Engine Mfrs. Ass'n v. E.P.A.

• Decision Date: 15 April 1994
• Docket Number: No. 92-1403,92-1403
• Citation: 20 F.3d 1177
• Parties: , 305 U.S.App.D.C. 313, 62 USLW 2671, 24 Envtl. L. Rep. 20,832 ENGINE MANUFACTURERS ASSOCIATION, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY and Carol M. Browner, Administrator, Respondents.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1177

20 F.3d 1177

38 ERC 1502, 305 U.S.App.D.C. 313, 62

USLW 2671,

24 Envtl. L. Rep. 20,832

ENGINE MANUFACTURERS ASSOCIATION, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY and Carol M. Browner, Administrator, Respondents.

No. 92-1403.

United States Court of Appeals, District of Columbia Circuit.

Argued Nov. 10, 1993.

Decided April 15, 1994.

Stephen Fedo, Chicago, IL, argued the cause for petitioner. With him on the briefs was Jed R. Mandel, Chicago, IL.

Glen Freyer, Trial Atty., U.S. Dept. of Justice, Washington, DC, argued the cause for respondent. With him on the brief was Alan W. Eckert, Associate Gen. Counsel, U.S. Env. Pr. Ag., Washington, DC.

Before WALD, BUCKLEY, and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

The Engine Manufacturers Association challenges a final rule of the Environmental Protection Agency assessing engine manufacturers for the full cost of the agency's Motor Vehicle and Engine Compliance Program under which it tests vehicles and engines for compliance with the emissions standards of the Clean Air Act. See Motor Vehicle and Engine Compliance Program Fees for: Light-Duty Vehicles and Trucks; Heavy-Duty Vehicles and Engines; and Motorcycles, 57 Fed.Reg. 30,044 (1992) (to be codified at 40 C.F.R. pt. 86). We hold that because the Compliance Program confers a specific, private benefit upon the manufacturers, the EPA can lawfully recoup from them the reasonable cost of the program. We remand the matter, however, for the agency to explain the basis upon which it computed the fees it is assessing.

I. BACKGROUND

Under the Clean Air Act, each new motor vehicle and motor vehicle engine manufactured for sale in the United States must comply with certain emissions standards throughout its useful life. 42 U.S.C. Sec. 7521(a)(1). Every year the manufacturer of a vehicle or engine must obtain from the EPA a compliance certificate for each vehicle or engine type in order to sell its equipment. 42 U.S.C. Secs. 7522(a), 7525(a). As part of its application for such a certificate, the manufacturer must certify that the vehicle or engine complies with, and throughout its useful life will comply with, the applicable emissions standards.

The EPA's Compliance Program is a comprehensive testing regime intended to ensure that vehicles and engines do in fact meet and continue to meet the emissions standards of the Act. Pursuant to the Compliance Program, vehicles and engine types are tested at three different stages. First, in anticipation of applying for an initial certification, the manufacturer tests the engine or vehicle prototype. 42 U.S.C. Sec. 7525(a). Second, in what is called a selective enforcement audit, the EPA may test an individual vehicle or engine taken from the assembly line. 42 U.S.C. Sec. 7525(b)(1). Finally, the agency may require that an engine or vehicle be tested after it has been in use for a period of time. 42 U.S.C. Sec. 7541(b). At each successive stage, the EPA tests fewer engine and vehicle models; thus, every engine or vehicle model is tested prior to certification, but not every one will be chosen for a selective enforcement audit, and fewer still will be tested for compliance in use.

If a vehicle or engine fails to meet emissions standards at the first stage of testing, then the EPA will not grant the manufacturer a compliance certificate; if it fails at the second stage, then the EPA may suspend or revoke the certificate. If the vehicle or engine fails to meet emissions standards after it has been in use for a time (regardless whether it is still in production), then the EPA may require the manufacturer to recall the product at the manufacturer's expense.

The Clean Air Act Amendments of 1990 authorize the EPA to promulgate regulations, consistent with the Independent Offices Appropriations Act, "establishing fees to recover all reasonable costs" it incurs in connection with this three-stage Compliance Program. 42 U.S.C. Sec. 7552(a). The IOAA, in turn, authorizes each federal agency to collect a fee from the beneficiary of "each service or thing of value" it provides in order to make such service "self-sustaining to the extent possible." 31 U.S.C. Sec. 9701(a). The statute itself describes only generally how an agency should determine the amount of such a fee: it may impose upon a beneficiary only a charge that is "fair," taking into consideration "the costs to the Government; the value of the service or thing to the recipient; [the] public policy or other interest served; and other relevant facts." 31 U.S.C. Sec. 9701(b)(2).

The EPA set out to determine the amount of the fee it could charge each engine manufacturer, per compliance certificate issued to it, by adding up its annual direct and indirect recoverable costs for each type of certification (motorcycle, light-duty, and heavy-duty) and dividing that amount by the number of requests it receives each year (on average) for certifications of each type. Notice of Proposed Rulemaking, 56 Fed.Reg. 30,230, 30,235 (1991). The resulting annual fee, multiplied by the number of certificates a manufacturer holds, represents that manufacturer's share of all costs the EPA incurs with respect to the Compliance Program that year, not only for certification testing but also for selective enforcement auditing and in-use testing--regardless of the extent to which that manufacturer's engines or motor vehicles may be subjected to second or third stage testing. 57 Fed.Reg. at 30,048.

The EMA now challenges the EPA's authority under the IOAA to recoup its full cost of running the Compliance Program, on the ground that selective enforcement audits and in-use compliance testing, as opposed to initial product certification, provide no benefit to engine manufacturers. In the alternative, the Association contends that the proposed fees are excessive and that the agency provided insufficient cost justification for them.

II. ANALYSIS

Under the IOAA an agency may impose a fee only for a service that confers a specific benefit upon an identifiable beneficiary, Federal Power Comm'n v. New England Power Co., 415 U.S. 345, 349, 94 S.Ct. 1151, 1154, 39 L.Ed.2d 383 (1974). A general benefit conferred upon an industry, such as the public confidence that may attend the mere fact of its regulation, is insufficient to justify a fee. New England Power Co., 415 U.S. at 350, 94 S.Ct. at 1154; National Cable Television Ass'n v. FCC, 554 F.2d 1094, 1097 (D.C.Cir.1976). If the agency does confer a specific benefit upon an identifiable beneficiary, however, then it is of no moment that the service may incidentally confer a benefit upon the general public as well. National Cable Television Ass'n v. FCC, 554 F.2d at 1103. In a regulated industry, a certificate of approval is deemed a benefit specific to the recipient. New England Power Co., 415 U.S. at 349 n. 3, 94 S.Ct. at 1154 n. 3; National Cable Television Ass'n v. FCC, 554 F.2d at 1102-03.

An agency may not charge more than the reasonable cost it incurs to provide a service, or the value of the service to the recipient, whichever is less. National Cable Television Ass'n v. FCC, 554 F.2d at 1104-07. If the service provides both a specific benefit to an identifiable beneficiary and an independent benefit to the public, then the agency must prorate its costs, lest the specific beneficiary be charged for agency costs attributable to the public benefit. National Cable Television Ass'n v. United States, 415 U.S. 336, 343, 94 S.Ct. 1146, 1150, 39 L.Ed.2d 370 (1974); Electronic Indus. Ass'n v. FCC, 554 F.2d 1109, 1115 (D.C.Cir.1976).

A. The Benefit Criterion

The EMA does not dispute that a compliance certificate confers a specific benefit upon an engine or vehicle manufacturer or that the EPA may therefore recover its costs of administering the certification program. The EMA maintains that selective enforcement audits and in-use compliance testing, however, are simply means of enforcing the emissions standards of the Clean Air Act; the benefits of such second and third stage testing, it claims, "accrue exclusively to the public" in the form of cleaner air, and are unrelated to the private benefit conferred upon engine manufacturers by the certification process, namely, the right to sell their products. For the following reason, we do not agree.

Selective enforcement audits and in-use compliance testing are integral parts of the compliance regime to which a manufacturer submits when it first applies for a certificate; passing each successive compliance test is necessary in order to keep its product certified for sale and to avoid the cost of a recall. Selective enforcement audits and in-use compliance testing are therefore services that the EPA renders to each manufacturer in order for the manufacturer to comply with the Clean Air Act. See Electronic Indus. Ass'n, 554 F.2d at 1115. It follows that the manufacturer obtains a benefit from the entire Compliance Program, not just from the annual certification. The situation would be no different, from an economic point of view, if the Clean Air Act required that each manufacturer arrange for an independent entity to test its products off the assembly line and in use, and the EPA offered to do the tests; it would just be more obvious that the EPA is providing a service for which it is entitled to a reasonable fee.

The private benefit conferred in the latter phases of the Compliance Program, moreover, is specific to the manufacturer. The public benefits associated with cleaner air are incidental to, not independent of, that private benefit, in the sense that they are produced at no cost beyond that required to produce the private benefit. See Central & Southern Motor Freight Tariff Ass'n v. United States, 777 F.2d 722, 732 (D.C.Cir.1985) ("If the asserted public benefits are the necessary consequence of the agency's provision of the relevant private benefits, then the public benefits are...