In challenge by states, 8th Circuit tosses DOE rule

The Department of Energy (DOE) exceeded its authority and violated notice-and-comment procedures when it promulgated a final rule changing its method of calculating the “petroleum equivalency factor,” the 8th U.S. Circuit Court of Appeals ruled on September 5, vacating and remanding the rule.

In 1975, Congress required the Department of Transportation to prescribe “average fuel economy standards for automobiles manufactured by a manufacturer in that model year.” The Environmental Protection Agency (EPA) determines the average fuel economy of a manufacturer’s fleet.

In order to determine the average fuel economy of a manufacturer’s electric vehicles, the DOE is required to review “equivalent petroleum based fuel economy values” for various classes of electric vehicles each year and determine and propose necessary revisions based on several factors.

The DOE proposed how to calculate the equivalent petroleum-based fuel economy values of electric vehicles in 1980, tweaking its methods over the years.

In 2023, the DOE proposed an update to its calculation method that would eliminate the fuel content factors from the petroleum-equivalency factor, based in part on advances in electric vehicle technology and growth in market share.

However, the agency’s final rule chose to phase out the fuel content factor over a number of years rather than eliminate it.

In another part of the final rule, the DOE switched to using the “cumulative gasoline-equivalent fuel economy of electricity,” calculated over the projected useful life of an electric vehicle fleet — a method the agency had not proposed during the rulemaking process.

A group of 13 states, including Missouri, and the American Free Enterprise Chamber of Commerce, filed a petition for review.

In an opinion authored by Judge Duane Benton and joined by Judges Lavenski R. Smith and Ralph R. Erickson, the court sided with the states.

First the court determined that the states had standing, as they suffered injuries in fact fairly traceable to the DOE’s final rule and redressable by a favorable decision of the court.

In addition to increased costs of maintaining public roads (as electric vehicles are heavier than gasoline-powered vehicles, causing more wear and tear), the states alleged that because the inflated equivalent petroleum-based fuel economy values of electric vehicles enable car manufacturers to continue to produce less efficient gasoline vehicles, the final rule resulted in more energy consumption than the proposed rule would, in turn causing increased greenhouse gas emissions and for states on the coastline, rising global sea levels that eroded their sovereign territory.

DOE countered that the states were not directly regulated by the final rule, making their harm not fairly traceable, and that any harm was not redressable by the challenge because of new, more stringent EPA emissions standards that will combat greenhouse gas emissions.

But the court disagreed, pointing out that the EPA’s standards were published after the states filed their challenge.

Nor was the case mooted by the EPA’s new emissions standards, the court added, as the DOE’s final rule is “on the books” and the EPA’s standards are currently being challenged.

Turning to the final rule itself, the court rejected the DOE’s argument that it was due a high level of deference, finding that the agency’s broad reading of the various factors in the statute contradicted its decades-long construction.

While the court acknowledged that the DOE has some discretion to decide how to operationalize the factors, the agency exceeded the boundaries of its statutory authority with “the dramatic difference between DOE’s current view and its previous constructions of section 32904, the broadness of the authority DOE asserts by including the fuel content factor [and] the risk of making other subsections superfluous,” the court said. “DOE cannot ‘discover in a long-extant statute an unheralded power representing a transformative expansion in its regulatory authority.’”

The DOE stressed the statutory purpose to incentivize the production of electric vehicles and conserve energy, but “the general purposes of the statute do not resolve whether subsection 32904(a)(2)(B)(iii) empowers DOE to incentivize the production of electric vehicles,” the court wrote.

In addition, the states challenged the DOE’s calculation of the cumulative equivalent fuel economy of electricity “based on the expected survivability-weighted lifetime mileage schedule of the fleet of vehicles.”

Although the court concluded that the DOE’s interpretation of the statute was lawful, it found the agency violated the notice-and-comment procedures.

“DOE highlighted multiple alternative approaches it considered for calculating the petroleum-equivalency factor,” the court said. “But none of the alternatives included looking at the expected miles traveled each year during the lifetime of an electric vehicle fleet,” leaving interested parties unable to offer informed criticism and comments.

Determining that the insufficiencies found in the DOE’s final rule were not severable, the court held the proper remedy was to vacate the final rule and remand.

DOE contended that vacating the rule would disrupt the statute’s energy conservation goals and disrupt the reliance interests of car manufacturers, but the only precedent it pointed to involved an agency that violated notice-and-comment procedure.

“Here, DOE exceeds the authority granted by a substantive statute,” the court wrote, vacating and remanding.

A spokesperson for the Department of Justice, which represented the DOE, declined to comment.

The Missouri Attorney General’s Office did not respond to a request for comment on the decision.

The case is State of Iowa v. Wright, No. 24-1721.