Tuesday, March 12, 2013

Car Companies Try to Flatten Electric Car, Zero-Emission Standards

The "Big Three" as well as foreign car companies are taking dead aim (again!) against electric car and other zero-emission vehicle standards.  In a petition sent yesterday to the U.S. EPA, the companies urged the agency to reconsider an earlier decision that would permit California to enforce its zero-emission vehicle requirements, which could also be enforced in some other states.

The car company petition is below.

As others have noted (see, for example: http://www.enotes.com/taken-for-ride-salem/taken-for-ride )
the car companies have spent decades battling against tougher vehicle standards.

Technology developments generally have happened despite their intransigence.

It is a true shame that car companies are once again spending money on lawyers rather than technology.




California State Motor Vehicle ) Pollution Control Standards; ) Advanced Clean Car Program; ) Request for Waiver of Preemption     )

Docket No. OAR 2012-0562

March 11, 2013
For Further Information Contact: Ellen J. Gleberman
Vice President and General Counsel
Association of Global Automakers 1050 K Street, NW, Suite 650
Washington, DC 20001 and
Susan T. Conti Assistant General Counsel
Alliance of Automobile Manufacturers 1401 Eye Street, N.W., Suite 900
Washington, DC 20005

The Alliance of Automobile Manufacturers (the “Alliance”) and the Association of Global Automakers (“Global Automakers”) (collectively, the “Auto Industry Parties”) respectfully request that the United States Environmental Protection Agency (“EPA” or “Agency”) reconsider its decision to grant a waiver under Section 209(b) of the Clean Air Act for California’s Zero Emission Vehicle (“ZEV”) standards for model years (“MY”) 2018 through 2025, as published in its Notice of Decision Granting a Waiver of Clean Air Act Preemption for California’s Advanced Clean Car Program and a Within the Scope Confirmation for California’s Zero Emission Vehicle Amendments for 2017 and Earlier Model Years, 78 Fed. Reg. 2112 (Jan. 9, 2013). The Auto Industry Parties are seeking reconsideration because in granting the subject waiver, EPA did not exercise its full authority under the Clean Air Act to adequately address the significant concerns raised by the Auto Industry Parties as to whether it is feasible for them to achieve the ZEV mandated sales requirements for MY 2018-2025 in California and the Section 177 States. In particular, EPA failed to give full consideration to the accelerated development of alternative fuels infrastructure and the significant increase in consumer demand that will have to occur if automakers are to have any hope of satisfying the ZEV sales requirements. Instead, EPA took an unduly narrow view of its authority and of the scope of the feasibility inquiry in determining whether the waiver should be granted or denied under Section 209(b) of the Clean Air Act.
As a procedural matter, the Auto Industry Parties are also requesting that EPA reconsider its MY 2018-2025 ZEV waiver decision because, to the extent that EPA considered the feasibility of the ZEV mandate at all, it considered and relied upon supplemental comments by the California Air Resources Board (“CARB”) after the close of the comment period. EPA also considered other ZEV sales projections and materials that were not in the record and not subject to public comment or rebuttal. This extra- record material fails to address the significant feasibility concerns raised in our initial comments.  To the contrary, it demonstrates that important questions remain concerning the ability of the market to mature sufficiently to support the increasing sales volumes required under the ZEV program.
By asking EPA to reconsider its decision to grant California’s waiver request, the Auto Industry Parties are not questioning California’s authority to adopt its own motor vehicle emissions program, nor are we asking EPA to exert a level of oversight that is inconsistent with Section 209(b) of the Clean Air Act. Rather, we are requesting that CARB and EPA recognize that the ZEV mandate for MY 2018-2025 raises issues that are profoundly different from those that have been raised in past waiver decisions. The ability of the industry to meet the increasingly stringent ZEV mandate in California and in each of the Section 177 States depends on individual states and local jurisdictions developing the infrastructure necessary to fuel the vehicles sold by automakers, and also on whether the motoring public will accept transformative vehicle technologies and purchase them in significant quantities. These eventualities are largely beyond the control of automakers, yet they are prerequisites to the industry being able to achieve the sales volumes required under ZEV.

In light of the fact that the ZEV sales mandate for MY 2018-2025 breaks new ground in terms of the substantial burdens placed on automakers, it is imperative that EPA exercise its full authority and determine whether the regulation is consistent with the Clean Air Act. We believe that instead of granting the waiver now and hoping that the infrastructure and market conditions in the California and the Section 177 States will develop to the point where meeting the strict ZEV sales requirements is feasible, the better course would be to deny the waiver for these model years, or at least defer a decision on the waiver until there is credible information indicating that market and infrastructure conditions will support achievement of the sales mandate. The Auto Industry Parties therefore request that EPA reopen the rulemaking docket to allow it to fully consider the question of the feasibility of the ZEV mandate.

I.                EPA Has Inherent Authority To Reconsider Its Decision To Grant A Waiver.

EPA has recently determined that it has inherent authority to reconsider a decision on whether to grant California a waiver under Section 209(b) of the Clean Air Act. See California State Motor Vehicle Pollution Control Standards; Greenhouse Gas Regulations; Reconsideration of Previous Denial of a Waiver of Preemption, 74 Fed. Reg. 7040 (Feb. 12, 2009). In that instance, California asked EPA to reconsider its decision to deny a Section 209(b) waiver for the State’s greenhouse gas emission program, and cited EPA’s inherent authority to do so. See California State Motor Vehicle Pollution Control Standards; Notice of Decision Granting a Waiver of Clean Air Act Preemption for California’s 2009 and Subsequent Model Year Greenhouse Gas Emission Standards for New Motor Vehicles, 74 Fed. Reg. 32,744, 32,747 (July 8, 2009) (“CARB’s reconsideration Request stated its belief that EPA has the inherent authority to reconsider its previous waiver denial . . .”). Californias reconsideration request was made 10 months after EPA’s initial decision denying the waiver, and was based on an argument that EPA had misconstrued and misapplied Section 209(b) in its original waiver decision. Relying on its inherent authority, EPA reconsidered that waiver decision.  Id.
In light of this precedent, the Alliance and Global Automakers believe that EPA has the inherent authority to reconsider its decision to grant the waiver for California’s ZEV mandate for MY 2018-2025. In addition, although EPA has not treated a waiver request as a rule subject to Section 307(d) of the Clean Air Act, the standard for reconsideration under that subsection is instructive concerning the types of circumstances under which reconsideration is appropriate. Clean Air Act Section 307(d)(7)(B) provides in relevant part:
If the person raising an objection can demonstrate to the Administrator that it was impracticable to raise such objection within [the public comment period] or if the grounds for such objection arose after the period for public comment (but within the time specified for judicial review) and if such objection is of central relevance to the outcome of the rule, the Administrator shall convene a proceeding for reconsideration of the rule and provide the same procedural rights as would have been afforded had the information been available at the time the rule was proposed.

42 U.S.C. § 7607(d)(7)(B). There are thus two prongs under that subsection for showing that EPA should reconsider its decision: (1) the objection relates to information that arose after the period for public comment on the agency action (and within the time specified for judicial review), and (2) the objection is of “central relevance to the outcome of the rule.”
The rationale behind this standard is clear. Meaningful comment is of central importance to EPA actions, and affected parties must be allowed to comment on information that EPA intends to rely on in its decisionmaking.  Sierra Club v. Costle, 657 F.2d 298, 398 (D.C.Cir. 1981), rev’d on other grounds, Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983) (noting that the structure and the spirit of Section 307 would have been violated if documents upon which EPA intended to rely had been entered on the docket too late for any meaningful public comment). Thus, courts have held that it is a violation of the Administrative Procedures Act for an agency to fail to make available for public comment reports and studies that are critical to the rulemaking. See, e.g., Idaho Farm Bureau Fed’n v. Babbitt, 58 F.3d 1392 (9th Cir. 1995). As the D.C. Circuit has held, “[a]n agency’s denial of a fair opportunity to comment on a key study may fatally taint the agency’s decisional process.” National Ass’n of Regul. Util. Comm’rs v. FCC, 737 F.2d 1095, 1121 (D.C. Cir. 1984). See also Chamber of Commerce of U.S. v. S.E.C., 443 F.3d 890 (D.C. Cir. 2006) (vacating SEC action holding that the agency was required to afford opportunity for public comment on publicly available materials on which the agency relied but were not in the record).
It is particularly important that the automobile industry have a meaningful opportunity to comment in Section 209(b) waiver proceedings because of the burdens placed on the industry. First, automobile manufacturers are directly impacted by the California motor vehicle standards that are before EPA for a waiver, and the burden of complying with those standards falls directly on them. Second, as opponents of the waiver, the industry bears the burden of showing that one or more of the preconditions set forth in Section 209(b) for denying a waiver have been met. See Motor and Equip. Mfrs Assoc. v. EPA, 627 F.2d 1095, 1121 (D.C. Cir. 1979) (holding that “the parties opposing the waiver request bear the burden of persuading the Administrator that the waiver request should be denied.”). In light of these twin burdens, it is essential that the automobile industry be given every procedural opportunity to present its case against the waiver, and that it not be deprived of a right to respond to data and material that was either submitted after the close of the comment period or was not in the record at all.

II.              EPA Should Grant Reconsideration Here Because Neither The Record Evidence Nor The Extra-Record Material Address The Significant Concerns Raised By The Industry About The Feasibility Of ZEV In California And The Section 177 States.

In their initial comments, the Auto Industry Parties explained how there are significant concerns as to whether the ZEV mandate for MY 2018-2025 will be feasible—especially when considering its adoption in Section 177 States. We therefore requested that EPA deny the waiver for those model years, or at least defer a decision until there is sufficient data to determine whether the state of the infrastructure and consumer demand in California and the Section 177 States has progressed sufficiently to render the ZEV sales requirements feasible. Those comments were offered against the backdrop of two foundational legal issues that are important to EPA’s decision to grant or deny the waiver:
A.              EPA Should Consider Infrastructure And Market Conditions In Determining The Feasibility Of A California Sales Mandate.
First, evidence concerning the level of infrastructure, consumer demand and other market conditions for ZEVs must be considered in determining whether a sales mandate is feasible. EPA suggests in its waiver decision that all that is necessary to show feasibility is that the basic technology exists that would allow manufacturers to produce vehicles meeting the standards. See 78 Fed. Reg. at 2142 (“The objections raised by those opposing the waiver on this point have to do less with the basic feasibility of ZEVs than with their acceptability/marketability, supporting infrastructure, and cost.”). Such an interpretation may have been reasonable when compliance with a California emission standard merely involved building automobiles powered by internal combustion engines that could be engineered to achieve certain emission rates. In the ZEV sales mandate, however, CARB requires manufacturers to do more than simply design and produce ZEVs.  Rather, manufacturers must design, produce and sell a certain number of ZEVs in the market.  Consequently, the proper question in considering California’s waiver request is whether it is feasible for manufacturers not only to design and manufacture vehicles that have the technical attributes to meet the standard, but also to sell the number of ZEVs that is required under the mandate.
The reason that both technological capability and market demand should be considered can be illustrated by the following hypothetical. The technology exists to manufacture a two-door subcompact hatchback with a 4-speed manual transmission; and if a California regulation were to require automakers to produce such vehicles and offer them for sale, there is no doubt that such a standard would be feasible. But if California were to also require that one-half of an auto manufacturer’s sales in the State consist of two-door subcompact hatchbacks with 4-speed manual transmissions by 2018, that standard would not be feasible because the motoring public will not purchase that many vehicles with those characteristics.
The same is true for a sales mandate that can only be met if the infrastructure necessary to support the vehicles exists. Strictly speaking, the technology exists to manufacture fuel cell vehicles, and a California regulation requiring the production of at least one model of a fuel cell vehicle by 2020 would arguably be feasible from a technology standpoint. But if California were to require that one-half of each auto manufacturer’s sales in the State consist of fuel cell vehicles by 2020, that standard would not be feasible unless sufficient infrastructure for hydrogen fuel is available to sell that many fuel cell vehicles.
It is clear, therefore, that although EPA has traditionally focused only on the feasibility of a technology to produce vehicles with certain characteristics, the current ZEV sales mandate raises such fundamentally different issues that EPA must exercise its discretion and broaden the scope of its inquiry into feasibility. Feasibility must also include whether it is reasonable to expect that automakers can sell the number of ZEVs that are required under the mandate.
That is also why relative vehicle costs are an important consideration in determining feasibility from a sales standpoint. If the production costs for ZEVs—and the resulting sales price to consumers—are significantly higher than the costs of conventional gasoline-powered motor vehicles, then a typical consumer will be unlikely to choose to purchase a ZEV in lieu of a conventional vehicle, thus impacting whether achieving the sales mandate is feasible.  According to CARB, the incremental cost of a subcompact battery-electric vehicle (“BEV”) with a 100 mile range (“BEV100”) is expected to be $19,655 in 2016, and $10,829 in 2025; the incremental cost of a large BEV100 is expected to be $23,959 in 2016 and $13,363 in 2025. See Staff Report: Initial Statement of Reasons, Advanced Clean Cars, 2012 Proposed Amendments to the California Zero Emission Vehicle Program Regulations (December 7, 2011) (“ISOR”) at 60, Table 5.4. This cost gap is significant and impacts the willingness of consumers to purchase BEVs at much higher costs.
EPA suggests in its waiver decision that standards are feasible from an economic standpoint if they do not result in a “doubling or tripling” of the vehicle cost, and relies on Motor and Equipment Manufacturers Ass’n v. EPA (“MEMA I”), 627 F.2d 1095, 1118 (D.C. Cir. 1979), for this proposition. See 78 Fed. Reg. at 2142.  This is not correct. First, CARB’s own cost estimates show that BEV technology does in fact nearly double the price of the vehicle in the early years. But in any event, EPA is reading too much into the citation to MEMA I. The statement cited by EPA in MEMA I, in turn, referred to the legislative history of the Clean Air Act for the proposition that “Congress wanted to avoid undue economic disruption in the automotive manufacturing industry and also sought to avoid doubling or tripling the cost of motor vehicles to purchasers.” MEMA I, 627 F.2d 1095, 1118 (citing See S. Rep. No. 192, 89th Cong., 1st Sess. 5-8 (1965); H.R. Rep. No. 728, 90th Cong., 1st Sess. 23 (1967), U.S. Code Cong. & Admin. News 1967,
p. 1938. That statement was not meant to supply a floor for the cost of compliance, as  the “and also” construction in the legislative history itself demonstrates. Further, if read literally, it would mean that a series of three regulations that each had an incremental cost factor of 1.8 would be deemed feasible. Yet the cumulative costs of those regulations would result in a 6-fold increase in the price of a vehicle, meaning a $20,000 vehicle could cost over $116,000.1  Moreover, this snippet of legislative history was not referring to a sales mandate, where the relative cost of the vehicle will impact whether it is feasible to achieve the mandated sale percentages.
CARB suggests that automakers and their dealers can address the relative price gap between ZEVs and non-ZEVs and boost ZEV sales by spreading the increased ZEV costs over their entire fleet (see 78 Fed. Reg. at 2143)—essentially selling ZEVs at a loss and compensating by increasing the prices of conventional gasoline-powered vehicles. EPA apparently agreed with CARBs position, as it states in its decision:
1 $20,000 x 1.8 = $36.000; $36,000 x 1.8 = $64,800; $64,800 x 1.8 = $116,640.
As discussed above, there is no real question about the basic feasibility of this technology, and that the cost of each vehicle, if carried across a Manufacturer’s entire sales line, is not as high as to implicate basic feasibility.
Id. at 2144. By its own response, EPA leaves open and unaddressed the basic feasibility of the regulations absent spreading the costs across the entire fleet. Either EPA agrees with CARBs assertion that manufacturers are essentially “forced” to sell ZEVs at a certain price—which must be offset or subsidized by other vehicles—or CARB (with approval of EPA) has failed to demonstrate basic cost feasibility of ZEVs.
Moreover, the net effect of CARB’s position is to impose a second mandate on manufacturers—i.e., a sales price mandate. CARB’s assertion, which underpins its entire cost analysis, is that manufacturers must sell ZEVs at a price that is subsidized by all other vehicle sales. Absent this assertion, the per-vehicle cost of the regulation skyrockets and CARB’s calculated “payback period” for ZEVs is grossly underestimated. Furthermore, there is nothing in the legislative history of the Clean Air Act to support the notion that automakers should be required to sell a certain class of vehicles at a loss in order to meet a sales mandate. Indeed, requiring manufacturers to do so qualifies as exactly the sort of “undue economic disruption in the automotive manufacturing industry” that the Clean Air Act sought to avoid.  Part of EPA’s feasibility analysis should therefore include an assessment of whether this strategy itself is economically rational or feasible, along with an assessment of whether the infrastructure and other market conditions make selling the number of ZEVs required under the mandate feasible.
B.              Nothing In Section 209(b) Prohibits EPA From Considering Feasibility In Section 177 States.
In response to the argument advanced by the Auto Industry Parties that EPA should consider feasibility in the Section 177 States in deciding whether to grant a waiver, EPA suggests that it lacks the discretion under Section 209(b) to do so. See 78 Fed. Reg. at 2143 (“it is not appropriate under section 209(b)(1)(C) to review California regulations, submitted by CARB, through the prism of adopted or potentially adopted regulations by Section 177 states.”). Global Automakers and the Alliance do not believe that EPA has fully considered the scope of its discretion in construing Section 209(b) under the familiar test laid out in Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). Under Chevron, if Congress has “directly spoken to the precise question at issue,” then that intent must be given effect. Chevron, 467 U.S. at 842-43.  However, “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843.
There is nothing in Section 209(b) that limits EPA’s discretion in considering whether a California regulation is feasible when adopted in Section 177 States. Section 209(b)(1)(C) provides that a waiver must be denied if EPA finds that the California “standards and accompanying enforcement procedures are not consistent with Section 202(a) of [the Clean Air Act].” 42 U.S.C. § 7543(b). The Section 202(a) consistency prong requires EPA to first determine whether adequate technology exists for compliance with the regulations. If it does not, then the Administrator must decide whether there is adequate time to develop and apply the technology before the standards go into effect and whether the costs of developing and applying technology within that time are feasible. There is nothing in the text of Section 209(b) or the text of Section 202(a) evidencing a clear statement from Congress that that inquiry must be limited to feasibility in California only. To the contrary, it is illogical to conclude that the framers of Sections 209 and 177 intended for EPA to exercise significant oversight authority over California, but absolutely no oversight authority over the remainder of the 49 states that could elect to become Section 177 States.
Indeed, EPA has in the past suggested that under certain circumstances it may be proper for it to consider a California regulation’s impact in Section 177 States. In the agency’s consideration of California’s 2008 amendments to the ZEV program—which also contained “travel provisions” allowing certain types of ZEVs placed in service in Section 177 States to be counted towards compliance with the California percentage ZEV requirements as if they are placed in service in California—EPA implied that it would be appropriate for the Agency to consider impacts in Section 177 States in the waiver evaluation. See California State Motor Vehicle Pollution Control Standards; Waiver of Federal Preemption, Decision of the Administrator (Both Within the Scope and Full Waiver Decision for 2011 and Prior Model Years and Full Waiver Decision for 2012 and Later Model Years Zero-Emission Vehicles (ZEV)) at 14 (“While it is arguable that the effect of California’s regulations on Section 177 States is irrelevant to review under section 209(b), California’s travel proportionality provisions are unique in that they actually provide specific requirements for manufacturers in Section 177 States.”).
EPA, therefore, has already concluded that it is not expressly precluded by Section 209(b) from considering the impacts a California regulation has in Section 177 States. Global Automakers and the Alliance believe that EPA should exercise its authority and consider those impacts in this case because there are fundamental differences between the States that will impact whether ZEV is feasible when separately applied in each State. A number of Section 177 States have already taken affirmative steps to adopt California’s ZEV program for MY 2018-2025, including Connecticut, Maine, Maryland, Massachusetts, New York, Rhode Island and Vermont. As a result, and because California has not extended the travel provisions for BEVs for these model years, the ZEV standards will apply the same sales mandate in those States as is required in California. As pointed out in our initial comments, the commercial and economic feasibility of meeting the ZEV standards in those States remains in doubt. It is entirely appropriate for EPA to consider that fact and either defer its waiver decision, or deny the waiver, until there is sufficient information enabling the Agency to evaluate the feasibility of the mandate’s requirements as required by Section 202(a) of the Clean Air Act.

C.              The Extra-Record Material EPA Relied On In Granting The Waiver Fails To Address The Significant Feasibility Concerns Raised By The Industry.
As shown in our original comments, none of the future market projections and speculation provided by CARB in the docket establishes that the ZEV mandate for MY 2018-2025 is feasible in California and in each of the Section 177 States given the state of the infrastructure and consumer demand. In fact, the evidence strongly suggests the ZEV volumes are unlikely to be met even in California.
One month after the close of the comment period on October 19, 2012, California filed supplemental comments dated November 14, 2012, and appended to those supplemental comments sixteen new documents. In additional to the supplemental material submitted by CARB, EPA looked outside the record and relied on sales projections from the Electric Power Research Institute (“EPRI”) and the U.S. Energy Information Administration’s Annual Energy Outlook (“AEO”). As discussed in greater detail below, the information that was added to the public record after the close of the comment period and the information that was outside the record was of central importance to EPA’s decision to grant the waiver, and EPA cited to and relied on that material in its decision to grant the waiver. If the industry had been given an opportunity to comment on this material, it would have shown that these materials do not, in fact, support EPA’s decision to grant the waiver, and that had EPA fully considered the industry’s evidence of lack of feasibility, the waiver should have been denied. The Auto Industry Parties highlight some of this data below:
1.               CARB’s Data And Arguments Concerning The Need For Infrastructure To Support The Sale Of ZEVs
In granting the waiver, EPA relied on CARB’s statement in its supplemental comments that “[w]hile CARB discredits the view that EPA should consider the feasibility of ZEV in other states, it also notes that charging infrastructure in states other than California does not seem to be a concern as both Nissan and General Motors are currently marketing advanced technology vehicles nationally, and Ford will begin 50- state marketing in early 2013.” 78 Fed. Reg. at 2140. But just because some automakers are marketing advanced technology vehicles in certain markets does not mean that they have concluded that charging infrastructure is “not a concern” or that there will be sufficient infrastructure to meet the mandate.
Neither CARB nor EPA disputes that the development of an electric charging infrastructure is a prerequisite to increasing the market penetration of plug-in vehicles. While California is making a significant investment in its infrastructure, see e.g., CARB 2013 ZEV Action Plan, there is no indication that all Section 177 States are also investing in the establishment of an electric vehicle charging infrastructure.2  In its supplemental
2   The Auto Industry Parties recognize and appreciate CARBs efforts in developing a fueling infrastructure for ZEVs in California, and in encouraging the Section 177 States to do likewise. The point remains, however, that given the sunsetting of the BEV travel provisions after MY 2017, the required infrastructure will be necessary in each and every one of the Section 177 States that has adopted ZEV.

comments, CARB points to electric charging programs underway at the U.S. Department of Energy. See 78 Fed. Reg. at 2140. However, these projects do not extend to all of the Section 177 States. For instance, the electrification projects that are being funded by the Department of Energy through the American Recovery and Reinvestment Act do not include any projects in Vermont or Rhode Island, even though both of these States are in the process of adopting California’s ZEV sales mandate. See http://www.afdc.energy.gov/data/#tab/all/data_set/10440.
Regional infrastructure differences between California and some Section 177 states go well beyond the installation of public charging infrastructure. There are significant differences in the age of the housing stock, for example, that increases consumers’ cost to install charging capabilities at their homes. Codes and standards have not yet been adopted in many Section 177 States to adequately address the speed and ease with which infrastructure can be installed—whether it is public or for consumers. There are significant other differences among the various Section 177 States that further impact the marketability of the vehicles, such as the price of electricity, climate considerations, and the access and value of single occupant use of HOV lanes.
The lack of the necessary infrastructure to support ZEVs puts motor vehicle manufacturers in a bind, as their ability to meet their sales mandates depends on the development of the requisite infrastructurea contingency over which they have little control. The D.C. Circuit’s recent decision striking down a portion of the renewable fuels standards requiring the increased sale of cellulosic biofuel is instructive. Although the court recognized that it is generally permissible for EPA to adopt “technology forcing” regulations, the party that would be sanctioned for not meeting the mandate must also be the party with the capability to force the technology in question:
In all these cases [of technology forcing regulations], government pressure joined forces with industry specialization and competence. Here, by contrast, EPA applies the pressure to one industry (the refiners) [citations] yet it is another (the producers of cellulosic biofuel) that enjoys the requisite expertise, plant, capital and ultimate opportunity for profit.
Apart from their role as captive consumers, the refiners are in no position to ensure, or even contribute to, growth in the cellulosic biofuel industry. “Do a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.” Given this asymmetry in incentives, EPA’s projection is not “technology-forcing” in the same sense as other innovation-minded regulations that we have upheld.
American Petroleum Inst. v. EPA,       F.3d        , 2013 WL 276044 at *6 (D.C. Cir, 2013). The same rationale holds here. State and local agencies are being told:  “Do a good job and develop an electric charging infrastructure to support plug-in vehicles. If you fail, and if automakers are consequently unable to meet their sales mandates for plug-in vehicles, we’ll fine them.” Because automakers cannot sell the requisite number of ZEVs in each State adopting the standards without the requisite infrastructure, and because there is no evidence showing that that infrastructure is being developed in all of those States, the ZEV mandate is not feasible as it has been adopted by California and the Section 177 States.
2.               CARB’s Data And Arguments Concerning Consumer Demand
Notwithstanding the critical need for infrastructure for PHEVs, BEVs and fuel cells, nor the investments or planned investments alluded to by CARB and EPA in the waiver decision, future growth in infrastructure itself is simply a prerequisite for feasibility of the sales mandate—not an indication of feasibility itself. For example, the required infrastructure for conventional hybrids (e.g. retail gasoline stations) is clearly well-established and ubiquitous with over 160,000 retail stations in the U.S. on virtually every street corner. Yet, despite this massive infrastructure, consumers have yet to embrace conventional hybrids after 13 years of sales at anywhere near the rate CARB, EPA and the Section 177 States envision consumers adopting ZEVs over the next 13 years. Clearly, the ability to refuel a vehicle of any type is a fundamental market requirement, but not in any way an indication of consumer demand or acceptance of the vehicle itself.
In alluding to the question of consumer demand, EPA relied on CARB’s supplemental material “about the feasibility of ZEV vehicles in terms of consumer demand” and cited CARB’s statement that “sales data for plug in vehicles show sales growing rapidly—faster than conventional hybrids grew when they were first launched. CARB states that these early sales data, aggressive programs for community readiness, public education, infrastructure development and incentives are in place to support as much as possible consumer acceptance and adoption of ZEV technologies.” 78 Fed. Reg. at 2140-41.
The comparison made by CARB between the rate of penetration for plug-in vehicles and for hybrids is invalid. The pace of current sales of plug-in vehicles—both BEVs and plug-in hybrid electric vehicles (“PHEVs”)—is impacted significantly by the substantial financial incentives offered to purchasers of those vehicles. For example, buyers of plug-in vehicles have been eligible for a credit of up to $7,500 on their federal income taxes. California offers a $2,500 incentive, and while many States offer similar tax credits, those offerings are not consistent across the Section 177 States. Those credits that have been offered have been instrumental in spurring the current demand for plug-in vehicles.  Similar credits were not available when conventional hybrids were introduced, making CARB’s comparison inappropriate.  As these credits will not be available indefinitely, demand for plug-in vehicles will likely fall once they expire.
It therefore appears highly unlikely that PHEV and BEV sales will continue to match early hybrid sales. A number of highly favorable yet likely unsustainable factors are currently supporting PHEV and BEV sales that were not available for hybrids in the early years of U.S. sales, including generous federal and state tax incentives, relatively high gasoline prices, access to high occupancy vehicle lanes in key markets, and unsustainably generous manufacturer incentives over and above the state and federal incentives. Moreover, hybrid purchasers could continue refueling their vehicles at gasoline stations, while BEV and PHEV purchasers need to adjust to new fuel delivery methods.
Furthermore, CARB’s analogy to hybrids does not support the conclusion that automakers will be able to meet the stringent sales mandate required under the ZEV program. The data we provided in our initial comments concerning the sales of advanced vehicles—including hybrids, plug-in hybrids, and electric vehicles—clearly demonstrate that ZEV technologies in the next 13 years would need to outpace the sales of conventional hybrids—which have generally been considered highly successful—during their first 13 years of sales by a factor of 250% in California and Oregon, and by a factor of 500-750% in the other Section 177 states. Furthermore, the often-cited early sales pace of PHEV’s and BEVs compared to hybrids, even if sustained over time, would fall well short of the mandated volumes in both California and the Section 177 States. Because no organization or study can accurately predict the future 13 years out, CARB and EPA should give substantial deference to this current and historical data, as it can inform the future and raises serious doubt as to whether the ZEV mandate for MY 2018- 2025 can be achieved.
In fact, recent comments by a senior engineer for EPA provide further support for the industry’s concerns about future prospects for the sales of ZEVs. Speaking at the University of Michigan Transportation Research Institute’s Automotive Research Conference on fuel economy, the EPA official stated that the Agency has concluded that automakers will achieve the required fleet-average fuel economy standard of 54.5 miles per gallon by 2025 by relying predominantly on improvements in internal combustion engine technology. For example, EPA projects that by 2025, more than 90% of the light duty vehicles sold in the U.S. will be powered by turbocharged direct-injection gasoline engines. Significantly, EPA projects that only 2% of the vehicle market in 2025 will consist of BEVs and PHEVs. See EPA: Fuel-Economy Standards to Add $2,600 to Average Vehicle Cost in 2025 (Feb. 13, 2013) (available at http://www.freep.com/article/20130213/BUSINESS01/130213049/EPA-Average- vehicle-will-cost-2-600-more-in-2025-due-to-fuel-economy-standards). The ZEV mandate, however, would require that 15.4% of each manufacturer’s sales consist of ZEVs and PHEVs by 2025 in California and the Section 177 states. See ISOR at 48-49 and Figure 9. Sales in California and the Section 177 States account for up to 40% of an automaker’s sales, which suggests that more than 6% of U.S. sales would need to be ZEVs and PHEVs in order for manufacturers to meet the ZEV mandate. Consequently, EPA’s own projections demonstrate that despite the current growth in sales, meeting the ZEV mandate is not feasible in California and the Section 177 States under market conditions projected for the future.
3.               EPA’s Reliance On Consumer Demand Data From California
EPA addresses the lack of consumer demand pointed out by Global Automakers and the Alliance by referring to data offered by CARB in its supplemental comments. Specifically, EPA states: With respect to the consumer demand issues raised, we note that the record, based on comment from the Manufacturers and the Dealers, is insufficient to meet the burden of proof to counter the current and projected consumer demand evidence supplied by CARB and the other commenters supporting the waiver. EPA did not receive any evidence or data from commenters to refute the projections made by CARB or other commenters.” 78 Fed. Reg. at 2144.
EPA, however, does not state what “current and projected consumer demand evidence” was supplied by CARB and the other commenters, or how that evidence showed that the ZEV mandate is feasible in California and in the Section 177 States. The agency may be referring to the 2010 study from NRDC and Baum & Associates. See 78 Fed. Reg. 2140. That study, however, has already been discredited because it greatly overestimated the total sales of BEVs and PHEVs it projected for 2012. In 2010, that study projected that “the U.S. market for electric-drive vehicles will grow from approximately 85,000 vehicles in model year (MY) 2012 to between 320,000 to 540,000 by MY 2015.”  See The Zero Emission Vehicle Program: An Analysis of Industry’s Ability to Meet the Standards (May 2010) at 2. But actual sales of BEVs and PHEVs were about 34,000 units in 2012, well short of the prediction by Baum & Associates.
See http://money.cnn.com/2013/01/03/autos/chevrolet-volt-sales/index.html.  Additionally, that study is contradicted by EPA’s own public statement that sales of BEVs and PHEVs will only reach 2% of total vehicle sales by 2025. Assuming total vehicle sales of 17 million units in 2025 (see U.S. Energy Information Administration, Annual Energy Outlook 2012, Data Tables, Table 57 at http://www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2012&subject=0- AEO2012&table=48-AEO2012&region=1–0&cases=hp2012-d022112a), 2% would be 340,000.  Even if all of these plug-in vehicles were to be sold in California and the Section 177 States, these sales would fall well short of the 724,000 vehicles that would be required under the ZEV sales mandate in these States.
4.                    EPA’s Reliance On Energy Information Administration Data
In its waiver decision, EPA relied on data from the U.S. Energy Information Administration’s Annual Energy Outlook concerning future ZEV sales, ostensibly to support the conclusion that the ZEV mandate is feasible from a sales standpoint. See 78 Fed. Reg. at 2142. But that data actually refutes the notion that the ZEV mandate is achievable in California or in the Section 177 States.  For instance, EPA states: “AEO’s reference case indicates a national market potential of around 165,000 EVs and PHEVs in 2018 which is more than twice the CARB ZEV requirement. In 2025, the AEO reference case indicates a national market potential of 283,000 ZEVs, which still exceeds CARB’s proposed ZEV requirement of nearly 271,000.” Id.  By assigning virtually all of the national sales of ZEVs in 2025 to California, EPA effectively provided record evidence that the ZEV sales requirements would not be feasible in Section 177 States, such as Connecticut or Vermont. Nor is it plausible to assume that 96% of all ZEVs sold in the country will enter the market in California. In fact, given the elimination of the travel provision for all ZEV technologies except fuel cells by 2018, the Section 177 States adopting ZEV will require approximately twice the sales volume of ZEVs as California alone. See ISOR at 15-16. CARB therefore estimates that over 228,000 BEVs and PHEVs will need to be sold in California and the Section 177 States in 2018 to meet the sales mandate (78,000 in California and 150,000 in the Section 177 States), and that 724,000 will have to be sold in 2025 (270,000 in California and 454,000 in the Section 177 States).
This AEO data is consistent with the statement made by EPA’s senior scientist at the University of Michigan Transportation Research Institute’s Automotive Research Conference that only 2% of the new vehicles sold in 2025 will be BEVs and PHEVs. According to the AEO data, total vehicle sales are projected to reach 16,826,000 cars and light trucks by 2025, of which only 283,000—or 1.7%—are expected to be ZEVs or PHEVs.  The ZEV mandate, however, would require that 15.4% of each manufacturer’s sales consist of ZEVs and PHEVs by 2025. Therefore, EPA’s own extra-record evidence and internal analyses refute the conclusion that the ZEV sales mandate is achievable in California. Moreover, it certainly establishes that there is not sufficient national demand for ZEVs to meet the CARB mandated sales levels in the Section 177 States.
5.               EPA’s Reliance On Electric Power Research Institute Data
EPA also relies on a study authored by a self-interested party, the Electric Power Research Institute (EPRI) published in Transportation Electrification, A Technology Overview, 2011 Technical Report, EPRI 1021334, July 2011. This data was not in the record at the time the record closed. According to EPA, EPRI projects that national BEV and PHEV sales in 2025 range from a low of 1,144,000 to a high of 5,073,000 vehicles. 78 Fed. Reg. at 2142. We have downloaded the report referenced by EPA and have not been able to locate those figures. Nevertheless, the EPRI projections stand in stark contrast to the data from EPA and EIA concerning projected ZEV sales, and they should therefore be given little weight.
More importantly, this EPRI study, like all of the other ZEV sales forecasts, is simply a prediction of the future with no reasonable basis to assume it is in any way accurate or indicative of what might happen. Indeed, history shows that predictions made concerning the rate of future ZEV sales are consistently overly optimistic and must later be revised downward. As discussed above, the 2010 Baum study cited by EPA overestimated the sales of BEVs and PHEVs in 2012 by a factor of 2.5. Similarly, Pike Research, which is a reputable company that predicts future consumer purchasing trends, predicted in 2010 that plug-in vehicles would comprise about 2.5% of all vehicle sales by 2015.3  In its more recent forecast from the 4th Quarter of 2012, however, Pike has revised its projection, and now predicts that PHEVs and BEVs will be just 1.1% of the market in 2015. Currently, Pike predicts that U.S. sales of plug-in vehicles will
reach 367,940, or 2.1% of vehicles sales in 2020.4  (This breaks down to 260,965 PHEVs, or 1.5% of U.S. vehicle sales; 106,975 BEVs, or 0.6% of U.S. vehicle sales).
3   Pike’s 2010 forecast was set forth in its publication “Electric Vehicle Charging Equipment Charging Stations, Grid Interconnection Issues, EV Charging Business Models, and Vehicle-to-Grid Technology: Market Analysis and Forecasts(2d Quarter 2010), which is available for purchase from Pike Research.
4   This data from Pike Research can be found in its publication “Global Forecasts for Light Duty Hybrid, Plug-in Hybrid, and Battery Electric Vehicles: 2012-2020” (4th quarter of 2012), which is available for purchase from Pike Research.

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As these examples show, it is impossible to predict today whether infrastructural developments, oil prices, consumer confidence and other factors will converge such that automakers will be able to persuade buyers to choose BEVs and PHEVs in sufficient numbers to meet the requirement that fully 15.4% of their sales consist of ZEVs and PHEVs by MY 2025. Current data and trends suggest that it is highly unlikely that the industry will be able to meet that mandate.  Given the uncertainty inherent in projecting the feasibility of standards that are applicable over a decade in the future, we suggested in our initial comments that a decision on the ZEV waiver for MY 2018-2025 should be denied or at least deferred until there is a sufficient basis for determining whether the required infrastructure and the level of consumer demand for ZEVs had developed to a point such that the ZEV mandate for these years would be achievable. Because the extra- record evidence EPA relied upon did nothing to demonstrate the feasibility of the ZEV mandate for these model years—and indeed would tend to show that it is not—the Auto Industry Parties continue to believe that that waiver should not have been granted.


III.            Conclusion


For the reasons stated in this Petition for Reconsideration and in the initial comments filed by the Alliance and the Global Automakers, EPA should reconsider its decision to grant a Section 209(b) waiver for California’s ZEV mandate for MY 2018- 2025. As we pointed out in our initial comments, there is substantial uncertainty regarding the feasibility of the ZEV mandate for MY 2018-2025 in California and the Section 177 States given the state of infrastructure and consumer demand now and in the foreseeable future.  In granting the waiver, EPA concluded that such concerns fell outside of the scope of its inquiry under Section 209(b), but then proceeded to rely on material concerning these issues which was not in the record and to which the industry did not have an opportunity to comment. In the end, however, nothing in the extra-record material considered by EPA or in EPA’s waiver decision addressed the fundamental uncertainty concerning the feasibility of the ZEV mandate. EPA should therefore reopen the rulemaking record to reconsider its decision. In reconsidering the waiver decision, EPA should exercise its discretion to consider the feasibility of the ZEV mandate as applied in both California and in the Section 177 States, and should give due consideration to whether the level of infrastructure, consumer demand and other market conditions are such that achieving those standards is feasible in each of the States that has adopted them. The Alliance and Global Automakers believe that once EPA gives full consideration to these issues, it will have no choice but to deny the waiver for these model years, or at least defer its decision until credible information exists for EPA to carry out its obligations pursuant to Section 202(a) of the Clean Air Act and evaluate the feasibility of the MY 2018-2025 ZEV mandate requirements.

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