Id. at 43.
    \143\ Id. at 58.
---------------------------------------------------------------------------

    The study forming the basis of the ISOR vehicle technology results 
was a comprehensive vehicle simulation modeling effort and a thorough 
cost analysis performed for the Northeast States Center for a Clean Air 
Future (NESCCAF), by the recognized expert companies AVL Powertrain 
Engineering, Martec, and Meszler Engineering Services.\144\ CARB staff 
believed that ``the NESCAAF study is the most advanced and accurate 
evaluation of vehicle technologies that reduce greenhouse gas emissions 
yet performed.'' \145\ Besides the NESCAAF study on vehicle 
technologies, CARB monitored a separate analysis of the GHG benefits of 
alternative fuel technologies, including upstream benefits and the cost 
associated with alternative fuel technologies, from work performed by 
TIAX, LLC. Finally, for air conditioning research, CARB staff met with 
various groups (including EPA) to develop its approach for reducing the 
emissions of air conditioning refrigerant and excess CO2 
emissions from air conditioning use.
---------------------------------------------------------------------------

    \144\ NESCCAF undertook this study ``to help define GHG--
reducing motor vehicle technologies that are expected to be 
feasible, commercially available and cost effective in the 2009-2015 
timeframe.'' It was ``inspired by the California's legislature's 
passage of Assembly Bill 1493 * * *'' and it related to the 
Northeast U.S. because ``the results presented in this report have 
significant implications for states in the Northeast and elsewhere 
that share California's commitment to reducing transportation 
related GHG emissions as part of a broader effort to address the 
risks posed by global climate change.'' Reducing Greenhouse Gas 
Emissions from Light-Duty Motor Vehicles, NESCCAF, p 1-1, September 
2004.
    \145\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.44 at 44.
---------------------------------------------------------------------------

    After the release of the Initial Staff Report, CARB received 
comments on its evaluation of technological steps that could be taken 
to meet its GHG standards from parties who supported the CARB study, 
and from various industry parties who disagreed with many of the CARB 
conclusions. As part of its standard-setting process, CARB staff 
considered the comments from all parties on both sides, and responded 
to industry concerns in its Final Statement of Reasons (FSOR), 
published in August 2005.\146\ CARB concluded that it had identified 
the necessary technology in existence at that time that could enable 
vehicles to meet the GHG standards; or specifically identified the 
projected control technologies; answered the industry objections 
regarding the technology; and has explained its reasons for believing 
that each of the steps can be completed in the time available.
---------------------------------------------------------------------------

    \146\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.116.
---------------------------------------------------------------------------

2. Overview of Technologies and Their Projected Applications
    The NESCAAF study identified technologies for reducing 
CO2 emissions that were modeled both individually and in 
various technology combinations (or ``packages''). Because there were a 
multitude of technologies available for the CO2 reductions, 
CARB realized that there needed to be engineering guidelines for 
choosing combinations that would be economical to the consumer. The 
guidelines tried to avoid combining technologies that tend to address 
the same categories of losses or technologies that may not complement 
one another from a drivability standpoint. Participants in the NESCAAF 
study and CARB staff then assembled a wide variety of combined 
technologies to evaluate through simulation modeling in order to 
identify those which would provide the greatest CO2 
reductions. In an effort to cover the full spectrum of CO2 
reductions that could be accomplished, CARB staff divided the results 
into two categories: near-term phase-in and mid-term phase-in 
applications. These translate to the following model year ranges: Near-
term (2009-2012) and mid-term to fully phased-in (2013-2016).\147\
---------------------------------------------------------------------------

    \147\ The NESCAAF study had a different schedule: Near-term 
technologies (2009-2012), mid-term (2013-2015) and long term (2015 
and later). California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 27.
---------------------------------------------------------------------------

    In the Initial Staff Report, CARB staff summarized the state of 
near-term technology for meeting its proposed CO2 standards:

    The technologies explored (in the Initial Staff Report) are 
currently available on vehicles in various forms, or have been 
demonstrated by auto companies and/or vehicle suppliers in at least 
prototype form * * * There is near term, or off the shelf technology 
package in each of the vehicles classes evaluated (small and large 
car, minivan, small and large truck) that resulted in a reduction of 
CO2 emissions of at least 15 to 20 percent from baseline 
values. In addition there is generally a near-term technology 
package in each of the vehicle classes that results in about a 25 
percent CO2 emission reduction.'' \148\
---------------------------------------------------------------------------

    \148\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.44 at iii.

    For engines, CO2 is emitted with engine exhaust as a 
result of the combustion process. CARB projected that by 2009, 
reductions in engine CO2 emissions would result from these 
primary technology drive-train changes which could be expected in all 
vehicle classes: Dual cam phasing, turbocharging with engine 
downsizing, automated manual transmissions, and

[[Page 32770]]

camless valve actuation.\149\ CARB also described several other 
technology items that may not be present in most vehicles in the early 
years of the standards, but are expected to be used in later years as 
development continues. These include: Gasoline direct injection, engine 
friction reduction, aerodynamic drag and rolling resistance, more 
aggressive shift logic, and early torque converter lock-up. Finally, 
CARB staff identified two other technology choices that while offering 
real GHG reduction capability were not as cost effective as the other 
technologies, and, accordingly, were not projected to be applied in the 
near-term--these are hybridization and greater dieselization of the 
fleet.
---------------------------------------------------------------------------

    \149\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.44 at 59-60.
---------------------------------------------------------------------------

    For the later years of these standards, CARB stressed that its GHG 
regulations ``rely less on traditional technology-forcing than 
repackaging a combination of off-the-shelf technologies to meet the 
adopted standards.'' \150\ The NESCAAF Report included, for each of the 
five vehicle categories, a table showing several promising technology 
packages, for each of the three time frames (near-, mid-, and long-
term), their resulting CO2 reductions, and expected 
costs.\151\ Additionally, for the long-term phase of the standards 
(2015-2016), CARB projects that there will be increased market 
penetration of hybrid-electric vehicles and advanced multi-mode diesel 
vehicles.\152\ In its December 2005 request letter, CARB discussed how 
improvements will occur, as it expects ``that a manufacturer would plan 
for a rollout of new technologies that would begin in 2009 and then 
build on the initial efforts with additional near and mid-term 
technologies that would be commensurate with previous 
investments.''\153\
---------------------------------------------------------------------------

    \150\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 34.
    \151\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 27 and 35, and OAR-2006-0173-0010.44 at 59.
    \152\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 27.
    \153\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 35-36.
---------------------------------------------------------------------------

    For air conditioning systems, GHG emissions are either direct or 
indirect. Direct emissions are the result of normal leakage of the air 
conditioning refrigerant from the system over time, as well as leakages 
that occur because of vehicle accidents, poorly performed maintenance, 
or improper refrigerant recovery prior to vehicle scrappage. Air 
conditioning refrigerants used in vehicles today are typically a hydro-
fluorocarbon (HFC), which is a very strong GHG. Indirect emissions are 
the additional CO2 emissions from the engine which occur 
because of the added load on the engine from operation of the air 
conditioning system. CARB, using the modeling in the NESCAAF Report, 
projected that CO2 equivalent reductions could result from 
these improvements in the air conditioning system: improved variable 
displacement compressor with revised controls, improved low-leak 
systems, and the use of an improved refrigerant.\154\
---------------------------------------------------------------------------

    \154\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.44 at 69-73, and EPA-HQ-OAR-2006-0173-0004.1 at 22-23.
---------------------------------------------------------------------------

    CARB notes that alternative fueled vehicles generally can help 
reduce GHG emissions by: (1) Direct reduction of GHG emissions because 
the alternative fuels will produce fewer GHG emissions, and (2) 
indirect reductions in GHG emissions because of the decreased upstream 
emissions. Upstream emissions are well-to-tank emissions, including the 
fuels' extraction, processing, distribution and marketing. The 
alternative fuels which result in GHG reductions are CNG, LPG, ethanol 
(including E85), electric, and hybrid-electric.
    In its ISOR, CARB identified exhaust catalyst improvement as 
another technology area that could lead to GHG emission reductions, 
specifically the reduction of methane and nitrous oxide 
(N2O). These gases are greenhouse gases just like 
CO2, but their mass emissions from motor vehicles are very 
small compared to CO2. CARB notes that ``although it is 
conceivable that these methane and N2O emissions could be 
reduced by faster catalyst heating at vehicle start-up and enhanced 
catalysts systems with higher surface density or higher and/or revised 
catalyst loadings, staff is not aware of such efforts at this time 
(August 2004).'' \155\ There were no further submissions to the record 
by CARB or any other party on this particular technology area.
---------------------------------------------------------------------------

    \155\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.44 at 78-79.
---------------------------------------------------------------------------

3. CARB's Updates on Technological Development
    At the time of the first set of EPA hearings on the CARB waiver 
request, in April 2007, CARB presented additional information to 
bolster its assertions on technological feasibility to highlight 
developments in GHG technology since CARB originally submitted its 
request to EPA in 2005. CARB summarized the recent developments and 
additional examples of real-life implementation of the technologies 
identified in its waiver request. In its comments following the April 
2007 hearings, and its July 2007 letter responding to post-hearing 
comments, CARB offered additional information to bolster their GHG 
technology projections. Generally, CARB pointed to numerous instances 
in which many of the near-term and mid-term technologies have been 
applied in vehicles which have been produced in the years since 2004 
(when the CARB standards became final) right up to mid-2007. For 
example, attached to additional comment letters it submitted to EPA's 
Docket in June and July 2007, CARB discussed the increased use of the 
GHG technologies discussed in the ISOR and provided summaries of GHG 
technology used in 2007 and 2008 model year vehicles showing increased 
use of all the near-term and mid-term technologies.\156\ CARB also 
offered numerous examples, contained in manufacturer news releases and 
advertisements, and trade press stories, illustrating real-life 
adoption of the GHG technologies in both domestic and foreign 
manufacturers' vehicles.\157\
---------------------------------------------------------------------------

    \156\ California Air Resources Board, EPA-HQ-OAR-2006-0173-1686, 
Attachments 84 and 85.
    \157\ California Air Resources Board, EPA-HQ-OAR-2006-0173-1686, 
Attachments 86 through 93 and 103, 104, 114, and California Air 
Resources Board, EPA-HQ-OAR-2006-0173-3601, Attachments 173-177.
---------------------------------------------------------------------------

    At its March 5, 2009 hearing following EPA's decision to reconsider 
its previous denial, CARB presented additional new information 
highlighting developments in GHG technology since the last opportunity 
to submit public comment on this issue. In addition, some environmental 
groups submitted testimony and comments in support of the CARB finding 
of technological feasibility of the GHG standards. This next section 
will summarize the technological feasibility information submitted by 
CARB and other parties. CARB noted that the manufacturers were 
employing the individual GHG-reducing technologies as well as the 
packages of those technologies CARB had projected as viable compliance 
pathways as early as 2004. CARB also noted that in addition to phasing-
in technologies, as CARB had originally predicted, manufacturers were 
using other technologies that CARB did not rely on originally--
including increased hybrid sales, downsized turbocharged engines in 
light truck lines, a large influx of diesel vehicle sales, and improved 
air conditioning systems. In some cases, the resulting reductions 
produced as much as 10% of the GHG reductions needed for manufacturers' 
fleet averages to meet the CARB standards.
    CARB also cited to recent EPA studies on technological feasibility 
and costs for

[[Page 32771]]

GHG reductions in motor vehicles, conducted by EPA in 2007. These EPA 
reports were discussed in EPA's Advanced Notice of Proposed Rulemaking 
on Regulating Greenhouse Gas Emissions Under the Clean Air Act 
published on July 30, 2008.\158\ The findings in these studies were 
very consistent with the technological feasibility, cost and lead time 
estimates from the CARB ISOR in 2004.
---------------------------------------------------------------------------

    \158\ Advanced Notice of Proposed Rulemaking, Regulating 
Greenhouse Gas Emissions Under the Clean Air Act, 73 FR 44354 (July 
30, 2008).
---------------------------------------------------------------------------

    Three EPA studies were referenced by CARB. First, CARB discussed 
the June 2008 document ``Vehicle Technical Support Document: Evaluating 
Potential GHG Reduction Programs for Light-Duty Vehicles (Light-Duty 
Vehicle TSD).'' \159\ The Light-Duty Vehicle TSD represented EPA's 
assessment during 2007 of how a light-duty vehicle program for GHG 
emission reductions under the Clean Air Act might be designed and 
implemented, with two program options: either (1) a fixed percentage 
reduction (4%) in CO2 emissions per model year from 2011 to 
2018, or (2) an annual reduction in CO2 emissions per model 
year from 2011 to 2018, based on a model developed by the Department of 
Transportation's Volpe Center, establishing CO2 emission 
standards, at the point the model projects maximum net benefits for 
those model years.\160\ The Light-Duty Vehicle TSD collected 
information from a wide range of sources, including a 2002 National 
Academy of Sciences report, the 2004 NESCAAF report (also used by 
CARB), current technical literature, and information from vehicle 
manufacturers and automotive suppliers. CARB noted that the emission 
reduction potentials and costs in the EPA study were similar to the 
reduction potentials and costs estimated by CARB in its ISOR. In 
discussing the Light-duty TSD in the ANPRM, EPA also acknowledged that, 
based on enhancements to the Volpe Model later in 2007, the earlier EPA 
analysis ``tended to underestimate the benefits and/or overestimate the 
costs of light-duty vehicle CO2 standards that could be 
established under the CAA.'' \161\
---------------------------------------------------------------------------

    \159\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.5.
    \160\ This approach uses a computer model developed by the 
Department of Transportation Volpe Center called the ``CAFE Effects 
and Compliance Model'' (``Volpe Model'').
    \161\ This EPA assessment of the Light-Duty Vehicle TSD was 
contained in the Advanced Notice of Proposed Rulemaking, Regulating 
Greenhouse Gas Emissions Under the Clean Air Act, 73 FR 44354, at 
44444 (July 30, 2008).
---------------------------------------------------------------------------

    CARB also referenced the March 2008 ``EPA Staff Technical Report: 
Cost and Effectiveness Estimates of Technologies Used to Reduce Light-
duty Vehicle Carbon Dioxide Emissions.'' This report presented the EPA 
staff assessment of costs and effectiveness of over 40 CO2 
reduction technologies in the categories of engines, transmissions, 
hybrids, accessories and other technologies (e.g., aerodynamic 
improvements). EPA noted that the majority of the technologies 
investigated are in production and available on current vehicles, 
either in the U.S., Europe or Japan. As part of that report, EPA worked 
with an internationally recognized automotive technology firm to 
perform a detailed vehicle simulation modeling study of the GHG 
reduction effectiveness of a number of advanced automotive 
technologies. As noted by CARB, the EPA Report obtained technology 
package reductions and cost estimates very similar to those in the CARB 
ISOR.\162\ As in the earlier Light-Duty TSD, EPA noted that the 
estimates in this report are conservative because they rely on data 
sources from one to six years old and declared that the ``automotive 
industry is a technology-driven industry, and new technologies are 
developed and introduced quickly. A number of technologies which have 
only recently been introduced or will be within the next year are 
likely to see improvements in their effectiveness and cost reductions 
beyond what we estimate (in this report).'' \163\
---------------------------------------------------------------------------

    \162\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006, 
at 21.
    \163\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.6. at 1.
---------------------------------------------------------------------------

    Finally, CARB referenced an EPA staff technical memorandum 
``Documentation of Updated Light-duty Vehicle GHG Scenarios,'' dated 
June 23, 2008.\164\ This memorandum summarized the staff work to update 
the ``4% per year'' GHG reduction scenario that was first documented in 
the Light-duty Vehicle TSD, by addressing some of the deficiencies of 
the earlier study,\165\ and was discussed in the ANPRM for GHG 
Standards. EPA once again noted that because the updated analysis did 
not address all the issues identified in the earlier TSD, it continued 
to believe that the results of this updated analysis are conservative, 
tending to overestimate the costs and/or underestimate the benefits. In 
its most recent comment, CARB noted that the EPA lead time estimates in 
EPA's ANPRM cite implementation rates supportive of CARB's estimates 
for implementing vehicle GHG reducing technologies.\166\
---------------------------------------------------------------------------

    \164\ California Air Resources Board, EPA-HQ-OAR-2007-0173-
9019.7.
    \165\ For example, this updated analysis included factors such 
as consideration of multi-year planning cycles available to 
manufacturers, consideration of CO2 trading between car 
and truck fleets within the same manufacturer, and inclusion of 
plug-in hybrids as a viable technology beginning in 2012. Advanced 
Notice of Proposed Rulemaking, Regulating Greenhouse Gas Emissions 
Under the Clean Air Act, 73 FR 44354, at 44444 (July 30, 2008).
    \166\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006, 
at 21.
---------------------------------------------------------------------------

    CARB summarizes the reports from EPA, NESCAAF and others by 
declaring that ``the technologies examined are well known and most are 
already being implemented on today's vehicles, while the others are 
simply advanced versions of conventional technologies that are already 
being demonstrated by vehicle manufacturers and component suppliers.'' 
\167\ To bolster this statement, CARB submitted a list of Model Year 
2009 vehicles which employ GHG reduction technologies, which shows a 
gradual phasing-in of these technologies across all manufacturers and 
all product lines. CARB also submitted a list showing 2009 Model Year 
vehicles that comply with the CARB GHG standards; the list shows 
significant numbers of 2009 passenger cars and light trucks meeting the 
2012 and later standards, significantly ahead of the deadlines.
---------------------------------------------------------------------------

    \167\ Id.
---------------------------------------------------------------------------

    With respect to the overall technological feasibility of its GHG 
standards, CARB believes that it has reasonably projected technological 
feasibility, consistent with the approach employed in the NRDC 
decision, when manufacturers have several years of lead time before 
compliance. CARB notes that it ``either has demonstrated that the 
necessary technologies presently exist to meet the established 
standards or we have specifically identified the projected control 
technologies, answered objections raised by industry regarding those 
technologies, and explained why we believe that each of the steps can 
be completed in the time available.'' \168\
---------------------------------------------------------------------------

    \168\ Id. at 23.
---------------------------------------------------------------------------

    In support of its conclusion, CARB submitted for the record three 
analyses showing that the manufacturers are employing the GHG 
technologies at least as fast as CARB predicted, and certainly in time 
for compliance with the early model years. First, CARB did an 
``industry-wide'' projection using manufacturers' 2009 sales 
projections and worst case CO2 values per single test 
vehicle, and used the 2009 projected sales as unchanged for 2010 and 
2011 model years.\169\ The results of this analysis show industry-wide 
GHG

[[Page 32772]]

credits for 2009 and 2010 and a debit for 2011, but an overall credit 
for the three-year period. CARB noted that because this was done on a 
worst-case testing basis, it is likely that testing with additional 
vehicles in each test group would show even the debiting companies in 
compliance.\170\
---------------------------------------------------------------------------

    \169\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.12.
    \170\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006 
at 24.
---------------------------------------------------------------------------

    Second, CARB looked at the compliance projection for the major 
domestic manufacturers (Ford, GM and Chrysler) for the 2009 and 2010 
model years.\171\ CARB used the actual 2009 model year registration 
data (from Polk) and, then, applied CO2 emissions data by 
vehicle model obtained from EPA, selecting the highest CO2 
emissions data for those vehicle models with multiple engines. The 
results showed that for the 2009 model year, GM and Ford have ample 
compliance margins for both PC/LDT1 and LDT2/MDV, while Chrysler has a 
debit for its PC/LDT1 fleet, but a wide margin for its LDT2/MDV fleet. 
The overall net result is compliance for all three companies. For 2010, 
the three companies run debits for PC/LDT1 but have compliance margins 
for LDT2/MDV (a small margin for GM, and substantial margins for Ford 
and Chrysler). Again, based on the use of accumulated credits, these 
companies would comply with the model years analyzed.
---------------------------------------------------------------------------

    \171\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.13. CARB limited this particular analysis to the domestic 
manufacturers because, in its assessment, ``the international auto 
companies are better positioned to comply and will unquestionably 
meet early model year standards.'' As summarized in the first 
(industry-wide) CARB analysis, although at least one international 
manufacturer (BMW) projected a slight debit for 2009, all the 
manufacturers were projected for overall compliance for the period 
2009-2011.
---------------------------------------------------------------------------

    Third, CARB focused on just GM for the 2009 model year, using a 
different technique than their study directly above.\172\ CARB used 
certification data provided by GM, projected sales based on GM's latest 
manufacturer update to CARB, and CO2 results provided by 
EPA. Then each GM certification test group was divided by GM into sales 
sub-groups, each having one or several vehicle models. For each sub-
group, the CO2 emissions of the highest emitting model were 
multiplied with the total number of vehicles in the subgroup to 
calculate the sub-group's GHG value. The GHG values from all sales 
subgroups in a test group were summed up to represent the sales group 
GHG value. For the 2009 model year, under this analysis, the GM PC/LDT1 
fleet over-complies by 14 grams per mile and the LDT2/MDV fleet over-
complied by 27 grams per mile, generating substantial credits for 2010 
and beyond.
---------------------------------------------------------------------------

    \172\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.14.
---------------------------------------------------------------------------

    Additional support for 2009-2011 compliance was provided by the 
Natural Resources Defense Council. At EPA's March 5, 2009 waiver 
hearing, NRDC presented testimony regarding the technological 
feasibility of the GHG standards for the early years of compliance. 
NRDC performed its analysis by using EPA fuel economy trends data for 
MY 2008, which predicted a national average fuel economy level without 
CAFE credits for flexible fuel vehicles. NRDC then converted the miles 
per gallon numbers to CO2 grams per mile levels using the 
California sales mix and the GHG conversion established by CARB. The 
result is that industry accrues substantial amount of credits in 2009 
and 2010, and then runs a small deficit in 2011 that can be easily made 
up using banked credits from the first two years.\173\
---------------------------------------------------------------------------

    \173\ Natural Resources Defense Council, EPA-HQ-OAR-2006-0173-
7176.13, at 5-6. The NRDC testimony also noted that developments in 
the period between the first waiver hearing (May 2007) and the new 
hearing strengthen the California case that the GHG standards are 
cost-effective and technically feasible--namely, higher gas prices, 
the market shift to cleaner cars and the passage of new Federal fuel 
economy standards.
---------------------------------------------------------------------------

    Beyond submitting results from its own recent analyses, CARB 
submitted a very recent (March 2009) study by Energy & Environmental 
Analysis (EEA) entitled ``Automakers Ability to Comply with California 
GHG Standards Through 2012.'' \174\ The EEA study notes that, if the 
California waiver is granted, manufacturers would be required to comply 
with standards for MY 2009 vehicles, which are already in production 
and being sold, and would have very little lead time to make changes 
for MY 2010 (which will start production in mid-calendar year 2009), 
and limited opportunity to make changes at this point for MY 2011 and 
2012. EEA looked at the product plans for the ``Big Six'' manufacturers 
in the U.S. (GM, Ford, Chrysler, Toyota, Honda and Nissan) based on 
commercially available data, and from public information reported in 
the trade press, as well as the information submitted by the 
manufacturers to the Federal government in connection to the auto 
restructuring plans.\175\ Generally, because of projected large sales 
of hybrids and to a lesser extent, sales of diesel vehicles, EEA 
projected that Toyota and Honda will meet California GHG standards 
through 2012, and that Nissan may have a shortfall in LDV/LDT1 for 
2012, but will easily comply with LDT2/MDV in 2012, and will be able to 
meet the 2012 standards by trading between categories and using banked 
credits from prior years.
---------------------------------------------------------------------------

    \174\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.15.
    \175\ EEA completed a detailed study of product plans for the 
Big Six manufacturers for the U.S. Department of Energy in late 
2008, and they used that study as a baseline for this report on 
California GHG compliance.
---------------------------------------------------------------------------

    For the domestic manufacturers, EEA noted concerns about compliance 
with the California GHG standards, in part because these companies have 
Federal CAFE values which are significantly below the three Japanese 
companies, meaning that it will be harder for them to reach the target. 
Nevertheless, the EEA report noted that the product plans of these 
companies show the following industry-wide technology improvements 
coming on line in the next 4 to 5 years:

--Luxury vehicles adopting GDI across most product lines;
--4 valve OHC/DOHC engines with VVT replacing the few remaining 2-valve 
OHC 4 and 6 cylinder engines;
--6-speed transmissions replacing 4 or 5 speed units in most mass 
market vehicles
--Electric power steering replacing hydraulic units in compact and mid 
size cars;
--Cylinder cut-out applications to V-8 and some V-6 units;
--Variable valve lift used more widely by Japanese manufacturers;
--Introduction of several new diesel models and hybrid models by all 
manufacturers;
--Introduction of new small ``crossover'' SUV and car models that are 
one size class below the existing smallest models offered by the 
domestic manufacturers to compete with the Toyota Scion XD and XB 
models and the Honda Fit model.

    To perform the GHG estimate, the EEA study used the actual fuel 
economy data by vehicle model for MY 2009, and used the product-plan 
based technology forecasts to derive fuel economy by model for MY 2010 
through 2012. For sales numbers, EEA used 2008 sales data and sales for 
the first two months of 2009 both nationally and for California as 
sales indicators for the near term (MY 2009 and 2010). For 2011 and 
2012, EEA used the sales forecast it had developed in the 2008 DOE 
study, which was a 15 million annual sales level of light duty vehicles 
nationally. The power train mix numbers (engine/transmission 
combinations) for all years were the 2008 numbers because this was the 
latest data available from the CAFE data base.
    Using this approach, EEA found that all three domestic 
manufacturers are in

[[Page 32773]]

compliance with current and expected CAFE through 2012, with Chrysler 
lagging somewhat behind Ford and GM. EEA then translated these 
forecasts to GHG forecasts for the California vehicle class 
definitions, assuming no A/C improvement credits or alternative fuel 
credits, and no trading of credits between manufacturers, and predicted 
as follows:

--All manufacturers will comply with GHG requirements for 2009;
--GM and Chrysler will comply with GHG regulation in 2010 while Ford is 
on the edge of compliance. Ford can likely comply by either using 
banked credits from 2009 or with small adjustments to the power train 
and sales mix sold in California if necessary;
--Chrysler and GM may be able to meet 2011 GHG standards using banked 
credits from 2009 and 2010 and credit trading between classes. All 
three manufacturers could require additional efforts such as air 
conditioner improvements to comply with 2011 GHG requirements.
--Compliance with 2012 GHG requirements will be a challenge and may 
require credit trading and banked past and future credits over and 
above credits from air conditioner improvements and introduction of 
alternative fuel vehicles.
--The results appear to be very realistic based on the auto-
manufacturers public statements of future fuel economy.\176\
---------------------------------------------------------------------------

    \176\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9019.15.

    Regarding the long-term (MY 2012 and later) outlook, CARB compared 
the restructuring plans submitted by the automakers to the arguments 
manufacturers made in this proceeding, regarding later model year 
feasibility. CARB stated that ``by 2015, even those manufacturers 
facing the most difficult challenge complying with California's 
standards have made statements that on their face show they plan to 
comply with the later model years standards, even before receiving 
additional credit for GHG reductions from air conditioning improvements 
and regardless of 2009 and 2010 credits carrying forward.'' \177\ For 
example, CARB cited from the GM restructuring plan that the company 
stated that it will work to develop any changes needed to * * * meet 
such additional requirements as California's.\178\ Further, at EPA's 
March 5, 2009 hearing, NRDC pointed out that the plans of both GM and 
Ford show MY 2012 fuel economy levels for cars and light trucks fleet 
average that come very close to allowing the automakers to comply with 
the GHG standards with little or no additional effort.\179\ 
Additionally, CARB noted that Chrysler stated that, should this GHG 
waiver be granted, the company would try its best to comply using 
available technology; however, as a last resort it might restrict sales 
of certain vehicle models in California and other states adopting the 
California standards, out of necessity.\180\ Finally, regarding Ford, 
NRDC stated in its testimony that Ford plans to improve the average 
fuel economy by 26 percent by 2012 and by 36 percent by 2015.\181\
---------------------------------------------------------------------------

    \177\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006, 
at 27.
    \178\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9021.1, at 21.
    \179\ Natural Resources Defense Council, EPA-HQ-OAR-2006-0173-
7176.13, at 4.
    \180\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
9020.2, at U116, and California Air Resources Board, EPA-HQ-OAR-
2006-0173-9020.3, at 118-120.
    \181\ Natural Resources Defense Council, EPA-HQ-OAR-2006-0173-
7176.13, at 4, citing from Ford Motor Company Business Plan, 
Submitted to the House Financial Services Committee, December 2, 
2008.
---------------------------------------------------------------------------

4. Manufacturers' Comments on the Technological Feasibility of the GHG 
Standards
    Manufacturers raised arguments regarding the feasibility of the 
CARB GHG standards both in the underlying rulemaking in California, and 
in the EPA waiver proceeding. In the CARB rulemaking, the manufacturers 
generally criticized some aspects of the CARB modeling work that 
substantiated CARB's conclusions on technological feasibility. For 
example, a manufacturer argued that CARB overestimated the emission 
reductions from the powertrain changes in many of the technology 
packages used in the modeling studies, such as the NESCAAF study. 
Because the studies assumed changes in the use of advanced 
transmissions and engines in such a magnitude to be unrealistic for the 
U.S. fleet, the manufacturer stated that the changes would require 
retooling of all U.S. driveline plants, perhaps more than once.\182\ 
Manufacturers also argued that the modeling of technology packages 
risked ``double-counting'' emission benefits produced by the individual 
technologies, thus producing an unrealistic estimate of emission 
reductions.\183\ CARB responded to these comments by stating that 
manufacturers were already planning to incorporate advanced 
transmissions and engine technologies in their vehicles, and that the 
gradual phase-in of the CARB standards allowed manufacturers to 
accomplish this during regular scheduled vehicle upgrades. CARB also 
noted that its modeling done by AVL specifically avoided double-
counting (while some manufacturers' modeling did not).
---------------------------------------------------------------------------

    \182\ California Air Resources Board, EPA-HQ- OAR-2006-0173-
0010.116, Comment 154 (at 107) and Comments 158-159(-115).
    \183\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.116, Comment 162 at 117.
---------------------------------------------------------------------------

    Regarding the EPA waiver proceeding, while the manufacturers did 
take issue with some of the CARB modeling work during the CARB 
rulemaking, the manufacturers did not challenge CARB's general 
conclusions that the necessary technology presently exists to meet the 
near-term standards, that projected control technologies for future 
years have been identified, and that objections raised by industry have 
been answered. Rather, the industry offered an assessment that much of 
this technology is already at hand. At the first EPA hearing in March 
2007, although no individual manufacturer presented testimony, the 
Alliance of Automobile Manufacturers discussed the progress of the 
industry in producing more fuel-efficient vehicles. The Alliance stated 
that ``every model available today is equipped with some kind of fuel 
efficient technology, including direct fuel injection, variable valve 
timing, continuously variable transmissions, cylinder deactivations, 
and more.'' \184\ These technologies in the 2007 and 2008 MY vehicles 
are among those that CARB projected as being in use for the near-term 
GHG standards (see above discussion on ``Overview of Technologies and 
Their Projected Applications,'' section VI.B.2).
---------------------------------------------------------------------------

    \184\ Testimony of Alliance of Automobile Manufacturers, EPA-HQ-
OAR-2006-0173-0422, at 98.
---------------------------------------------------------------------------

    In comments sent to EPA after the March 2007 hearing, the industry 
commenters focused on whether there was adequate lead time to comply 
with the near-term standards, citing testimony from a CARB official (in 
the Vermont litigation) that some manufacturers may need up to six 
years to comply with the 2011 MY standards and up to 7 years to comply 
with the 2012 MY standards.\185\ Also, the industry criticized CARB for 
not providing sufficient information on some technology issues for the 
EPA (or the public) to make an informed decision.\186\ CARB responded 
to these

[[Page 32774]]

points, stating that the CARB official also testified that most of the 
CARB-identified technologies are already developed and required only a 
few years of lead time for implementation. Additionally, based on lead 
time beginning at the time of the final adoption of the standards by 
CARB (August 2005), CARB notes that the 6 or 7 year lead time for the 
2011 and 2012 model years respectively is reasonable.\187\ CARB also 
provided, in its June 2007 and July 2007 comments, information from the 
Vermont litigation where various manufacturers testified that they 
would be able to meet the early years of the California GHG 
standards.\188\ Concerning the list of technical issues on which the 
industry claimed CARB had not provided enough information to allow 
public comment, CARB stated that these issues were among many issues 
previously addressed fully both in submissions to the Docket (primarily 
the CARB Final Statement of Reasons) as well as in the Federal 
litigation.\189\
---------------------------------------------------------------------------

    \185\ Association of International Automobile Manufacturers, 
EPA-HQ-OAR-2006-0173-1455.2 at 11-12. The litigation in Vermont is 
Green Mountain Chrysler-Plymouth Dodge-Jeep v. Crombie, 508 F. Supp, 
295 (D. Vt.).
    \186\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-
0173-1297.2 at 35-36.
    \187\ California Air Resources Board, EPA-HQ-OAR-2006-0173-3601, 
at 26-27.
    \188\ CARB referenced the industry assessments of early model 
year compliance from the litigation in Vermont, Green Mountain 
Chrysler-Plymouth Dodge-Jeep v. Crombie, 508 F. Supp, 295 (D. Vt.), 
California Air Resources Board, EPA-HQ-OAR-2006-0173-1686 at 20-21, 
California Air Resources Board, EPA-HQ-OAR-2006-0173-3601, at 27-28.
    \189\ The list of issues and the CARB response are discussed in 
the CARB July 2007 letter. EPA-HQ-OAR-2006-0173-3601, at 26.
---------------------------------------------------------------------------

    Manufacturers also presented information on technological 
feasibility at EPA's March 5, 2009 hearing and the subsequent comment 
period. At the EPA hearing, the Alliance continued to acknowledge 
technological advances in GHG control. The Alliance stated that 
``automakers have made major contributions into developing new fuel 
efficient technologies and the results are now coming to dealer 
showrooms. More than 50 technologies offered in vehicles today reduce 
emissions, increase mileage and allow vehicles to run on cleaner 
fuels.'' \190\ Regarding technological feasibility for the early years 
(near-term), the industry trade groups generally argued that CARB 
relied on manufacturer credits for these years to provide a cushion for 
compliance in the later years, but that the several years of lead time 
required for mid-term compliance combined with uncertainty resulting 
from the EPA waiver denial makes even the near-term lead time 
inadequate.\191\ CARB, in its testimony and subsequent comments, 
presented its new analyses of compliance (for the industry in general, 
and for GM) that showed industry compliance is likely if not certain 
for the 2009 through 2011 model years (see discussion above at section 
VI.B.3.). Additionally, if any individual manufacturers incur a debit 
in any model year, the CARB regulations provide the manufacturer up to 
five model years afterwards to make up the debit to avoid any 
noncompliance penalty.
---------------------------------------------------------------------------

    \190\ Testimony of Association of Automobile Manufacturers, EPA-
HQ-OAR-2006-0173-7177, at 108.
    \191\ Association of Automobile Manufacturers, EPA-HQ-OAR-2006-
0173-8994.1, at 24-25; Association of International Automobile 
Manufacturers, EPA-HQ-OAR-2006-0173-9005.2 at 4.
---------------------------------------------------------------------------

    Regarding the mid-term (2012-2016) model years of the GHG 
standards, the industry commenters have argued that the only means by 
which most large-volume manufacturers will be able to meet the CARB 
standards is by ``mix-shifting'' their product lines to offer for sale 
more higher mileage vehicles to ensure meeting the CARB fleet 
average.\192\ The Alliance stated that ``it is simply too late for 
manufacturers to meet all the Pavley standards for future model years 
through the use of technologies, if for no other reason than because 
approximately 18 months of the product planning and development cycle 
was pretermitted while the waiver was denied (assuming for purposed of 
this analysis that a waiver would be granted in June 2009).'' \193\ As 
discussed earlier, CARB responded to these arguments by noting that in 
the restructuring plans recently submitted to the government, the 
manufacturers have made statements demonstrating they plan to comply 
with the later model years of the CARB standards, even before receiving 
additional credit for GHG reductions from air conditioning improvements 
and regardless of 2009 and 2010 credits carrying forward. Regarding the 
manufacturers' mix-shifting argument, EPA notes that under the narrow 
standard of review applied to California's technological feasibility 
determinations, consistency with section 202(a) does not mean that all 
manufacturers will be able to sell all vehicle models in California and 
that a reduced product offering in California resulting from California 
emission standards is a policy decision left to the state.\194\
---------------------------------------------------------------------------

    \192\ Regarding mix-shifting, the National Automobile Dealers 
Association also commented that this would be costly to dealers who 
would lose business due to the ``scrappage effect'' (see above pp 
46-49), being forced to accept smaller vehicles regardless of local 
consumer demand, rationing of larger vehicles, and out-of state 
dealers unencumbered by CARB's regulations. National Automobile 
Dealers Association, EPA-HQ-OAR-2006-0173-8956.1, at 8-9.
    \193\ Association of Automobile Manufacturers, EPA-HQ-OAR-2006-
0173-8994.1 at 26.
    \194\ 40 FR 23102, 23103 (May 28, 1975).
---------------------------------------------------------------------------

C. Technological Feasibility and the Cost of Compliance

1. Historical Approach
    Congress has stated that the consistency requirement of section 
202(a) relates to technological feasibility.\195\ Section 202(a)(2) 
states, in part, that any regulation promulgated under its authority 
``shall take effect after such period as the Administrator finds 
necessary to permit the development and application of the relevant 
technology, considering the cost of compliance within that time.'' 
Section 202(a) thus requires the Administrator to first review whether 
adequate technology already exists, or if it does not, whether there is 
adequate time to develop and apply the technology before the standards 
go into effect.
---------------------------------------------------------------------------

    \195\ H.R. Rep. No. 95-294, 95th Cong., 1st Sess. 301 (1977).
---------------------------------------------------------------------------

    In MEMA I, the court addressed the cost of compliance issue at some 
length in reviewing a waiver decision. According to the court:

    Section 202's cost of compliance concern, juxtaposed as it is 
with the requirement that the Administrator provide the requisite 
lead time to allow technological developments, refers to the 
economic costs of motor vehicle emission standards and accompanying 
enforcement procedures. See S. Rep. No. 192, 89th Cong., 1st Sass. 
5-8 (1965); H.R. Rep. No. 728 90th Cong., 1st Sass. 23 (1967), 
reprinted in U.S. Code Cong. & Admin. News 1967, p. 1938. It relates 
to the timing of a particular emission control regulation rather 
than to its social implications. Congress wanted to avoid undue 
economic disruption in the automotive manufacturing industry and 
also sought to avoid doubling or tripling the cost of motor vehicles 
to purchasers. It, therefore, requires that the emission control 
regulations be technologically feasible within economic parameters. 
Therein lies the intent of the cost of compliance requirement.\196\
---------------------------------------------------------------------------

    \196\ MEMA I at 1118 (emphasis added). See also id. at 1114 n. 
40 (``[T]he `cost of compliance' criterion relates to the timing of 
standards and procedures.'').

    Previous waiver decisions are fully consistent with MEMA I, which 
indicates that the cost of compliance must reach a very high level 
before the EPA can deny a waiver. Therefore, past decisions indicate 
that the costs must be excessive to find that California's standards 
are inconsistent with section 202(a).\197\ It should be noted that, as 
with other issues related to the determination of consistency with

[[Page 32775]]

section 202(a), the burden of proof regarding the cost issue falls upon 
the opponents of the grant of the waiver.
---------------------------------------------------------------------------

    \197\ See, e.g., 47 FR 7306, 7309 (Feb. 18, 1982), 43 FR 25735 
(Jun. 14, 1978), and 46 FR 26371, 26373 (May 12, 1981).
---------------------------------------------------------------------------

    Consistent with MEMA I, the Agency has evaluated costs in the 
waiver context by looking at the actual cost of compliance in the time 
provided by the regulation, not the regulation's cost-effectiveness. 
Cost-effectiveness is a policy decision of California that is 
considered and made when California adopts the regulations, and EPA, 
historically, has deferred to these policy decisions. EPA has stated in 
this regard, ``the law makes it clear that the waiver request cannot be 
denied unless the specific findings designated in the statute can be 
made. The issue of whether a proposed California requirement is likely 
to result in only marginal improvement in air quality not commensurate 
with its cost or is otherwise an arguably unwise exercise of regulatory 
power is not legally pertinent to my decision under section 209 * * *'' 
\198\ Thus, under the language of section 202(a)(2), EPA will look at 
the compliance costs for manufacturers in developing and applying the 
technology with the costs being broken down on a cost per vehicle or 
unit basis.
---------------------------------------------------------------------------

    \198\ 36 FR 17158 (August 31, 1971). See also 40 FR 23102, 
23104; 58 FR 4166 (January 7, 1993), LEV Waiver Decision Document at 
20.
---------------------------------------------------------------------------

2. Technology Cost Information in This Proceeding
    At the time of CARB's original waiver request, CARB presented the 
projected technology costs for the GHG vehicle standards based on cost 
estimates for necessary components provided by Martec, the company that 
did the modeling studies that produced the CARB technology assessment 
in its ISOR. The costs were calculated by applying a mark-up factor, 
determined by the Argonne National Laboratory, for the components 
needed for the vehicles. Additionally, CARB assumed an additional 30% 
discount for a limited number of components where unanticipated 
improvements in production processes or simplifications or 
consolidation in parts after additional further development would be 
likely.\199\
---------------------------------------------------------------------------

    \199\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 40.
---------------------------------------------------------------------------

    At that time, CARB stated that the average cost of control for 
near-term technology packages on PC/LDT1 category vehicles was 
estimated at $383 per vehicle, and for LDT2/MDV category vehicles was 
estimated at $327 per vehicle. Performing similar calculations for the 
mid-term technology packages, CARB put the estimates for PC/LDT1 at 
$1,115, and for LDT2/MDV at $1,341. CARB also presented information on 
the estimates of costs for the ``major 6'' manufacturers cost of 
compliance over the term of these standards. These figures ranged from 
$0 (for the three Japanese companies and GM) for the 2009 MY (i.e., the 
fleets of these companies would comply with the 2009 standards with no 
changes) to the highest costs in the 2016 MY, with a $1,288-$1,341 
range for the domestic manufacturers and a $272-$298 range for the 
Japanese manufacturers.
    During the CARB GHG rulemaking, the manufacturers commented that 
CARB underestimated costs of individual technologies because CARB did 
not use the manufacturers' costs to individually develop each of the 
technologies, and CARB used a mark-up factor for final technology cost 
that was too low. The Alliance commissioned a study by Air Improvement 
Resources, NERA Economic Consulting, and Sierra Research (the above 
noted ``June 2007 AIR/NERA/Sierra Study'') that found the average 
vehicle cost increase to be about $3000, several times larger that the 
CARB estimates. In response, CARB provided a detailed critique of why 
the cost conclusions in this study were not reasonable. CARB found 
faulty technical analysis and inflated component costs.\200\ In the 
time period since the CARB request, CARB has updated its technology 
cost estimates with new real-life information to show that 
manufacturers are continuing to implement the GHG technology packages 
and combinations CARB had identified at the outset--at costs in line 
with CARB's projections.\201\
---------------------------------------------------------------------------

    \200\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.116 at 141-155.
    \201\ California Air Resources Board, EPA-HQ-OAR-2006-0173-1686 
at 19, and EPA-HQ-OAR-2006-0173-3601 at 28-29. CARB also notes that 
in the Green Mountain case, 508 F. Supp. 2d at 365-366, the Court 
found that the industry consultant's (T. Austin) baseline 
assumptions and resulting cost estimates--double that of defendants' 
expert--were unsupported by the evidence.
---------------------------------------------------------------------------

    EPA also received comments from the National Auto Dealers 
Association (NADA) and the National Association of Minority Automobile 
Dealers (NAMAD) concerning the costs of the CARB standards to its 
constituents, above the costs that GHG technology adds to the vehicle 
price to buyers. NADA notes that because of ``dire financial straits'' 
in the auto industry due to the economic recession, dealers are 
experiencing financial difficulties from vastly reduced vehicle sales 
(among other problems). NADA believes that if this waiver is granted, 
and the various other states which have adopted the GHG standards begin 
their own programs, the result will be a ``state-by-state patchwork 
approach to fuel economy that would fill their lots with more unsold 
vehicles.'' \202\\\ NAMAD believes that ``dealer will lose sales if 
automakers have to ration delivery of large vehicles in CARB (Section 
177) states to meet the fleet average, and * * * if dealers are forced 
to take delivery of more small cars that their customers don't want, 
dealers will be stuck paying the interest charges while these vehicles 
sit on their lots.'' \203\\\ EPA notes the comments of NADA and NAMAD 
on this particular type of cost, but also notes that these comments are 
not relevant to the issue of whether the technology feasibility of the 
GHG standards are consistent with section 202(a). The comments 
regarding the ``patchwork'' of the GHG standards in other states are 
discussed below in section VII. B. 2.
---------------------------------------------------------------------------

    \202\ National Automobile Dealers Association, EPA-HQ-OAR-2006-
0173-8956.1 at 5-6.
    \203\ Testimony of National Association of Minority Automobile 
Dealers, EPA HQ-OAR-2006-0173-7177, at 126-127.
---------------------------------------------------------------------------

3. Consistency of Certification Test Procedures
    The enforcement procedures that accompany California's greenhouse 
gas standards would also be inconsistent with section 202(a) if the 
California test procedures impose testing requirements inconsistent 
with the Federal testing requirements. Such inconsistency means that 
manufacturers would be unable to meet both the California and the 
Federal test requirements with the same test vehicle.\204\
---------------------------------------------------------------------------

    \204\ See, e.g., 43 FR 32182 (Jul. 25, 1978).
---------------------------------------------------------------------------

    CARB stated in its December 2005 Waiver Request letter that there 
``are no Federal test procedures that measure GHG for climate change 
purposes, [so] there are no potential inconsistencies precluding a 
manufacturer from using the same test vehicle to meet both Federal and 
California requirements'' and noted in its most recent (April 2009) 
comment letter that this was still true.\205\
---------------------------------------------------------------------------

    \205\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0004.1 at 42 and EPA-HQ-OAR-2006-0173-9006 at 29.
---------------------------------------------------------------------------

    EPA received no comments suggesting that CARB's GHG testing 
requirements pose a test procedure consistency problem with federal 
test procedures.
4. Safety Implications of the CARB GHG Standards
    The industry raised a vehicle safety issue for consideration within 
the technological feasibility criterion. The industry has proffered the 
idea that the CARB GHG standards will result in the production of 
vehicles which will be unsafe for two reasons. First, they claim

[[Page 32776]]

that many GHG-compliant vehicles will achieve compliance because they 
will be downsized, and will be inherently less safe in collisions. 
Second, they claim that because GHG-compliant vehicles will also have 
higher fuel economy than today's fleet, owners will drive more, and 
that additional VMT means more accidents will occur. The industry 
asserts that because the GHG standards will cause these problems, the 
resulting vehicles are technologically infeasible because of the safety 
concerns.
    EPA takes safety into account in evaluating technology, feasibility 
and lead time of California emission standards. For example, when CARB 
in 1994 requested authorization for its original set of emission 
standards for small spark-ignition engines used in utility, lawn and 
garden equipment, the industry trade association raised safety concerns 
in the EPA authorization proceeding. The industry argued that 
compliance with the CARB standards would require the use of catalyst 
technology in equipment, and that current catalysts produced high 
exhaust and surface temperatures, and could also possibly cause 
sparking and flaming, so these safety issues must be addressed before 
this technology could become feasible, and the authorization should be 
denied on that basis. EPA examined these safety issues within the 
traditional consistency with section 202(a) criterion, with the 
requisite deference given to CARB and the burden placed on those 
arguing that safety concerns should give cause for EPA to deny the 
authorization. CARB responded to the industry objections by offering a 
detailed review of steps necessary to refine small engine catalyst 
technology to meet the standards while reducing the high temperature 
risks, as well as identifying some current small engines that met the 
standards without using a catalyst. After reviewing all relevant 
information from CARB and other commenters on the safety issues (and 
other technological feasibility issues) the Administrator stated he was 
``unable to make the finding that the CARB Tier 2 standards are not 
technologically feasible within the available lead time.'' \206\
---------------------------------------------------------------------------

    \206\ Decision Document, Authorization of California's Under 25 
Horsepower Utility Lawn and Garden Equipment Engine Exhaust Emission 
Standards (ULGE) (July 5, 1995), EPA Docket A-91-01 at 61-70.
---------------------------------------------------------------------------

    In the California GHG proceeding, CARB has responded to the 
industry safety arguments, both during the underlying California 
rulemaking and in comments submitted to EPA in this waiver proceeding. 
In summary, CARB rejected the industry arguments in several ways. 
First, it pointed out that under the terms of AB 1493, CARB is 
precluded from requiring vehicle down-weighting as a means of achieving 
compliance. Second, CARB has laid out a broad pathway of potential 
technologies for achieving compliance for all vehicle types, none of 
which require any weight reduction of vehicles. Third, CARB notes that 
an industry study (Sierra 2004) shows that weight reduction is far from 
cost-effective and therefore becomes an unlikely compliance option. 
Fourth, CARB submitted reports from experts that tend to dispute any 
safety impacts from the GHG standards by demonstrating that any weight 
reduction that may be made to comply with the GHG standards need not 
adversely affect vehicle safety. Finally, the opponents VMT safety 
theory is entirely based on their flawed rebound and fleet turnover 
arguments (discussed above in section IV.C.2).
    Regarding the safety issue, EPA notes that CARB has provided 
considerable evidence that its GHG standards can be met without any 
increase in concern regarding vehicle safety. Even accepting the 
industry arguments regarding the safety implications of downsizing--
which are disputed by CARB, particularly for downsizing of larger 
vehicles--EPA cannot make the finding that the CARB standards are 
technologically infeasible because manufacturers may choose to use a 
method of compliance that is not as safe as the methods CARB has 
identified, particularly where there are many business reasons for 
manufacturers not to choose such a method. The burden, here, is on 
manufacturers to demonstrate that safety concerns with the technology 
available for compliance were unavoidable and substantial and that 
manufacturers would have no reasonable technological option available 
to them in the lead time provided for compliance. Based on the entire 
record, they have not made such a demonstration. Beyond this limited 
type of review under section 209(b), EPA's proper role is to leave for 
California the judgment of what greenhouse standards are appropriate in 
light of safety concerns raised by manufacturers.
    With regard to the claim that increased VMT will increase the 
number of accidents, this argument is not relevant to the safety of the 
vehicle but to an outcome based on the possible actions or changes of 
driving patterns of people who own these vehicles. This argument does 
not go to the technological feasibility of the vehicle itself. This is 
a public policy argument that is left for California's discretion but 
is not relevant to the narrow technological feasibility analysis 
authorized for EPA under section 209(b).
    For these reasons, EPA finds that the industry opponents of this 
waiver request, with respect to the vehicle safety impact of the CARB 
GHG standards have not met their burden of proof for EPA to find that 
these standards are not consistent with section 202(a) of the Act.

E. Conclusion on Technological Feasibility

    After its review of the information in this proceeding, EPA has 
determined that CARB has demonstrated a reasonable projection that 
compliance with its GHG standards is reasonable, based upon the current 
and future availability of the described technologies in the lead-time 
provided and considering the cost of compliance. The industry opponents 
have not met the burden of producing the evidence necessary for EPA to 
find that California's GHG standards are not consistent with section 
202(a).
    With regard to motor vehicles required to meet the near-term 
standards for the 2009 through 2011 model years, the CARB technical 
information presented in this record clearly indicates that these 
requirements are feasible. CARB has presented the case that the 
industry as a whole will be able to meet these standards for this 
period--for the 2009 and 2010 model years--with compliance with the 
standards including credit generation, and for the 2011 model year--
with a carry-forward of credits earned in the 2009 and 2010 model 
years. Within the industry, several manufacturers are not expected to 
need credits to comply in the 2011 model year. Moreover, California has 
provided several technological avenues that are currently available for 
meeting the 2011 MY standards without the need for credits. 
Manufacturers have provided no evidence that these technologies cannot 
be applied to meet the 2009-2011 MY standards.
    For the mid-term standards, 2012 MY and beyond, CARB again 
identified various and reasonable technological avenues that 
manufacturers could use to meet the mid-term standards. CARB initially 
presented that the continued use of technologies identified for the 
near-term along with more sophisticated technologies and the expected 
upswing in hybrid-electric and diesel vehicles would result in industry 
compliance for these years. In its June 2007 comments,

[[Page 32777]]

CARB noted that it expected manufacturers to use combinations of the 
initially introduced technologies to meet the mid-term standards and 
cited several examples of this already happening in several 
manufacturers' products. CARB also noted that in 2007, manufacturers 
were aggressively introducing new hybrid vehicles well ahead of the 
mid-term standards. For the longer term, as noted earlier, CARB states 
that ``by 2015, even those manufacturers facing the most difficult 
challenge complying with California's standards have made statements 
that on their face show they plan to comply with the later model years 
of standards, even before receiving additional credit for GHG 
reductions from air conditioning improvements and regardless of 2009 
and 2010 credits carrying forward.'' \207\
---------------------------------------------------------------------------

    \207\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006 
at 27.
---------------------------------------------------------------------------

    In its comment submitted after EPA's March 5, 2009 hearing, CARB 
summarized the industry discussion on technological feasibility as 
follows:

    In our July 24, 2007 comments CARB stated ``* * * not a single 
manufacturer from either the Alliance or AIAM has independently 
presented any substantive comment concerning the principal and 
proper focus of the (EPA) proceeding--the technological feasibility 
and lead time for those manufacturers to comply with the subject 
greenhouse gas standards.'' Document ID No. EPA-HQ-OAR-2006-
0173.3601 at 26. That statement remains true today, and stands in 
stark contrast to the renewed demonstration CARB has made in this 
reconsideration proceeding.\208\
---------------------------------------------------------------------------

    \208\ California Air Resources Board, EPA-HQ-OAR-2006-0173-9006 
at 29. CARB also noted, that in the final efforts to persuade EPA to 
deny this waiver, waiver opponents cited policy arguments against 
the waiver, such as the preference for a uniform national standard 
to avoid a ``patchwork'' of state regulations, rather than any 
attack on the technological feasibility of the standards.

    Regarding the lead time provided by California to meet the near-
term and the mid-term and later standards, the commenters have not met 
their burden to show that the lead time is insufficient. California 
provided manufacturers 4-5 years before the near-term GHG standards 
would go into effect and 8-9 years before the later standards, giving 
substantial time for development of technologies to meet the standards. 
The industry commenters have not shown that this lead time was 
insufficient, both for the near-term GHG standards, that were based on 
technologies already known and developed, as well as for the mid-term 
GHG standards, where CARB provided a reasonable pathway to be 
followed--answering theoretical objections, identifying major steps 
needed to refine technology, and offering plausible reasons for 
predicting successful technologies.\209\
---------------------------------------------------------------------------

    \209\ Regarding lead time, some industry comments suggest that 
EPA should count lead time from the time the waiver is granted. EPA, 
however, believes that lead time should run from the time the rule 
is adopted by California. As EPA made clear in its waiver decision 
for California's standards regulating medium-duty motor vehicles (59 
FR 48625 (Sept. 22, 1994), Decision Document at 39-41), lead time 
should generally be measured from the point at which California 
adopts its regulations. At that point, the regulations, and their 
obligations on regulated parties, are clear. EPA measures lead time 
for its regulations from the time of promulgation, which is 
analogous to California's adoption of its regulations. EPA review of 
CARB waiver requests causes no more uncertainty than judicial review 
of EPA regulations. In addition, California and regulated parties do 
not know when EPA will make a final decision on a request for waiver 
of preemption, so California would have little ability to evaluate 
lead time at the time it adopts its standards if lead time were 
based on a future action by another entity the timing of which is 
uncertain. In any case, the commenters have not shown that the 
amount of lead time provided from the date of the waiver is 
insufficient.
---------------------------------------------------------------------------

    Regarding the cost component of the technological feasibility test, 
EPA believes that the opponents of the waiver have not met the burden 
of proof to show that the GHG standards are not technologically 
feasible because of excessive cost. The industry cost study (from 
Sierra Research) from the CARB rulemaking found an average vehicle cost 
increase of about $3,000 to comply with the CARB standards, an increase 
which CARB rebutted in detail, and which was also found not credible by 
the district court in the Vermont litigation. Alternatively, even if 
the industry estimates were closer to the mark than the CARB estimates, 
CARB points out that Congress was concerned with standards causing a 
doubling or tripling of vehicle costs (MEMA 627 F.2d at 1118), not the 
cost increases that CARB has projected (ranging from under $100 for 
some manufacturers in near-term to a maximum of $1,100 to $1,350 for 
vehicles in the 2016 MY).\210\
---------------------------------------------------------------------------

    \210\ California Air Resources Board, EPA-HQ-OAR-2006-0173-
0010.14 at 80-83 and, EPA-HQ-OAR-2006-0173-0004.1 at 39-40.
---------------------------------------------------------------------------

    Therefore, for the above reasons, I am unable to find that the CARB 
GHG motor vehicle emission standards are not technologically feasible 
within the available lead-time giving consideration to the cost of 
compliance.

F. Other Issues Related to Consistency With Section 202(a)

1. Impact of EPA's March 6, 2008 Denial on Lead Time
    In EPA's February 12, 2009 Federal Register notice, EPA 
specifically sought comment on the effect of the March 6, 2008 Denial 
on whether CARB's GHG standards are consistent with section 202(a), 
including lead time.
    In comments submitted for this reconsideration, the industry 
commenters asserted that any lead time clock that may have been running 
should have stopped completely and immediately upon EPA's March 6, 2008 
Denial. Both the Alliance of Automobile Manufacturers and the 
Association of International Automobile Manufacturers noted that even 
CARB officials testified that manufacturers should have started 
development of their 2010-2012 MY product lines at the time the final 
standards were finalized in the 2004-2005 time frame, and that there 
should be a presumption that the industry could and would stop ongoing 
development efforts when this waiver was denied.\211\ In its comments, 
the Alliance noted that it should not be assumed that a ``retroactive'' 
waiver would impose no hardship because manufacturers are able to earn 
credits for sales for the 2009 and 2010 MYs in advance of any waiver 
grant. They claim that the regulated parties would have conducted their 
business differently if they knew in advance that these regulations 
would be enforced.\212\
---------------------------------------------------------------------------

    \211\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-
0173-8994.2 at 27, and, Alliance of International Automobile 
Manufacturers, EPA-HQ-OAR-2006-0173-9005.2 at 16, Note 4.
    \212\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-
0173-8994.2 at 23-25, see also National Automobile Dealers 
Association, EPA-HQ-OAR-2006-0173-8956.1, at 10-12.
---------------------------------------------------------------------------

    On the other hand, CARB urges EPA to reject the argument that the 
March 6, 2008 Denial tolled the lead time countdown. CARB noted that it 
always maintained that it intended to enforce the GHG standards from 
their start point for the 2009 MY, discussed how it pursued promptly 
all available avenues to overturn the March 6, 2008 Denial, and noted 
that the denial was all but guaranteed to be revisited because its 
waiver request was supported by both candidates for President in 2008. 
Additionally, CARB argues that any period the March 6, 2008 Denial was 
in effect was not significant compared to the four to ten years of lead 
time available to the manufacturers, and that technological 
advancements continued to appear during the denial period.
    The manufacturers argue that EPA's earlier denial was reasonably 
relied upon by manufacturers, that the denial tolled or suspended lead 
time and allowed them to stop working towards compliance, which affects 
the adequacy of the lead-time for California's standards. This amounts 
to an argument that they reasonably had the opportunity to stop work 
towards

[[Page 32778]]

compliance at that point if they chose. However it does not change the 
basic issue before EPA: whether the manufacturers, as opponents of the 
waiver, demonstrated that the standards are not consistent with section 
202(a) because of inadequate lead time.
    Based on a review of the entire record, and even assuming the 
reasonableness of the manufacturers' claim that they could have 
reasonably stopped work towards compliance upon the March 6, 2008 
Denial, the industry commenters have not shown that the lead time 
provided under these circumstances was insufficient. This is 
particularly true regarding the near-term GHG standards, which were 
based on technologies already known and developed. But this is also 
true for the mid-term GHG standards, where CARB provided a reasonable 
pathway to be followed--answering theoretical objections, identifying 
major steps needed to refine technology, and offering plausible reasons 
for predicting successful technologies.\213\ I believe that this is 
borne out by the evidence submitted to the record by CARB and the NRDC, 
which show industry-wide compliance with the near-term GHG standards 
and with future-term compliance attainable using technology 
developments as well as early credits. Manufacturers have not come 
forward with evidence to show that they cannot feasibly achieve the 
near-term or mid-term GHG standards, based on lead time. Although the 
industry trade association comments generally discussed manufacturers' 
reliance on the EPA waiver denial to suspend or stop planning for 
California compliance, no manufacturer came forward and asserted that 
it actually stopped planning. Whatever disruptions may or may not have 
occurred as a result of the denial, near-term standards have clearly 
been shown to be feasible and mid-term standards are clearly feasible 
given the lead time provided, even taking account of the denial.
---------------------------------------------------------------------------

    \213\ EPA notes here (again) that lead time begins when 
California promulgates its standards, not when the waiver is 
granted.
---------------------------------------------------------------------------

    Regarding implementation and enforcement by CARB for the 2009 MY, 
manufacturers claim that approving the waiver for that year would be a 
retroactive grant of a waiver and would be improper. However, approval 
of the waiver for the 2009 MY technically would not be a retroactive 
action. EPA would not be determining that past conduct was or was not 
lawful when it occurred in the past, or rewriting past legal 
obligations. The legal obligation at issue is still a future 
obligation--compliance with the annual fleet-averaging requirements for 
the 2009 MY standards by the end of 2009, based on sales throughout the 
year. The fact that some conduct which occurred in 2009 prior to the 
grant of the waiver is relevant to determining compliance with the 2009 
MY obligation, after the end of the model year, does not by itself make 
the obligation to comply with the 2009 MY standards a retroactive legal 
obligation. In any case, even if a waiver for the 2009 MY was 
considered to impose retroactive obligations, EPA has the authority in 
an adjudication to take such action under appropriate 
circumstances.\214\
---------------------------------------------------------------------------

    \214\ Securities and Exchange Commission v. Chenery Corp., 332 
U.S. 194 at 203 (``That such action might have a retroactive effect 
was not necessarily fatal to its validity. Every case of first 
impression has a retroactive effect, whether the new principle is 
announced by a court or by an administrative agency. But such 
retroactivity must be balanced against the mischief of producing a 
result which is contrary to a statutory design or to legal and 
equitable principles. If that mischief is greater than the ill 
effect of the retroactive application of a new standard, it is not 
the type of retroactivity which is condemned by law.'').
---------------------------------------------------------------------------

    Under these circumstances, all of the evidence presented to date 
indicates that manufacturers will be in compliance with the 2009 
standards. EPA is granting the waiver for 2009 and later years. 
However, out of an abundance of caution, and since any delay in 
granting this waiver stems from EPA's prior March 2008 Denial, EPA is 
imposing one specific limitation designed to ensure that CARB not hold 
a manufacturer liable or responsible for any noncompliance civil 
penalty action that could be caused by emission debits generated by a 
manufacturer for the 2009 model year. For the 2009 model year, CARB can 
fully implement and enforce its regulations, including implementation 
of CARB's Executive Orders for 2009 model year families issued both 
before and after the date of today's waiver, as described below. While 
debits from model year 2009 may offset credits generated in later 
years, and reduce the amount of credits available to a manufacturer, 
any debits from model year 2009 may not be used as a basis for holding 
a manufacturer in noncompliance and no civil penalties may be assessed 
based on such debits. Other than that restriction, CARB may fully 
implement and enforce, and manufacturers may use the GHG standards 
program as promulgated, such that CARB may implement certification for 
MY 2009 motor vehicles, and may grant manufacturers credits that can be 
used for future obligations. This restriction on handling of any 
possible debits appropriately limits any potential concern raised by 
manufacturers over their potential reliance upon EPA's previous waiver 
denial.
2. Endangerment of Public Health or Welfare
a. Is it Appropriate To Review Endangerment of Public Health or Welfare 
Under the ``Consistency With Section 202(a)'' Criterion?
    EPA has traditionally stated that a state standard would be 
inconsistent with section 202(a) if there is inadequate lead time to 
permit the development of the necessary technology, given the cost of 
compliance within that time, or if the Federal and State test 
procedures impose inconsistent certification requirements.\215\ The 
legislative history of this provision and judicial precedent indicate 
that technological feasibility in the lead time provided was intended 
to be the primary focus of this criterion.\216\
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    \215\ 68 FR 19811, 12 (April 22, 2003).
    \216\ MEMA III, 142 F. 3d at 463; Ford, 606 F. 2d at 1296, n. 
17, 1297; H.R.Rep, No. 728, 90th Cong, at 22-23.
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    However, several industry commenters have suggested that in the 
context of this waiver, it is also appropriate for EPA to include 
endangerment to public health or welfare in its evaluation of 
consistency with section 202(a). They note the language in section 
202(a)(1) of the Clean Air Act that requires the Administrator to 
promulgate standards ``applicable to the emission of any air pollutant 
* * * which in his judgment cause, or contribute to, air pollution 
which may reasonably be anticipated to endanger public health or 
welfare.''
    While acknowledging the limits of EPA's traditional review under 
the ``consistency with section 202(a)'' criterion, they note that 
previous waivers have generally reviewed standards designed to reduce 
concentrations of air pollutants, like criteria air pollutants that EPA 
has listed under section 108 of the CAA, for which an endangerment 
finding required under section 202(a)(1) has already been made. Even 
standards regulating PM and formaldehyde, for which EPA has granted 
waivers, involved pollutants that had been identified by EPA, or by 
Congress in the Clean Air Act, as needing regulation. Thus, the 
question of endangerment was not in dispute in previous waivers. By 
contrast, EPA has not made any final decision regarding whether 
emissions of GHGs from new motor vehicles cause or contribute to air 
pollution that may reasonably be anticipated to endanger public health 
or welfare (this two-part

[[Page 32779]]

test is hereafter referred to as ``endangerment''). This is a 
requirement for EPA to issue regulations under section 202(a).\217\ 
Thus, the commenters state that there is an issue for review in this 
waiver under the consistency with section 202(a) criterion that was 
never relevant for EPA's review of previous waiver requests.
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    \217\ On April 24, 2009, EPA published a notice proposing to 
find that elevated concentrations of greenhouse gases in the 
atmosphere are reasonably anticipated endanger the public health and 
welfare of current and future generations and also proposing to find 
that emissions of carbon dioxide, methane, nitrous oxide, and 
hydrofluorocarbons from new motor vehicles and new motor vehicle 
engines are contributing to this air pollution under section 202(a) 
of the Clean Air Act. 74 FR 18885, 18886.
---------------------------------------------------------------------------

    In contrast, CARB states that no new test of consistency with 
section 202(a) is warranted or permissible. CARB argues that precedent 
shows that nothing more than technological feasibility and test 
compatibility is required under section 209(b)(1)(C).
    I find that in this instance, I do not need to resolve the issue of 
whether it is appropriate to address the issue of endangerment under 
the consistency with section 202(a) criterion of section 209(b). This 
is because in this instance, I find that even if the issue of 
endangerment is relevant to EPA's evaluation of consistency with 
section 202(a), those opposing the waiver have not met their burden of 
proving that California's regulations are inconsistent with section 
202(a) based on that concern.
b. Parties Opposing the Waiver Have Not Met Their Burden of Showing 
Lack of Endangerment to Public Health or Welfare
    As noted above, parties opposed to a waiver have the burden of 
proof to show that one of the findings under section 209(b)(1) should 
be made. To the extent that the two-part endangerment test is relevant 
to a determination of consistency with section 202(a), those opposing a 
waiver must affirmatively demonstrate that California's standards are 
inconsistent with this criterion. They have failed to do so in this 
instance.
    Commenters who claim that EPA should deny the waiver generally base 
their claim on the fact that EPA has not yet determined whether 
greenhouse gas emissions from new motor vehicles cause or contribute to 
air pollution which may reasonably be anticipated to endanger public 
health or welfare, or promulgated greenhouse gas standards pursuant to 
section 202(a). They claim that unless and until EPA makes such a 
determination that authorizes regulation under section 202(a), EPA 
cannot grant a waiver to California. They also state that the fact that 
the current California waiver request pertains to global climate change 
emissions, rather than to conventional pollutants, means that EPA 
should not give California's waiver request a presumption of 
consistency under Section 209(b)(1)(C).
    In contrast, commenters supporting the waiver request contend that 
EPA's lack of a determination on endangerment and lack of GHG emission 
regulations is not relevant to EPA's consideration of the waiver 
request. CARB notes in its comments that EPA may not find inconsistency 
on the ground that EPA must first make its own endangerment finding on 
GHG emissions before granting California's waiver request. CARB 
suggests that Massachusetts v. EPA's contemplation of coordinated 
activity at the federal level is entirely irrelevant to the waiver. 
CARB also provides significant discussion on this issue providing 
evidence that, according to CARB, shows that global climate change does 
endanger public health and welfare.
    Manufacturer suggestions that EPA should deny California's request 
because it has not yet made a finding of endangerment mistake the 
burden of proof that opponents of a waiver are obliged to meet before 
EPA must deny a waiver. To deny a waiver based on section 209(b)(1)(C), 
EPA must find that California's standards ``are not consistent with 
section 202(a).'' It is not enough that EPA has not made a decision on 
the subject of whether GHG standards are authorized under section 
202(a). To deny a waiver the Administrator must affirmatively find that 
the standards are inconsistent with section 202(a). The initial 
presumption of consistency is not dependent on the pollutants being 
regulated, as suggested by commenters--the presumption is provided for 
in the statute.\218\ Regarding endangerment, therefore, I believe that, 
to the extent it is even an appropriate criterion under section 
209(b)(1)(C), it would not be appropriate to deny a waiver request 
unless it is affirmatively demonstrated that the pollutants being 
regulated do not ``cause, or contribute to, air pollution which may 
reasonably be anticipated to endanger public health or welfare.''
---------------------------------------------------------------------------

    \218\ See MEMA I, 627 F. 2d at 1121 (``The language of the 
statute and its legislative history indicate that California's 
regulations, and California's determination to comply with the 
statute, when presented to the Administrator are presumed to satisfy 
the waiver requirements and that the burden of proving otherwise is 
on whoever attacks them.'').
---------------------------------------------------------------------------

    To the extent endangerment is relevant to whether California's 
standards are consistent with section 202(a), this criterion should be 
narrowly interpreted and should require more than the fact that EPA has 
not yet made a final decision concerning endangerment. Denial of a 
waiver based on this issue should require either a previous 
determination by EPA on the merits that the endangerment test has not 
been met, or a demonstration in this proceeding by the opponents of the 
waiver that EPA could not find that the endangerment test is met. Lack 
of a final decision by EPA on this would not be sufficient to deny the 
waiver. Those opposing the waiver cannot simply point to an open 
question regarding the issue at hand--on the contrary, they must come 
forward with evidence demonstrating that California's standards are not 
consistent with section 202(a).\219\
---------------------------------------------------------------------------

    \219\ See MEMA I, 627 F. 2d at 1126.
---------------------------------------------------------------------------

    In order to regulate emissions of a particular pollutant under 
section 202(a), EPA must review several issues, including whether the 
emissions of the pollutant from motor vehicles cause, or contribute to, 
air pollution which may reasonably be anticipated to endanger public 
health or welfare, and whether the standards are technologically 
feasible within the lead time provided. EPA has to make such 
determinations as part of lawfully adopting GHG standards under section 
202(a). However, lack of either kind of action by EPA is not by itself 
evidence that GHG standards are in fact inconsistent with section 
202(a). The fact that EPA has not yet made either determination, in the 
context of its own rulemaking, is by itself not a basis to deny a 
waiver.
    Congress understood that California may act a ``laboratory for 
innovation'' in the regulation of motor vehicles, and intended section 
209 to allow such innovation.\220\ Yet the ability of California to 
encourage such innovation would be greatly compromised if EPA were to 
determine that California could take no action under section 209 unless 
EPA had already made all of the necessary determinations regarding the 
consistency of its own standards in the context of its own regulation 
under section 202(a).
---------------------------------------------------------------------------

    \220\ See MEMA I, 627 F. 2d at 1111.
---------------------------------------------------------------------------

    In similar instances where EPA reviewed California standards and 
EPA had not promulgated similar standards, EPA has determined that the 
absence of EPA standards does not by itself preclude a waiver or 
prevent its ability to review California's standards under section 209. 
Any comparisons necessary

[[Page 32780]]

under section 209 would simply take account of the absence of EPA 
regulations, i.e., the comparison would be California standards to the 
absence of EPA standards. For example, under the similar procedures of 
section 209(e), EPA authorized California to enforce its standards on 
evaporative emissions for small nonroad engines despite the fact that 
EPA had not yet promulgated evaporative standards for such 
engines.\221\ In any case, commenters' discussions of ``comparisons to 
federal standards'' in this context is more suited to review of section 
209(b)(1)(A), which discusses comparisons between California and 
applicable federal standards. Section 209(b)(1)(C) concerns whether 
California standards are consistent with section 202(a). This criterion 
is not dependent on the existence of comparable federal standards.\222\
---------------------------------------------------------------------------

    \221\ 71 FR 75536 (December 15, 2006).
    \222\ Commenter Alliance appears to put much weight on the 
existence of section 202(b)(3). That subsection was added in 1977 to 
ensure that where EPA provides a waiver for vehicle standards, 
vehicles meeting California standards can still receive a Federal 
certificate and be sold in California and other states where 
California standards are applicable. This was needed as some of the 
California standards may not individually be as stringent as federal 
standards, given the ``in the aggregate'' protectiveness provision. 
See discussion in Ford v. EPA, 606 F.2d 1293 (DC Cir. 1979). Without 
this provision, where more stringent individual federal standards 
applied, vehicles complying only with California standards could not 
receive a federal certificate of conformity. The language therefore 
is designed to deal with situations where federal standards exist, 
and may be more stringent than California's. It was not intended to 
add or imply any new substantive requirements regarding the 
existence of federal standards. Similarly, Alliance's reference to 
use of the word ``the'' in section 202(b)(2) is directed towards the 
first criterion of section 209(b), not the third. In any case, the 
argument raised could at most mean that section 209(b)(2) is not 
applicable to this waiver request. California does not rely on 
section 209(b)(2) in its request. Also, as noted above, EPA has long 
held that the absence of comparable federal standards would not 
automatically result in a denial of a waiver request under the ``in 
the aggregate'' criterion because EPA believes the appropriate 
comparison is between the protectiveness of the California standards 
as compared to the absence of the federal standards.
---------------------------------------------------------------------------

    An additional reason for interpreting the waiver criterion this 
way, and not determining inconsistency with section 202(a) based on 
lack of an EPA final decision on an issue, is that EPA may always take 
action in the future that may impact the criteria for a waiver. For 
example, if in the future EPA promulgated standards that were more 
stringent than California's standards, this could implicate the 
``protectiveness'' criterion of section 209(b)(1)(A). The possibility 
of such future events should not be used as a reason to deny a waiver 
now. Instead, the impact of a future EPA action should be considered if 
and when EPA takes action. Otherwise, the waiver could be denied now, 
even though in the future it could be determined that it should have 
been granted. This would tend to reverse the statutory presumption of 
the grant of waiver unless opponents demonstrate it should be denied 
for certain specific reasons. Instead, it would be denied because of 
some future possible action that may or may not occur, and may be 
delayed for an unspecified period of time. Basing a denial on the 
possibility of events that may happen in the future is not consistent 
with Congress' goal to preserve the broadest possible discretion to 
California. A more prudent approach is to take action based on the 
record at hand, with the possibility of reviewing such action in the 
future if facts change that merit such a review. As discussed above in 
section IV.C.1, EPA may withdraw a waiver in the future if 
circumstances make such action appropriate.
    It is important to remember that the criterion being reviewed under 
section 209(b)(1)(C) is consistency with section 202(a) and not 
consistency with EPA standards. EPA has considerable deference within 
section 202(a) to promulgate the regulations it believes are most 
reasonable. The test for EPA under section 209(b)(1)(C) is not whether 
California standards are the same as the standards that EPA has 
promulgated or would promulgate under section 202(a), but whether the 
opponents of the waiver have met their burden to show, based on the 
record before the Agency, that the standards promulgated by California 
could not lawfully be promulgated in a manner consistent with section 
202(a). As a prior Administrator has stated:

    I would feel constrained to approve a California approach to the 
problem which I might also feel unable to adopt at the federal level 
in my own capacity as a regulator. The whole approach of the Clean 
Air Act is to force the development of new types of emission control 
technology where that is needed by compelling the industry to 
``catch up'' to some degree with newly promulgated standards. Such 
an approach * * * may be attended with costs, in the shape of a 
reduced product offering, or price or fuel economy penalties, and by 
risks that a wider number of vehicle classes may not be able to 
complete their development work in time. Since a balancing of these 
risks and costs against the potential benefits from reduced 
emissions is a central policy decision for any regulatory agency 
under the statutory scheme outlined above, I believe I am required 
to give very substantial deference to California's judgments on this 
score.\223\
---------------------------------------------------------------------------

    \223\ 40 FR 23104.

    In this case, opponents of the waiver have not met their burden of 
proving that EPA could not find that emissions of GHGs from new motor 
vehicles cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare. To the contrary, 
while California and others have provided a great deal of evidence 
regarding the dangers posed by GHGs, opponents of the waiver have not 
provided significant evidence that emissions of GHGs from motor 
vehicles do not cause or contribute to air pollution that can 
reasonably be anticipated to endanger public health or welfare. The 
recent EPA proposal to find that elevated concentrations of greenhouse 
gases in the atmosphere are reasonably anticipated to endanger public 
health and welfare, and to find that emissions of carbon dioxide, 
methane, nitrous oxide, and hydrofluorocarbons from new motor vehicles 
and new motor vehicle engines are contributing to this air pollution 
under section 202(a) of the Clean Air Act is further indication that 
opponents of the waiver did not meet their burden of proof on this 
issue.\224\ Thus, I cannot find that those opposing the waiver have met 
their burden of proving that California's GHG standards are not 
consistent with section 202(a) for reasons of the endangerment 
test.\225\
---------------------------------------------------------------------------

    \224\ 74 FR 18885 (April 24, 2009).
    \225\ Some commenters have indicated that if EPA chooses not to 
deny the waiver based on lack of an endangerment finding, EPA should 
hold its decision in abeyance until it makes a finding. However, 
given the burden of proof on opponents of a waiver, and the lack of 
any significant evidence to the contrary in the record on this 
issue, I believe it is not appropriate to delay further a decision 
on this matter.
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G. Section 209(b)(1)(C) Conclusion

    Based on its review of the information in the docket of this 
proceeding, I have determined that the opponents have not met their 
burden to demonstrate that the CARB GHG standards are not consistent 
with section 202(a). Therefore, I am unable to find that the CARB motor 
vehicle GHG emission standards are not consistent with section 202(a) 
of the Act.

VII. Additional Issues Raised

A. EPA's Administrative Process for Evaluating California's Waiver 
Request

1. Public Comment Process
    Section 209(b)(1) states in part that ``The Administrator shall, 
after notice and opportunity for public hearing, waive application of 
this section * * *'' In response to this language, EPA has consistently 
announced in the Federal Register the opportunity for a public

[[Page 32781]]

hearing for any waiver request received from CARB. As a general matter 
EPA has also offered an opportunity for written comment which has 
opened on the date of the Federal Register notice and closed on a date 
after the public hearing. As part of EPA's public hearings, the 
presiding officer has consistently stated that the hearing was being 
conducted in accordance with section 209(b) of the Clean Air Act and 
that any interested parties have the opportunity to present both oral 
testimony and written comments.
    EPA has received comment suggesting that EPA has failed to provide 
any systematic procedure for commenters opposing the waiver to rebut 
the comments of those commenters supporting the waiver. Because 
opponents bear the burden of proof, this commenter believes that EPA 
should not treat the waiver proceeding like an informal rulemaking but 
instead clearly announce what evidence is admissible and applicable 
burdens of proof and evidentiary procedures, such as order of proof and 
argument that parties must follow.\226\
---------------------------------------------------------------------------

    \226\ Alliance of Automobile Manufacturers, EPA-HQ-OAR-2006-
0173.8994 at C-2 through C-4.
---------------------------------------------------------------------------

    EPA's waiver proceedings and actions under section 209(b)(1) are 
informal adjudications. In a waiver proceeding, EPA receives a request 
from one entity (CARB) that is presenting an existing regulation 
established as a matter of California law. The request is for a waiver 
of preemption for that party, so it may adopt and enforce the specific 
regulations. In deciding this request, EPA interprets and applies the 
three specific criteria established by the Act, and under this 
provision EPA is required to grant the waiver unless EPA makes one of 
the three specified findings. EPA applies the pre-existing law, section 
209(b), to a specific request covering a specific regulation or 
regulations, and applies the three statutory criteria to the facts of 
the specific request. The decision to grant or deny a waiver changes 
the legal rights of the party before EPA, California. If EPA grants the 
waiver, then CARB may enforce its state regulations. In that case, the 
rights and obligations of other parties, for example, the 
manufacturers, are affected by the operation of the state regulation 
that is no longer preempted. In addition, under a separate statutory 
provision, other States may then adopt and enforce California's' 
standards, under their state law. While these subsequent impacts 
clearly affect the legal rights and obligations of various parties, the 
only legal rights and obligations directly determined by EPA in the 
waiver proceeding are the rights of the State of California to adopt 
and enforce its state regulations. The other legal impacts flow from 
the operation of other laws, once the waiver is granted. Therefore EPA 
believes that its waiver proceedings and actions therein should be 
considered an informal adjudication rather than a rulemaking. EPA has 
been conducting its waiver proceedings in this manner for decades, and 
while Congress has amended provisions in section 209 on two separate 
occasions, Congress has not chosen to alter EPA's administrative 
requirements. Instead, Congress has expressed support for EPA's 
practice in applying and interpreting section 209(b).\227\
---------------------------------------------------------------------------

    \227\ The Committee on Interstate and Foreign Commerce that 
drafted the amendments to section 209 in 1977 stated that the 
amendment was ``intended to ratify and strengthen the California 
waiver provision and to affirm the underlying intent of that 
provision, i.e., to afford California the broadest possible 
discretion in selecting the best means to protect the health of its 
citizens and the public welfare.'' (H.R. Rep. No. 294 301-302 
(1977)).
---------------------------------------------------------------------------

    EPA disagrees with the suggestion that its waiver proceedings are 
governed by section 554 of the Administrative Procedure Act (APA) or 
any other provision of Title 5 of the United States Code, including 
sections 556, 557 and 558. Section 554 of the APA, regarding formal 
adjudications, only applies to adjudications required by statute to be 
determined on the record after an opportunity for an agency hearing. 
Section 209(b)(1) merely states that the Administrator shall provide 
notice and opportunity for a public hearing and does not include 
language stating that EPA's decision shall be on record after an 
opportunity for a hearing. Conversely, other provisions in the Clean 
Air Act, including section 205(c)(1) specifically state that EPA's 
actions shall be made on the record after opportunity for a hearing in 
accordance with sections 554 and 556 of title 5 of the United States 
Code. Section 205(c)(1) also requires the Administrator to issue 
reasonable rules for discovery and other procedures for hearings.
    Any potential action on the waiver request is not subject to the 
requirements of APA section 558(c). Any potential action by EPA would 
not constitute granting a ``license'' to California. The fundamental 
purpose of section 209(b) is to waive application of the preemption set 
forth in section 209(a) of the Act, and is not a formal approval of the 
type contemplated in the APA. As noted previously, CARB must merely 
submit its regulations to EPA with a finding that its standards, in the 
aggregate, are as protective of public health and welfare as applicable 
federal standards. Unlike a license or permit applicant, the burden of 
proof is on the opponents of the waiver and EPA must make an 
affirmative finding of one of the three waiver criteria in order to 
deny California's waiver request. On the face of the Act, what 
California receives from EPA is a waiver, not a license or permit.
    Contrary to commenter's claim, APA section 558 does not require the 
``adversary process'' described in sections 556 and 557 for this 
action. APA section 558 requires the agency to ``complete proceedings 
required to be conducted in accordance with sections 556 and 557 of 
[the APA] or other proceedings required by law.'' 5 U.S.C. 558(c) 
(emphasis added). By complying with the procedural requirements of 
section 209(b) of the Act, EPA is complying with both the CAA and any 
relevant standards set in the APA.
    Regardless, the approval provision in APA section 558 was not meant 
to establish additional procedural requirements beyond those required 
by law. Instead, the goal of the approval provision of the section is 
to ensure ``that an agency shall hear and decide licensing proceedings 
as quickly as possible.'' Attorney General's Manual of the APA (1947), 
89. Horn Farms is not applicable to this situation, as the dicta 
statement regarding APA section 558 applied only to section 558's 
provisions regarding revoking a previously granted license, which is 
not at issue here.
    EPA believes that only those actions or sections of the Clean Air 
Act that specifically reference section 554 or otherwise state that 
EPA's decision must be determined on the record after an opportunity 
for a hearing are subject to the formal adjudication requirements of 
the Administrative Procedure Act. EPA nevertheless, as part of good 
administrative practice, provides every interested party the 
opportunity to present oral testimony and provide written comment based 
on a Federal Register notice that clearly sets out the criteria by 
which EPA will evaluate CARB's waiver requests. EPA believes all 
commenters, including opponents of the waiver, have had ample 
opportunity to comment and meet their applicable burdens of proof. 
Opponents of CARB's GHG regulations and of its waiver request have had 
ample opportunity to present their viewpoints during the course of 
CARB's rulemaking and EPA's waiver proceeding. First, as noted in the 
March 6, 2008 Denial, in response to several requests to extend the 
comment period during EPA's initial consideration of CARB's waiver 
request EPA indicated that consistent with past waiver practice, it 
would continue, as appropriate, to communicate with any

[[Page 32782]]

stakeholders in the waiver process after the comment period ended and 
that it would continue to evaluate any comments submitted after the 
close of the comment period to the extent practicable.\228\ EPA did not 
receive any request to extend the written comment period during the 
reconsideration of CARB's request. Opponents have also had the 
opportunity to submit lengthy comments during two separate comment 
periods (one of which occurred well after CARB had submitted all of 
their initial comments) and to testify at three separate public 
hearings. The regulated industry has in its possession, along with 
CARB, the necessary information to adequately comment on whether the 
GHG emission standards are technologically feasible and also what CARB 
has said about the protectiveness of its standards from both CARB's 
rulemaking phase and from earlier comments. Opponents have the same 
access to the necessary information in order to formulate comments in 
regard to the second waiver criterion at section 209(b)(1)(B).
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    \228\ 73 FR 12156, 12157 (March 6, 2008).
---------------------------------------------------------------------------

2. EPA's Reconsideration Process
    Upon receiving CARB's January 21, 2009 request for reconsideration 
of the March 6, 2008 waiver Denial, EPA published a notice on February 
12, 2008 notifying the public that EPA was reconsidering its March 6, 
2008 Denial, and was providing an additional hearing and the 
opportunity to submit comment on all issues relevant to the waiver, 
including inviting comment on certain specific criteria and questions.
    EPA received comment suggesting that the February 12, 2009 notice 
failed to inform the public of relevant issues and contained misleading 
statements and, therefore, the Agency must issue a new notice before 
proceeding with any reconsideration of the denial.\229\ This commenter 
notes the EPA fails to discuss the legal standards EPA believes it must 
meet to justify reconsideration of a major policy action including the 
legal standards EPA believes governs how it is to reopen a previously 
decided matter. EPA believes this commenter fundamentally 
misunderstands the purpose of the February 12, 2009 notice. EPA's 
February 12, 2009 notice did not constitute a final decision to change 
the Agency's position with regard to California's greenhouse gas waiver 
request, and did not implicate any arguable requirement to supply a 
justification for changing previous interpretations of law or 
evidentiary findings. The Agency set forth sufficient reason for 
initiating a reconsideration process, and is under no obligation to 
provide anything further in the Notice announcing the process. EPA 
clearly set forth the criteria and issues it would review in the notice 
for reconsideration, which covered all of the issues relevant under 
section 209(b). It was unnecessary to provide any further justification 
for its reconsideration beyond that which was supplied in the notice. 
Commenters have failed to disclose that any procedural error by EPA 
prejudiced them in any way, or that EPA's February 12, 2009 notice 
limited their ability to fully comment on any of the issues relevant to 
California's request for a waiver.
---------------------------------------------------------------------------

    \229\ Utility Air Regulatory Group, EPA-HQ-OAR-2006-0173-8690 at 
2-5.
---------------------------------------------------------------------------

3. Is a Waiver Required Before California or Section 177 States Adopt 
California's Motor Vehicle Emission Standards?
------Several commenters have suggested that section 209(a), which 
provides that no ``political subdivision shall adopt or enforce any 
standard,'' should be read to mean that neither California nor any 
Section 177 state may ``adopt'' a motor vehicle emission emissions 
regulation before EPA grants a waiver. Since lead time is an issue 
under section 209(b)(1)(C), see section VI, EPA believes it appropriate 
to clarify this issue especially since EPA has previously stated that 
lead time runs from the date of adoption of the regulation. Similarly, 
because of the number of states that have already adopted CARB's GHG 
emission standards EPA believes it appropriate to clarify this issue 
for purposes of section 177 as well.
    EPA believes that section 209(b) on its face provides the necessary 
clarification as to whether California should adopt its regulations 
before or after receiving a waiver from EPA. Section 209(b)(1) clearly 
envisions EPA commencing a waiver process after California has 
submitted standards that have been adopted. Section 209(b)(1) states in 
part ``The Administrator shall, after notice and opportunity for public 
hearing waive application of this section to any State which has 
adopted standards * * *'' (Emphasis added). It would be illogical, if 
not impossible, for EPA to analyze the criteria in section 209(b) if it 
does not have a final regulation upon which to do the analysis. It 
would not be appropriate for EPA to analyze non-final documents that 
may or may not become final and that may or may not be revised prior to 
becoming final. Similarly, the courts have long interpreted the Clean 
Air Act to authorize pre-waiver adoption of California standards by an 
opt-in state.\230\
---------------------------------------------------------------------------

    \230\ See Motor Vehicle Manufacturers Association v. New York 
Dept. of Environmental Conservation, 17 F.3d 521, 533-34 (2d Cir. 
1994)--``[T]he plain language of 177, coupled with common sense,'' 
leads to the conclusion that other states `may adopt the 
[California] standards prior to the EPA's having granted a waiver, 
so long as [the state] makes no attempt to enforce the plan prior to 
the time when the waiver is actually granted.''
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B. Scope of EPA's Waiver Review

1. Relevance of the Energy Policy and Conservation Act (EPCA) to the 
Waiver Decision
    In EPA's initial Federal Register notice of California's request 
for a waiver, we requested comment on whether the Energy Policy and 
Conservation Act (EPCA) fuel economy provisions are relevant to EPA's 
consideration of the request and to California's authority to implement 
its vehicle GHG regulations.\231\
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    \231\ 72 FR 12261.
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    EPA received many comments regarding EPCA and its effect, or lack 
thereof, on this proceeding. Several commenters stated that the 
provisions of EPCA are not relevant to EPA's waiver determination. They 
note that the language of section 209(b) limits the authority of EPA to 
deny a waiver to three criteria and does not reference inconsistency 
with EPCA (or with any other statute, other than section 202(a) of the 
Clean Air Act) as a basis for denial. One commenter noted that EPCA was 
already in existence when Congress strengthened California's authority 
to adopt motor vehicle emission standards, and Congress indicated no 
intent to limit such authority based on EPCA. Some commenters noted the 
Supreme Court decision in Massachusetts v. EPA, which stated that EPCA 
does not license EPA to shirk its environmental responsibilities under 
the Clean Air Act.
    Several commenters also provided arguments regarding their view 
that California's GHG standards were consistent with the provisions of 
EPCA.
    Other commenters stated that California's standards violate EPCA. 
Several of these commenters noted that EPA and court precedent 
regarding section 209(b) indicate that EPA cannot rule on EPCA 
preemption under section 209(b). However, the commenters state that if 
EPA does consider EPCA-related issues in this waiver proceeding, it 
must rule that California's standards violate EPCA. One commenter 
states that recent court cases have created confusion regarding the 
scope and effect of EPA waivers. The commenters state that if EPA 
decides not to address the issue of EPCA preemption in this proceeding, 
it

[[Page 32783]]

needs to explicitly state that it is not addressing the issue of 
express preemption under EPCA or conflict with EPCA, and that those 
issues are best left to the courts.
    As EPA has stated on numerous occasions, section 209(b) of the 
Clean Air Act limits our authority to deny California's requests for 
waivers to the three criteria therein, and EPA has refrained from 
denying California's requests for waivers based on any other criteria. 
As EPA noted in its initial decision denying California's waiver 
request, the decision was ``based solely on the criteria in section 
209(b) of the Clean Air Act and this decision does not attempt to 
interpret or apply EPCA or any other statutory provision.'' \232\ Where 
the Court of Appeals for the District of Columbia Circuit has reviewed 
EPA decisions declining to deny waiver requests based on criteria not 
found in section 209(b), the court has upheld and agreed with EPA's 
determination.\233\
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    \232\ 74 FR at 12159.
    \233\ See Motor and Equipment Manufacturers Ass'n v. Nichols, 
142 F.3d 449, 462-63, 466-67 (DC Cir. 1998), Motor and Equipment 
Manufacturers Ass'n v. EPA, 627 F.2d 1095, 1111, 1114-20 (DC Cir. 
1979).
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    As many of the commenters note, evaluation of whether California's 
GHG standards are preempted, either explicitly or implicitly, under 
EPCA, is not among the criteria listed under section 209(b). EPA may 
only deny waiver requests based on the criteria in section 209(b), and 
inconsistency with EPCA is not one of those criteria. In considering 
California's request for a waiver, I therefore have not considered 
whether California's standards are preempted under EPCA. As in the 
March 2008 decision, the decision on whether to grant the waiver is 
based solely on the criteria in section 209(b) of the Clean Air Act and 
this decision does not attempt to interpret or apply EPCA or any other 
statutory provision. EPA takes no position regarding whether or not 
California's GHG standards are preempted under EPCA.
2. Do California's GHG Emission Standards Create an Impermissible 
``Patchwork''?
    Under section 177 of the Act, other states may adopt California new 
motor vehicle emission standards under certain conditions.\\ In this 
waiver proceeding EPA received comment suggesting that sections 202(a), 
209(a) and 177 of the Act establish a regulatory framework designed to 
foster a national marketplace for vehicles while recognizing 
California's ability to establish its own program which can be adopted 
by other states. EPCA however, sets a single national fuel economy 
standard and is designed to prevent a fracturing of the marketplace 
into individual state programs. Commenters argue that manufacturers 
will have at least 15 different fleets they will have to balance for 
purposes of fuel economy and greenhouse gas emissions flowing from the 
fleet-average emission requirements of each state. Manufacturers also 
are concerned that there are significant differences between 
manufacturers' fleets in California and those in individual section 177 
states creating unnecessary compliance burdens. The commenters suggest 
that the federal government should establish a single, national program 
for regulation of vehicle greenhouse gas standards and fuel economy.
    EPA also received comment stating that to the extent the auto 
industry is arguing that a patchwork is created because of differences 
between fleet composition in different states, that argument lacks 
merit and is irrelevant to this waiver proceeding. Citing an EPA waiver 
decision from 1971, this commenter notes that claims such as the 
patchwork issue are not appropriate in a waiver proceeding since EPA's 
consideration of evidence submitted during a waiver proceeding is 
limited by its relevance to the three waiver criteria EPA must consider 
under section 209. This has led EPA to previously reject arguments that 
are not specified in the statute as grounds for denying a waiver.\234\
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    \234\ 36 FR 17458 (August 31, 1971).
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    Similar to EPA's response to the EPCA claims noted above, EPA may 
only deny waiver requests based on the criteria in section 209(b). The 
actions of other states relating to the adoption of the California GHG 
emission standards is not a factor I may consider under section 209(b). 
The actions of such states are authorized under a separate section of 
the Act, section 177, and must conform to the requirements of that 
section, including identicality. Section 209(b) does not authorize me 
in reviewing a waiver request to consider the impact of actions or 
potential actions taken by other states under section 177 of the 
Act.\235\ I therefore will not consider this claim in determining 
whether to grant California's waiver request.
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    \235\ 43 FR 1829, 1833 (January 12, 1978), LEV I waiver decision 
document at 185-186.
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    It is important to note that on May 19, 2009, EPA and the 
Department of Transportation (DOT) issued a ``Notice of Upcoming Joint 
Rulemaking to Establish Vehicle GHG Emissions and CAFE Standards'' 
announcing EPA and DOT's intent to work in coordination to propose 
standards for control of emissions of greenhouse gases and for fuel 
economy, respectively. If proposed and finalized, these standards would 
apply to passenger cars, light-duty trucks, and medium-duty passenger 
vehicles (light-duty vehicles) built in model years 2012 through 2016. 
EPA believes that if these standards are ultimately adopted, they would 
represent a harmonized and consistent national policy pursuant to the 
separate statutory frameworks under which EPA and DOT operate.
3. What Impact Does Granting California a Waiver for Its GHG Emission 
Standards Have on PSD Requirements for GHGs?
    Several commenters suggest that there would be a major consequence 
if an EPA waiver were to trigger other requirements under the Act, 
including Prevention of Significant Deterioration (PSD) requirements, 
and should it grant the waiver, EPA should state clearly that the 
waiver does not render GHGs ``subject to regulation'' under the Act. 
EPA also received comment suggesting that the question of when and how 
GHGs should be addressed in the PSD program or otherwise regulated 
under the Act should instead be addressed in separate proceedings 
dedicated to evaluating the complicated issues and impacts associated 
with those issues.
    EPA agrees that these issues are not relevant to the waiver 
decision criteria, and are most appropriately addressed in a separate 
forum. EPA is not addressing these issues in today's decision.

VIII. Decision

    After review of the information submitted by CARB and other parties 
to this Docket, I find that those opposing the waiver request have not 
met the burden of demonstrating that California's regulations do not 
satisfy any of the three statutory criteria of section 209(b). For this 
reason, I am granting California's waiver request to enforce its motor 
vehicle GHG emission regulations.
    My decision will affect not only persons in California but also 
persons outside the State who would need to comply with California's 
GHG emission regulations. For this reason, I hereby determine and find 
that this is a final action of national applicability.
    Under section 307(b)(1) of the Act, judicial review of this final 
action may be sought only in the United States Court of Appeals for the 
District of Columbia Circuit. Petitions for review must be filed by 
September 8, 2009.

[[Page 32784]]

Under section 307(b)(2) of the Act, judicial review of this final 
action may not be obtained in subsequent enforcement proceedings.
    As with past waiver decisions, this action is not a rule as defined 
by Executive Order 12866. Therefore, it is exempt from review by the 
Office of Management and Budget as required for rules and regulations 
by Executive Order 12866.
    In addition, this action is not a rule as defined in the Regulatory 
Flexibility Act, 5 U.S.C. 601(2). Therefore, EPA has not prepared a 
supporting regulatory flexibility analysis addressing the impact of 
this action on small business entities.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, does not 
apply because this action is not a rule, for purposes of 5 U.S.C. 
804(3).

    Dated: June 30, 2009.
Lisa P. Jackson,
Administrator.
[FR Doc. E9-15943 Filed 7-6-09; 8:45 am]

BILLING CODE 6560-50-P