On Monday, January 26th, President Obama directed the U.S. Environmental Protection Agency (“EPA”) to review the agency’s 2007 denial of California’s waiver request, which prevented California and thirteen other states from enacting tailpipe emission standards that are more stringent than the federal regulations. The President’s action does not mandate any particular outcome from EPA’s reassessment of the agency’s 2007 decision, but does clear the way for what many expect to be a sharp reversal of EPA’s position with respect to California’s request under the Bush administration. Should EPA conclude that the 2007 denial was inappropriate in light of the Clean Air Act (“CAA”), President Obama’s directive further requests that EPA “initiate any appropriate action.”

EPA will now conduct a formal review of California’s request, which is expected to take several months, before issuing a final determination. If the agency grants the waiver request, California will enact a law originally drafted in 2002 and intended to reduce tailpipe emissions by nearly a third by 2016. By establishing caps on carbon emissions from cars and light trucks, some estimate that California’s law would increase the average fuel efficiency of American cars and light trucks to as high as 42 miles per gallon by 2020. At least thirteen other states are poised to follow California’s lead pursuant to a CAA provision that allows states to issue emissions regulations that conform to either the federal or the California standard. Together, the fourteen states in which the California standard would apply represent nearly half of the American market for cars and light trucks.

The auto industry has strongly opposed granting of the California waiver, as it would lead to a state-by-state patchwork of emissions regulation across the country. Additionally, the cost of compliance could reach $5,000 per vehicle according to some industry estimates. Although the auto industry may challenge a reversal of the waiver denial in court, previous legal challenges to more stringent California emissions standards have not been successful for the long term.