Previously in September 2019, the Trump Administration revoked California’s waiver of preemption to enforce its own, stricter emissions standards in the Safer Affordable Fuel-Efficient Vehicles Rule Part One (SAFE 1).  The waiver had previously allowed California to enforce its own GHG emissions standards and ZEV mandate through model year (MY) 2025, which in turn allowed other states to adopt California's GHG and ZEV rules pursuant to Section 177 of the CAA (Section 177 States).  The Trump Administration’s decision to revoke the waiver rested on two primary grounds including: (1) the position that California’s GHG emission standards and ZEV mandate were preempted by EPCA; and (2) that California did not need the GHG standards to meet compelling and extraordinary conditions (a factor for granting the waiver under CAA Section 209).  In addition, EPA provided a new interpretation of section 177 as not authorizing other states to adopt California’s GHG standards. EPA’s Notice of Decision reinstates California’s waiver, as well as restores EPA’s prior interpretation of Section 177.

The effective date of EPA’s Decision is unclear, however, EPA appears to consider its effect automatic (“EPA also makes clear that the result of rescinding its part of SAFE 1 is the automatic reinstatement of the waiver granted to California in 2013 for its ACC program.”).  Nonetheless, it’s likely the waiver reinstatement cannot take effect until after publication in the Federal Register, and petitions for review of the Decision can be filed within 60 days of publication.

Notably, EPA’s Decision does not evaluate the impact of this action on California’s application of its former “deemed-to-comply” provisions: “EPA did not predicate its ACC program waiver on CARB’s deemed-to-comply provision or any changes to the deemed-to-comply provision.”  Instead, it appears that EPA will leave implementation of the CA GHG program to CARB’s discretion. Currently, the California GHG regulations, as amended in 2018, no longer contain a deemed to comply compliance option through which California’s GHG requirements can be met through compliance with EPA’s federal GHG program.  As a result, a trifurcated regulatory system of California (GHG/ZEV), EPA (GHG) and NHTSA (CAFE) rules may likely apply to MY2021-2025 vehicles.  More information on EPA’s Waiver Decision is available on EPA’s Decision page. EPA’s action will likely influence the demand for California ZEV and GHG credits, in particular given the increased stringency of GHG standards in California (and Section 177) for certain model years.