NHTSA Proposes New Fuel Economy Standards for Light-Duty Vehicles
The National Highway Traffic Safety Administration (NHTSA) has announced proposed changes to corporate average fuel economy (CAFE) standards for light-duty vehicles, covering model years 2022 through 2031. These changes include pivotal amendments to the current CAFE program and plans to terminate the manufacturer credit trading program starting in 2028.
Major Shifts in Fuel Economy Standards
In its latest proposal, NHTSA has decided to exclude electric vehicles and compliance credits from its fuel economy standards considerations. The proposed baseline for model year 2022 is set at 31.2 miles per gallon for the entire light-duty fleet, which includes passenger cars and light trucks. The standards are expected to incrementally rise each year, reaching an average of 34.5 miles per gallon by 2031.
Another key proposal is the removal of the inter-manufacturer credit trading program by 2028, which has been a significant part of compliance strategies for manufacturers. NHTSA also reiterated that states cannot create or enforce their own fuel economy regulations, referencing the Energy Policy and Conservation Act (EPCA) preemption provision.
Policy Changes Under the Trump Administration
This proposal is part of broader changes made during the second Trump Administration, aiming to reassess the CAFE program. President Trump initiated these changes with Executive Order 14154, “Unleashing American Energy,” which emphasizes reducing regulatory barriers and promoting consumer choice in vehicles.
Additionally, the One Big Beautiful Bill Act (OBBBA) passed in July 2025, has eliminated civil penalties for non-compliance with fuel economy standards, effectively nullifying the compliance credits market. Previously, these penalties and credits played a crucial role in ensuring manufacturers adhered to fuel economy standards.
Detailed Proposals for Fuel Economy and Vehicle Classifications
In June 2025, NHTSA concluded that electric vehicles should not be factored into fuel economy baselines. Consistent with this, the new proposal suggests standards be based solely on gasoline and diesel-powered light-duty vehicles. The agency underlined its responsibility to set standards at a feasible level, considering technological, economic, and energy conservation factors.
The proposed changes also intend to discontinue considering certain technologies, such as air conditioner efficiency, due to their limited demand and questionable benefits. NHTSA plans to redefine the relationship between a vehicle’s footprint and its fuel economy targets, potentially impacting the incentive to produce larger vehicles.
The agency has proposed updated baselines for model year 2022, setting 36 miles per gallon for passenger cars and 27.7 miles per gallon for light trucks, excluding electric vehicles from these figures. The proposal outlines a gradual increase in standards, with an annual growth rate of 0.5% from 2022 to 2026, and 0.25% from 2027 to 2031.
Revisions to the CAFE Program
Beyond fuel economy standards, NHTSA suggests substantial changes to the CAFE program. A significant proposal is the elimination of the manufacturer compliance credit trading program. Although the market for credits has already been weakened by the OBBBA, this move would formally end credit exchanges by 2028.
NHTSA also plans to revise criteria for classifying vehicles as passenger cars or light trucks. This is in response to a market shift favoring larger vehicles like minivans and crossovers over station wagons. The agency proposes removing axle clearance as a criterion for light trucks from 2028, addressing changes in vehicle design that prioritize higher ground clearance.
Preemption and State Regulations
The proposal reaffirms that EPCA’s blanket preemption prevents states from setting their own fuel economy standards, even if the Environmental Protection Agency (EPA) grants waivers under the Clean Air Act. NHTSA clarified that this preemption stands irrespective of congressional actions on EPA waivers.
The proposal is currently open for public comment for 45 days following its publication in the Federal Register. For more information, the full proposal can be accessed here.
Original Story at www.gibsondunn.com