NHTSA and EPA Finalize the Safer Affordable Fuel-Efficient Vehicles Rule

NHTSA and EPA Finalize the Safer Affordable Fuel-Efficient Vehicles Rule

On March 30, 2020, the National Highway Traffic Safety Administration ("NHTSA") and Environmental Protection Agency ("EPA") finalized the Safer Affordable Fuel-Efficient ("SAFE") Vehicles Rule (the "Rule"). Under the Rule, EPA amends carbon dioxide ("CO2") standards for passenger cars and light trucks for model years ("MYs") 2021 and later, while NHTSA amends corporate average fuel economy ("CAFE") standards for MY 2021 and sets new CAFE standards for MYs 2022-2026.

The first part of the Rule, finalized on September 19, 2019, and entitled the One National Program Rule, asserts that the Energy Policy and Conservation Act ("EPCA") gives the United States Department of Transportation the right to set national fuel economy standards and preempts similar state programs. The second part of the Rule, issued on March 30, 2020, finalizes the regulatory text related to preemption under EPCA and withdraws a waiver previously provided to California under the Clean Air Act ("CAA") that allowed California to set its own, more stringent greenhouse gas emissions standards.

Historically, NHTSA established CAFE standards through authorities provided under EPCA, as amended by the Energy Independence and Security Act of 2007, while EPA established CO2 emission standards under the CAA. In 2012, NHTSA and EPA issued joint regulations for vehicles sold in MYs 2017-2025, requiring a 5% annual increase in the stringency of the standards. In April 2018, however, EPA issued a Mid-Term Evaluation Final Determination that found that the CO2 standards for MYs 2022-2025 were not necessary or appropriate.

According to NHTSA, the 2012 CAFE standards were based on three predictions that have since been disproven by new and revised data and information. First, NHTSA and EPA projected gas prices would be much higher in 2017, 2020, and 2025 than their current projections and today's actual prices. Second, U.S. oil production has more than doubled over the last 10 years, which keeps global prices of crude oil in check, leading to lower gas prices. Third, automaker performance against the standards has fallen well behind projections. The agencies state in the Rule that "[t]he costs to both industry and automotive consumers would have been too high under the standards set forth in 2012, and by lowering the auto industry's costs to comply with the program, with a commensurate reduction in per-vehicle costs to consumers, the standards enhance the ability of the fleet to turn over to newer, cleaner and safer vehicles."

The Rule provides for a 1.5% annual increase in stringency of CAFE and COstandards for cars and light trucks in MYs 2021-2026, as opposed to the originally mandated 5% increase. The agencies project that the new standards will require automakers to achieve, on an average industry fleet-wide basis, no greater than 201 grams per mile of CO2 emissions and at least 40.5 miles per gallon by MY 2030.

The Rule also provides for certain "flexibilities" for achieving compliance with the standards. For example, it retains statutory credits for over-compliance with the standards, which can be applied to future or prior model years, transferred, or traded. Also, the Rule extends through MY 2026 a credit that classifies electric vehicles as zero-emissions vehicles, even if the charging sources for those vehicles emit CO2. Other flexibilities have been expanded, eliminated, or phased out in the new Rule.

The agencies have estimated significant costs and benefits of the Rule, including:

  • Reduced vehicle technology costs of $86 to $126 billion over the life of vehicles
  • Average vehicle price reductions of between $977 to $1,083 per vehicle
  • Approximately 3,300 fewer traffic fatalities and 397,000 fewer injuries
  • Increased fuel consumption by 1.9 to 2.0 billion barrels
  • Increased emissions of 867 to 923 million metric tons of CO2
  • 440-1,000 additional premature deaths resulting from increased air pollution
  • 13,000 lost jobs

This action affects companies that manufacture or sell new light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles, as defined under EPA's CAA regulations, and passenger cars and light trucks, as defined under NHTSA's CAFE regulations. The new regulations are scheduled to go into effect on June 29, 2020, 60 days after their publication in the Federal Register. Given that the Rule has already proven to be controversial (see California and Other States File Lawsuit Challenging Federal Regulations that Preempt State Automobile Emissions Standards, The Climate Report, Fall 2019), it is unsurprising that a petition for review challenging the Rule has already been filed. Competitive Enter. Inst. v. Nat’l Highway Traffic Safety Admin., Docket No. 20-1145 (D.C. Cir. May 1, 2020). Until challenges such as this are resolved, interested parties will face continued regulatory uncertainty, especially automakers in the planning stages for future MYs.

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