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The Administrative Procedure Act, 5 U.S.C.S. §§ 701-706, provides that agency action must be set aside by the reviewing court if it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C.S. § 706(2)(A). The scope of review is narrow, but the agency must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made. An agency rule would normally be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court may not supply a reasoned basis for the agency's action that the agency itself has not given.
Eleven states, the District of Columbia, the City of New York, and four public interest organizations petition for review of a rule issued by the National Highway Traffic Safety Administration (NHTSA) entitled "Average Fuel Economy Standards for Light Trucks, Model Years 2008-2011," 71 Fed. Reg. 17,566 (Apr. 6, 2006) ("Final Rule"). Pursuant to the Energy Policy and Conservation Act of 1975 (EPCA), 49 U.S.C. §§ 32901-32919 (2007), the Final Rule sets corporate average fuel economy (CAFE) standards for light 'trucks, defined by NHTSA to include many Sport Utility Vehicles (SUVs), minivans, and pick-up trucks, for Model Years (MYs) 2008-2011. For MYs 2008-2010, the Final Rule sets new CAFE standards using its traditional method, fleet-wide average (Unreformed CAFE). For MY 2011 and beyond, the Final Rule creates a new CAFE structure that sets varying fuel economy targets depending on vehicle size and requires manufacturers to meet different fuel economy levels depending on their vehicle fleet mix (Reformed CAFE). Petitioners challenged the Final Rule under the EPCA and the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. §§ 4321-4347 (2007). First, they argued that the Final Rule is arbitrary, capricious, and contrary to the EPCA because (a) the agency's cost-benefit analysis does not set the CAFE standard at the "maximum feasible" level and fails to give due consideration to the need of the nation to conserve energy; (b) its calculation of the costs and benefits of alternative fuel economy standards assigns zero value to the benefit of carbon dioxide (CO) emissions reduction; (c) its calculation of costs and benefits of alternative fuel economy standards fails to evaluate properly the benefit of vehicle weight reduction; (d) Reformed CAFE standards will depend on manufacturer fleet mix and not guarantee a minimum average fuel economy or "backstop"; (e) the transition period during which manufacturers may choose to comply with either Unreformed or Reformed CAFE is contrary to the "maximum feasible" requirement and unnecessary; (f) it perpetuates the "SUV loophole," which allows SUVs, minivans, and pickup trucks to satisfy a lower fuel economy standard than cars; and (g) it excludes most vehicles rated between 8,500 and 10,000 pounds gross vehicle weight (comprised mostly of large pickup trucks) from any fuel economy regulation, even though these vehicles satisfy the statutory criteria for regulation. Second, Petitioners argued that NHTSA's Environmental Assessment is inadequate under NEPA because it fails to take a "hard look" at the greenhouse gas implications of its rule-making and fails to analyze a reasonable range of alternatives or examine the rule's cumulative impact. Petitioners also argue that NEPA requires NHTSA to prepare an Environmental Impact Statement. NHTSA argued that the Final Rule is not arbitrary and capricious or contrary to the EPCA, the Environmental Assessment's evaluation of the environmental consequences of its action is adequate, and an Environmental impact Statement is not required.
Was the Final Rule arbitrary and capricious?
The court agreed with NHTSA that the EPCA neither required nor prohibited the setting of standards at the level at which net benefits are maximized. However, NHTSA failed to include in its analysis the benefit of carbon emissions reduction in either quantitative or qualitative form which was arbitrary and capricious. Although the EPCA did not explicitly require NHTSA to adopt a backstop (an overall fleet-wide average), it was arbitrary and capricious to not consider 49 U.S.C.S. § 32902(f) factors in deciding whether to adopt a backstop. The court also held that that the Final Rule was arbitrary and capricious, contrary to the EPCA in its failure to monetize the value of carbon emissions, failure to set a backstop, failure to close the SUV loophole, and failure to set fuel economy standards for all vehicles in the 8,500 to 10,000 gross vehicle weight rating ("GVWR") class. Finally, the court held that the Environmental Assessment was inadequate and that Petitioners have raised a substantial question as to whether the Final Rule may have a significant impact on the environment. Therefore, the case was remanded to NHTSA to promulgate new standards as expeditiously as possible and to prepare either a revised Environmental Assessment or an Environmental Impact Statement.