(3). Special Requirements for Greenhouse Gas Rulemaking under AB 1493

565. Comment: The Executive Officer has not demonstrated the feasibility and cost-effectiveness of the proposed rule. To do so requires the regulations to meet four mandatory feasibility factors – environmental, economic, social and technological – while the standard-setting process here focused almost exclusively upon technological feasibility and the cost to the owner. The normal analytical tools that ARB can use in motor vehicle emission regulation do not apply to rulemaking under AB 1493. Alliance (Appendix H).

Agency Response: The ARB disagrees with this comment, as it misreads the plain language of the statute and unnecessarily resorts to legislative history.

The environmental, economic, social, and technological factors cited by the commenter are not four separate tests, as the comment implies. Rather, they are factors to be considered in determining whether the reductions meet the predicate test of “capable of being successfully accomplished within the time provided in this [43018.5] section.” See Health & Safety Code Section 43018.5(i)(2)(A). The quoted phrase does indeed track closely with longstanding grants of authority to ARB to adopt technologically feasible standards and regulations. See Health & Safety Code Sections 43101, 43013, 43018. These grants have long been considered analogous to the federal charge to set limits that take effect after a period “necessary to permit the development and application of the requisite technology.” Clean Air Act §202(a)(2). These tests of technological feasibility have in turn often considered economic (e.g. effects on engine manufacturers and others), environmental (e.g. effects on other pollutants and other media), and even social factors

(e.g. consumer response to changes in compliant products’ attributes.) The Board therefore does not believe that this rulemaking is subject to the fundamentally different analysis suggested in the comment. The ARB believes it gave proper consideration to the cited factors, in many cases using the cutting edge of available analytic techniques, as detailed in response to more specific comments on those factors, below. And there is nothing in the statute suggesting how each of these factors should be weighed.

However, the Board does agree that the “economical to the owner…” criterion (HSC §43018.5(i)(2)(B)) represents a more significant variation on ARB’s usual standard-setting criteria. Previous grants of authority to ARB and standards and regulations adopted thereunder have in a sense assumed only that manufacturers would be able to either absorb cost increases for technologies meeting those standards or regulations or to pass on part or all of those costs to consumers. This statute requires something more, or at least describes the test differently – that the regulations reducing greenhouse gas emissions are “economical” to the end-user, taking into account the full life-cycle costs of a vehicle. As exhaustively explained in Section III.A.2.c(5) of this FSOR and below, the Board believes the adopted standards meet that test.

566. Comment: Lead-time is inherent to any assessment of technological feasibility and is scarcely discussed in the August 6 staff documents. Staff have indicated that 36­months of lead time is sufficient for compliance beginning with the 2009 model year. This represents an overly optimistic view of the technological improvements needed, is not supported by any evidence in the record, and is inconsistent with industry conditions. The Executive Officer must follow a more systematic analysis, an example of which we have outlined, to enable Board, Legislative, and court review. Alliance (Appendix H).

Agency Response: The ARB agrees that an assessment of lead-time is inherent to assessing technological feasibility. That is why the staff report devoted its largest chapter (ISOR, Chapter 5, pp. 42-102), and numerous voluminous references, to an analysis of the technologies that could be available to meet emission reduction standards beginning in 2009. See also FSOR section III.A.2.c. The 2009 standards assume that not all technologies will be available in sufficient quantity in 2009, and the standard is set accordingly modestly. In addition, trading provisions plus the additional years before compliance is measured and equalized in 2012 again ensure a gradual phase-in of technologies. This certainly constitutes substantial evidence supporting a 36-month lead time for the standards as a whole.

More importantly, lead time is traditionally needed to develop and apply new, projected technologies, which for the most part are not at issue here. But to the extent the 2009 standard requires the use of at least some technologies that require substantial further planning and development, it is appropriate for the standards to push such technologies to fruition earlier than what might otherwise occur. This is not being “overly optimistic” but rather is the essence of ARB rulemaking.

567. Comment: Consideration of environmental factors rules out the “feasibility” of any greenhouse gas regulation that would cause an increase in the emission of criteria pollutants. Alliance (Appendix H).

11.3 and Addendum, p. 18. , Executive Order G-05-061, and Attachment 3 thereto. See also the general consideration of environmental impacts in Section 8 of the ISOR and Addendum.

Nonetheless, the Board believes that in harmonizing the Legislature’s separate charges to reduce greenhouse gas emissions and other air contaminants, each to the maximum extent feasible, it could adopt a regulation allowing a slight criteria pollutant impact in exchange for substantial greenhouse gas reductions. In fact, the Board has for many years weighed and balanced potentially competing proposals that would reduce certain pollutants at the expense – (and this to a certainty, as opposed to a risk that ARB here disagrees exists) – of increasing others. For example, the Board resolves the continuing tension between “maximum possible reduction in public exposure to toxic air contaminants” (HSC §39667) versus its charge to achieve the “maximum degree of emission reductions” (HSC §43018(a)) of what the commenter describes as smog-forming pollutants. The historical trade-off between NOx and hydrocarbons is a more obvious example. The Board thus has and has exercised considerable discretion in interpreting such statutory phrases. Exercising that discretion here for greenhouse gases would be no different than the many times the Board could arguably have adopted more or less stringent standards, but chose not to due to cost, technological feasibility, consideration of other pollutants, or other factors.

568. Comment: Consideration of social and economic feasibility requires ARB to establish a total cost for the regulations, which must include consumers’ opportunity costs from being unable to purchase a vehicle with features they would have desired more. The history of fuel economy regulation demonstrates that there is a clear limit on the welfare trade-offs consumers are willing to endure in the service of increased fuel economy.

Consumers demand safety, performance, capacity, comfort and aesthetics, and these are not analyzed. Alliance (Appendix H).

Agency Response: The comment cites no authority for its interpretation of the terms “social” or “economic” with regard to feasibility, and instead combines the two terms and develops its own preferred economic theory which it considers mandatory. On the other hand, the Board has made a reasonable interpretation of these two terms by considering a multitude of economic and social criteria. See Section 12 of the ISOR and its Addendum. In addition, the staff analysis concludes that the consumer demands cited can be met, without the need for trade-offs. Finally, the ARB does not believe it is appropriate to directly compare prior federal experience with fuel economy measures with ARB’s experience with emission reduction measures like this one.

569. Comment: The proposed regulations do not pass the statutory test for cost-effectiveness because they do not pass that test using any plausible set of estimates for the following factors: (1) the private discount rate of California drivers for fuel savings; (2) representative driving cycles; (3) the need to operate the new vehicles required by this rule on high-octane gasoline; (4) retail prices based upon realistic costs. Alliance (Appendix H).

Agency Response: This comment assumes that its interpretation of the term “cost­effectiveness” (which it equates to “economical to an owner or operator of a vehicle” despite lack of that specific link in the statutory text) requires analysis of the four cited factors, in the manner suggested in the comment. However, ARB has interpreted cost-effectiveness to mean a simple calculation, comparing the increased costs of technology improvements needed to meet the standard against consumers’ operating cost savings over the full life-cycle of the vehicle. See Section 9 of ISOR and Addendum. There is nothing in the statutory text to even suggest that the Board’s method is inappropriate.

In addition, elsewhere in this FSOR staff responds to each of these factors. See Agency Response to Comments 243 through 284. Further, the Board received information that using the cited factors would make little net difference. See September 24, 2004 Transcript at 89-95.

570. Comment: The proposed regulations do not pass the statutory test for cost-effectiveness because they must demonstrate that reduction of each greenhouse gas is cost-effective, which has not been done for methane, nitrous oxides, upstream emissions, or air conditioning. In addition, AB 1493 does not provide the Board authority over these other greenhouse gases, and even if it did, the Board would have to and did not value reductions in those emissions as beneficial in reducing global warming. Alliance (Appendix H).

Agency Response: There is nothing in the statute to indicate that each greenhouse gas must meet a separate cost-effectiveness test, and the commenter provides no citation or analysis to support this position. Even if such a requirement existed, however, the comment is incorrect. The standard does not assume any reduction in methane or nitrous oxides. Thus even under the commenter’s interpretation there is no need for a cost-effectiveness evaluation for those pollutants. The cost of improved conditioning systems was included in the technology packages used to determine the emission standards, which were determined to be cost-effective as a whole. The commenter’s point regarding upstream emissions is unclear. The regulation does not require any reduction in upstream emissions. It provides appropriate credit for any upstream emission reductions due to the use of alternative fuels, but the cost of any such reductions cannot be separated from the cost of the technology itself.

AB 1493 provides ARB with explicit authority to regulate motor vehicles emissions of greenhouse gas emissions other than CO2. (Health and Safety Code Section 42801.1 list incorporated at Section 43018.85(i)(1)). The climate change benefit of reducing such emissions is inherent in their treatment under the regulation. Emissions of greenhouse gases other than CO2 are converted to their CO2 equivalent in calculating the emission reductions used to meet the standard, and thus are granted appropriate credit for compliance purposes.

571. Comment: The proposed rule requires any manufacturer who wishes to remain competitive in the California new-vehicle market to reduce the weight of some or all of the vehicles it sells in California. The Legislature prohibited weight reduction as a compliance. Alliance (Appendix H).

Agency Response: Because AB 1493 specifically prohibits requiring weight reduction, and because the Legislature would be reviewing the adopted regulations, the ARB took great pains to ensure that the regulations do not require any particular vehicle, or any manufacturers’ fleet as a whole, to reduce weight to meet the standard. Rather, the ARB analyzed and projected the availability of suites of technologies that could be applied to given weight classes of vehicles. See ISOR Section 5.2 pp. 46-48 and Agency Response to Comments 143 through 242. In addition, ARB does not believe that weight reduction is among the more cost-effective or practical compliance paths. See Agency Response to Comment 254.

It is irrelevant that affected manufacturers, in order to avoid compliance with the regulations and to support their challenge of them, choose to frame their intended compliance path so that they must use a prohibited compliance method that ARB has already shown need not be used. In addition, while AB 1493 does require certain economic analyses, it does not guarantee any manufacturer a specific market share or maintenance of existing competitive conditions, so long as the regulations do not require a ban on any particular vehicle category.

572. Comment: The proposed rule regulates commercial vehicles such as pick-up trucks, sport utility vehicles, vans, and daily rental vehicles weighing less than 8,500 pounds. The Legislature prohibited regulation of such vehicles. Alliance (Appendix H), (GM).

Agency Response: The ARB agrees that the regulation does apply to the listed vehicles, however, such vehicles are not commercial vehicles exempt from AB 1493 regulation, as that term has been historically applied and as the Legislature specified. The regulations are to apply to “…passenger vehicles, light-duty trucks, and any other vehicle determined by the state board to be a vehicle whose primary use is noncommercial personal transportation.” Health and Safety Code Section 43018.5(i)(3). Into this the commenter reads a specific prohibition or exemption for any vehicle that is of a type that can be registered commercially. But the statute quoted above says nothing of the sort.

Instead, the statute begins by incorporating two commonly understood terms, “passenger vehicles” and “light-duty trucks.” See “passenger car” and “light-duty truck” definitions at 13 CCR Sections 1900(b)(12) and (8), now at 1900(b)(11) and (17), respectively. It then goes further to recognize ARB’s ability to make a “primary use” determination to expand the types of vehicles subject to the regulation. That determination, however, is required only for these additional categories; the statute does not require ARB to revisit longstanding definitions (and certifications thereunder) as to what is or is not a passenger car or light-duty truck. Rather, passenger cars and light-duty truck are simply examples of the types of vehicles that are commonly understood to be used primarily for Californians’ noncommercial personal transportation, as recognized in the LEV II rulemaking and resulting regulations. In addition, the Legislature was fully aware that some light-duty trucks – those arguably performing primarily a work or commercial vehicle function – should be exempted from regulation under AB 1493. The sole exemption is provided in Health and Safety Code Section 43018.5(e), which the regulations implement at 13 CCR Section 1961.1(a).

Here ARB has made the determination required of it by adding “medium-duty passenger vehicles” to those subject to the regulation. See amended 13 CCR Section 1900(a)(12). And here the Board followed its charge to identify those vehicles with primary use as noncommercial personal transportation by limiting the reach of “medium-duty passenger vehicles” to those “designed primarily for the transportation of persons.” Ibid. The Board’s interpretation follows its current practice of defining light-duty trucks that primarily perform a work or commercial function as trucks that have a carrying capacity greater than 2,500 lbs. Vehicles under 8,500 pounds gross vehicle weight (GVW) meeting this criterion are granted a relaxed oxides of nitrogen (NOx) exhaust emission standard under the LEV II program and are exempted from the greenhouse gas requirements. Maintaining this vehicle classification scheme will also make the mechanics of certification easier for manufacturers by allowing them to submit certification applications meeting both LEV II and AB 1493 requirements, and will streamline staff review and approval to the manufacturers’ benefit.

573. Comment: The proposed rule constitutes a de facto ban on medium-duty passenger vehicles, a measure prohibited by the Legislature.

Agency Response: This comment is a more extreme version of other comments concerning the technological feasibility of the regulations. It appears to treat medium-duty passenger vehicles as those that will have the most difficulty meeting the regulations.

Clearly the regulation does not “ban” such vehicles, but instead recognizes the difficulty suggested by the commenter and includes them with the heavier light-duty trucks that must meet a higher (i.e., less stringent) fleet average standard for averaging in these vehicles. Like the other weight categories evaluated, the Board projects that technology packages will be available for this “large truck” segment of the regulated vehicles. See e.g. ISOR summary table 5.3-8, p. 98. Regarding authority to regulate medium-duty passenger vehicles, see Agency Response to Comment 572.

574. Comment: The proposed rule does not provide the “maximum feasible” compliance flexibility required. Use of the adopted provisions is completely impractical. It is unnecessary and arbitrary for the regulations to exclude controls on unregulated vehicles, controls that would achieve equal or greater reductions in greenhouse gases, or controls on sources in other States. Alliance (Appendix H), GM.

Agency Response: The Board believes that the compliance flexibility provisions provided, based in part on existing, proven programs, is entirely practical, and indeed expects manufacturers will use them. Aggregating, averaging, banking, and trading of greenhouse gases among the different pollutants, and between manufacturers, ensures that manufacturers need not design and produce every engine family to the standard. Manufacturers can also emphasize reductions in some pollutants over others, and can either accelerate or delay compliance based on their willingness to bank or trade and on their other marketing concerns. The regulations also provide substantial opportunities for manufacturers to bring alternatively-fueled vehicles and their fuels to market to achieve substantial greenhouse gas reductions. See ISOR pp. 133-134 and Agency Response to Comments 342-344.

This comment fails to recognize that the maximum feasible compliance flexibility provided must be “consistent with this section” (HSC §43018.5(c)(3)), the operative parts of which are the “reduction of greenhouse gas emissions from motor vehicles” (HSC §43018.5(a)) beginning with the 2009 model year new motor vehicle fleet. (HSC §43018.5(b)(1)). See also AB 1493, SEC. 1., findings (f) and (g). The commenters’ suggested control of sources in other states would present substantial if not insurmountable problems for ensuring such controls achieve equivalent or greater emission reductions (see Criteria at ISOR pp. 130-132). More importantly, such controls, in combination with controls on unregulated vehicles, and the other unspecified controls suggested, could entirely eliminate the need for any manufacturer to achieve a reduction in greenhouse gases from their vehicles sold in California. The commenter’s interpretation of maximum feasible compliance flexibility thus appears intended to and would likely eviscerate the prime objective of the bill – to reduce greenhouse gases from the motor vehicle categories (HSC §43018.5(i)(3)) that the Legislature specifically mandated ARB to regulate. This is not consistent with the section as a whole.

Finally, we note that the comment made no specific recommendation for a specific control that would achieve equal or greater reductions in greenhouse gases, rendering a response difficult. But again, generally such controls could swallow the primary purpose of the legislation. We do not consider the Legislature to have engaged in such an idle act.

Agency Response: As the commenter points out, both AB 1493 and the APA require consideration of proposed regulations on the economy of the state. This required considering the several specific factors listed in Government Code Section 11346.3, their duplicates in Health and Safety Code Section 43018.5(c)(2)(A)-(D), and the additional factors in Health and Safety Code Section 43018.5(c)(2)(E) & (F). In addition, by the time of the notice the Board had to estimate fiscal impacts and make an initial determination of whether the regulations would have a significant, statewide adverse impact on business. Government Code Section 11346.5(a)(6)-(8). The Board did all of this and more.

Board staff began seeking cost estimates from this commenter and others on the likely greenhouse gas emission reduction technologies as early as the March 11-13, 2003 International Vehicle Technology Symposium. At that workshop, staff had provided substantial detail on the costs estimates for these technologies and continued to solicit comment. See Draft Technology and Cost Assessment, released April 1, 2004. These estimates were further refined in the June 14, 2004 draft staff proposal, discussed at a July 7, 2004 workshop. The commenter thus had plenty of opportunity to assist staff in its assessment of potential costs and economic impacts but did not avail itself.

Nevertheless, as detailed in Agency Responses to Comments 143 through 242, the Board had good reason to rely for its cost estimates on the NESCAF study. The Board then fed these cost estimates into the most comprehensive statewide economic analysis model available, E-DRAM, to assess economic impacts. See ISOR pp. 150-161. This analysis more than “considered” the necessary statutory factors for cost estimates and initial determinations; it represents state-of-the-art, in-depth analysis for agency rulemaking. The results of that analysis were summarized as required in the Public Hearing Notice.

While it is true that in response to the commenter’s delayed input into the pre-hearing process staff found and corrected some errors in its cost estimates, these errors were not of the magnitude asserted by the commenter, and did not affect any of the required statutory findings. See ISOR Addendum and Agency Response to Comment 554. We also note that the APA acknowledges that even at the start of the formal 45-day comment period these cost figures remain estimates, with an initial determination based on those estimates, which are subject to refinement.

With regard to focusing on the San Diego area, that focus applied not to the entire impact on the state – the result of the E-DRAM analysis – but to the more specific requirement to consider the regulations’ impact on specific communities and on the automotive industry and affiliated businesses. See ISOR pp. 162-170 and 191-196. It was entirely appropriate to choose San Diego as a representative area for this purpose. As noted in the ISOR, the income distribution in San Diego roughly mirrors the income distribution for the entire state. This San Diego-focused analysis was supplemental to the coverage of the automotive sector and specific communities already covered in E-DRAM. Thus like other areas covered under “Other Considerations” in the ISOR, this analysis attempted to go beyond the standard state-level economic impact analysis in E-DRAM. See ISOR p. 171.

Finally, it is unclear from the comment why the commenter believes Government Code Section 11346.2(b)(5) imposes an additional or different statewide economic analysis. We note, however, that there are no federal regulations contained in the Code of Federal Regulations (CFR) addressing the same issue of reducing new motor vehicles’ greenhouse gas emissions. Even if some CFR sections arguably address similar issues, the Board considers there to be no potential duplication or conflict requiring additional analysis. See also Agency Response to Comment 576.

576. Comment: The rulemaking proceeding has not complied with AB 1493’s analytical requirements in subsection (h) to make a comparison with federal programs. Subsection (h) of AB 1493 is not even acknowledged, much less examined, in the staff report. Alliance (Appendix H).

The text of subsection (h) speaks to a future contingency – federal adoption (“if the federal government adopts”) of a standard regulating greenhouse gases from new motor vehicles before the Board adopts California’s regulations – that simply did not occur here. Then and only then, and only at the Board’s discretion after findings, could the Board have elected to forego regulation.

In addition, the Board simultaneously addressed this subsection, and its APA obligations to address comparable federal regulations, by stating that there were no comparable federal regulations that control greenhouse emissions from new motor vehicles, and that no such federal standards had even been proposed. Public Hearing Notice at p. 5. In fact, U.S. EPA’s failure to regulate greenhouse gases from new motor vehicles was challenged in the U.S. Court of Appeals for the D.C. Circuit (No. 03-1361 et. al. (consolidated).) Whatever the impact of the splintered opinions in that case, the decision clearly holds that EPA need not now regulate new motor vehicle greenhouse gas emissions.

577. Comment: AB 1493 does not authorize rules that would increase smog-forming pollutants. Such rules would represent an unconstitutional delegation of power from the Legislature to ARB. Alliance (Appendix H).

Agency Response: See Agency Response to Comment 567. ARB analysis shows there will be no net increase in smog-forming pollutants, and that even if there were, this would be a permissible harmonization of potentially competing statutory directives.

578. Comment: The Board cannot approve the Executive Officer’s proposal as consistent with AB 1493 on the current record. Alliance (Appendix H).

Agency Response: This comment restates several of the commenter’s separate comments, which are responded to elsewhere in this FSOR, and therefore only a few of the bulleted items are treated here.

To begin, the “current record” includes not only what was in the record as of this commenter’s September 23, 2004 submittal, but also all subsequent rulemaking documents generated and added to the record subsequently, including this FSOR. There is clearly substantial, indeed abundant evidence in the record to support the regulatory action.

The Board did make the threshold decision as to whether or not to adopt the regulation, and at what level of stringency. Therefore the delegation of decision-making to the Executive Officer that the commenter complains of did not even occur. See also Agency Response to Comment 561.

ARB has not historically made cost estimates by model; there are simply too many unknowns to be able to determine which models will use which technologies, and presuming so might hamper manufacturers’ flexibility.

579. Comment: The regulation does not meet the grammatical, functional, and volitional requirements for severability. Alliance (Appendix H).

Agency Response: The severability provision states that “…in the event that any provision of this section [1961.1] is held to be invalid, the remainder of this article remains in full force and effect.” The “article” at issue here is Article 2 within Title 13, Division 3, Chapter 1, Sections 1950-1978. Thus in addition to the more narrow view of severability the commenter espouses, this severability provision speaks broadly to preserving the remainder of California’s new motor vehicle regulations. Because the proposed regulatory section occasionally references LEV II and other motor vehicle regulatory sections and test procedures, the Board considered it prudent in this subsection (f) to make it unmistakably clear that existing regulations and test procedures remain intact even if part or all of this regulatory action is invalidated. Obviously, the current LEV II and other motor vehicle programs can function, as they have, without this regulatory section. There is no question that the Board considered this greenhouse gas regulation as an addition to, and not a replacement for, the existing LEV II program. See Resolution at p.7. The Resolution makes clear that this action incorporates greenhouse gas standards into the existing LEV II standards, and does not create a combined program requiring LEV II program adjustments to accommodate greenhouse gas standards. See also finding (1) in Executive Order 05-061 at p. 4. Further, we disagree with the import of the clause; it does establish an intent to retain the remainder. Schenley 21 Cal.App. 3d. at 199.

Finally, it is quite common for courts to sever portions of regulations without requiring a full, new rulemaking for the remaining provisions adopted or amended; otherwise there would be little point to the severance. Tidewater and other APA cases cited by the commenter do not support their contrary position. Schenley itself did allow implementation of non-severed or “revised” portions of the regulation to proceed without further rulemaking. 21 Cal.App. 3d at 199-200. Further Schenley does not stand for the proposition that administrative regulations present severability issues inherently more complex than those presented by decisions concerning ordinances, initiatives, or statutes that provide the 3-part test the commenter cites.

Regarding the specific severability of the PC/LDT1 and aggregation provisions, see responses to comments 588 and 597, respectively.

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