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Fuel Economy Standards

Inside Washington Publishers, August 22, 2008

EPA Raises Concerns Over GHG Benefit Estimates in Fuel Economy EIS
By Dawn Reeves

EPA is echoing serious concerns raised by states and activists that the National Highway Safety Traffic Administration (NHTSA) is significantly underestimating the benefits of reducing greenhouse gases (GHGs) in a draft environmental impact statement (EIS) that the highway department issued to support its proposed rule to boost vehicle fuel economy standards between 2011 and 2015.

Although the draft EIS for the first time considers the benefits of reducing GHG emissions, EPA, state organizations and environmentalists warn that NHTSA undercuts those benefits because it severely underestimates gas price projections, among other issues. Sources say EPA's comments could slow down the rulemaking while the department crafts a response.

In Aug. 18 comments, EPA says, "While EPA is supportive of the effort to raise fuel economy standards and believes that all of the action alternatives would result in environmental benefits when compared to the no-action alternative, we do have significant concerns with the data used in the [EIS] and the range of alternatives found therein." NHTSA took comment on the draft until Aug. 18. Relevant documents are available on InsideEPA.com.

EPA rated the draft as "EC-2," which means that the agency found it to have environmental concerns with insufficient information. The rating means NHTSA only has to address EPA's concerns in its response to comments when it issues the final EIS, expected by the end of September. Government sources say the EC2 rating is "fairly mild" among the possibilities EPA could have chosen under the

National Environmental Policy Act (NEPA). A final fuel economy rule is likely to be issued either simultaneously to the final EIS or by the end of the year.

EPA did not go as far as it could have in criticizing the EIS. If EPA rated the statement "environmentally unacceptable," that would have elevated the issue to the White House Council on Environmental Quality (CEQ), which would have to mediate the dispute, the government sources explain.

Nevertheless, environmentalists and states are pleased with EPA's comments, noting they will greatly help their effort to force NHTSA to more seriously consider the benefits of reducing GHGs in its corporate average fuel economy (CAFE) proposal. The department was forced to consider the rule's climate benefits following a U.S. Court of Appeals for the 9th Circuit ruling last year that rejected an earlier NHTSA fuel economy rule for the years 2008-2011 in part because it calculated the rule's GHG benefits at zero.

An Environmental Defense Fund source says that because EPA has a statutory requirement to comment on EIS documents, "when EPA identifies deficiencies in an EIS, their comments do carry a special weight. . . . The fact that EPA made these comments will put a particular onus on NHTSA to respond and how they can incorporate that in a short time frame is unknown."

In the comments, EPA notes that NHTSA used a fuel price projection of $2.04 to $3.37 per gallon between 2011 and 2015, and says using higher fuel prices "would change the base case (as the market reacts to higher fuel prices) and the projected benefits, and it would increase the level of the 'optimized' fuel economy standard."

The agency urges NHTSA to carefully consider projections for fuel prices and notes the important nexus between this estimate and future projections for the final EIS."

EPA also takes issue with NHTSA's selection of "a single marginal benefits value of $7" per ton of carbon dioxide (CO2) to represent the social coast of carbon (SCC), particularly because it limits those benefits to domestic ones.

"Given that U.S. emissions have global externalities, NHTSA should analyze global SCC estimates in addition to any domestic estimates to more fully capture all of the externalities. This could be justified from the fact that U.S. citizens may value impacts felt outside our borders," EPA says.

The comments add, "It should also be noted that SCC estimates are only a partial accounting of the social costs of carbon. NHTSA does not currently account for non-monetized impacts and potential catastrophic risks of climate change in its decision-making approach. . . . Finally, EPA is concerned that NHTSA has not accounted for non-CO2 GHG emissions changes that would be expected with the policy, e.g., changes in fuel use will bring changes in non-CO2 GHG emissions associated with fossil fuel extraction, production, transportation, refining and combustion."

An EPA spokesman says, "Neither the rating, nor the comments we made, declared that the [draft EIS] was insufficient. Rather, our comments identified a number of areas for which we believe additional information is needed to support the conclusions presented. . . . NHTSA will be required to include our comment letter, and provide responses to the comments we made," in the final EIS.

A NHTSA spokeswoman had no immediate response to EPA's comments.

If critics do challenge the latest CAFE proposal in court, EPA's adverse comments will likely be given greater weight than comments by any of the outside groups, several sources say, because EPA is a sister federal agency and one that is required to comment on the draft EIS under section 309 of the Clean Air Act.

A Union of Concerned Scientists source says EPA's comments validate "the comments of outside groups and validates concern that NHTSA did a poor job" in the EIS.

A source with the Northeast States for Coordinated Air Use Management says EPA's concerns echo many of its own, including the gas price projections and the limited scope of GHG benefits.

An environmentalist says, "EPA will take a back seat now. They've said what they needed to say. The staff kept their self respect and did their job being the voice for the environment, which in this administration is difficult. . . [And now the issue will be left to] public interest groups or states who might use what EPA said in court and give EPA a platform they might not have had."

The source notes that EPA likely opted against elevating its concerns to CEQ due to agency fears that it would not win an internal administration fight, particularly on such a high-profile issue as federal fuel economy, and given that NHTSA's rule would satisfy mileage mandates set out in the 2007 energy law.

In a related development, NHTSA recently convinced the 9th Circuit to find that it has discretion on whether it can revise an environmental assessment (EA) in response to an adverse court ruling, reversing the court's earlier order that the agency must conduct the more extensive EIS.

The court Aug. 18 issued a "substitute" opinion that revises its May 2007 ruling in Center for Biological Diversity, et al. v. NHTSA, et al., which vacated the agency's CAFE standard for light trucks and sport utility vehicles after finding that NHTSA failed to include the benefits of reduced GHGs in the rule.

NHTSA petitioned the court for rehearing on the narrow issue of whether it could order the agency to conduct an EIS, or whether it must allow NHTSA discretion on whether a revised EA or an EIS is appropriate. EAs are conducted when an agency finds that a major federal action will have no significant environmental impact.

 The court denied rehearing but issued the substitute opinion, which deletes language from the original ruling that said, "NHTSA must prepare an [EIS]," and replaces it with, "NHTSA must prepare either a revised [EA] or, as necessary, an [EIS]" -- in other words, granting the agency discretion on what environmental review to use.

An environmentalist attorney says activists believe NHTSA filed the petition in an effort to identify a circuit split and appeal the issue to the Supreme Court, but that the 9th Circuit's response -- granting NHTSA the discretion to conduct either approach -- stymied that effort.

NHTSA in its earlier petition for review argued, "The panel's unauthorized remedy reflects an ongoing split of authority within this circuit concerning proper remedy in NEPA cases; conflicts with rulings of other courts of appeals on the same issue; and is inconsistent with Supreme Court cases holding that, when a reviewing court finds an administrative agency has erred, the appropriate remedy is to remand the matter for further consideration, not for the reviewing court to substitute its judgment for that of the agency."

In response, the Center for Biological Diversity wrote, "Literally for decades, this court has consistently and repeatedly held that '[a]n EIS must be prepared if substantial questions are raised as to whether a project . . . may cause significant degradation of some human environmental factor.'" The group also says NHTSA "miscasts similar cases from other circuits as creating an inter-circuit split in authority."

The environmentalist says, "The 9th Circuit perhaps recognized what was going on and said, 'We'll fix that so they can't argue there is" a circuit split to the high court. The court "wrote this in a way that decreases significantly NHTSA having a successful petition for [certiorari] to the Supreme Court."

The source adds that the substitute opinion appears to have no practical impact because NHTSA is proceeding with the EIS rather than an EA in the new rulemaking, and says the ruling upholds the merits of the earlier decision.

The NHTSA spokeswoman says, "While we are still reviewing the decision, we are pleased by the court's indication that deference to NHTSA is appropriate on the question whether to issue an [EIS] or an [EA]."

The Alliance for Automobile Manufacturers could not be reached for comment on the significance of the 9th Circuit action, but in comments to NHTSA at an earlier public hearing on the new fuel economy proposal, the group sought to block the EIS, saying it could undermine the then-pending 9th Circuit appeal. The alliance instead argued in favor of an EA.

Photo © Paul S. Hamilton