A federal court test with potential national implications looms for the Bloomberg administration’s hope to convert most of the city’s taxi fleet to hybrid vehicles—part of the mayor’s PlaNYC environmental agenda.

After two defeats in district court in a lawsuit filed by taxi fleet owners who claim that the administration’s efforts to hybridize the fleet are illegal, the city is appealing the case to the 2nd Circuit Court of Appeals. A trial is tentatively scheduled for early 2010.

The Bloomberg administration first tried to shift the city’s 13,000-car taxi fleet to hybrid when it passed rules in late 2007—to take effect in October 2008—mandating that new yellow cabs be either wheelchair accessible or achieve a 25 miles per gallon standard in 2008, and achieve a 30 mpg standard in 2009. Since yellow cabs must be retired after three to five years’ service, this mandate would have essentially created an all-hybrid fleet by 2012.

An assortment of fleet owners and an industry group, the Metropolitan Taxicab Board of Trade (MTBOT), sued in federal court to block the rule. After District Court Judge Paul A. Crotty issued a preliminary injunction last October that prevented the mandate from taking effect, the city went back to the drawing board and drafted a new rule that created financial incentives, rather than mandates, to encourage yellow cab companies to switch to hybrid vehicles.

That second rule, issued in March 2009, changed the fees that fleet owners can charge drivers, most of whom lease their cabs. For hybrid cars, it would have increased the fee per driver’s shift by $3. For conventional taxis, it would have decreased the fee per shift by $12. The city claimed these new lease rates were designed to make owning hybrids more profitable to fleet owners.

But when the new program came before Crotty’s court, the fleet owners countered that the fee changes on conventional cabs were tantamount to a mandate—because they make owning such taxis so unprofitable that hybrids are the only viable economic choice. In June, Crotty granted another preliminary injunction blocking the reduction of fees on conventional cabs. Agreeing with the challengers, Crotty—a former top aide to Mayor Rudolph Giuliani who was appointed to the bench by President George W. Bush—wrote that “the combined effect of the lease cap changes, and even the disincentive alone, constitute an offer which can not, in practical effect, be refused.”

A mayoral priority

The hybrid program, which aims to double the efficiency of new taxis by 2012, is an integral component of the Bloomberg administration’s larger clean air agenda. A 2007 greenhouse gas emission study by the Mayor’s Office of Long-Term Planning and Sustainability recommended that New York, being particularly susceptible to the effects of climate change as a coastal city, develop a rigorous, science-based policy geared to lowering the city’s carbon dioxide emissions, 20 percent of which were determined to come from on-road vehicles.

And in a city where one in eight adults has been diagnosed with asthma at some point in their lives, advocates for hybrids have argued that air quality changes can improve health. At the March 2009 Taxi & Limousine Commission (TLC) hearing, Amy Henes, a representative of the American Lung Association, strongly supported the hybrid program, indicating that “our lungs were not meant to breathe the levels of pollution here in New York City.”

Hybrid cabs generate little or no pollution when idling, and waste little or no energy when braking, making them especially useful for in a city that is often bumper-to-bumper.

Fleet owners, however, say that they are not trying to stifle clean air laws or hybrid taxi initiatives, and point out that they did not even challenge the part of the new rule that increased lease rates on hybrids by $3 per shift, which is currently in effect. They only challenged the decrease on conventional cab lease rates because of its potential harm to business.

“Private owners have a right to make choices and make a profit,” said Richard Emery of Emery Celli Brinckerhoff & Abady, LLP, the law firm representing the fleet owners and MBOT. “We have no objection to an aggressive incentive scheme. The problem is taking away current revenues and lowering revenues in order to incentivize hybrids.”

“There is a lot that the city could do short of taking away all profits and driving people into a loss situation,” said Emery. “They could create tax incentives; they could create revenue incentives.”

But the financial loss alone didn’t win the day in Crotty’s court for the fleet owners. What led Crotty to block the hybrid rule in October and in June—and the reason the New York City case could have wide ramifications for environmental laws in other cities and states—is a legal doctrine know as preemption.

Constitutional questions

Preemption is commonly raised when a state or municipality tries to create legislation in an area where the federal government has already set the rules. The opponents of the hybrid rules claim that the city’s proposed leasing fees force them to adopt new fuel economy and emissions standards, and therefore illegally interferes with the federal Energy Policy Conservation Act (EPCA), which sets the rules for fuel economy, and the Clean Air Act, which sets the rules for vehicle emissions. Owners said that since the city’s hybrid law “offers only one reasonable option—the purchase of Hybrids—it is preempted by the EPCA and the CAA.”

Legally, preemption is based in the Constitution, which says in Article VI that “the laws of the United States…shall be the supreme law of the land.” When it comes to environmental laws, there’s a practical basis as well. Keeping environmental laws uniform around the country prevents states from enticing business with lax regulation, and provides a mechanism for forcing states that emit pollution across state borders to implement controls.

But a city or a state may face unique environmental challenges that call for more specific and often stricter laws than the federal ones that apply to all 50 states.

According to Jim Tripp, general counsel at the Environmental Defense Fund, this is the case when it comes to New York City and tailpipe emissions. He argues that EPCA and the Clean Air Act impose broad, national standards that do not necessarily account for congested conditions of New York and similar cities.

“Manhattan as a city is a kind of heat island; a lot of that [heat] is generated by motor vehicles that are idling while consuming fossil fuels,” says Tripp. “If we had free-flowing traffic in the city that was moving 30 to 40 miles per hour everywhere, we’d probably not have the pollution from motor vehicles that we do in the city.”

Rather than being tied to fuel economy or emission standards, which are usually federal territory, Tripp says the city’s program should be viewed more as an effort to mitigate the local issues of pollution and energy waste that results from the frequent braking and idling associated with congestion.

In its last brief to Crotty, the city points out that the situation it faces is unique in another way, thanks to the peculiar economics of its taxi industry. Because fleet companies buy and own many of the city’s taxis but drivers pay for gas, the rising price of fuel does not directly affect all taxi purchasing decisions. Drivers might want hybrids because they use less gas and would cost less to operate, but owners aren’t affected by fuel costs. Instead, owners only see the higher price-tag attached to hybrid cabs.

New York, however, is not unique in facing challenges to its attempt to make local environmental policy. “During the Bush administration, states and local governments were creative in many ways when faced with federal regulatory laxity, and so they became more active,” said Professor William Buzbee, a professor at Emory Law School and co-author of a recent book on the legal issues around local environmental laws.

A ruling on the legality of the city’s scheme by the Court of Appeals may not only decide the fate of the city’s hybrid taxi program but also might determine whether preemption will bar other cities and states from passing similar clean air legislation.

The city’s district court brief argues that blocking the city’s incentive program could put many other clean air programs across the nation at risk of preemption challenges, including an incentive program in Dallas which extends the permitted lifespan of hybrid cabs versus conventional taxis, a California program that funds 75 percent of the costs for cleaner school buses and a reduced license tax on alternative fuel vehicles in Arizona.

A law similar to New York City’s aimed at hybridizing Boston taxis was recently struck down in Massachusetts federal district court. Though Crotty’s decision was not binding on Massachusetts, it was cited in the ruling and used as persuasive authority.

The road ahead

The reach of the looming decision, however, will depend on how it is written. “If the ruling here is upheld in broad language, I think it could have national implications,” said Buzbee. A narrower ruling rooted in the specifics of the city’s incentive scheme would be less likely to affect other cities and states. The Law Department’s Ramin Pejan, a lead attorney on this case, cautioned that preemption is a “complex doctrine,” making it “very hard to say how a ruling will affect another city initiative under a different statute or even under the same statute.”

A very narrow ruling would spare other cities’ programs. And it could mean that New York will be able to rewrite the incentive rule to make it less harsh on profits in order to pass federal muster—although a watered-down approach is likely to be less effective. The city can also expand a previous, unchallenged law that issued new taxi medallions that were limited to hybrids.

In the meantime, the number of hybrid taxis on the city’s streets is on the rise, having increased from fewer than 500 in January 2007 to more than 2,000 this past April—comprising more than 15 percent of the taxi fleet. The city has argued in legal briefs that this increase is largely due to purchases by drivers who own their vehicles. They are twice as likely as fleet owners to buy hybrids.

“Carrots and sticks help, but the marketplace is dictating it,” says Jack Hidary, a social entrepreneur and leading advocate for hybrid cabs. He notes that most of the city’s taxi fleet is owner-operated and that gas prices are heading up again. “As you see that happen, organically you’re going to see the take-up of hybrids increase. The fact is, this makes sense for the drivers, for New Yorkers and it ultimately makes sense even for these taxi fleets.” Fleets that don’t convert will lose drivers as gas prices rise, Hidary predicts.

Bhairavi Desai, executive director of the Taxi Workers Alliance, an organization that is in favor of reducing lease caps on Crown Victorias, says that “it is absolutely unfair that drivers alone have to bear the burden of the fuel cost.” Desi said that before the 1980s, companies would cover fuel costs, but when drivers started paying for fuel there was no corresponding reduction in lease rates. However, Desi does not agree with the lease cap increases on hybrids. “You cannot have environmental reform and gut the rights of working people,” she says.

Current hybrid cab driver Stephen Benesozcky, a New York cabbie with more then 20 years experience, said that when you increase lease rates, drivers are under more pressure to earn enough to cover the lease costs. But he likes driving a hybrid and appreciates the substantial savings in gasoline.

“What the city’s doing is completely right,” said Benesozcky. “We have just too many gas-guzzling cars on the road.”

– Hashim Rahman