OF
C
OLUMBIA
; C
ITY OF
N
EW
Y
ORK
,

Petitioners,
v.
N
ATIONAL
H
IGHWAY
T
RAFFIC
S
AFETY
A
DMINISTRATION
, an agency
within the U
NITED
S
TATES
D
EPARTMENT OF
T
RANSPORTATION
,
Respondents.

No. 06-72317

TRAN No.

Reg. 17,566

14831
14832
C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
S
TATE OF
M
INNESOTA
,
Petitioner,
v.
N
ATIONAL
H
IGHWAY
T
RAFFIC
S
AFETY
A
DMINISTRATION
, an agency
within the U
NITED
S
TATES
D
EPARTMENT OF
T
RANSPORTATION
,
Respondent.

No. 06-72641
TRAN No.
Energy Policy Act


S
IERRA
C
LUB
; P
UBLIC
C
ITIZEN
, I
NC
.,
Petitioners,
v.
D
EPARTMENT OF
T
RANSPORTATION
,
Respondent.


No. 06-72694

E
NVIRONMENTAL
D
EFENSE
,
Petitioner,
v.
D
EPARTMENT OF
T
RANSPORTATION
,
Respondent.


No. 06-73807

N
ATURAL
R
ESOURCES
D
EFENSE
C
OUNCIL
, I
NC
.,
Petitioner,
v.
D
EPARTMENT OF
T
RANSPORTATION
,
Respondent.

No. 06-73826
TRAN No.
NHTSA 2006­

24306
OPINION
C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
14833
On Petition for Review of an Order of the

Dept. of Transportation, NTSB

Argued and Submitted

May 14, 2007San Francisco, California

Filed November 15, 2007

Before: Betty B. Fletcher, Eugene E. Siler, Jr.,* and

Michael Daly Hawkins, Circuit Judges.

Opinion by Judge B. Fletcher;

Partial Concurrence and Partial Dissent by Judge Siler

*The Honorable Eugene E. Siler, Jr., Senior United States Circuit Judge
for the Sixth Circuit, sitting by designation. C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
14837
COUNSEL
Patrick Gallagher, Sierra Club; Sean H. Donahue (argued),
Environmental Defense; Aaron Colangelo, David Doniger,
Margaret Renner, Natural Resources Defense Council for
Public Interest petitioner-appellants on Energy Policy Conser­
vation Act Issues.
Deborah A. Sivas, Holly D. Gordon, Stanford Law School
Environmental Law Clinic; Kassia R. Siegel, Brendan R. 14838
C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
Cummings, Center for Biological Diversity for Public Interest
petitioner-appellants on National Environmental Policy Act
Issues.
Edmund Brown, Jr., Thomas Greene, Theodora Berger, Ken
Alex, Susan S. Fiering (argued), Office of the Attorney Gen­
eral of California; Richard Blumenthal, Kimberly Massicotte,
Jose Suarez, Office of the Attorney General of Connecticut;
G. Steven Rowe, Gerald D. Reid, Office of the Attorney Gen­
eral of Maine; Thomas F. Reilly, William L. Pardee, Matthew
Brock, Office of the Attorney General of Massachusetts; Stu­
art Rabner, Howard Geduldig, Lisa J. Morelli, Office of the
Attorney General of New Jersey; Patricia A. Madrid, Stephen
R. Farris, Office of the Attorney General of New Mexico;
Eliot Spitzer, Caitlin Halligan, Jared Snyder, Office of the
Attorney General of New York; Hardy Myers, Philip
Schradle, Richard M. Whitman, Office of the Attorney Gen­
eral of Oregon; Patrick C. Lynch, Tricia K. Jedele, Office of
the Attorney General of Rhode Island; William H. Sorrell,
Kevin O. Leske, Office of the Attorney General of Vermont;
Eugene A. Adams, Todd S. Kim, Donna M. Murasky, Office
of the Attorney General for the District of Columbia; Michael
A. Cardozo, Susan M. Kath, Scott Pasternack, Tracy Triplett,
Corporation Counsel for the City of New York; Mike Hatch,
Ronald Gitek, Office of the Attorney General of Minnesota
for petitioner-appellants in Consolidated Cases Nos. 06-72317
and 06-72641.
Rosalind A. Knapp, Paul M. Geier, Peter J. Plocki, Anthony
M. Cooke, Lloyd S. Guerci, Katherine C. Gehringer, Timothy
H. Goodman, David W. Case, National Highway Traffic
Safety Administration, Department of Transportation; Peter
D. Keisler, Matthew J. McKeown, Office of the U.S. Attorney
General; Ronald M. Spritzer, Environment and Natural
Resources Division; Douglas N. Letter, H. Thomas Byron
(argued), U.S. Department of Justice, Civil Division for the
respondent-appellees. C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
14839
OPINION
B. FLETCHER, Circuit Judge:
Eleven states, the District of Columbia, the City of New
York, and four public interest organizations petition for
review of a rule issued by the National Highway Traffic
Safety Administration (NHTSA) entitled Average Fuel
Economy Standards for Light Trucks, Model Years 2008­
2011, 71 Fed. Reg. 17,566 (Apr. 6, 2006) (Final Rule)
(codified at 49 C.F.R. pt. 533). Pursuant to the Energy Policy
and Conservation Act of 1975 (EPCA), 49 U.S.C. §§ 32901­
32919 (2007), the Final Rule sets corporate average fuel econ­
omy (CAFE) standards for light trucks, defined by NHTSA to
include many Sport Utility Vehicles (SUVs), minivans, and
pickup trucks, for Model Years (MYs) 2008-2011. For MYs
2008-2010, the Final Rule sets new CAFE standards using its
traditional method, fleet-wide average (Unreformed CAFE).
For MY 2011 and beyond, the Final Rule creates a new CAFE
structure that sets varying fuel economy targets depending on
vehicle size and requires manufacturers to meet different fuel
economy levels depending on their vehicle fleet mix
(Reformed CAFE).
Petitioners challenge the Final Rule under the EPCA and
the National Environmental Policy Act of 1969 (NEPA), 42
U.S.C. §§ 4321-4347 (2007).
1
First, they argue that the Final
Rule is arbitrary, capricious, and contrary to the EPCA
because (a) the agencys cost-benefit analysis does not set the
1
Petitioners also argued in their opening briefs that the EPCA does not
preempt Californias Clean Air Act motor vehicle greenhouse gas emis­
sions standards. They raised this argument in response to NHTSAs asser­
tion in the preamble of the Final Rule that the EPCA preempts state laws
and regulations regarding fuel economy standards. See 71 Fed. Reg. at
17,654-70. We do not address this issue since the parties agreed in their
response briefs and at oral argument that the preemption discussion in the
preamble of the Final Rule is not final agency action and thus not cur­
rently reviewable. 14840
C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
CAFE standard at the maximum feasible level and fails to
give due consideration to the need of the nation to conserve
energy; (b) its calculation of the costs and benefits of alterna­
tive fuel economy standards assigns zero value to the benefit
of carbon dioxide (CO ) emissions reduction; (c) its calcula­
2
tion of costs and benefits of alternative fuel economy stan­
dards fails to evaluate properly the benefit of vehicle weight
reduction; (d) Reformed CAFE standards will depend on
manufacturer fleet mix and not guarantee a minimum average
fuel economy or backstop; (e) the transition period during
which manufacturers may choose to comply with either Unre­
formed or Reformed CAFE is contrary to the maximum fea­
sible requirement and unnecessary; (f) it perpetuates the
SUV loophole, which allows SUVs, minivans, and pickup
trucks to satisfy a lower fuel economy standard than cars; and
(g) it excludes most vehicles rated between 8,500 and 10,000
pounds gross vehicle weight (comprised mostly of large
pickup trucks) from any fuel economy regulation, even
though these vehicles satisfy the statutory criteria for regula­
tion.
Second, Petitioners argue that NHTSAs Environmental
Assessment is inadequate under NEPA because it fails to take
a hard look at the greenhouse gas implications of its rule-
making and fails to analyze a reasonable range of alternatives
or examine the rules cumulative impact. Petitioners also
argue that NEPA requires NHTSA to prepare an Environmen­
tal Impact Statement.
NHTSA argues that the Final Rule is not arbitrary and
capricious or contrary to the EPCA, the Environmental
Assessments evaluation of the environmental consequences
of its action is adequate, and an Environmental Impact State­
ment is not required.
We have jurisdiction under 49 U.S.C. § 32909(a) to review
the Final Rule issued by NHTSA. We hold that the Final Rule
is arbitrary and capricious, contrary to the EPCA in its failure C
ENTER FOR
B
IOLOGICAL
D
IVERSITY
v. NHTSA
14841
to monetize the value of carbon emissions, failure to set a
backstop, failure to close the SUV loophole, and failure to set
fuel economy standards for all vehicles in the 8,500 to 10,000
gross vehicle weight rating (GVWR) class. We also hold
that the Environmental Assessment was inadequate and that
Petitioners have raised a substantial question as to whether the
Final Rule may have a significant impact on the environment.
Therefore, we remand to NHTSA to promulgate new stan­
dards as expeditiously as possible and to prepare a full Envi­
ronmental Impact Statement.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. CAFE Regulation Under the Energy Policy and
Conservation Act
In the aftermath of the energy crisis created by the 1973
Mideast oil embargo, Congress enacted the Energy Policy and
Conservation Act of 1975, Pub. L. No. 94-163, 89 Stat. 871,
901-16. See H.R. Rep. No. 94-340 at 1-3 (1975), as reprinted
in 1975 U.S.C.C.A.N. 1762, 1763-65. Congress observed that
[t]he fundamental reality is that this nation has entered a new
era in which energy resources previously abundant, will
remain in short supply, retarding our economic growth and
necessitating an alteration in our lifes habits and expecta­
tions. Id. at 1763. The goals of the EPCA are to decrease
dependence on foreign imports,