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Ninth Circuit Requires Climate Change Analysis under NEPA

November 28, 2007

The Ninth Circuit Court of Appeals held this month, for the first time, that federal agencies must assess carbon dioxide emissions and other climate change impacts in environmental review documents prepared under the National Environmental Policy Act (NEPA). The Court’s unanimous decision in Center for Biological Diversity v. National Highway Traffic Safety Administration[1] arose out of challenges to new automobile fuel efficiency standards for light trucks and SUVs developed by the National Highway Traffic Safety Administration (NHTSA). In most NEPA cases, the court would remand the matter to the agency to determine whether an environmental impact statement (EIS) should be prepared. Here, however, the Ninth Circuit took the unusual step of ordering NHTSA to prepare an EIS assessing carbon dioxide emissions attributable to the new standards, as well as the actual environmental effects associated with climate change.

In light of the Ninth Circuit’s emphatic declaration that the “impact of greenhouse gas emissions on climate change is precisely the kind of cumulative impact analysis that NEPA requires agencies to conduct,” agencies will be hard pressed to avoid evaluating climate change impacts for a broad range of projects requiring federal approvals or permits, such as energy facilities and transmission lines, casinos, landfills, mines, and transportation projects. The Court’s holding also suggests that simply quantifying emissions and comparing them to a baseline is insufficient. Instead, project proponents will likely be required to evaluate the interplay between a project’s emissions, emissions attributable to other past and reasonably foreseeable future actions, and the actual environmental impacts attributable to climate change.

The decision’s impacts may also extend to state, local, and private development projects subject to state environmental review statutes such as the Washington State Environmental Policy Act or the California Environmental Quality Act, where case law interpreting such statutes frequently follows NEPA jurisprudence.[2] Indeed, the battle over climate change and environmental review has been waged largely at the state level.[3]

In addition to preparing an EIS, NHTSA must also undertake the potentially gargantuan task of monetizing the benefits of reducing carbon dioxide emissions as part of the marginal cost-benefit analysis underlying the new standards – a requirement that will likely apply to all future fuel economy rulemakings as well. The Court’s holding that federal agencies can no longer externalize climate change impacts in cost-benefit analyses may extend beyond the fuel efficiency debate and into other regulatory contexts.

I. Case Background

In 1975, Congress enacted the Energy Policy and Conservation Act (EPCA) which governs fleet-wide average fuel efficiency standards, known as corporate average fuel economy (CAFE) standards, for passenger and non-passenger automobiles.[4] EPCA established a 27.5 mpg CAFE standard for passenger automobiles and directs NHTSA to develop separate standards for non-passenger automobiles.[5] NHTSA has developed CAFE standards for “light trucks,” which include 4-wheel drive vehicles or those with a gross vehicle weight exceeding 6,000 pounds such as SUVs and minivans.[6] NHTSA’s CAFE standards for light trucks are less stringent than the CAFE standard for passenger automobiles.[7]

At the time Congress enacted EPCA, light trucks accounted for approximately 20% of the new vehicle market; they now account for nearly half of that market.[8] The increased popularity of SUVs and other light trucks has resulted in a decrease in the overall average fuel efficiency of all light-duty vehicles (both passenger automobiles and light trucks).[9] The light truck fleet also accounts for 28% of the carbon dioxide emissions attributed to the U.S. transportation sector.[10]

On April 6, 2006, NHTSA issued its Final Rule setting CAFE standards for light trucks for model years 2008-2011.[11] For model years (“MY”) 2008 through 2010, NHTSA established “unreformed CAFE” standards which modestly increased fuel efficiency requirements.[12] The Final Rule also established “reformed CAFE” standards beginning in MY 2011 which set fuel efficiency standards based on a vehicle’s footprint (i.e., a vehicle’s width and length). Under the reformed standards, vehicles with smaller footprints would be required to comply with stricter fuel economy standards. The reformed CAFE standards, however, did not establish a corporate-wide average requirement (or “backstop”) and based fuel efficiency standards solely on vehicle footprint. In order to ease compliance with the reformed standards, NHTSA’s Final Rule permitted manufacturers to choose between the unreformed or reformed program starting with MY 2008.

As part of the rulemaking process, NHTSA also concluded that the new CAFE standards would reduce carbon dioxide emissions and therefore would not have a significant impact that warranted preparing a full EIS.

II. Analysis

In consolidated lawsuits filed in 2006, eleven states, the District of Columbia, the City of New York, and numerous non-governmental organizations challenged NHTSA’s Final Rule in the Ninth Circuit Court of Appeals.[13] Petitioners alleged that the environmental assessment accompanying NHTSA’s rulemaking violated NEPA because it failed to assess climate change impacts. Petitioners also argued that the new light truck standards were arbitrary and capricious, based on, inter alia, NHTSA’s failure to monetize the impacts of the carbon dioxide reductions in its cost-benefit analysis.

A. NEPA

Petitioners alleged that NHTSA‘s environmental review under NEPA failed to: (1) take the requisite “hard look” at the carbon dioxide emissions and other climate change impacts attributable to the new CAFE standards; (2) assess alternatives to its proposed rulemaking; and (3) prepare an EIS. The Ninth Circuit agreed with Petitioners on all counts.

NEPA requires federal agencies to prepare an EIS if there is a substantial question as to whether a proposed project may have a “significant effect” on the environment, either individually or cumulatively.[14] Rather than preparing an EIS, NHTSA prepared an environmental assessment (EA)[15] which compared the carbon dioxide emissions of the alternatives being considered by NHTSA and a prior rulemaking with emissions under NHTSA’s MY 2004 standard. The EA concluded that, under the new standards, carbon dioxide emissions from light trucks would be reduced by between 2.4 percent to 3.8 percent as compared to the MY 2004 standards.[16] Based on the reduced growth of emissions, NHTSA concluded that carbon dioxide emissions attributable to the new standards would not result in a significant cumulative impact warranting analysis in a full EIS.[17]

The Ninth Circuit strongly disagreed, stating that “[t]he impact of greenhouse gas emissions on climate change is precisely the kind of cumulative impact analysis that NEPA requires agencies to conduct.”[18] The Court faulted NHTSA for failing to “discuss the actual environmental effects” of the proposed standard, and directed the agency to “evaluate the ‘incremental impact’ that [those] emissions will have on climate change or on the environment more generally in light of other past, present, and reasonably foreseeable actions such as other light truck and passenger automobile CAFE standards.”[19]

The Court rejected NHTSA’s contention that a cumulative impact assessment was not warranted because climate change is a global phenomenon and EPCA limits NHTSA to adopting technologically feasible and economically practicable fuel efficiency standards: “[T]he fact that ‘climate change is largely a global phenomenon that includes actions that are outside of [the agency’s] control . . . does not release the agency from the duty of assessing the effects of its actions on global warming within the context of other actions that also affect global warming.’”[20]

The Ninth Circuit also held that NHTSA failed to assess an adequate range of alternatives. NHTSA contended that EPCA limited the range of alternatives subject to review under NEPA to only those that were technologically feasible and economically practicable. The Court, however, held that NHTSA had the discretion to consider setting higher CAFE standards.[21] Citing to the Supreme Court’s landmark climate change decision, Massachusetts v. EPA,[22]the Court stated: “Since EPCA’s overarching goal is energy conservation, consideration of more stringent fuel economy standards that would conserve more energy is clearly reasonably related to the purpose of the CAFE standards. Energy conservation and environmental protection are not coextensive, but they often overlap.”[23]

Finally, the Court rejected NHTSA’s position that an EIS was not required because the new CAFE standards would result in decreased carbon dioxide emissions, holding that “[t]he new rule will not actually result in a decrease in carbon emissions, but potentially only a decrease in the rate of growth of carbon emissions.”[24] “[S]imply because the Final Rule may be an improvement over the MY 2007 CAFE standards does not necessarily mean that it will not have a ‘significant effect’ on the environment.”[25] Thus, the Court held that NHTSA had failed to “provide a convincing statement of reasons for its finding of insignificance” because the EA and Final Rule were “unaccompanied by any analysis or supporting data.”[26]

Rather than remanding the matter back to the NHTSA for further review, the Ninth Circuit ordered NHTSA to prepare a full EIS, using language that sends a clear signal to federal agencies regarding the significance of global warming in future NEPA analysis:

While NHTSA did the calculations necessary to determine how much extra carbon dioxide would be emitted, it failed completely to discuss in any detail the global warming phenomenon itself, or to explain the benchmark for its determination of insignificance in relation to that environmental danger.

NHTSA’s bald conclusion that the mere magnitude of the percentage increase is enough to alleviate its burden of conducting a more thorough investigation cannot carry the day.[27]

B. EPCA

Petitioners also challenged the new CAFE standards on substantive grounds, alleging that NHTSA failed to: (1) monetize carbon dioxide emission reduction in its marginal cost-benefit analysis; (2) failed to include a “backstop” under the reformed CAFE standards; and (3) failed to close the “SUV loophole.” Again, the Ninth Circuit agreed with Petitioners on all counts.

EPCA requires NHTSA to set CAFE standards at “the maximum feasible average fuel economy level [that] manufacturers can achieve in that model year.”[28] When developing its Final Rule, NHTSA performed a marginal cost-benefit analysis which weighted the costs of increased fuel saving technology against the benefits of improved fuel economy. NHTSA did not value carbon dioxide emissions in its cost-benefit analysis, claiming that “the value of reducing emissions of CO2 and other greenhouse gases [is] too uncertain to support their explicit valuation and inclusion among the savings in environmental externalities.”[29]

The Ninth Circuit flatly rejected NHTSA’s cost-benefit analysis, holding that NHTSA’s failure to monetize the benefits of carbon dioxide emission reductions was arbitrary and capricious. Again citing to Massachusetts v. EPA, the Court first noted that prior decisions deferring to NHTSA’s balancing of factors when setting CAFE standards had limited persuasiveness because those decisions were decided at a time when “scientific knowledge of climate change and its causes were not as advanced as they are today.”[30] The Court went on to hold that NHTSA was permitted to employ a marginal cost-benefit analysis when setting CAFE standards, but could not “put a thumb on the scale” by undervaluing the benefits of carbon dioxide emission reductions.[31] Because Petitioners submitted substantial (although widely varying) evidence of the value of carbon dioxide emissions, and because NHTSA monetized other uncertain benefits such as reducing criteria pollutants, noise, and congestion, the Court concluded that “NHTSA’s decision not to monetize the benefit of carbon emissions reduction was arbitrary and capricious.”[32]

The Court also chided NHTSA for failing to adopt a backstop to the Reformed CAFE that would prevent manufacturers from circumventing stricter fuel efficiency requirements by producing larger vehicles.[33] The Reformed CAFE tied fuel efficiency standards to vehicle footprint (i.e. size), and NHTSA contended that setting a fleet-wide minimum efficiency standard (or backstop) would unduly limit choice and impede manufactures’ response to consumer demand. The Court, however, disagreed on grounds that EPCA does not permit NHTSA to rely solely on consumer demand when setting CAFE standards.[34] Finally, the Court held that NHTSA failed to revisit the definitions of “passenger automobile” and “light truck” in order to close the “SUV loophole” which permitted SUVs, minivans, and other vehicles used solely as passenger vehicles to comply with the more lenient “light truck” (as opposed to passenger automobile) CAFE standards.[35]

For more information on this case, please contact any member of Marten Law Group’s Climate Change/Sustainability Practice Group.

[1] --F.3d--, 2007 U.S. App. LEXIS 26555 (9th Cir., Nov. 15, 2007). Circuit Judge Eugene Siler, Jr. dissented with respect to NHTSA’s evaluation of fuel efficiency “backstops” under EPCA. The Court’s remaining holdings were unanimous.

[2] See, e.g., Kucera v. State Dept. of Transp., 140 Wn.2d 200, 224, 995 P.2d 63 (2000) (Holding that NEPA decisions and NEPA’s implementing regulations may be used to help interpret SEPA).

[3] See California Courts to Decide Whether Climate Change Impacts Must Be Assessed and Mitigated in New Project Developments Marten Law Group Environmental News (May 9, 2007) and Settlement Requires California County to Inventory and Mitigate Greenhouse Gas Emissions Marten Law Group Environmental News (Sept. 5, 2007).

[4] 49 U.S.C. § 32902.

[5] 49 U.S.C. § 32902(a)-(b).

[6] Compare 49 C.F.R. § 523.4 (defining “passenger automobile”) with 49 C.F.R. § 523.5 (defining “light truck”).

[7] For example, the model year (MY) 2007 light truck CAFE standard is 22.2 mpg while the passenger car standard is 27.5 mpg.

[8] National Academy of Science, Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards at 88 (2002) (Available at http://books.nap.edu/booksearch.php?term=corporate%20average&record_id=10172).

[9] Id. at 19.

[10] The transportation sector accounts for approximately 31% of U.S. carbon dioxide emissions. Id. at 14. Indeed, the U.S. transportation sector accounts for approximately 5% of worldwide carbon dioxide emissions. Id. at 20.

[11] Average Fuel Economy Standards for Light Trucks Model Years 2008-2011, 71 Fed. Reg. 17,566 (Apr. 6, 2006).

[12] The unreformed CAFE set fuel efficiency standards between 22.5 mpg for MY 2008 to 23.5 mpg for MY 2010.

[13] Petitioners included the States of California, Connecticut, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, the District of Columbia, and the City of New York.

[14] Blue Mts. Biodiversity Project v. Blackwood, 161 F.3d 1208, 1212 (9th Cir. 1998); 40 C.F.R. 1508.7 (defining “cumulative impact”).

[15] Final Environmental Assessment – National Highway Traffic Safety Administration Corporate Average Fuel Economy (CAFE) Standards (Mar. 29, 2006) (Available at: http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/Rulemaking/Rules/Associated%20Files/2006_EA.pdf).

[16] Id. at 36-37.

[17] 71 Fed. Reg. at 17673 (“T]he final rule would produce, compared to U.S. emissions of CO2, a small decrease in emissions of CO2, the primary component of greenhouse gas emissions, under the selected alternatives. Accordingly, the agency determined that the action we are adopting today will not have a significant impact on the environment”).

[18] 2007 U.S. App. LEXIS 26555, *114-15.

[19] 2007 U.S. App. LEXIS 26555, *111 (emphasis in original).

[20] 2007 U.S. App. LEXIS 26555, *114 (quoting State Petitioners’ Opening Brief at 15).

[21] 2007 U.S. App. LEXIS 26555, *119-20.

[22] Massachusetts v. Envtl. Prot. Agency, 127 S. Ct. 1438, 167 L. Ed. 2d 248 (2007).

[23] 2007 U.S. App. LEXIS 26555, at *121.

[24] 2007 U.S. App. LEXIS 26555, *113.

[25] 2007 U.S. App. LEXIS 26555, at *121.

[26] 2007 U.S. App. LEXIS 26555, at *126 & *132.

[27] 2007 U.S. App. LEXIS 26555, *137-38 (Quoting City of Los Angeles v. NHTSA, 912 F.2d 478, 500 (D.C. Cir. 1990) (J. Wald, dissenting)).

[28] 49 U.S.C. § 32902(a). NHTSA must consider the following factors when developing “maximum feasible” CAFE standards: (1) technological feasibility; (2) economic practicability; (3) the effect of other federal motor vehicle standards on fuel economy; and (4) the need of the nation to conserve energy. 49 USC § 32902(f).

[29] 71 Fed. Reg. at 17,638.

[30] Center for Biological Diversity, 2007 U.S. App. LEXIS 26555, *53.

[31] 2007 U.S. App. LEXIS 26555, *57.

[32] 2007 U.S. App. LEXIS 26555, *70.

[33] 2007 U.S. App. LEXIS 26555, *81.

[34] 2007 U.S. App. LEXIS 26555, *78-80.

[35] 2007 U.S. App. LEXIS 26555, *85.

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