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Justice Dept. launches antitrust probe of automakers over their fuel efficiency deal with California

(Stan Honda and Saul Loeb/AFP/Getty Images)

The Justice Department has launched an antitrust investigation of four leading automakers over an agreement they forged with the state of California to maintain higher fuel efficiency standards than those sought by the Trump administration, escalating the stakes in the long-running battle between the White House and California.

The Justice Department declined to comment Friday, but two other federal agencies said the state’s deal with Ford, Honda, Volkswagen and BMW of North America on gas mileage targets may be in violation of the law and warned of legal consequences.

California officials, who have repeatedly asserted the state’s rights under the 1970 Clean Air Act, criticized the inquiry as politicization to impose the Republican president’s policies.

“The U.S. Department of Justice brings its weight to bear against auto companies in an attempt to frighten them out of voluntarily making cleaner, more efficient cars and trucks than EPA wants,” Mary Nichols, chair of the California Air Resources Board, said in a statement. “Consumers might ask, who is [EPA Administrator] Andy Wheeler protecting?”

House Speaker Nancy Pelosi (D-Calif.) said the investigation “seeks to weaponize law enforcement for partisan political purposes to advance the Trump administration’s toxic special interest agenda.”

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The news coincides with arguments held Friday morning at the U.S. Court of Appeals in the District of Columbia over whether the Trump administration can reopen — and roll back — fuel efficiency standards the Obama administration set for model years 2022 through 2025. Environmental groups and states argue that the Trump administration has not done the technical research needed to make its own findings regarding the regulations.

The proposal to freeze mileage standards at roughly 37 miles per gallon through 2026, slated to be finalized this fall, is part of a broader effort by the administration to dismantle a slew of Obama-era policies aimed at curbing greenhouse gases linked to climate change.

The two federal entities — the Environmental Protection Agency and Transportation Department — notified the California Air Resources Board and Nichols that the state’s deal with the four automakers “appears to be inconsistent with federal law.”

The agencies’ general counsels urged the board to break the commitments with the automakers, as the agreement “may result in legal consequences given the limits placed in federal law on California’s authority.”

A spokeswoman for Ford Motor Co., Rachel McCleery, confirmed that the company had been contacted in connection with the antitrust probe. “We have received a letter from the Department of Justice and will cooperate with respect to any inquiry,” she said.

The probe was first reported by the Wall Street Journal.

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California’s push to set stricter tailpipe limits is important because the state ranks as the nation’s largest market for automobiles and its standards often carry weight beyond its borders. Administration officials have lobbied other automakers not to sign on to the new framework: On Thursday, the issue came up during a meeting between President Trump and General Motors chief executive Mary Barra.

The fuel efficiency standards ranked as a top priority for the Obama administration. In 2012, it adopted standards to boost average fuel efficiency to the equivalent of 54.5 miles per gallon for cars and light-duty trucks by model year 2025. The Obama administration said that fuel efficiency standards it had set would save consumers more than $1.7 trillion at the gas pump and reduce U.S. oil consumption by 12 billion barrels.

Since the Clean Air Act’s inception in 1970, California has had the right to seek a federal waiver to impose more-stringent air pollution standards than those of the federal government. Federal authorities have almost always granted the waiver, and California based its vehicle requirements on the grounds that it was regulating carbon emissions rather than overall fuel efficiency.

Thirteen other states and the District of Columbia have pledged to accept whatever tailpipe standards California adopts.

Under the framework California established with the four companies, which represent about 30 percent of the U.S. auto market, the automakers have agreed to produce fleets averaging nearly 50 miles per gallon by model year 2026. That is one year later than the target set under the Obama administration.

Conspicuously absent from the talks with California was GM. Larry Kudlow, Trump’s top economic adviser, said Friday morning on CNBC’s “Squawk Box” program: “We did meet with Mary Barra. Mary Barra expressed to the president her support for our reforms” on fuel standards. Kudlow said that Barra was “doing her best to open up plants.” He said, “Look, the industry asked us to lower the regulatory barriers to safe and cheaper cars.”

Asked about Kudlow’s comments, GM spokeswoman Jeannine Ginivan said that the company remained committed to finding a compromise on nationwide fuel efficiency standards that California and administration officials could accept.

In a statement Friday, California Gov. Gavin Newsom (D) pledged to press ahead with the auto agreement. “The Trump administration has been attempting and failing to bully car companies for months now. We remain undeterred,” said Newsom, who later taunted Trump on Twitter about the move. “California stands up to bullies and will keep fighting for stronger clean car protections that protect the health and safety of our children and families.”

When the deal between California and the four car companies was announced in July, the National Highway Traffic Safety Administration said that its push to roll back mileage standards did not mean that automakers could not manufacture more-efficient vehicles.

“The proposal contained no language that would prevent any auto manufacturer from designing and building next-generation highly fuel-efficient vehicles, including hydrogen fuel cell vehicles, battery electric vehicles, hybrids, and plug-in hybrids in response to market demands,” the agency said.

Margo Oge, who directed the EPA’s Office of Transportation and Air Quality from 1994 to 2012, questioned the Trump administration’s basis for the probe. California still has a federal waiver to set tailpipe emissions, she noted, and a similar voluntary framework on low-emissions vehicles was forged in the late 1990s.

“The idea that they did something illegal, and that the companies colluded, it doesn’t pass the laugh test,” Oge said.

Some antitrust experts said that any Justice Department case against the carmakers would have to argue that the effect of their joint conversations would be to raise prices above what they would be if the companies simply complied with federal law.

“It’s never been considered a violation of antitrust law for companies to get together and promote a policy position, said Gene Kimmelman, a senior adviser at the nonprofit free-expression group Public Knowledge who once served as chief counsel in the Justice Department’s antitrust division.

The carmakers in this instance “got together not with themselves but with state regulators to set policy,” he said. “It’s different from sitting down in a smoke-filled room with themselves.”

Sen. Thomas R. Carper (Del.), the top Democrat on the Senate Environment and Public Works Committee, said in a statement that “this investigation is nothing but an attempt by the Trump Administration to retaliate against these companies and stoke fear in others. If we should be investigating anything, it should be what is good for our planet in reducing automobile emissions and promoting job creation.”