Why It Matters

The federal Corporate Average Fuel Economy (CAFE) program now carries a $0 civil penalty for manufacturers violating fuel-economy standards, weakening a central enforcement mechanism. A Congressional Research Service (CRS) report examines how recent statutory and regulatory changes affect the program.

The FY 2025 reconciliation law, Public Law 119-21, reduced the penalty to zero. CRS notes the change may weaken incentives to improve fuel economy and affect credit trading, although market forces and technological advances could continue encouraging efficiency.

Separately, the Trump administration's final rule lowered projected average light-duty fuel economy for model year 2031 from 50.4 mpg under the Biden administration's 2024 standards to 34.9 mpg. Congress could restore penalties, revise credit trading, reconsider the Environmental Protection Agency's (EPA's) role, or leave the current framework intact.

The Big Picture

Established under the Energy Policy and Conservation Act, Public Law 94-163, CAFE requires the National Highway Traffic Safety Administration (NHTSA) to establish separate fleet-average standards for domestic passenger cars, imported passenger cars and light trucks. Vehicle-specific targets depend on a vehicle's footprint, which measures its size, and contribute to each manufacturer's fleet-average requirement.

The new rule changes vehicle classifications beginning with model year 2030, moving certain light trucks primarily designed to transport passengers into the passenger-car category. It also eliminates inter-manufacturer trading of credits earned beginning with model year 2028, while allowing previously earned credits to remain tradable under existing time limits.

NHTSA argues that separate passenger-car and light-truck standards encouraged unintended market changes, including manufacturers replacing station wagons with minivans and crossover vehicles. In February, EPA rescinded its 2009 greenhouse-gas endangerment finding and repealed federal vehicle greenhouse-gas emissions standards.

CRS explains that without EPA vehicle greenhouse-gas standards, NHTSA would have no corresponding standards to align with CAFE requirements. EPA nevertheless retains responsibilities involving fuel-economy testing, verification and labeling.

The Bottom Line

CRS identifies several congressional options, including restoring civil penalties, changing fleet classifications, revising credit banking and trading, and modifying alternative-fuel incentives.

The report does not recommend a particular approach. Although the administration can revise regulations within existing statutory authority, Congress controls the program's underlying legal framework, including penalties, credit provisions and standard-setting requirements.

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