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Published in Law360

Less than a month after the Environmental Protection Agency (EPA) published environmental operational standards and greenhouse gas emission regulations for owners and operators of heavy-duty vehicles, including major freight transportation companies, transportation industry groups and states are fighting back to block the new rules.

On April 22, 2024, the EPA published Greenhouse Gas Emissions Standards for Heavy-Duty Vehicles – Phase 3. Phase 3 creates stringent standards to reduce greenhouse gas emissions for model year 2032 (25% reduction in CO2 emissions) and later heavy-duty highway vehicles that phase in starting as early as model year 2027 for certain vehicle categories. It revises certain GHG standards that were established under EPA’s Heavy-Duty Phase 2 program from 2016.

In addition, Phase 3 limits the availability of certain advanced technology credits initially established in Phase 2 but includes additional flexibility for manufacturers in applying credits from these incentives in the early model years of the Phase 3 program. Phase 3 creates warranty requirements for batteries and other components of zero-emission vehicles and requires customer-facing battery state-of-health monitors for plug-in hybrid and battery electric vehicles.

Phase 3 is set to take effect on June 21, 2024.

However, on May 13, 2024, Nebraska Attorney General Mike Hilgers led a coalition of 24 states (including southeastern states Alabama, Florida, Georgia, Louisiana, Mississippi, South Carolina, Tennessee, and Texas) to file a petition for review in the U.S. Court of Appeals for the D.C. Circuit, seeking to declare Phase 3 unlawful and vacate EPA’s action. The petition states that Phase 3 “exceeds the agency’s statutory authority and otherwise is arbitrary, capricious, an abuse of discretion, and not in accordance with the law.” Read the Attorney General’s argument.

The lawsuit follows public opposition by industry groups and actions by Congressional members to oppose the EPA rules. In an AP article, the American Trucking Association and Owner-Operator Independent Drivers Association predicted that the new standards would lead to supply chain failures, more pollution, increased costs for smaller independent firms, and a practical mandate to use electric and hydrogen-powered trucks, which are currently an unproven technology. Industry groups opposing the new rule have called for Congress to overturn the rule.

On May 1, 2024, U.S. Sen. Dan Sullivan (R-Alaska) and U.S. Rep. Russ Fulcher (R-Idaho) introduced Congressional Review Act (CRA) legislation to block Phase 3. A CRA is a mechanism that Congress may use to overturn certain federal agency actions. However, to become effective, a CRA must either be (1) passed by both chambers of Congress and signed by the president or (2) passed over presidential veto by-thirds of the members of each house. In 2023, a similar CRA, which rolled back an EPA rule establishing stricter nitrogen oxide standards for heavy-duty vehicles narrowly passed the House and Senate but was vetoed by President Biden. Accordingly, even if the CRA blocking Phase 3 passed both houses, Biden could again veto.

Breakdown of EPA’s Phase 3 Rule

Phase 3 relates to companies that manufacture, sell, or import into the U.S. new heavy-duty highway vehicles and engines. Potentially affected categories and entities include the following:

EPA Phase 3 

The new GHG standards will be applicable to heavy-duty (HD) vocational vehicles (such as delivery trucks, refuse haulers, public utility trucks, transit, shuttle, school buses, etc.) and tractors (such as day cabs and sleeper cabs on tractor-trailer trucks). Phase 3 finalizes certain revised heavy duty vehicle carbon dioxide (CO2) standards for MY 2027 and new HD vehicle CO2 standards for MYs 2028, 2029, 2030, 2031, and 2032 that will achieve significant GHG reductions for these and later model years. Also, to ensure meaningful vehicle GHG emission reductions under the Phase 3 program, the new rule limits the period over which manufacturers can use the multiplier portion of credits earned from advanced technologies.

The Phase 3 standards begin in MY 2027 with a 13% increase in the stringency of the medium heavy-duty vocational vehicle standards and a 17% increase in the light heavy-duty vocational vehicle standards. The Phase 3 day-cab tractor standards begin in MY 2028 with an 8% increase in stringency over the Phase 2 standards. The heavy heavy-duty vocational standards begin in MY 2029 with a 13% increase over Phase 2. The sleeper cab tractor standards begin in MY 2030 with a 6% increase over Phase 2.

Each vehicle category then increases in stringency each year, through MY 2032, at which time compared to the Phase 2 program:

  • the light heavy-duty vocational standards are a 60% increase in stringency of the CO2 standard,
  • the medium heavy-duty vocational vehicle standards are a 40% increase,
  • the day-cab standards are a 40% increase,
  • the heavy heavy-duty vocational standards are a 30% increase, and
  • the sleeper cab standards are a 25% increase in the stringency of the standards.

For more information on Phase 3, click here to read the rule published in the Federal Register.

“Major Questions” Surround Phase 3’s Legality

In 2022, in West Virginia v. EPA, the Supreme Court signaled a shift in its approach to assessing whether administrative agencies have the authority to regulate absent explicit permission from Congress to do so. For decades, the Supreme Court traditionally gave deference to the actions taken by government agencies under Chevron v. NRDC. However, in West Virginia, the Supreme Court established its new “major questions doctrine” and found that Congress did not grant EPA authority under Section 111(d) of the Clean Air Act (CAA) to regulate GHG emissions in virtually any industry pursuant to the EPA’s Clean Power Plan.

Simply put, the Supreme Court’s major questions doctrine requires an agency seeking to decide an issue of major national significance, i.e., an issue of “vast economic and political significance,” to have clear congressional authorization for the agency’s action.  

Phase 3 is poised to restrict and alter the types of vehicles and engines that manufacturers may produce across various industries, including the infrastructure needed to support these changes. Accordingly, Phase 3 is certain to have “vast economic and political implications.” Furthermore, Phase 3 has yet to receive clear congressional authorization. Rather, EPA states that it has authority from Congress to establish Phase 3 pursuant to Section 202(a) of the Clean Air Act. Accordingly, EPA’s authority for Phase 3 under CAA Section 202(a) is ripe for attack under the major questions doctrine.

In fact, there are already two important cases regarding challenges to EPA’s authority under CAA Section 202(a).

  • In February, the Supreme Court heard arguments in Ohio v. EPA regarding whether EPA’s Good Neighbor Plan may be stayed while the U.S. Court of Appeals for the D.C. Circuit considers legal challenges to the Plan, including whether the Plan, pursuant to CAA Section 202(a), is fully authorized by Congress under the major questions doctrine.
  • Similarly, in Texas v. EPA, the U.S. Court of Appeals for the D.C. Circuit is also considering legal challenges by several states to EPA’s 2021 Rule for GHG emissions standards for light-duty vehicles, including whether the 2021 Rule, pursuant to CAA Section 202(a), is fully authorized by Congress under the major questions doctrine. In particular, the states argue that the 2021 Rule violates the major questions doctrine because Section 202(a) does not clearly authorize EPA to require vehicle manufacturers to produce more electric vehicles and “threaten[s] the reliability of the electric grid[.]”

Given that Phase 3 shares EPA’s stated Section 202(a) authority with these cases, the lawsuit filed by Nebraska and other states to block Phase 3 will challenge the new rule under the major questions doctrine. In fact, the legal challenge to Phase 3 will essentially mirror the states’ argument in Texas v. EPA, and pending the Supreme Court’s decision in Ohio v. EPA, courts may also be able to stay the implementation of Phase 3 while any legal challenge is ongoing.

What Happens Next?

In light of the potential uncertainty and legal challenges to Phase 3, interested consumers, transportation companies, and stakeholders need to prepare for a variety of outcomes.

Consumers and stakeholders need to consult with management and legal counsel and review their operations against the standards imposed by Phase 3. Afterwards, they should develop strategic plans that analyze their ability for compliance with these new standards and forecast the economic impact that these new standards will have on their operations.

Additionally, future planning should consider other scenarios, including the ongoing legal challenges to Phase 3, which could result in a delay in the rule’s implementation in the event of a court-ordered stay or the rule even being struck down.

Buckle up. We will keep you updated.

About Our Author

Grant Laizer is a member of the Adams and Reese Litigation Practice and a member of the Global Trade, Transportation and Logistics Team. Grant assists clients in litigation matters at state and federal levels. He is based in the New Orleans office.