EPA’s new rule maintains the stringency level of the August 2021 proposed standards for MY2023-2024, and finalizes more stringent standards than those proposed for MY2025-2026.  Notably, the MY2025 and MY2026 standards surpass the 2012 Obama era rule, taking the lead as the most stringent GHG standards finalized to date. The final standards continue to increase in stringency year-over-year (YoY) by 5 percent in MY 2024, 6.6 percent in MY 2025, and more than 10 percent in 2026 (compared to 1.5 percent YoY under the SAFE rule).  The proposed combined-fleet emissions standards include:

• MY2023: 202 grams of CO₂/mile

• MY2024: 192 grams of CO₂/mile

• MY2025: 179 grams of CO₂/mile

• MY2026: 161 grams of CO₂/mile

According to EPA, the sharp increase in MY2025-2026 is justified by the additional lead time for OEMs to comply with those standards, and are necessary to ensure significant advances in the electric vehicle (EV) market. Indeed, EPA’s new rule assumes a 17 precent EV market penetration by 2026. 

EPA’s final rule maintains many of the existing flexibilities and incentives under the GHG program, however, the flexibility provisions are narrower than the flexibilities originally proposed, particularly for MY2025-2026.  The compliance, certification, and enforcement structure of the program would not change and there are no changes proposed to the CH₄ and N₂O emissions standards or the opportunity to earn A/C credits.  The final rule includes flexibilities that focus on MY2023-2024 to help manage the transition to more stringent standards.  Specifically, EPA is adopting:

• Carry-Forward Credit Extensions: a one-year extension of credits accrued in MY2017 and MY2018 which can be carried forward for compliance with MY2023 and MY2024, respectively.  EPA proposed a two-year extension of MY2016 credits and a one-year extension of MY2017-2020 credits.  In response to stakeholder feedback, EPA believes extending credit life beyond one year could “diminish stringency” of the standards.

• Off-Cycle Credit Cap Increase: an increase of the off-cycle menu cap from 10 g/mile to 15 g/mile for MY2023-2026.

• Advanced Technology Multipliers: providing multiplier incentives for EVs, PHEVs, and FCEVs, for 2023 and 2024, with a cumulative credit cap of 10 g/mile, and with lower multiplier levels than those proposed.  Notably, EPA indicated that it did not intend for multipliers to be an ongoing incentive.  Instead, multipliers can be viewed as “only a narrow flexibility to help address lead time concerns in early model years.”

• Full-Size Pick-Up Incentives: restoring incentive for MY2023-2024 for full size pick-up trucks that meet efficiency performance criteria or have hybrid technology.

• Natural Gas: Remove multipliers for natural gas vehicles after MY2022 (as proposed).

The final rule comes after a push by the Biden Administration to promote electric vehicles and combat climate change, consistent with President Biden’s Executive Order “Strengthening American Leadership in Clean Cars and Trucks.”  The press event to announce the rule demonstrated the Biden Administration and EPA’s commitment to turning the corner to reduce GHG emissions by lining up speakers from non-governmental organizations who praised the final rule for setting ambitious targets to improve air quality and climate change and protect public health.  EPA also acknowledged commitments by automakers to produce larger volumes of zero- and near-zero emission vehicles to achieve these goals.

EPA’s new standards represent a clear departure from the Obama era “One National Program” and solidify what will be a trifurcated regulatory scheme facing auto manufacturers for model years 2021 and beyond—with separate federal EPA (GHG) standards, federal NHTSA (CAFE) standards, and California GHG standards and likely no mechanism for harmonized implementation.  Although the two agencies have separate rulemakings, EPA did indicate that it coordinated with NHTSA during development of the new GHG standards and during NHTSA’s independent action to revise the fuel economy standards set in the Trump Administration’s 2020 final SAFE rule, which is due to be finalized next year. EPA also acknowledged it coordinated with California, that it is currently considering reinstating the Clean Air Act waiver for California’s GHG program, and that the Framework Agreements entered in by five automakers and the California Air Resources Board (“CARB”) were considered by EPA in determining the feasibility of federal GHG reduction targets.  In addition, EPA indicated that the new MY2023-2026 GHG standards will help provide a “more appropriate transition” to the upcoming future emissions standards for MY2027 and beyond.  EPA intends to initiate a separate rulemaking for MY2027 and beyond emissions standards for GHG as well as criteria and other emissions from light duty vehicles.

The final rule will go into effect 60 days after publication in the Federal Register and may be challenged in the D.C. Circuit Court of Appeals.

Authored by Latane Montague, Joanne Rotondi, Hannah Graae, and Allisa Newman.