The Trump administration has moved to roll back vehicle fuel efficiency standards implemented by the Biden administration.
Trump officials argue the change would lower the upfront cost of buying a new car, and they criticized the Biden rules as an overly costly effort to boost electric vehicles in the name of combating climate change.
Defenders of the standards, though, claim that the standards proposed by Trump will harm consumers in the long run and place the domestic auto industry at a disadvantage.
The proposal to overhaul the Corporate Average Fuel Economy, or CAFE, standards, put forward by the Trump Department of Transportation, represents a significant shift for the entire auto industry. Here’s what to know.
What is the CAFE standard?
The CAFE standard was established by Congress in 1975 as a way to conserve oil in response to the Arab oil embargo, which led prices to spike. The standard requires automakers to meet fuel efficiency targets for all cars and light trucks. The targets are aimed at lessening energy consumption and reducing consumer costs and greenhouse gas emissions.
The standards essentially require manufacturers to ensure that their fleets maintain an average miles-per-gallon target for cars and trucks.
The Biden administration set fuel economy standards to increase 2% per year for model years 2027 to 2031 for passenger cars, while light trucks would increase 2% per year for model years 2029 to 2031. The requirements would result in light-duty vehicles reaching an average of 50.4 mpg by MY 2031.
The standards apply to the entire fleet of a manufacturer, based on the volume of models produced, and the formula for calculating the average mpg is quite complicated and takes into account a number of factors.
In other words, not every vehicle produced by a manufacturer needed to meet the mpg standards. Automakers could sell gas-guzzlers, just as long as production of those cars was offset by enough highly efficient cars to bring the average down to an acceptable level.
Critically, the production of electric vehicles and hybrid vehicles could also bring the average down. So, over time, as the requirements tightened under the Biden rules, manufacturers would be pressured to produce more EVs and fewer gas-powered cars.
Automakers that fell short of the requirements could come into compliance by buying regulatory “credits” from manufacturers that exceeded the requirements.
So, for instance, a manufacturer that only made EVs, such as Tesla, would generate credits that it could sell to other automakers.
The sale of the credits is a big business. Tesla made over $11 billion in the past decade from regulatory credits.
What did the Trump administration propose?
The Trump administration argued that the Biden administration’s fuel economy rules, along with other regulations, amounted to a “backdoor EV mandate.”
Trump campaigned against the Biden team’s EV policies, and he has slashed subsidies for EV purchases and undone a number of rules meant to promote EVs.
The new CAFE standards proposal from the Trump administration would significantly scale back the requirements. The administration maintains that they could now be met by gas-powered cars, and won’t require a shift to EVs.
Specifically, the proposal would ramp down the required improvement in fuel economy, until it is just 0.25% a year for MYs 2029 to 2031, for cars and trucks.
The administration said that the proposed standards would achieve a fleet average fuel economy of 34.5 mpg by MY 2031, far down from the 50.4 mpg envisioned under the Biden rules.
The Trump proposal would also end the credit trading program, starting in MY 2028.
The other major change in the Trump proposal is that it would reclassify crossovers and small SUVs as passenger vehicles rather than light trucks. The Trump administration argues that categorizing those vehicles as trucks subject to lower fuel economy requirements created a market distortion.
What would happen to car prices?
Trump touted last week that the proposal would save consumers and the auto industry money. The administration said that the new standards would save consumers $1,000 on the sticker price of a new vehicle and save families $109 billion over the next five years. The administration said the previous standards made it more expensive for automakers to comply, requiring them to invest more in EV production.
Josh Linn, a professor at the University of Maryland, told the Washington Examiner that weakening the standards would lower vehicle prices because automakers wouldn’t have to invest in as much fuel-saving technology.
“I agree, you know, whether it’s $1,000 or $1,500, the fact remains that prices are going to go down because of weaker standards,” Linn said.
What about fuel costs?
Critics, though, argue that consumers benefit over time from higher efficiency, as they spend less on fuel over the lifetime of the vehicle.
Automotive industry experts cautioned that reduced fuel efficiency standards could lead to higher long-term fuel costs for drivers.
Kevin Brown, an independent consultant for the Manufacturers of Emission Control Association, told the Washington Examiner that the proposal’s fuel standard requirements are far lower than what the auto industry is projected to achieve, allowing for manufacturers to produce less efficient vehicles while still complying.
For example, under the proposal, passenger cars are required to reach 37.4 mpg by 2031. But the agency estimates that automakers will achieve about 46.3 mpg by that year, even after taking into consideration the proposed changes.
“You’re not requiring anybody to actually improve fuel economy in this proposal. So, because of that, you’re actually potentially allowing them to backslide and produce less efficient vehicles,” Brown said, adding that the consumer savings on vehicles will be offset by increases in fuel consumption.
Brown also noted that the proposal could incline manufacturers not to deploy feasible technologies since they are not needed to meet fuel-efficiency standards.
“This is a do-nothing proposal,” Brown said.
The Trump White House Council of Economic Advisers defended the proposal by saying that the Biden standards assumed that “consumers were economically irrational for purchasing less efficient vehicles (notwithstanding that comparative fuel cost information is literally displayed on new vehicles), and thus needed to be nudged toward purchasing decisions myopically driven by fuel economy considerations.”
What would it mean for “stop-start” systems and other efficiency features?
Theoretically, the proposal could mean that some efficiency features could disappear from cars made in the years ahead.
That includes the “stop-start” system, a feature that causes cars to cut the engine at red lights automatically.
The Trump administration has made an effort to eliminate vehicle stop-start functions, claiming that everyone dislikes them. Environmental Protection Agency Administrator Lee Zeldin called them a “climate participation trophy.”
Credits for stop-start systems, and others of what are called “off-cycle” fuel credits and air conditioning efficiency credits, would be removed from the efficiency calculations starting with MY 2028. In other words, car manufacturers would no longer get credits for adding such features.
The changes will ensure the CAFE standards are “achievable without the implementation of technologies not demanded by consumers and with questionable fuel economy benefits,” the proposal reads.
What does this mean for the industry?
The Trump administration argues that the proposal will protect consumer choice and aid the market for trucks.
Globally, the industry is shifting toward higher efficiency. Automakers in Europe, China, Japan, and elsewhere have been seeking ways to transition toward more fuel-efficient vehicles like hybrid plug-ins and electric vehicles.
“A lot of major markets around the world are pushing emissions and fuel consumption down,” Linn said.
“If these companies, based in the U.S., like GM and Ford, for example, if they want to compete in those other markets, they need to produce vehicles that have very low emissions,” he added.
What about Trump’s call for ‘tiny cars’
The proposal could open the door to Trump’s call for the auto industry to manufacture “tiny cars.”
Trump on Friday unexpectedly said that auto manufacturers should begin producing “tiny cars” as a way to provide consumers with less expensive options, referencing the small vehicles he saw during a trip to Japan. According to Kelley Blue Book, the average vehicle in America costs about $50,000.
“Manufacturers have long wanted to do this, just like they are so successfully built in other countries,” the president wrote Friday morning on Truth Social. “They can be propelled by gasoline, electric, or hybrid. These cars of the very near future are inexpensive, safe, fuel efficient and, quite simply, AMAZING!!! START BUILDING THEM NOW!”
Trump has said American auto manufacturers should produce tiny cars similar to those in Asian markets such as Japan and South Korea. He called on the DOT to permit them.
Critics have noted that the existing fuel economy rules put small trucks, such as Japan’s “Kei” trucks, at a disadvantage, because smaller vehicles are subject to tighter economy standards. Because larger trucks face looser requirements, manufacturers have an incentive to build bigger.
TRUMP ANNOUNCES NEW FUEL STANDARDS, REVERSING BIDEN-ERA RULES
Still, more would be required to make it easier to sell small vehicles in the U.S., where industry analysts have said there is less demand for such cars and trucks. Most notably, federal safety standards make it difficult to put small cars or trucks on the road.
