Stellantis Complaint Challenges Autonomy of CARB

News that Stellantis is laying off thousands of workers at its Jeep plants because of fuel-economy and emissions rules in California and the states that follow its lead on clean-air regulations has put a spotlight on the apparent autonomy of the California Air Resources Board (CARB), and whether the agency is operating in a legal framework.

The Detroit automaker said this week that sales of Jeep products have been falling since the summer as the company has had to limit shipments of its internal-combustion vehicles to 15 states plus the District of Columbia that represent some of its biggest markets.

Stellantis, in its complaint to California’s Office of Administrative Law, is challenging the legality of a 2019 agreement entered into with CARB by Ford, BMW Group, Volkswagen Group and Honda that gave those automakers favorable treatment in the state with regard to its strict clean-air regulations. Stellantis says, though, that CARB has put it at a competitive disadvantage because the agency cut “side deals” with competing automakers that don’t hold those companies to the same rules.

In 2019, those four OEMs made agreements with CARB based on their production plans to reduce greenhouse gas emissions from their vehicle fleets – pledging to get its national fleet cleaner through 2026 at about the same rate as the former Obama-era program, preventing, as CARB noted when it made the deals, “hundreds of millions of tons of greenhouse gas emissions over the lifetime of the agreements.”

The OEMs agreed to increase vehicle fuel economy of their fleets 3.7% year over year between model year 2022 and model year 2026. Meeting this goal with just fuel-efficiency improvements would require car companies to average 51 mpg (4.6 L/100 km) by 2026 across all their offerings for California. But the special agreements cut with CARB let the automakers meet this target in other ways, too, such as selling more electric cars and plug-in hybrids nationally.

The context of the side deals was that the Trump Admin. was publicly and legally taking on CARB’s authority to impose tougher clean-air standards than the federal government. The four OEMs that cut deals de facto endorsed CARB’s authority.

“Few issues are more pressing than climate change, a global threat that endangers our lives and livelihoods. California, a coalition of states, and these automakers are leading the way on smart policies that make the air cleaner and safer for us all,” said Gov. Gavin Newsom at the time of the agreements. “I now call on the rest of the auto industry to join us, and for the Trump administration to adopt this pragmatic compromise instead of pursuing its regressive rule change. It’s the right thing for our economy, our people and our planet.”

Stellantis is at a disadvantage in that it only sells two hybrids – the Jeep Wrangler 4xe and Chrysler Pacifica Hybrid, and chose not to pursue a deal with CARB. Plus, it does not get the benefit of national sales factoring into its compliance as the other four do.

"Ultimately, when determining whether an OEM may enter a Framework Agreement, CARB has classified OEMs according to whether they publicly agreed with CARB during a good-faith dispute, and created a parallel, underground regulatory scheme to place OEMs that did not actively agree with CARB at a competitive disadvantage," Stellantis's lawyers wrote in the company’s petition.

The larger issue in the complaint is how much autonomy CARB can exert without going through a more rigorous public regulatory or legislative process. The state has enjoyed an exemption under the federal Clean Air Act since 1968 to set its own rules for vehicle emissions, which have long been stricter than those set by the EPA. For good reason, automakers have bristled under this because it means that they either must design cars specifically to comply with California rules or accept that California would set the standard for the rest of the country.

“CARB expects the Office of Administrative Law’s response to this late petition will recognize the Framework Agreements for the settlements that they are," CARB spokesman David Clegern tells Wards.

At the time of the back-channel arrangement with automakers in 2019, Clegern said, “They came to us, actually…My understanding is that they basically were to the point where they needed some kind of signal to provide some certainty for their planning.”

Stellantis has lagged competitors on hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and battery-electric vehicles (BEVs), and Jeep is widely believed to be the company’s most profitable business, so the current regulatory situation is hurting Stellantis’s profits. The company’s “Dare Forward” strategy calls for half of its U.S. sales to be electric by 2030.