Civil Penalties

Federal RegisterJul 26, 2019

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 578

[Docket No. NHTSA-2018-0017]

RIN 2127-AL94

Civil Penalties

AGENCY:

National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).

ACTION:

Final rule.

SUMMARY:

This final rule confirms the determination NHTSA announced in the notice of proposed rulemaking (NPRM) that the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act or 2015 Act) does not apply to the civil penalty rate applicable to automobile manufacturers that fail to meet applicable corporate average fuel economy (CAFE) standards and are unable to offset such a deficit with compliance credits. In addition, this final rule is finalizing the agency's determination that even if the Inflation Adjustment Act applies, increasing the CAFE civil penalty rate would have a negative economic impact, and therefore, in accordance with the Energy Policy and Conservation Act of 1975 (EPCA) and the Energy Independence and Security Act of 2007 (EISA), the current CAFE civil penalty rate of $5.50 should be retained, instead of increasing to $14 in model year 2019.

DATES:

Effective dates:

This rule is effective as of September 24, 2019. Upon reconsideration, this rule supersedes the final rule published at 81 FR 95489, December 28, 2016 (delayed at 82 FR 8694, January 30, 2017, 82 FR 15302, March 28, 2017, 82 FR 29010, June 27, 2017, and 82 FR 32139, July 12, 2017), which went into force in accordance with the decision of the United States Court of Appeals for the Second Circuit in

NRDC

NHTSA,

Case No. 17-2780.

Petitions for reconsideration:

Petitions for reconsideration of this final rule must be received not later than September 9, 2019.

ADDRESSES:

Any petitions for reconsideration should refer to the docket number of this document and be submitted to: Deputy Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE, West Building, Fourth Floor, Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT:

Kerry Kolodziej, Office of Chief

Counsel, NHTSA, telephone (202) 366-5263, facsimile (202) 366-3820, 1200 New Jersey Ave. SE, Washington, DC 20590.

SUPPLEMENTARY INFORMATION:

Table of Contents

A. Executive Summary

B. Background

1. CAFE Program

2. Civil Penalties Inflationary Adjustment Act Improvements Act of 2015

3. NHTSA's Actions to Date Regarding CAFE Civil Penalties

a. Interim Final Rule

b. Final Rule

c. Initial Reconsideration and Request for Comments

d. Notice of Proposed Rulemaking

C. Overview of the Comments

D. Response to the Comments

1. NHTSA's Reconsideration Authority

2. Applicability of the 2015 Act

3. Harmonizing the 2015 Act and EPCA

4. “Negative Economic Impact”

a. EPCA Factors

b. Other Economic Considerations

5. $10 Cap

E. Rulemaking Analyses and Notices

1. Executive Order 12866, Executive Order 13563, and DOT Regulatory Policies and Procedures

2. Regulatory Flexibility Act

3. Executive Order 13132 (Federalism)

4. Unfunded Mandates Reform Act of 1995

5. National Environmental Policy Act

6. Executive Order 12778 (Civil Justice Reform)

7. Paperwork Reduction Act

8. Privacy Act

9. Executive Order 13771

A. Executive Summary

As explained in the proposed rule (83 FR 13904 (April 2, 2018)), NHTSA has almost forty years of experience in implementing the corporate average fuel economy (CAFE) program and its civil penalty component. This includes oversight and administration of the program's operation, how the automobile manufacturers respond to CAFE standards and increases, and the role of civil penalties in achieving the CAFE program's objectives. The CAFE civil penalty provisions 49 U.S.C. 32912(b) and (c), established by EPCA, are complex, containing statutory requirements that must be met if the penalty amount is to be increased, as well as a statutory cap of $10 on the maximum penalty amount, among other provisions, that distinguish it from ordinary civil penalty provisions, such as the general penalty for CAFE violations found in 49 U.S.C. 32912(a).

After the new administration took office and upon further consideration of the issues, NHTSA determined that it was appropriate and necessary to reconsider the applicability of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act or 2015 Act) to the CAFE civil penalty provision found in EPCA. In reconsidering the CAFE civil penalty rule and the applicability of the 2015 Act to the statutory provision, NHTSA had two objectives: First, to determine whether the CAFE civil penalty rate was the kind of penalty to which the 2015 Act applied, and second, if it did apply, whether increasing the civil penalty rate for the CAFE provision will have a negative economic impact. NHTSA has carefully considered these objectives and comments received in reconsidering the CAFE civil penalty statute that NHTSA administers and the application of the 2015 Act to it.

This final rule is promulgated under NHTSA's authority, delegated to it by the Secretary (49 CFR 1.95(a)), under 49 U.S.C. Chapter 329.

Cf.

Opinion, ECF No. 205,

NRDC

NHTSA,

Case No. 17-2780, at 13, 17 (2d Cir., June 29, 2018) (citing the “judicial review provision of EPCA [49 U.S.C. 32909(a)] as “the legislative authorization to petition for review” of NHTSA's indefinite delay rule; “Judicial review here is authorized by Section 32909 of EPCA.”).

As a result of this review, including consideration of all the comments received on its proposed rule, NHTSA has reconsidered its earlier decisions that accepted applicability of the 2015 Act and its predecessors to the CAFE civil penalty provision in 49 U.S.C. 32912(b).

Accordingly, NHTSA is finalizing its determination that the CAFE civil penalty rate is not a “civil monetary penalty” that must be adjusted for inflation under the 2015 Act. Prior to the proposed rule, NHTSA's

Federal Register

notifications on its inflation adjustments under the 2015 Act did not consider whether the CAFE civil penalty rate fit the definition of a “civil monetary penalty” subject to adjustment under the 2015 Act, instead proceeding—without analysis—as if the 2015 Act applied to the CAFE civil penalty rate. After taking the opportunity to reconsider this matter and fully analyze the issue and consider the comments received on its proposal, NHTSA concludes that the CAFE civil penalty rate is not covered by the 2015 Act.

NHTSA has the authority to reconsider its prior rules for the reasons described in Section D.1.

NHTSA is finalizing its determination that civil penalties assessed for CAFE violations under Section 32912(b) are not a “penalty, fine, or other sanction that” is either “a maximum amount” or “a specific monetary amount.”

As explained in the proposed rule, the civil penalties under consideration here are part of a complicated market-based enforcement mechanism. Any potential civil penalties for failing to satisfy fuel economy requirements, unlike other civil penalties, are not determined until the conclusion of a complex formula, credit-earning arrangement, and credit transfer and trading program. In fact, after NHTSA determines there is a violation, the ultimate penalty assessed is based on the noncompliant

manufacturer's

decision, not NHTSA's, on whether and how to acquire and apply any credits that may be available to the manufacturer, and on the decisions of

other

manufacturers to earn and sell credits to a potentially liable manufacturer.

Manufacturers can also claim future credits as a means of meeting their current liability based upon projected credits to be earned within three subsequent model years. The amount that a manufacturer might actually pay under the CAFE civil penalty statute is dependent upon a fluid, multi-year process, involving credit trading with other manufacturers at unknown prices and unverifiable credits to be earned in the future. In other words, what the noncompliant manufacturer pays is much more the function of market forces, trading of credits, and manufacturers' projections of future performance, than it is just the application of the CAFE penalty rate.

As discussed below, this determination reflects a change in NHTSA's position on this issue from when NHTSA previously adjusted the CAFE civil penalty rate from $5 to $5.50 in 1997 and its earlier announcements of adjustments of the rate to $14 in its July 2016 interim final rule and its December 2016 final rule.

See

49 U.S.C. 32903.

Moreover, after consideration of comments, NHTSA concludes that Congress did not intend for the 2015 Act to apply to this specialized civil penalty rate, which has longstanding, strict procedures previously enacted by Congress that limit NHTSA's ability to increase the rate. Congress specifically contemplated that increases to the CAFE civil penalty rate for manufacturer non-compliance with CAFE standards may be appropriate and necessary and included a mechanism in the statute for such increases. Critically, this mechanism requires the Secretary of Transportation to determine specifically that any such increase will not lead to certain specific negative economic effects. In addition, Congress explicitly limited any such increase to $10 per tenth of a mile per gallon.

These restrictions have been in place since the statute was amended in 1978. Though Congress later amended the CAFE civil penalty provision in 2007, Congress left in place unaltered both the mechanism for increases and the upper limit of an increased civil penalty under the

statute. NHTSA's determination regarding the applicability of the 2015 Act to the EPCA CAFE civil penalty provision is also confirmed by the Office of Management and Budget (OMB), the office directed by Congress to issue guidance on the implementation of the 2015 Act. OMB's views regarding the applicability of the 2015 Act to the EPCA CAFE civil penalty provision are set forth in a comprehensive opinion included in the docket for this final rule, in which OMB concurs with NHTSA's assessment that the 2015 Act does not apply to the CAFE civil penalty rate.

OMB supported its conclusion by noting first, that it was not aware of any other penalty scheme with the unique features of the CAFE civil penalty scheme, and also “[i]n light of (1) EPCA's distinction between the penalty rate and the penalty itself, (2) the incompatibility of the structure of the CAFE penalty scheme and the 2015 Act, and (3) the inconsistent treatment of the CAFE penalty rate under inflation adjustment schemes over time.” These factors, which OMB found supportive of NHTSA's conclusion that the 2015 Act does not apply to the CAFE civil penalty rate, are discussed throughout this document.

NHTSA concludes the 2015 Act also does not apply to the $10 cap.

July 12, 2019 Letter from Russell T. Vought, Acting Director of the Office of Management and Budget, to Elaine L. Chao, Secretary of the United States Department of Transportation, available at Docket No. NHTSA-2018-0017-0018 (OMB Non-Applicability Letter).

In addition to reconsidering the application of the 2015 Act to the EPCA CAFE civil penalty provision, NHTSA has reconsidered its decisions in the July 2016 interim final rule and December 2016 final rule to increase the CAFE civil penalty rate and, as a result, is retaining the current civil penalty rate applicable to 49 U.S.C. 32912(b) of $5.50 per tenth of a mile per gallon for automobile manufacturers that do not meet applicable CAFE standards and are unable to offset such a deficit with compliance credits, rather than increasing the rate to $14 in model year 2019.

Even if the 2015 Act is applied to the CAFE civil penalty rate, NHTSA has determined that the rate should remain the same in order to comply with EPCA, which must be read harmoniously with the 2015 Act. The 2015 Act confers discretion to the head of each agency to adjust the amount of a civil monetary penalty by less than the amount otherwise required for the initial adjustment, with the concurrence of the Director of the Office of Management and Budget, upon determining that doing so would have a “negative economic impact.” In EPCA, Congress previously identified specific factors that NHTSA is required to consider before making a determination about the “impact on the economy” as a prerequisite to increasing the applicable civil penalty rate. NHTSA believes that these statutory criteria are appropriate for determining whether an increase in the CAFE civil penalty rate would have a “negative economic impact” for purposes of the 2015 Act. Under EPCA, NHTSA faces a heavy burden to demonstrate that increasing the civil penalty rate “will not have a substantial deleterious impact on the economy of the United States, a State, or a region of a State.” Specifically, in order to establish that the increase would not have that “substantial deleterious impact,” NHTSA would need to affirmatively determine that it is likely that the increase would

not

cause a significant increase in unemployment in a State or a region of a State; adversely affect competition; or cause a significant increase in automobile imports. In light of those statutory factors—and the absence of persuasive evidence to support making the EPCA findings—NHTSA concludes that increasing the CAFE civil penalty rate would have a negative economic impact. Thus, NHTSA is not adjusting the rate under the 2015 Act, even if it applied.

Even if EPCA's statutory factors for increasing civil penalties are not applied, NHTSA has determined, after consideration of comments, that the $14 penalty will lead to a negative economic impact that merits leaving the CAFE civil penalty rate at $5.50. Based on available information, including information provided by commenters, the effect of applying the 2015 Act to the CAFE civil penalty would potentially drastically increase manufacturers' costs of compliance. OMB has concurred with NHTSA's determination that increasing the CAFE civil penalty rate by the otherwise required amount will have a negative economic impact.

In summary, NHTSA concludes that:

• The 2015 Act does not apply to the CAFE civil penalty rate, so no rate increase is permitted, except pursuant to the scheme established in EPCA;

• Even if the 2015 Act did apply to the CAFE civil penalty rate, the 2015 Act must be read in conjunction with EPCA, and considering the EPCA factors, increasing the CAFE penalty rate to $14 would have a “negative economic impact”; and

• Even if the EPCA factors did not apply, increasing the CAFE civil penalty rate to $14 would still have a “negative economic impact.”

The result is the same under all of these scenarios: The CAFE civil penalty rate is and will continue to be set at $5.50, rather than increasing to $14 in MY 2019.

Without this rule, the CAFE civil penalty rate would increase to $14 beginning with civil penalties assessed for model year 2019.

In EPCA, Congress also imposed a cap of $10 on the CAFE civil penalty rate. NHTSA has determined that this statutory cap also does not meet the definition of a “civil monetary penalty” that requires adjustment under the 2015 Act. OMB agrees with this assessment.

Thus, even if the CAFE civil penalty rate is a “civil monetary penalty” under the 2015 Act and regardless of whether increasing it would have a “negative economic impact,” NHTSA has determined that any increase would be statutorily capped by EPCA at $10.

OMB Non-Applicability Letter.

The general penalty in 49 U.S.C. 32912(a) for other violations of EPCA, as amended, promulgated in 49 CFR 578.6(h)(1), is subject to additional inflationary adjustments for 2017, 2018, and 2019. In this rule, NHTSA is finalizing the 2017, 2018, and 2019 inflationary adjustments to this general penalty amount.

B. Background

1. CAFE Program

NHTSA sets

and enforces

corporate average fuel economy (CAFE) standards for the United States light-duty vehicle fleet, and in doing so, assesses civil penalties against vehicle manufacturers that fall short of the standards and are unable to make up the shortfall with credits.

The civil penalty amount for CAFE non-compliance was originally set by statute in 1975, and since 1997, has included a rate of $5.50 per each tenth of a mile per gallon (0.1) that a manufacturer's fleet average CAFE level falls short of the applicable standard. This shortfall amount is then multiplied by the number of vehicles in that manufacturer's fleet.

The basic

equation for calculating a manufacturer's civil penalty amount before accounting for credits, is as follows:

49 U.S.C. 32902.

49 U.S.C. 32911, 32912.

Credits may be either

earned

(for over-compliance by a given manufacturer's fleet, in a given model year),

transferred

(from one fleet to another), or

purchased

(in which case, another manufacturer earned the credits by over-complying and chose to sell that surplus). 49 U.S.C. 32903.

A manufacturer may have up to three fleets of vehicles, for CAFE compliance purposes, in any

given model year—a domestic passenger car fleet, an import passenger car fleet, and a light truck fleet. Each fleet belonging to each manufacturer has its own compliance obligation, with the potential for either over-compliance or under-compliance. There is no overarching CAFE requirement for a manufacturer's total production.

(penalty rate) × (amount of shortfall, in tenths of an mpg) × (number of vehicles in manufacturer's fleet).

Automakers have paid more than $890 million in CAFE civil penalties, up to and including model year (MY) 2014 vehicles.

On top of the costs of paying these civil penalties, manufacturers have also spent additional money towards generating overcompliance credits and purchasing credits from other manufacturers. Starting with the model year 2011, provisions in the CAFE program provided for credit transfers among a manufacturer's various fleets. Commencing with that model year, the law also provided for trading between vehicle manufacturers, which has allowed vehicle manufacturers the opportunity to acquire credits from competitors rather than paying civil penalties for non-compliance. Manufacturers are required to notify NHTSA of the volumes of credits traded or sold, but the agency does not receive any information regarding total cost paid or cost per credit. Thus, while NHTSA is not aware of the amount of money manufacturers spend on generating overcompliance credits or purchasing credits from other manufacturers, NHTSA believes it is likely that credit generation and credit purchases involve significant expenditures. Moreover, NHTSA expects that an increase in the penalty rate, which would apply to all manufacturers, would result in an increase in such expenditures.

Because of expected shortfalls in CAFE compliance in current and upcoming model years, the agency currently anticipates many manufacturers will face the possibility of larger expenditures on CAFE penalties or increased costs to acquire credits over the next several years than at present.

Penalty reporting for MY15 and newer vehicles was not reported at the time of this rule. The highest CAFE penalty paid to date for a shortfall in a single fleet was $30,257,920, paid by DaimlerChrysler for its import passenger car fleet in MY 2006. Since MY 2012, only Jaguar Land Rover and Volvo have paid civil penalties.

See https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_LIVE.html.

See

83 FR 13904, 13916 (Apr. 2, 2018) (“[I]ncreasing the penalty rate to $14 would lead to significantly greater costs than the agency had anticipated when it set the CAFE standards because manufacturers who had planned to use penalties as one way to make up their shortfall would now need to pay increased penalty amounts, purchase additional credits at likely higher prices, or make modifications to their vehicles outside of their ordinary redesign cycles. NHTSA believes all of these options would increase manufacturers' compliance costs, many of which would be passed along to consumers.”). NHTSA did not receive any comments providing information to the contrary.

NHTSA's “Manufacturer Projected Fuel Economy Performance Report” indicates that the total U.S. fleet projected fuel economy value fails to meet the standards for model year 2017 and increasingly so for model year 2018. Available at

https://one.nhtsa.gov/CAFE_PIC/MY_2017_and_2018_Projected_Fuel_Economy_Performance_Report.pdf

(Apr. 30, 2018).

NHTSA has long had authority under the Energy Policy and Conservation Act (EPCA) of 1975, Public Law 94-163, 508, 89 Stat. 912 (1975), to raise the amount of the penalty for CAFE shortfalls if it makes certain findings,

as well as the authority to compromise and remit such penalties under certain circumstances.

Recognizing the economic harm that increases in CAFE civil penalties could have on the automobile industry and the economy as a whole, Congress capped any increase in the original statutory penalty rate at $10 per tenth of a mile per gallon. Further—and significantly—Congress has forbidden NHTSA from increasing the CAFE civil penalty rate under EPCA unless NHTSA concludes through rulemaking that the increase in the penalty rate both (1) will result in, or substantially further, substantial energy conservation for automobiles in model years in which the increased penalty may be imposed,

and

(2) will not have a substantial deleterious impact on the economy of the United States, a State, or a region of the State. A finding of “no substantial deleterious impact” may only be made if NHTSA determines that it is likely that the increase in the penalty (A) will not cause a significant increase in unemployment in a State or a region of a State, (B) adversely affect competition, or (C) cause a significant increase in automobile imports. Nowhere does EPCA define “substantial” or “significant” in the context of this provision.

49 U.S.C. 32912.

49 U.S.C. 32913.

The authority to compromise and remit penalties is extremely limited and must be applied on a case-by-case basis. If NHTSA seeks to compromise or remit penalties for a given manufacturer, a rulemaking is not necessary, but the amount of a penalty may be compromised or remitted only to the extent (1) necessary to prevent a manufacturer's insolvency or bankruptcy, (2) the manufacturer shows that the violation was caused by an act of God, a strike, or a fire, or (3) the Federal Trade Commission certifies that a reduction in the penalty is necessary to prevent a substantial lessening of competition. NHTSA has never previously attempted to undertake this process. To date, NHTSA has never utilized its ability to compromise or remit a CAFE civil penalty. These various statutory provisions and requirements, coupled with the formula for determining the total potential civil penalty due from a manufacturer, demonstrate the unique nature of the CAFE civil penalty provision and distinguish it from a typical civil penalty provision that merely sets forth an amount to be paid for a regulatory violation.

2. Civil Penalties Inflation Adjustment Act Improvements Act of 2015

On November 2, 2015, the Federal Civil Penalties Inflation Adjustment Act Improvements Act (Inflation Adjustment Act or 2015 Act), Public Law 114-74, Section 701, was signed into law. The 2015 Act required Federal agencies to make an initial “catch-up” adjustment to the “civil monetary penalties,” as defined, they administer through an interim final rule and then to make subsequent annual adjustments for inflation.

The amount of increase for any “catch-up” adjustment to a civil monetary penalty pursuant to the 2015 Act was limited to 150 percent of the then-current penalty. Unless an exception applied, agencies were required to issue an interim final rule for the initial “catch-up” adjustment—without providing the opportunity for public comment ordinarily required under the Administrative Procedure Act (APA)—by July 1, 2016.

A “ `civil monetary penalty' means any penalty, fine, or other sanction” that meets three requirements: the “penalty, fine, or other sanction” must be “for a specific monetary amount as provided by Federal law” or have “a maximum amount provided for by Federal law”; the “penalty, fine, or other sanction” must be “assessed or enforced by an agency pursuant to Federal law”; and the “penalty, fine, or other sanction” must be “assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts.” 28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 3(2).

The 2015 Act authorized full notice-and-comment rulemaking procedures if the head of an agency was adjusting the amount of a civil monetary penalty by less than the otherwise required amount because she determined either that increasing the civil monetary penalty by the otherwise required amount would have a negative economic impact or that the social costs of increasing the civil monetary penalty by the otherwise required amount outweighed the benefits. Such a determination required the concurrence of the Director of the Office of Management and Budget. 28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 4(c).

The method of calculating inflationary adjustments in the 2015 Act differs substantially from the methods used in past inflationary adjustment rulemakings conducted pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990 (the 1990 Inflation Adjustment Act), Public Law 101-410. Civil penalty adjustments under the 1990 Inflation Adjustment Act were conducted under rules that sometimes required significant rounding of figures. For example, any increase determined under the 1990 Inflation Adjustment Act had to be rounded to the nearest multiple of $25,000 in the case of penalties greater than $200,000. Under these rules, NHTSA never adjusted the CAFE civil penalty rate above $5.50.

The 2015 Act altered these rounding rules. Now, penalties are simply rounded to the nearest $1. Furthermore, the 2015 Act “resets” the inflation calculations by excluding prior inflationary adjustments under the 1990 Inflation Adjustment Act. To do this, the 2015 Act requires agencies to identify, for each civil monetary penalty, the year and corresponding amount(s) for which the maximum penalty level or range of minimum and maximum penalties was established (

i.e.,

originally enacted by Congress) or last adjusted other than pursuant to the 1990 Inflation Adjustment Act.

Significantly, Congress also included a provision in the 2015 Act that directed the Director of OMB to issue periodic guidance to agencies implementing the inflation adjustments required under the 2015 Act. The Director of OMB provided initial guidance to agencies in a February 24, 2016 memorandum.

In that guidance, OMB specifically instructed agencies to identify the penalties to which the 2015 Act would apply among the penalties that each agency is responsible for administering, and noted that:

Memorandum from the Director of OMB to Heads of Executive Departments and Agencies, Implementation of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Feb. 24, 2016), available online at

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf

(last accessed May 22, 2018).

Agencies with questions on the applicability of the inflation adjustment requirement to an individual penalty, should first consult with the Office of General Counsel of the agency for the applicable statute, and then seek clarifying guidance from OMB if necessary.

Id.

Subsequent guidance from OMB reiterated agencies' responsibility to identify applicable penalties and to consult with the individual agency's Office of General Counsel and to seek clarifying guidance from OMB with questions regarding the applicability of the 2015 Act to particular penalties.

Memorandum from the Director of OMB to Heads of Executive Departments and Agencies, Implementation of the 2017 Annual Adjustment Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Dec. 16, 2016), available online at

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2017/m-17-11_0.pdf

(last accessed July 10, 2018); Memorandum from the Director of OMB to Heads of Executive Departments and Agencies, Implementation of Penalty Inflation Adjustments for 2018, Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Dec. 15, 2017), available online at

https://www.whitehouse.gov/wp-content/uploads/2017/11/M-18-03.pdf

(last accessed July 10, 2018); Memorandum from the Director of OMB to Heads of Executive Departments and Agencies, Implementation of Penalty Inflation Adjustments for 2019, Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Dec. 14, 2018), available online at

https://www.whitehouse.gov/wp-content/uploads/2017/11/m_19_04.pdf

(last accessed May 31, 2019).

For those penalties subject to the statute's definition of “civil monetary penalties,” the memorandum provided guidance on how to calculate the initial adjustment required by the 2015 Act. The initial catch up adjustment is based on the change between the Consumer Price Index for all Urban Consumers (CPI-U) for the month of October in the year the penalty amount was established or last adjusted by Congress and the October 2015 CPI-U. The February 24, 2016 memorandum contains a table with a multiplier for the change in CPI-U from the year the penalty was established or last adjusted to 2015. To arrive at the adjusted penalty, the agency must multiply the penalty amount when it was established or last adjusted by Congress, excluding adjustments under the 1990 Inflation Adjustment Act, by the multiplier for the increase in CPI-U from the year the penalty was established or adjusted as provided in the February 24, 2016 memorandum. The 2015 Act limits the initial inflationary increase to 150 percent of the current penalty. To determine whether the increase in the adjusted penalty is less than 150 percent, the agency must multiply the current penalty by 250 percent. The adjusted penalty is the lesser of either the adjusted penalty based on the multiplier for CPI-U in Table A of the February 24, 2016 memorandum or an amount equal to 250% of the current penalty.

Additionally, the 2015 Act gives agencies discretion to adjust the amount of a civil monetary penalty by less than otherwise required if the agency determines that increasing the civil monetary penalty by the otherwise required amount will have either a negative economic impact or if the social costs of the increased civil monetary penalty will outweigh the benefits.

In either instance, the agency must publish a notice, take and consider comments on this finding, and receive concurrence on this determination from the Director of OMB prior to finalizing a lower civil penalty amount.

Public Law 114-74, Sec. 701(c).

3. NHTSA's Actions to Date Regarding CAFE Civil Penalties

a. Interim Final Rule

On July 5, 2016, NHTSA published an interim final rule, without notice and comment, adopting inflation adjustments for civil penalties under its administration, following the procedure and the formula in the 2015 Act. NHTSA did not analyze at that time whether the 2015 Act applied to all of its civil penalties. One of the adjustments NHTSA made at the time was raising the civil penalty rate for CAFE non-compliance from $5.50 to $14.

NHTSA also indicated in that notice that the maximum penalty rate that the Secretary is permitted to establish for such violations would increase from $10 to $25, although this was not codified in the regulatory text.

NHTSA made these adjustments without seeking public comment and without discussing with the Department of Transportation Office of General Counsel whether the 2015 Act applied to these rates, whether the adjustments conflict with EPCA's penalty rate increase procedures, or whether making the adjustments would have negative economic consequences. NHTSA also raised the maximum civil penalty for other violations of EPCA, as amended, to $40,000.

81 FR 43524 (July 5, 2016). This interim final rule also updated the maximum civil penalty amounts for violations of all statutes and regulations administered by NHTSA, and was not limited solely to penalties administered for CAFE violations.

For the reasons described in Section D.5, the maximum penalty rate that the Secretary is permitted to establish for such violations is $10.

81 FR 43524 (July 5, 2016).

In response to the changes to the CAFE penalty provisions issued in the interim final rule, the Alliance of Automobile Manufacturers (Alliance) and the Association of Global Automakers (Global) jointly petitioned NHTSA for reconsideration (the Industry Petition).

The Industry

Petition raised concerns with the significant impact, which they estimated to be at least $1 billion annually, that the increased penalty rate would have on CAFE compliance costs. Specifically, the Industry Petition raised: The issue of retroactivity (applying the penalty increase associated with model years that have already been completed or for which a company's compliance plan had already been “set”); which “base year” (

i.e.,

the year the penalty was established or last adjusted) NHTSA should use for calculating the adjusted penalty rate; and whether an increase in the penalty rate to $14 would cause a “negative economic impact.”

Jaguar Land Rover North America, LLC also filed a petition for reconsideration in response to the July 5, 2016 interim final rule raising the same concerns as those raised in the Industry Petition.

Both petitions, along with a supplement to the Industry Petition, can be found in Docket ID NHTSA-2016-0075 at

www.regulations.gov.

b. Final Rule

In response to the Industry Petition, NHTSA issued a final rule on December 28, 2016.

In that rule, NHTSA agreed that raising the penalty rate for model years already fully complete would be inappropriate, given how courts generally disfavor the retroactive application of statutes. NHTSA also agreed that raising the rate for model years for which product changes were infeasible due to lack of lead time did not seem consistent with Congress' intent that the CAFE program be responsive to consumer demand. NHTSA therefore stated that it would not apply the inflation-adjusted penalty rate of $14 until model year 2019, as the agency believed that would be the first year in which product changes could be made in response to the higher penalty rate.

81 FR 95489 (December 28, 2016). The December 2016 final rule did not impact the portions of the July 5, 2016 interim final rule not dealing with CAFE, which are expected to be finalized as part of NHTSA's 2019 inflationary adjustments.

Beginning in January 2017, NHTSA took action to delay the effective date of the December 2016 final rule.

As a result of a recent decision of the United States Court of Appeals for the Second Circuit, that December 2016 final rule is now in force.

That decision by the Second Circuit does not affect NHTSA's authority to reconsider the applicability of the 2015 Act to the EPCA CAFE civil penalty provision through notice-and-comment rulemaking and to issue this final rule.

Absent this final rule determining that the 2015 Act does not apply to the CAFE civil penalty rate, the rate would have increased beginning with model year 2019 for noncompliances that will likely be determined in approximately late 2020.

82 FR 8694 (January 30, 2017); 82 FR 15302 (March 28, 2017); 82 FR 29009 (June 27, 2017); 82 FR 32139 (July 12, 2017).

Order, ECF No. 196,

NRDC

NHTSA,

Case No. 17-2780 (2d Cir., Apr. 24, 2018); Opinion, ECF No. 205,

NRDC

NHTSA,

Case No. 17-2780, at 44 (2d Cir., June 29, 2018) (“The Civil Penalties Rule, 81 FR 95,489, 95,489-92 (December 28, 2016), no longer suspended, is now in force.”).

NHTSA is permitted to issue this final rule for the reasons explained in Section D.1.

See

81 FR 95489, 95492 (Dec. 28, 2016). Civil penalties are determined after the end of a model year, following NHTSA's receipt of final reports from the Environmental Protection Agency (EPA),

i.e.,

no earlier than April 2020 for model year 2019 noncompliance.

See

77 FR 62624, 63126 (Oct. 15, 2012).

c. Initial Reconsideration and Request for Comments

In light of CAFE compliance data submitted by manufacturers to NHTSA showing that many automakers would begin to fall behind in meeting their applicable CAFE standards beginning in model years 2016 and 2017,

in July 2017, the agency indicated it was reconsidering its earlier decision in the July 2016 interim final rule to increase the CAFE civil penalty rate. In that reconsideration announcement, the agency explained that it was, for the first time, seeking public comment on the legal, factual, and policy issues implicated by the question of whether the rate should be increased. NHTSA requested public comment on whether and, if so, how to amend the CAFE civil penalty rate.

“MYs 2016 and 2017 Projected Fuel Economy Performance Report,” February 14, 2017, available at

https://one.nhtsa.gov/cafe_pic/AdditionalInfo.htm.

82 FR 32140 (July 12, 2017). Comments on this document can be found at:

https://www.regulations.gov/docket?D=NHTSA-2017-0059.

In the NPRM, NHTSA generally described the comments it received in response to its reconsideration notice, including that “[v]ehicle manufacturers, either directly or via their respective representing organizations, also expressed support for the reconsideration of the 2016 final rule.” 83 FR 13904, 13907 (Apr. 2, 2018). NHTSA did not intend to suggest, as one commenter to the NPRM read it, that

all

“the vehicle manufacturers who submitted comments uniformly supported reconsideration of the CAFE penalty increase.” Comment by Workhorse Group Inc., NHTSA-2018-0017-0010 (Workhorse Comment), at 2 n.3. NHTSA acknowledges that one electric vehicle manufacturer, Faraday Future, submitted a comment to the reconsideration notice requesting that NHTSA consider the economic impact of a change to the CAFE civil penalty rate on electric vehicle manufacturers.

See

Docket ID NHTSA-2017-0059-0016. NHTSA discusses this issue below.

d. Notice of Proposed Rulemaking

On April 2, 2018, NHTSA published a notice of proposed rulemaking (NPRM) announcing that it had tentatively determined, upon reconsideration, that the 2015 Act should not be applied to the CAFE civil penalty formula provision found in 49 U.S.C. 32912 and proposed to retain the current civil penalty rate of $5.50 per .1 of a mile per gallon, rather than to increase it to $14 beginning in model year 2019.

Through its reconsideration of the applicability of the 2015 Act to the CAFE civil penalty rate, NHTSA is carrying out its responsibility, as OMB instructed in its guidance, to determine whether the penalties under its jurisdiction are “civil monetary penalt[ies]” as defined by the 2015 Act.

The agency's proposal is based on a legal determination, after reconsideration, that the CAFE civil penalty rate is not a “civil monetary penalty” as contemplated by the 2015 Act and that therefore the 2015 Act does not apply to the NHTSA CAFE civil penalty formula. Specifically, NHTSA proposed that the formula is not a “penalty, fine, or other sanction” that is either “a specific monetary amount” or “a maximum amount.” Instead, as OMB highlights in the docketed opinion,

Congress expressly described the rate in the CAFE statute as an “amount . . . to be used in calculating a civil penalty,” not a “civil penalty” itself.

The CAFE statute outlines a process that NHTSA uses to determine a potential penalty and that manufacturers use to determine their specific penalty. In particular, the $5.50 per .1 mile is merely a rate that goes into a complex, statutory formula used to calculate a potential penalty amount, but the actual civil penalty amount ultimately depends on the decisions of both the violator and potentially other manufacturers.

NHTSA's reconsideration authority is discussed in Section D.1.

OMB's February 2016 guidance confirms that each agency is “responsible for identifying the civil monetary penalties that fall under the statutes and regulations [it] enforce[s].” Memorandum from the Director of OMB to Heads of Executive Departments and Agencies, Implementation of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, at 2 (Feb. 24, 2016), available at

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf.

OMB Non-Applicability Letter, at 4-5.

49 U.S.C. 32912(c)(1)(A).

This proposal reflected a change in NHTSA's position on this issue from when NHTSA previously adjusted the CAFE civil penalty rate from $5 to $5.50. Mindful of the Alliance and Global's comment that “the practical and legal issues implicated by such a reduction may prove to be insuperable,”

at this time, NHTSA is

exercising its judgment not to revisit its determination from more than twenty years ago to increase the rate by fifty cents, even if that decision did not take into account the agency's considered interpretation of the statute.

Comment by Alliance of Automobile Manufacturers and Association of Global Automakers, NHTSA-2018-0017-0011 (Alliance and Global Comment), 18 n.75. Because of these practical and legal issues and because the agency is “reluctant to draw inferences from Congress' failure to act,”

Schneidewind

ANR Pipeline Co.,

485 U.S. 293, 306 (1988), Congress not reinstating the $5 rate—in 2007 in EISA or otherwise—means little, contrary to the suggestion of some commenters.

See

Comment by California Air Resources Board, California Department of Transportation, District of Columbia Department of Energy and Environment, and New Jersey Department of Environmental Protection, NHTSA-2018-0017-0014 (CARB Comment), at 20; Comment by Attorneys General of New York, California, Delaware, the District of Columbia, Illinois, Iowa, Maryland, Massachusetts, New Jersey, Oregon, Vermont, Virginia, and Washington, NHTSA-2018-0017-0015 (Attorneys General Comment), at 8, 9-10.

In light of the conclusions that NHTSA reaches in this final rule and the agency's decision to maintain the current $5.50 civil penalty rate at this time, rather than increase it to $14 beginning in MY 2019, any modifications to the civil penalty rate, as appropriate, would be more properly the subject of future rulemakings. As stated in the NPRM, NHTSA is considering a separate rulemaking to determine whether the CAFE civil penalty rate should be reduced to $5, in light of NHTSA's decision here that the 2015 Act should not be applied to the CAFE civil penalty rate. In addition, some commenters here have contended that the CAFE civil penalty rate of $5.50 should be

increased

under EPCA, even if the 2015 Act is not applied.

See infra

at Section D.4.a. NHTSA plans to consider these potentially conflicting positions and any further changes to the CAFE civil penalty rate that might be appropriate in a future rulemaking.

Even if one were to assume that the CAFE penalty rate was subject to the 2015 Act, NHTSA proposed in the alternative to maintain the current $5.50 civil penalty rate based on a tentative finding that—either in light of the statutory factors Congress requires NHTSA to analyze under EPCA in determining whether an increase in the civil penalty rate will have “a substantial deleterious impact on the economy” or otherwise—increasing the CAFE civil penalty rate would result in a “negative economic impact.” Pursuant to OMB's guidance, NHTSA consulted with OMB before proposing this reduced catch-up adjustment determination and submitted its NPRM to the Office of Information and Regulatory Affairs (OIRA) for review. In any event, NHTSA proposed that any adjustment would be capped by the $10 limit in 49 U.S.C. 32912(c)(1)(B), which would remain unadjusted.

NHTSA also proposed to finalize the 2017 and 2018 inflationary adjustments for the maximum penalty for general CAFE violations in 49 U.S.C. 32912(a).

In this final rule, NHTSA also finalizes the 2019 inflationary adjustments for the general CAFE maximum penalty.

C. Overview of the Comments

NHTSA received sixteen comments on the NPRM. NHTSA received comments from the following entities and individuals: The Alliance of Automobile Manufacturers; the Association of Global Automakers; Jaguar Land Rover North America LLC; Center for Biological Diversity; Natural Resources Defense Council; Sierra Club (and some of its members); the Union of Concerned Scientists; Center for American Progress; Attorneys General of New York, California, Delaware, the District of Columbia, Illinois, Iowa, Maryland, Massachusetts, New Jersey, Oregon, Vermont, Virginia, and Washington; the California Air Resources Board; the California Department of Transportation; the District of Columbia Department of Energy and Environment; the New Jersey Department of Environmental Protection; the Institute for Policy Integrity at New York University School of Law; Workhorse Group Inc.; and other individuals.

D. Response to the Comments

1. NHTSA's Reconsideration Authority

As a threshold matter, NHTSA must address the various comments submitted regarding the agency's ability to reconsider its previous rules on this issue and upon reconsideration, change its position regarding the applicability of the 2015 Act to the CAFE civil penalty rate and the need to invoke the “negative economic impact” exception.

NHTSA, like all agencies, is permitted to change its views based upon its experience and expertise, provided that the requirements of the APA and other governing statutes are met. To do so, an agency must show that it is aware it is changing its position and provide a reasoned explanation for the change.

This holds true even if the agency's position has been “longstanding,” as some commenters characterized here,

because the agency must continually consider varying interpretations and reassess their validity.

See, e.g.,

Workhorse Comment, at 3; Comment by Center for American Progress, NHTSA-2018-0017-0013 (CAP Comment), at 3; Attorneys General Comment, at 6; Comment by Institute for Policy Integrity at New York University School of Law, NHTSA-2018-0017-0017 (IPI Comment), at 2-3.

Alliance and Global Comment, at 4-5 (citing

Encino Motorcars LLC

Navarro,

136 S. Ct. 2117, 2125 (2016);

FCC

Fox Television Stations, Inc.,

556 U.S. 502, 515-16 (2009)).

See, e.g.,

Workhorse Comment, at 3; Attorneys General Comment, at 6; IPI Comment, at 1.

Rust

Sullivan,

500 U.S. 173, 186-87 (1991);

see also

CARB Comment, at 6; IPI Comment, at 2, miss the point: NHTSA expressly recognized its past position in the NPRM, but the agency noted that it had adopted that position without analyzing the issue. After appropriate examination, NHTSA changed its position to comport with the applicable statutes. It is irrelevant that “none of the commenters who responded to NHTSA's [previous] request for comments offered the legal interpretation that NHTSA is now proposing,” Workhorse Comment, at 3-4, or that the Alliance and Global have previously stated that “NHTSA is not empowered to exempt the CAFE program from th[e] directive” of the 2015 Act, Industry Petition, at 1. NHTSA is permitted to—and, in fact, has the responsibility to—interpret Federal statutes related to matters under its purview,

see U.S. ex rel. Hall

Payne,

254 U.S. 343, 347-48 (1920) (“[The Secretary of the Interior] could not administer or apply the act without construing it.”), and the public has now had a full opportunity to comment on the proposed interpretation.

83 FR 13904, 13908-11 (May 2, 2018).

One commenter noted that “NHTSA did not consult with the Department of Justice or any other

agencies besides DOT and OMB in crafting its interpretation of the Inflation Adjustment Act applicable to the entire federal government,” as evidence that NHTSA's interpretation does not merit deference. Workhorse Comment, at 3. As noted above, OMB has provided its views on the applicability of the 2015 Act to the CAFE civil penalty rate in a comprehensive opinion included in the docket for this rulemaking. OMB Non-Applicability Letter. In addition, as part of its review of the NPRM before publication in the

Federal Register

, OIRA within OMB managed an interagency review process, in which the Department of Justice and other agencies were able to review and provide comments on NHTSA's proposal. Moreover, consultation principally with OMB was appropriate as the 2015 Act directed OMB to provide guidance to agencies on implementing the inflation adjustments required under the 2015 Act.

To the extent that NHTSA's “prior policy has engendered serious reliance interests that must be taken into account,” NHTSA has provided “a more detailed justification” than what sufficed to create its previous policy.

As explained in the NPRM and further below, NHTSA did not previously consider the issue at all and thus any explanation is “more detailed” than the one it previously provided. Regardless, “reliance does not overwhelm good reasons for a policy change,” even in instances that would “necessitate systemic, significant changes” to regulated entities' practices.

NHTSA believes that correcting an erroneous legal interpretation of a statute to align its practice with what Congress required and exercising authority conferred by Congress to avoid a “negative economic impact” both constitute “good reasons for a policy change.” Moreover, “the extent to which the Department is obliged to address reliance will be affected by the thoroughness of public comments it receives on the issue,”

and only one regulated entity submitted a comment containing any argument that its reliance on NHTSA's previous policy supports an increase in the CAFE civil penalty rate to $14.

The reliance argued in this single comment does not override NHTSA's obligation to apply the 2015 Act as enacted or to act in accord with the statute—and with OMB's concurrence

—to avoid imposing a “negative economic impact.”

Fox,

556 U.S. at 515.

Navarro,

136 S. Ct. at 2128 (2016) (Ginsburg, J., concurring).

Id.

at 2128 n.2.

See

Workhorse Comment, at 3.

OMB Negative Economic Impact Letter.

It is of no consequence that the 2015 Act does not expressly state that NHTSA may reconsider its previous rules on the initial inflation adjustment. For one, the APA defines “rule making”—the mechanism mandated by the 2015 Act for enacting the initial catch-up adjustment and for invoking the “negative economic impact” exception—to include the process of “amending, or repealing a rule.”

But in any event, no specific statutory or codified regulatory authority is required. It is well-established that agencies have various inherent powers.

And it has been affirmed repeatedly that, in the absence of a Congressional prohibition, agencies have the inherent power to reconsider their own decisions.

This inherent authority encompasses an agency reconsidering how it previously interpreted a statute and amending an

existing regulation by going through the notice-and-comment rulemaking process under the APA, particularly when its updated interpretation “closely fits the design of the statute as a whole and its object and policy.”

5 U.S.C. 551(5) (“ `[R]ule making' means agency process for formulating, amending, or repealing a rule.”). Moreover, NHTSA's regulations provide that “[t]he Administrator may initiate any further rulemaking proceedings that he finds necessary or desirable.” 49 CFR 553.25.

See, e.g., Vermont Yankee Nuclear Power Corp.

Nat. Res. Def. Council, Inc.,

435 U.S. 519, 544 (1978) (noting “the very basic tenet of administrative law that agencies should be free to fashion their own rules of procedure”);

Morton

Ruiz,

415 U.S. 199, 231 (1974) (“The power of an administrative agency to administer a congressionally created and funded program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress.”);

Gadda

Ashcroft,

377 F.3d 934, 948 n.8 (9th Cir. 2004) (“Of course, our statutory and inherent powers to regulate attorneys admitted to the Ninth Circuit bar coexist with the separate, independent powers of federal administrative agencies to do the same. . . . In the case of agencies, this power, though limited, exists whether or not expressly authorized by statute.”);

Ober

Whitman,

243 F.3d 1190, 1194-95 (9th Cir. 2001) (indicating that agencies have the inherent authority to exempt

de minimis

violations from regulation if not prohibited by statute);

Tate & Lyle, Inc.

C.I.R.,

87 F.3d 99, 104 (3d Cir. 1996) (“Inherent in the powers of an administrative agency is the authority to formulate policies and to promulgate rules to fill any gaps left, either implicitly or explicitly, by Congress.”) (citing

Chevron, U.S.A., Inc.

Nat. Res. Def. Council, Inc.,

467 U.S. 837, 843 (1984));

Nat. Res. Def. Council, Inc.

Sec. & Exch. Comm'n,

606 F.2d 1031, 1056 (D.C. Cir. 1979) (“An agency is allowed to be master of its own house, lest effective agency decisionmaking not occur in [a]ny proceeding.”).

See, e.g., Motor Vehicles Mfrs. Ass'n

State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 42 (1983) (“[A]n agency must be given ample latitude to `adapt their rules and policies to the demands of changing circumstances.' ” (quoting

Permian Basin Area Rate Cases,

390 U.S. 747, 784 (1968)));

Am. Trucking Associations

Atchison, T. & S. F. Ry. Co.,

387 U.S. 397, 416 (1967) (“We agree that the Commission, faced with new developments or in light of reconsideration of the relevant facts and its mandate, may alter its past interpretation and overturn past administrative rulings and practice. . . . This kind of flexibility and adaptability to changing needs and patterns of transportation is an essential part of the office of a regulatory agency. Regulatory agencies do not establish rules of conduct to last forever; they are supposed, within the limits of the law and of fair and prudent administration, to adapt their rules and practices to the Nation's needs in a volatile, changing economy. They are neither required nor supposed to regulate the present and the future within the inflexible limits of yesterday.”) (cleaned up);

Cobra Nat. Res., LLC

Fed. Mine Safety & Health Review Comm'n,

742 F.3d 82, 101 (4th Cir. 2014) (“[A]n administrative agency, charged with the protection of the public interest, is certainly not precluded from taking appropriate action because of a mistaken action on its part in the past.” (quoting

NLRB

Balt. Transit Co.,

140 F.2d 51, 55 (4th Cir. 1944)));

Kindred Nursing Centers E., LLC

N.L.R.B.,

727 F.3d 552, 560 (6th Cir. 2013) (“An agency may depart from its precedents, and provided that the departure from precedent is explained, our review is limited to whether the rationale is so unreasonable as to be arbitrary and capricious. An administrative agency may reexamine its prior decisions and may depart from its precedents provided the departure is explicitly and rationally justified.”) (cleaned up);

ConocoPhillips Co.

U.S. E.P.A.,

612 F.3d 822, 832 (5th Cir. 2010) (“Embedded in an agency's power to make a decision is its power to reconsider that decision.”);

Tokyo Kikai Seisakusho, Ltd.

United States,

529 F.3d 1352, 1360-61 (Fed. Cir. 2008) (“[A]dministrative agencies possess inherent authority to reconsider their decisions, subject to certain limitations, regardless of whether they possess explicit statutory authority to do so.”);

Friends of Boundary Waters Wilderness

Bosworth,

437 F.3d 815, 823-24 (8th Cir. 2006) (“Agencies given the authority to promulgate a quota are presumed to have the authority to adjust that quota.”);

S. California Edison Co.

F.E.R.C.,

415 F.3d 17, 22-23 (D.C. Cir. 2005) (“[O]f course, agencies may alter regulations. Agencies may even alter their own regulations

sua sponte,

in the absence of complaints, provided they have sufficient reason to do so and follow applicable procedures.”);

Macktal

Chao,

286 F.3d 822, 825-26 (5th Cir. 2002) (“[I]t is generally accepted that in the absence of a specific statutory limitation, an administrative agency has the inherent authority to reconsider its decisions.”);

Harrington

Chao,

280 F.3d 50, 59 (1st Cir. 2002) (“Agencies do have leeway to change their interpretations of laws, as well as of their own regulations, provided they explain the reasons for such change and provided that those reasons meet the applicable standard of review.”);

Belville Mining Co.

United States,

999 F.2d 989, 997 (6th Cir. 1993) (“Even where there is no express reconsideration authority for an agency, [ ] the general rule is that an agency has inherent authority to reconsider its decision.”);

Rainbow Broad. Co.

F.C.C.,

949 F.2d 405, 409 (D.C. Cir. 1991) (“Agencies enjoy wide latitude when using rulemaking to change their own policies and the manner by which their policies are implemented. . . . According agencies the power to change their minds about their own policies, practices and procedures rests on a sound policy basis. Agencies need some flexibility in carrying out their authority.”);

Dun & Bradstreet Corp. Found.

United States Postal Serv.,

946 F.2d 189, 193 (2d Cir. 1991) (“It is widely accepted that an agency may, on its own initiative, reconsider its interim or even its final decisions, regardless of whether the applicable statute and agency regulations expressly provide for such review.”);

Dawson

Merit Sys. Prot. Bd.,

712 F.2d 264, 267 (7th Cir. 1983) (describing “the general rule that administrative agencies have the power to reconsider decisions on their own initiative”);

Dana Corp.

ICC,

703 F.2d 1297, 1305 (D.C. Cir. 1983) (“[T]he agency is entitled to have second thoughts, and to sustain action which it considers in the public interest upon whatever basis more mature reflection suggests.”);

Trujillo

Gen. Elec. Co.,

621 F.2d 1084, 1086 (10th Cir. 1980) (“Administrative agencies have an inherent authority to reconsider their own decisions, since the power to decide in the first instance carries with it the power to reconsider.”);

Mazaleski

Treusdell,

562 F.2d 701, 720 (D.C. Cir. 1977) (“We have many times held that an agency has the inherent power to reconsider and change a decision if it does so within a reasonable period of time.”) (quoting

Gratehouse

United States,

512 F.2d 1104, 1109 (Ct. Cl. 1975));

Albertson

FCC,

182 F.2d 397, 399 (D.C. Cir. 1950) (“The power to reconsider is inherent in the power to decide.”).

Good Samaritan Hosp.

Shalala,

508 U.S. 402, 417-18 (1993) (cleaned up);

see also

1.94(c).

See

49 U.S.C. 302(a) (stating the Secretary of Transportation is governed by the transportation policy described in part in 49 U.S.C. 13101(b), which provides that oversight of the modes of transportation “shall be administered and enforced to carry out the policy of this section and to promote the public interest”); 49 U.S.C. 322(a) (“The Secretary of Transportation may prescribe regulations to carry out the duties and powers of the Secretary. An officer of the Department of Transportation may prescribe regulations to carry out the duties and powers of the officer.”); 49 U.S.C. 105(c)(2) (directing the NHTSA Administrator to “carry out . . . additional duties and powers prescribed by the Secretary”); 49 CFR 1.81(a)(3) (“Except as prescribed by the Secretary of Transportation, each Administrator is authorized to . . . [e]xercise the authority vested in the Secretary to prescribe regulations under 49 U.S.C. 322(a) with respect to statutory provisions for which authority is delegated by other sections in this part.”).

2. Applicability of the 2015 Act

Multiple commentators disagreed with NHTSA's proposed determination that the $5.50 civil penalty rate used in the formula for manufacturer violations of fuel economy standards in 49 U.S.C. 32912(b) is not a “civil monetary penalty” subject to adjustment under the 2015 Act.

After thorough consideration of all these comments, NHTSA adopts its tentative determination. To be a “civil monetary penalty” that must be adjusted for inflation under the 2015 Act, a “penalty, fine, or other sanction” must be, among other things, “for a specific monetary amount as provided by Federal law” or have “a maximum amount provided for by Federal law.”

The CAFE civil penalty rate is neither.

See, e.g.,

Workhorse Comment, at 3; CBD Comment, at 7; CAP Comment, at 2-3; CARB Comment, at 7-8; Attorneys General Comment, at 7; IPI Comment, at 1.

28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 3(2).

For one, the CAFE civil penalty rate is an input in a formula that is used to calculate a penalty. And although the CAFE civil penalty rate is capped at $10 by statute,

the civil penalty for manufacturers that violate an average fuel economy standards, as defined in 49 U.S.C. 32912(b), has no maximum amount. The higher the shortfall or the higher the number of vehicles in the fleet, the higher the potential penalty (before accounting for credits). This formula stands in stark contrast to the immediately preceding provision specifying the “general penalty” for

EPCA violations: “A person that violates section 32911(a) of this title is liable to the United States Government for a civil penalty of not more than $10,000 for each violation.”

The phrase “not more than” plainly denotes that the $10,000 civil penalty is a maximum amount for each violation, and, as such, this amount (as promulgated in 49 CFR 578.6(h)(1)) was properly adjusted pursuant to the 2015 Act.

49 U.S.C. 32912(c)(1)(B). The $10 cap is addressed further in Section D.5.

49 U.S.C. 32912(a);

see also

49 U.S.C. 30165(a) (establishing that violations of the National Traffic and Motor Vehicle Safety Act are generally subject to “a maximum amount” of “not more than” $21,000 per violation and a “maximum penalty” of $105 million for a related series of violations).

81 FR 43524, 43526 (July 5, 2016). The penalty in 49 U.S.C. 32912(a), promulgated in 49 CFR 578.6(h)(1), is subject to additional inflationary adjustments for 2017 and 2018, which were proposed in the NPRM, and for 2019, which is being finalized in this rule. Applying the multiplier for 2017 of 1.01636, as specified in OMB's December 16, 2016 guidance, results in an adjusted maximum penalty of $40,654. Applying the multiplier for 2018 of 1.02041, as specified in OMB's December 15, 2017 guidance, results in an adjusted maximum penalty of $41,484. NHTSA received no comments objecting to these proposed adjustments and finalizes those inflationary adjustments in this rule. Applying the multiplier for 2019 of 1.02522, as specified in OMB's December 14, 2018 guidance, results in an adjusted maximum penalty of $42,530. In accordance with the procedures provided in the 2015 Act, and confirmed by OMB's guidance on implementing the 2015 Act, NHTSA finalizes the 2019 adjustment for the general CAFE penalty through this final rule. 28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 4(b)(2); Memorandum from the Director of OMB to Heads of Executive Departments and Agencies, Implementation of Penalty Inflation Adjustments for 2019, Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, at 4 (Dec. 14, 2018), available online at

https://www.whitehouse.gov/wp-content/uploads/2017/11/m_19_04.pdf

(last accessed May 31, 2019) (“In accordance with the 2015 Act, agencies shall adjust civil monetary penalties notwithstanding Section 553 of the Administrative Procedure Act (APA). This means that the public procedure the APA generally requires (

i.e.,

notice, an opportunity for comment, and a delay in effective date) is not required for agencies to issue regulations implementing the annual adjustment.”) (footnote omitted).

The $5.50 rate also is not a “penalty” for a “specific monetary amount.” Again, the rate is one factor in a complex formula that is used to calculate the penalty. Moreover, the portion of the penalty calculated by NHTSA is only the potential penalty. The ultimate penalty owed is determined by the manufacturer based on the statutory provision authorizing the deduction of “the credits available to the manufacturer.”

The CAFE civil penalty statute states expressly that this credit reduction process is part of the calculation of the civil penalty.

It is not, as some commenters suggested,

a distinct process that is conducted after the penalty has already been calculated.

The inputs to the civil penalty formula, including the reduction for available credits, are joined by the conjunctive “and” in the statute.

And while it is true, as one commenter noted, that “a specific penalty amount will still result after manufacturer credits are taken into account,”

that is not “a specific monetary amount as provided by Federal law,” as required by the 2015 Act. The amount is determined by a

process

codified in Federal law, but the specific final penalty

amount

itself is not “provided by Federal law.” The “specific monetary amount” is unknown until the manufacturer decides to use any available credits it has, or can acquire, to make up for the shortfall identified by NHTSA.

In fact, if a manufacturer has enough credits or has a plan to earn sufficient credits in the future, the penalty ultimately calculated may be zero.

It is the manufacturer who decides this, not the agency.

49 U.S.C. 32912(b)(3).

49 U.S.C. 32912(b)(3). Section 32903(h) is not to the contrary, as one commenter suggested.

See

CAP Comment, at 2. That provision describes a refund process that is relevant only after “a civil penalty has been collected,” not before the civil penalty—including any credit reduction—is fully calculated.

See, e.g.,

CARB Comment, at 11 (“NHTSA knows exactly how much a manufacturer owes and must pay in civil penalties for failing to meet the CAFE standard—NHTSA calculates that amount. What NHTSA may not know is how exactly the manufacturer will satisfy that amount (direct payment vs. credits), but the specific amount owed,

i.e.,

the civil penalty, is very much known.”); Attorneys General Comment, at 7 (“Nor does the availability of a credit mechanism that allows a manufacturer an alternate means to fully or partially comply with the CAFE standards have any bearing on the nature of the penalty. . . .”); IPI Comment, at 3 (“Credit trading and transfers allow the manufacturer to reduce its incidence of non-compliance, but the penalty per incidence of non-compliance remains fixed and specific. . . .”).

One commenter stated “many, if not all, civil monetary penalties assessed by any agency depend, on some level, on the regulated entity's decisions about whether, and how, to comply with a regulatory standard.” IPI Comment, at 2-3. The comment cited no specific examples, but regardless, the unique feature in the CAFE civil penalty scheme relevant in this context is that the calculation of the civil penalty amount expressly includes a reduction for the credits available to the manufacturer. A manufacturer could both decide not to meet an applicable CAFE standard and not to pay a civil penalty (or to pay a smaller penalty). Under other civil penalty schemes, a person who does not comply with a regulatory standard does not get to decide whether or how much of a penalty to pay.

49 U.S.C. 32912(b).

CBD Comment, at 8. The comment further stated that “[t]his is no different from other rate-based penalty systems which allow for some reduction of liability,” but cited no example.

NHTSA is able to request supplemental reports and audit a manufacturer's compliance plan,

see, e.g.,

49 CFR 537.8, but ultimately, it is the manufacturer's decision on how to use the credits available to it.

49 CFR 536.5(d). A manufacturer may propose a plan to earn future credits within the subsequent three model years in order to comply with its regulatory obligations for the current model year, and NHTSA will not even initiate compliance proceedings until the time that the manufacturer's approved plan indicates that credits will be earned or acquired to achieve compliance. 49 CFR 536.7. Although many manufacturers have not met applicable standards, only one manufacturer paid civil penalties for MY 2014 and only two paid civil penalties for MYs 2012 and 2013.

See https://one.nhtsa.gov/cafe_pic/CAFE_PIC_Fines_LIVE.html.

Manufacturers instruct NHTSA on how they wish to allocate their credits or otherwise account for shortfalls.

See

49 CFR 536.5(d)(2), (6).

Credit flexibilities were expressly included in the statute by Congressional design to give industry the ability to decide how to achieve the required fuel economy improvements efficiently. Notably, as mentioned in the NPRM, Congress gave manufacturers the ability to trade credits with other manufacturers in 2007 in EISA, introducing an additional level of complexity to the calculation process, which is different from other civil penalty calculations. This is far from a direction to the agency to execute a “minor mathematic calculation used to figure up a total penalty number,” as one commenter described it.

CARB Comment, at 9-10. Although the introductory language of the statutory provision may be “similar” to that of the general penalty for EPCA violations, as noted by the commenter, the process described for calculating the penalty is the material difference, as explained above.

As explained in the opinion included in the docket for the rule, OMB concurs with NHTSA's interpretation of the 2015 Act: OMB agrees that the CAFE civil penalty rate is not a “penalty, fine, or other sanction” that “is for a specific monetary amount” because EPCA distinguishes between the rate, the “amount . . . used in calculating a civil penalty,” and the “civil penalty” itself.

Nor does OMB believe that the CAFE penalty has a “maximum amount provided for by Federal law”: There is no limit to the level of civil penalty that can be imposed under EPCA because the civil penalty rate is merely one factor in the formula used to calculate the potential civil penalty liability. OMB explains further that the $10 cap does not qualify as “maximum amount provided for by Federal law” because it limits the “amount . . . used in calculating a civil penalty,” not the “civil penalty” itself. Moreover, the $10 cap cannot be “assessed or enforced” at the time of the violation as required by the 2015 Act. Rather, it serves as a limitation on NHTSA's authority to alter the penalty rate.

OMB Non-Applicability Letter, at 4-5.

Because of the changes that Congress enacted to the CAFE program through

EISA in 2007, Congress was not necessarily “on notice” that NHTSA would apply the 2015 Act to the CAFE civil penalty rate, as one comment stated, merely because it had done so in 1997.

In fact, NHTSA did not make any subsequent adjustments to the $5.50 rate, even as it repeatedly made adjustments to its other civil penalties—including an adjustment to the maximum general penalty under EPCA in 49 U.S.C. 32912(a).

Attorneys General Comment, at 9.

64 FR 37876 (July 14, 1999); 66 FR 41149 (Aug. 7, 2001); 69 FR 57864 (Sept. 28, 2004); 70 FR 53308 (Sept. 8, 2005); 71 FR 28279 (May 16, 2006); 73 FR 9955 (Feb. 25, 2008) (adjusting maximum general penalty under EPCA and another NHTSA penalty); 75 FR 5244 (Feb. 2, 2010).

Apparently concerned about the ease with which the CAFE civil penalties program could damage the economy and the automobile industry in particular,

Congress imposed a strict, tailored procedure for adjusting the CAFE civil penalty rate, requiring robust substantive findings and specific procedures, including providing opportunity for the Federal Trade Commission to comment and requiring at least eighteen months before an increased rate can go into effect.

This process stands in stark contrast to the summary approach delineated in the 2015 Act, which presumptively requires an interim final rule without notice and comment for the initial catch-up adjustment and similarly requires subsequent adjustments to be made without the traditional notice-and-comment process outlined in the APA.

See, e.g.,

“Energy Initiatives of the 95th Congress,” S. Rep. No. 96-10, at 175-76 (1979) (“Representative Dingell (D-Mich.), concerned that increasing the penalties could lead to layoffs in the automobile industry, insisted that raising the penalties be contingent upon findings by the Secretary of Transportation that increasing the penalties would achieve energy savings and would not be harmful to the economy.”); H.R. Rep. No. 94-340, at 87 (1975) (“The automobile industry has a central role in our national economy and that any regulatory program must be carefully drafted so as to require of the industry what is attainable without either imposing impossible burdens on it or unduly limiting consumer choice as to capacity and performance of motor vehicles.”); 121 Cong. Rec. 18675 (June 12, 1975) (statement of Rep. Sharp) (“[W]e recognize that we have serious unemployment in the American auto industry and we want to preserve this important segment of the economy.”).

See

49 U.S.C. 32912(c).

28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 4(b).

One comment observed that “the 2015 Act provides that an agency need not make inflation-based adjustments if it has implemented a discretionary adjustment . . . greater than the annual inflation adjustment.”

NHTSA agrees with the general notion offered by the commenter that this provision suggests Congress intended the inflation adjustments required under the 2015 Act to coexist with discretionary adjustments provided for under other statutes. But as described in the NPRM and below—and recognized by OMB in the opinion included in the docket for this rulemaking

—the CAFE civil penalty program is unique—namely, that the amount in question is a single input in a complex market-based penalty program, and not the penalty amount itself. And as OMB further explains in its opinion, the statutory structure of EPCA itself strongly indicates that Congress did not intend the 2015 Act to apply to the CAFE civil penalty rate. Under EPCA, there is no automatic increase in the penalty rate, the burden is on the Secretary to demonstrate an absence of economic harm before increasing the rate, and any increase is capped at $10. In contrast, under the 2015 Act, increases are automatic, the Secretary has the burden of demonstrating economic harm to stop an initial increase and has no power to stop future increases, and the potential penalty increases are unlimited. It is highly unlikely that Congress intended to shift from the EPCA scheme to the 2015 Act scheme without any reference to EPCA. Accordingly, NHTSA determines that Congress did not intend for the 2015 Act to apply to the CAFE civil penalty rate.

Attorneys General Comment, at 9 (citing 28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 4(d)).

OMB Non-Applicability Letter, at 4-6.

To the extent the 2015 Act does apply to the CAFE civil penalty rate, EPCA prohibits NHTSA from increasing the CAFE civil penalty rate—for an inflation adjustment or otherwise—at this time, for the reasons described below.

Some commenters noted that the 2015 Act is designed to keep civil monetary penalties at the same levels, in real terms, not increase them.

In response, NHTSA notes that the 2015 Act itself repeatedly refers to the adjustments as “increases.”

Accepting the commenters' point, however, would actually provide further support for NHTSA's determination that the 2015 Act does not apply to the CAFE civil penalty rate. Because of the unique nature of the CAFE civil penalty formula, applying the 2015 Act to it would exceed the purpose of the 2015 Act noted by those commenters to “maintain” the real value of civil monetary penalties: Instead, doing so would constitute an increase.

Moreover, as OMB noted in the opinion included in the docket, the unique features of EPCA also make the 2015 Act inconsistent with the CAFE civil penalty rate because, under EPCA, Congress required the Secretary of Transportation to regularly establish the maximum feasible fuel efficiency standards based on, among other things, developing technology, as opposed to applying a rote, formulaic increase to the penalty rate.

Rather than “maintain[ing]” the real value of the CAFE civil penalty formula through inflation adjustment procedures, Congress chose other means: The CAFE civil penalty formula is based in part on the amount of the manufacturer's shortfall, and Congress requires NHTSA to prescribe the maximum feasible average fuel economy standards annually.

If a manufacturer failed to

adapt to the increasing standards, its shortfall—and in turn, its penalty calculation (before accounting for credits)—increases automatically.

Requiring an inflation adjustment on top of that would be gratuitous. The fact that Congress deliberately enacted a mechanism that would increase the potential CAFE penalty amounts without requiring inflation adjustments—fully “aware that inflation would effectively reduce the real value of the [CAFE] civil penalty rate over time”

—indicates that Congress did not intend for the CAFE civil penalty rate to be subject to inflation adjustments and thus that the 2015 Act was not intended to apply to that calculation.

100

See, e.g.,

CBD Comment, at 7; CAP Comment, at 3-4; CARB Comment, at 13; IPI Comment, at 19-20. One of these commenters claimed that “Congress especially intended inflationary adjustments to apply in areas of heightened regulatory concern, such as health and safety, the environment, and consumer protection.” CBD Comment, at 6 (citing James Ming Chen,

Inflation-Based Adjustments in Federal Civil Monetary Penalties,

34 Yale L. & Pol'y Rev. 1, 3 (2015)). There is nothing in the 2015 Act that supports this claim. The original source cited by the comment's cited source is not the legislative history of the 2015 Act—or even the 1990 Inflation Adjustment Act—but a

Federal Register

notice from 1973, identifying various recommendations from the Administrative Conference of the United States. 38 FR 19782, 19792 (July 23, 1973). The recommendation in question had nothing to do with inflation adjustments; the Administrative Conference merely noted that “[i]n many areas of increased concern (

e.g.,

health and safety, the environment, consumer protection) availability of civil money penalties might significantly enhance an agency's ability to achieve its statutory goals.” 38 FR 19782, 19792 (July 23, 1973).

28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 4(c), 5(a), 5(b)(2)(C), 6.

28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 2(b)(2). One commenter noted that “remedial legislation should be construed broadly to effectuate its purposes.” CARB Comment, at 10, 16-17 (quoting

Tcherepnin

Knight,

389 U.S. 332, 336 (1967)). As one of the cases cited by this commenter expressly affirms, “[t]hat principle, however, `does not give the judiciary license, in interpreting a provision, to disregard entirely the plain meaning of the words used by Congress.' ”

Belland

Pension Ben. Guar. Corp.,

726 F.2d 839, 844 (D.C. Cir. 1984) (quoting

Symons

Chrysler Corp. Loan Guar. Bd.,

670 F.2d 238, 241 (D.C. Cir. 1981)).

OMB Non-Applicability Letter, at 6.

49 U.S.C. 32902(a). One commenter noted that “[w]hile Congress has directed NHTSA to set CAFE standards at the maximum feasible level, this does not necessarily amount to `continuous fuel standard increases,'” pointing out that “CAFE standards have once decreased and otherwise, until a few years ago, remained the same for 20 years.” CARB Comment, at 13. This is an accurate but misleading characterization. What the comment failed to mention was that it was Congress' decision to keep the standards flat over this period, not the agency's. For a significant portion of this period, Congress prohibited NHTSA from using funds “to prepare, propose, or promulgate any regulations . . . prescribing corporate average fuel economy standards for automobiles . . . in any model year that differs from standards promulgated for such automobiles prior to enactment of this section.” Public Law 104-50, Sec. 330;

see also

Public Law 104-205, Sec. 323; Public Law 105-66, Sec. 322;

Public Law 105-277, Sec. 322; Public Law 106-69, Sec. 321; Public Law 106-346, Sec. 320. Moreover, from 1985 until EISA was signed into law in 2007, Congress set the average fuel economy standard for passenger automobiles at 27.5 miles per gallon by default and did not require any increases—annually or otherwise, or to the maximum feasible level or otherwise.

See

Public Law 94-163, Sec. 301; Public Law 103-272, Sec. 1(d). Instead, Congress permitted, but did not require, that NHTSA establish a higher or lower standard for passenger cars if the agency found that the maximum feasible level of fuel economy is higher or lower than 27.5 miles per gallon.

See, e.g.,

Workhorse Comment, at 1 (“In effect, increasing the civil penalty rate increases the stringency of the CAFE Standards.”). This mechanism also counters the argument that a CAFE civil penalty rate of $5.50 “effectively stall[s] fuel economy.” CARB Comment, at 10;

see also

CAP Comment, at 2 (“[R]educing the penalty below the statutorily-mandated rate will likely lead to many more manufacturers electing to pay penalties rather than to comply with the law.”). The CAFE civil penalty formula enacted by Congress already incentivizes automakers to improve fuel economy without the need to conduct inflation adjustments—a reality that the same commenter that made this argument appeared to recognize just a few pages later: “Increases in the CAFE standards reflect continuing improvements in the technological ability of manufacturers to increase fuel economy, as reflected in the fact that most manufacturers have been meeting or exceeding the CAFE standards in recent years even as the standards have been increasing.” CARB Comment, at 13.

83 FR 13904, 13910-11 (May 2, 2018).

100

One commenter argued that “other agencies have had no trouble applying inflation adjustments to the civil penalties associated with” regulatory standards that “undergo statutorily required reviews at regular intervals to increase stringency.” IPI Comment, at 4. The comment only cited one example: An adjustment by the Department of Energy to the maximum civil penalties it can impose for violations of its energy efficiency standards, among other violations.

See

83 FR 1289, 1291 (Jan. 11, 2018) (“Any person who knowingly violates any provision of § 429.102(a) may be subject to assessment of a civil penalty of no more than $449 for each violation.”; “In accordance with sections 333 and 345 of the Act, any person who knowingly violates any provision of paragraph (a) of this section may be subject to assessment of a civil penalty of no more than $449 for each violation.”). This example is wholly distinct from the CAFE civil penalty calculation, in which the increased stringency is expressly included as a factor.

It is important to keep in mind that the overarching purpose of the CAFE program is to conserve petroleum. Thus, although the penalty is expressed based on the shortfall from the standard rather than the additional amount of fuel that will be consumed as a result of the shortfall, the cost of the penalty per increased gallon consumed shows how the actual penalty rate for excessive fuel consumption has increased as the standards themselves have increased.

Assume the CAFE civil penalty rate is fixed at $5, and consider two cases. In the first case, Manufacturer A has a fuel economy shortfall of 1.0 mpg and a production volume of 1 million passenger cars for MY 1978 in which the applicable CAFE standard is 18.0 mpg. Before accounting for credits, the civil penalty for MY 1978 would be $50 million [= (10 tenths of a mile per gallon shortfall) × ($5.00 per tenth of a mile per gallon shortfall) × (1,000,000 vehicles)]. Assuming an average lifetime of 130,000 miles for Manufacturer A's vehicles, the fuel use over the lifetimes of all of Manufacturer A's vehicles would be 7.65 billion gallons [= (130,000 miles)/(17 miles per gallon) × (1,000,000 vehicles)]. Had Manufacturer A met the CAFE standard of 18.0 mpg, the total fuel use would have been 7.22 billion gallons [= (130,000 miles)/(18 miles per gallon) × (1,000,000 vehicles)]. Thus, the increased fuel use impact on society attributed to the CAFE non-compliance would be 0.43 billion gallons [= (7.65 billion gallons)−(7.22 billion gallons)]. This means that the penalty cost per gallon is $0.116.

In the second case, Manufacturer A's MY 2017 vehicle attribute-based CAFE standard is 36.0 mpg, double the MY 1978 standard. Holding everything else identical, Manufacturer A's fuel economy shortfall would have to be 3.8 mpg (for a fuel economy of 32.2 mpg) to produce the same 0.43 billion gallons of societal impact of increased fuel use: Assuming the same average lifetime of 130,000 miles for Manufacturer A's vehicles, the fuel use over the lifetimes of all of Manufacturer A's vehicles would be 4.04 billion gallons [= (130,000 miles)/(32.2 miles per gallon) × (1,000,000 vehicles)]. Had Manufacturer A met the CAFE standard of 36.0 mpg, the fuel use would have been 3.61 billion gallons [= (130,000 miles)/(18 miles per gallon) × (1,000,000 vehicles)]. The increased fuel use impact on society attributed to the CAFE non-compliance would be 0.43 billion gallons [= (4.04 billion gallons)−(3.61 billion gallons)]. With this 3.8 mpg shortfall, Manufacturer A would incur, before accounting for credits, a civil penalty of $190 million [= (38 tenths of a mile per gallon shortfall) × ($5.00 per tenth of a mile per gallon shortfall) × (1,000,000 vehicles)]. For the same impact on societal fuel use, Manufacturer A's MY 2017 potential civil penalty is 3.8 times higher than the MY 1978 potential civil penalty, meaning that the penalty cost per gallon is $0.442.

Three comments argued that Congress demonstrated it knew how to exempt statutes from the application of the 2015 Act by expressly excepting statutes like the Internal Revenue Code of 1986 and the Tariff Act of 1930 from the adjustment process.

101

But the penalties under these statutes are not exempted from the definition of “civil monetary penalty”; rather, Congress acknowledged that the penalties under these statutes are “civil monetary penalties” that would otherwise need to be adjusted but for Congress' express exemption. In contrast, NHTSA's determination is that the CAFE civil penalty rate does not satisfy the definition of “civil monetary penalty” given by Congress and thus does not need to be exempted from Congress' adjustment mandate.

101

CBD Comment, at 6; CARB Comment, at 8; Attorneys General Comment, at 9.

One comment noted “on a fundamental level that Congress specifically designated the CAFE penalty as `a civil penalty.' ”

102

As NHTSA noted in its NPRM, however, “EPCA's use of the terminology `civil penalty' in 49 U.S.C. 32912(b) is not dispositive. The 2015 Act does not apply to all civil penalties, but rather `civil monetary penalties,' a defined term.”

103

Moreover, as explained above, the “civil penalty” referenced in 32912(b) is not referring to the $5.50 rate, but the result of the entire complex calculation and credit application process.

102

CARB Comment, at 9 (quoting 49 U.S.C. 32912(b));

see also

Attorneys General Comment, at 7 (“Congress expressly designated the CAFE penalty, which is monetary, as `a civil penalty.' ”).

103

83 FR 13904, 13908 n.24 (Apr. 2, 2018).

Several commenters pointed out that other agencies adjusted civil penalties for inflation under the 2015 Act that involved what the commenters characterized as a rate or formula.

104

In support, these commenters provided numerous examples of penalties involving a simple multiplier that other agencies adjusted for inflation. The examples involve maximum penalties

per violation and/or per day.

105

NHTSA did not and does not take the position that any penalty involving a multiplier is not a “civil monetary penalty” subject to inflationary adjustment under the 2015 Act. Indeed, most of the civil penalties that NHTSA properly adjusted for inflation under the 2015 Act in its interim final rule are like the examples provided by commenters: Maximum penalties involving a simple multiplier.

106

NHTSA acknowledged in the NPRM that these types of maximum penalties are subject to inflationary adjustment.

107

As NHTSA explained in its NPRM: “One example of a penalty that is for `a maximum amount' is the `general penalty' in EPCA for violations of 49 U.S.C. 32911(a). That `general penalty' is `a civil penalty of not more than $10,000 for each violation.' This sets `a maximum amount' of $10,000 per violation. . . . Accordingly, this civil penalty level was properly adjusted. . . .”

108

NHTSA is finalizing its inflationary adjustment of that maximum penalty per violation in this final rule. NHTSA also adjusted many non-CAFE penalties that are maximum penalties that use a simple multiplier of the number of violations or number of days.

109

104

CBD Comment, at 8 (citing numerous examples of agencies adjusting “rate-based penalties” to account for inflation); CAP Comment, at 3; CARB Comment, at 8-9; Attorneys General Comment, at 8.

105

See

CBD Comment, at 8; CAP Comment, at 3; CARB Comment, at 8-9; Attorneys General Comment, at 8.

106

NHTSA is not reconsidering portions of the interim final rule (81 FR 43524 (July 5, 2016)) that address non-CAFE penalties. Most of the penalties adjusted for inflation are maximum penalties that involve a multiplier. For example, NHTSA adjusted the penalties for school bus-related violations of the National Traffic and Motor Vehicle Safety Act from a maximum of $10,000 per violation, as set by statute, to a maximum of $11,940 per violation.

Id.

at 43525 (adjusting 49 CFR 578.6(a)(2)) A separate violation occurs for each school bus or item of school bus equipment, “and for each failure or refusal to allow or perform a required act.” 49 CFR 578.6(a)(2).

107

See

83 FR at 13909.

108

83 FR at 13909 (citations omitted).

109

See

81 FR 43524 (July 5, 2016).

NHTSA agrees with commenters that maximum penalties such as these are properly subject to inflationary adjustment. But the penalty for violations of CAFE standards is not a maximum penalty that uses a simple multiplier. As a threshold matter, the CAFE civil penalty rate alone is not a “civil monetary penalty” as defined by the 2015 Act. The CAFE statute expressly states that the rate is an “amount . . . to be used in calculating a civil penalty,” not a “civil penalty” on its own.

110

In any event, unlike maximum penalties that use a simple multiplier, the CAFE civil penalty rate is not subject to inflation as a “maximum amount provided by federal law.” Other penalties expressly include language, such as “a maximum civil penalty” or a “civil penalty of not more than” a specified value per violation, which indicate they are for a maximum amount.

111

No such language is included for the CAFE penalty, which instead expressly may not “be compromised or remitted” except in extremely rare circumstances.

112

This stands in stark contrast to maximum penalties, where the agency has authority to determine the appropriate penalty amount.

113

110

49 U.S.C. 32912(c)(1)(A).

111

See, e.g.,

49 U.S.C. 30165(a)(3); 32912(a).

112

See

49 U.S.C. 32913(a). Contrast this constraint with the broad, discretionary authority delegated by Congress for NHTSA's other civil penalties: “The Secretary of Transportation may compromise the amount of a civil penalty imposed under this section.” 49 U.S.C. 30165(b)(1).

113

See, e.g.,

49 U.S.C. 30165(c). Statutory schemes that allow for mitigation, as pointed out by commenters, are not comparable because those are for maximum penalties, and thus subject to inflationary adjustment. Moreover, it is up to the agency to determine the appropriate mitigation. Under the CAFE penalty, it is the violator who determines how much to pay, based on use of credits, not the agency.

Additionally, the penalty for violating a CAFE standard does not use a simple multiplier comparable to the examples provided by commenters. For the examples provided, as well as the penalties NHTSA properly adjusted for inflation, the agency can readily determine the penalty inputs by adding up the number of violations and/or the number of days as appropriate under the statute. The multiplier for a regulated entity that violated a provision of law can only go up (if the penalty uses a multiplier of the number of days); it cannot go down. Even if there were a set penalty per day (as opposed to a maximum), that is a certain penalty: For every day that an entity violates the law, it must pay the specific penalty set by law.

None of this is true of the penalty for violations of CAFE standards. Unlike other penalties, the entity that violated the law can take unilateral action to decrease or eliminate the penalty.

114

A reduction in the control of the entity that violated the law means the penalty is not for “a specific monetary amount.” The agency cannot readily calculate the penalty inputs: It needs instructions from the regulated entity to do so. That makes this a complex formula unlike any other. The CAFE penalty is not a fixed penalty based on the number of violations and amount of time that has passed. The law allows manufacturers to base their penalty on future actions (a carry-back plan or acquisition of credits from a competitor), on actions unrelated to the specific violation at issue (transfers or trades), or even to obtain a refund of a civil penalty previously paid.

115

The multipliers in other penalty schemes relate to how much the entity violated the law (how many violations, or for how long). The CAFE penalty calculation, on the other hand, includes a reduction unrelated to the manufacturer's actions to meet the standard. A manufacturer can intentionally design its vehicles to exceed the standard and yet still not pay a penalty. But that decision is up to the manufacturer, not the agency—which is compelled by law to reduce the penalty if the manufacturer elects to use credits available to it. NHTSA is not aware of any comparable penalty structure with a similarly complex statutory formula that must factor in decisions of the violator and third-party actors (

i.e.,

other manufacturers), and no commenter has provided an example of one.

114

See

49 U.S.C. 32912(b)(3).

115

49 U.S.C. 32903(f), (g), (h); 32912(b).

The Institute for Policy Integrity critiqued NHTSA for relying on the Congressional Budget Office's (CBO's) assessment of the 2015 Act's revenue effects across all applicable penalties for ten years.

116

Some courts have relied on CBO cost estimates to determine legislative intent.

117

The Institute for Policy Integrity provided no evidence that the CBO's assessment was flawed nor did it provide its own calculation of the amount of fines NHTSA should expect to collect to compare to the CBO estimate, much less one that would offset the significant disparity between the CBO's estimate and the Alliance and Global's calculation as described in the NPRM.

118

OMB has reviewed CBO's assessment and, as stated in its opinion, reached the same conclusion as NHTSA: The billions of dollars estimated to be paid in CAFE civil penalty payments grossly exceeds CBO's projection of additional revenue that would be collected across the entire Federal Government under the 2015 Act over the same time period—an analysis Congress was aware of when it enacted the 2015 Act.

119

Regardless, the CBO estimate is not the sole support NHTSA relied on to make its determination that

the 2015 Act is not applicable to the CAFE civil penalty rate; rather, it served as additional evidence—on top of the plain language of the statute, the unique complexity of the CAFE civil penalty scheme, the legislative history of EPCA, and other indicators—further justifying NHTSA's determination.

116

IPI Comment, at 5.

117

See, e.g., Nunes-Correia

Haig,

543 F. Supp. 812, 815 (D.D.C. 1982) (“[T]he Congressional Budget Office (`CBO') cost estimates . . . demonstrate that Congress clearly intended the Act to apply retroactively.”)

118

83 FR 13904, 13911 (Apr. 2, 2018). CARB and the co-signatories to its comment similarly failed to provide such evidence when they asserted that “the costs estimated by the automakers are not just the cost of facing an adjusted penalty but also include technology costs and other costs such as insurance, financing, and taxes—with the latter two (technology and other costs) making up the bulk of the estimated costs.” CARB Comment, at 11-12.

119

OMB Negative Economic Impact Letter, at 5.

NHTSA also received some comments about the rounding rule in the 2015 Act, which provides that “[a]ny increase determined under this subsection shall be rounded to the nearest multiple of $1.”

120

NHTSA observed in the NPRM that this rounding rule suggests the Act was not intended to apply to the small dollar value CAFE civil penalty rate, since it would not serve a

de minimis

rounding function. As a practical matter, if the rounding rule applied to a small dollar penalty rate, it would prevent any annual inflationary increases (absent extraordinary inflation).

121

120

28 U.S.C. 2461 note, Federal Civil Penalties Inflation Adjustment 5(a).

121

83 FR 13904, 13911 (Apr. 2, 2018).

One commenter argued that this interpretation “ignores basic math because applying the [2015] Act results in more than a

de minimis

increase from $5.50.”

122

This misconstrues NHTSA's point: NHTSA was referring to subsequent annual inflationary increases after the initial catch-up adjustment. For example, if the CAFE civil penalty rate was adjusted to $14 in the initial catch-up adjustment, the rate would not have been adjusted applying either the 2017, 2018, or 2019 multipliers (1.01636, 1.02041, and 1.02522, respectively) and rounding to the nearest dollar. If the original rate was $6, the last time the multiplier would have allowed an inflation adjustment to $7 under the rounding rule was 1981, during a time of significant inflation.

123

122

IPI Comment, at 5.

123

Data available at

https://data.bls.gov/pdq/SurveyOutputServlet.

Another commenter conceded that “such rounding may prevent some annual inflationary adjustment for small penalties,” but nonetheless observed that “[i]f Congress had wanted small penalties to be excluded . . . , it would have explicitly said so.”

124

But statutes must be read to avoid rendering provisions “insignificant, if not wholly superfluous.”

125

As NHTSA has shown, having to apply the statute's rounding rule to such a small rate would violate that principle, particularly when the rounding rule is viewed, as NHTSA must, in “context” and in line with the “overall statutory scheme.”

126

124

CARB Comment, at 12.

125

Duncan

Walker,

533 U.S. 167, 174 (2001);

see also

CARB Comment, at 15-16 (“[T]he statutes build in opposing presumptions and require opposite findings. . . .”); Attorneys General Comment, at 12-13 (“NHTSA impermissibly inverts the presumption Congress built into the 2015 Act . . . .”).

159

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf

For NHTSA to determine whether increasing the CAFE civil penalty rate by the otherwise required amount would have a “negative economic impact,” it considered what Congress had previously identified for it in EPCA—in the context of establishing the statutory standard required to raise the CAFE civil penalty rate—as constituting a “substantial deleterious impact on the economy.” Specifically, Congress had decreed—unchanged for decades before the 2015 Act—that (i) a significant increase in unemployment in a State or a region of a State, (ii) an adverse effect on competition, or (iii) a significant increase in automobile imports would represent “a substantial deleterious impact on the economy.”

Additionally, Congress established in EPCA that, by requiring such a substantial showing, the burden to increase the CAFE civil penalty rate is heavy. NHTSA determined, as explained in the NPRM, that it is reasonable to expect that, taking the EPCA factors into account, increasing the CAFE civil penalty rate to $14 would result in a “negative economic impact.” Without sufficient data to the contrary, NHTSA's determination remains unchanged: The likely effects raising the CAFE civil penalty rate to $14 would have on unemployment, competition, and automobile imports lead NHTSA to conclude that increasing the CAFE civil penalty rate by the otherwise required amount would have a negative economic impact.

160

One commenter asserted, without any citations or reasoning, that to keep the CAFE civil penalty rate at $5.50, the “negative economic impact” exception of the 2015 Act requires NHTSA to show that

any

upward adjustment to the CAFE civil penalty rate will have a negative economic impact and that NHTSA failed to meet this burden. CBD Comment, at 23;

see also

Attorneys General Comment, at 16 (arguing that, if necessary, NHTSA should “reduce the catch-up inflation adjustment by as little as possible . . . based on an analysis of the relevant factors, including but not limited to an estimate of compliance costs, the number and types of vehicles affected, the average increased cost to consumers, and how that cost compares to fuel cost savings”). No such showing is required. The 2015 Act authorizes the head of each agency to “adjust the amount of a civil monetary penalty by less than the otherwise required amount” if the “negative economic impact” exception is satisfied (with the OMB Director's concurrence). But neither the statute nor OMB guidance establish any standards that the agency must use in determining how much less than the otherwise required amount to make the adjustment. As NHTSA stated in the NPRM, “[w]ithout any statutory direction or OMB guidance

on how much to adjust the rate, if at all, it falls to NHTSA to determine the appropriate adjustment—and NHTSA has wide discretion in making this determination.” 83 FR 13904, 13916 (Apr. 2, 2018) (citing

Nat'l Shooting Sports Found., Inc.

Jones,

716 F.3d 200, 214-15 (D.C. Cir. 2013));

see also

Alliance and Global Comment, at 15 & n.63. Nonetheless, NHTSA believes it has made an adequate showing that any increase in the CAFE civil penalty rate would have a “negative economic impact” for the reasons detailed in the NPRM and throughout this final rule.

See, e.g.,

83 FR 13904, 13916 (Apr. 2, 2018) (“In light of the regulatory concerns described above, and in consideration of the unique regulatory structure with non-discretionary penalties tied to standards that increase over time, NHTSA is proposing to keep the CAFE civil penalty rate at $5.50 because it tentatively concludes that retaining the $5.50 rate would avoid the `negative economic impact' caused by any adjustment upwards.”).

Some commenters contended that NHTSA's interpretation would make it “impossible” for the CAFE civil penalty to ever be increased.

161

NHTSA acknowledges that it may be difficult to meet the high standard Congress established in EPCA. In fact, NHTSA has never been able to make the findings required to increase the rate before. However, nothing in the 2015 Act relieves NHTSA of its statutory obligation to make those findings as a prerequisite for increasing the CAFE civil penalty rate.

161

Workhorse Comment, at 4;

see also

CARB Comment, at 18.

One commenter argued that EPCA's specific definitions of “substantial deleterious impact on the economy” should not be carried over to the 2015 Act's term “negative economic impact” because the 2015 Act is “is intended for broad application across a range of regulatory schemes” and the EPCA factors “may simply be irrelevant in enforcing compliance with other regulatory systems.”

162

The fact that the EPCA factors are irrelevant to determinations by other agencies (which do not administer the same statutory program) does not make them irrelevant to NHTSA's determination, which requires the agency to reconcile multiple statutory provisions. And both the 2015 Act and EPCA address the effect on the economy as part of their respective statutory standards for determining the appropriateness of an increase in a penalty rate.

162

CBD Comment, at 13.

Although the 2015 Act applies across all agencies, it is up to the head of agency to determine whether “increasing the civil monetary penalty by the otherwise required amount will have a negative economic impact.” Each agency head must determine how to interpret that statutory standard in light of other statutory constraints and any other factors that may be appropriate for each agency to consider.

163

See Sutton

United States,

65 Fed. Cl. 800, 806 (2005) (deferring to the Army's interpretation of a statute that is administered on a shared basis with the other military services because “there is no inconsistency” between its interpretation and that of another military branch and because the statutory language “confers plenary discretion on each individual service secretary to develop whatever procedures he or she deems appropriate”);

Bd. of Trade of City of Chicago

SEC.,

187 F.3d 713, 719 (7th Cir. 1999) (“[I]t is possible to defer simultaneously to two incompatible agency positions.”);

see also

Comment by Jaguar Land Rover North America LLC, NHTSA-2018-0017-0016, at 1 (“A significant increase in the CAFE penalty rate would fundamentally change the dynamics of how companies may make investment decisions, and would force IVM specialist manufacturers to disregard consumer demand by restricting the availability of vehicles that consumers want.”). The commenter noted that EPA has previously stated that under the standards, “consumers can continue to have a full range of vehicle choices that meet their needs.” CBD Comment, at 16 (quoting Final Determination, at 9). But EPA has since reconsidered the emission standards for model year 2022-2025 light-duty vehicles, which were “based on outdated information.” 83 FR 16077, 16077 (Apr. 13, 2018). Accordingly, EPA cannot be held to its earlier forecast regarding choices available to consumers.

Another commenter argued that “[a]llowing the penalty to remain indexed to inflation as mandated by Congress does not adversely affect competition, but actively changing the rate to a lower value does,” by “express[ing] a preference for companies that have failed or will fail to comply with the standards and disrupt[ing] the normal market competition by effectively subsidizing these companies.”

199

As explained above, NHTSA is not “actively changing the rate to a lower value”; the rate was $5.50 during reconsideration, the rate is currently $5.50, and the rate will continue to be $5.50 as a result of this final rule, rather than increasing to $14 beginning with MY 2019. But NHTSA agrees with the general principle that “actively changing the rate” would “disrupt[ ] the normal market competition.” For the reasons described in the NPRM, NHTSA believes that “an increase in the CAFE penalty rate could distort the normal market competition that would be expected in a free market by favoring one group of manufacturers over another.”

200

Thus, to avoid adversely affecting competition by interfering, NHTSA will not increase the CAFE civil penalty rate.

199

CAP Comment, at 4;

see also

CBD Comment, at 15 (reasoning that keeping the rate “artificially low” would “create an unfair market environment,” in which less established, innovative companies that have invested in technology to meet the standards would find themselves at a competitive disadvantage to more established, larger companies that may be more willing to pay penalties, rather than comply).

200

83 FR 13904, 13914 (Apr. 2, 2018).

Relatedly, one commenter argued that polling, reinforced by sales data, shows that “consumers value access to fuel-efficient vehicles.”

201

If true, then normal market competition will incentivize non-compliant manufacturers to invest in increasingly efficient technology and increasing compliance with the standards. NHTSA would have no need to increase the CAFE civil penalty rate if it would never be applied because market forces would ensure compliance.

201

CBD Comment, at 16.

The same commenter also argued that increasing the CAFE civil penalty rate “enhances the competitiveness of U.S.-made vehicles in domestic and global markets.”

202

Specifically, the commenter maintained that “more U.S. fuel-efficient vehicles means fewer consumer and production shifts when gas prices are volatile, and more efficient fleets have increased chances of competing with

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