White House Freezes Fuel Economy Penalties

U.S. regulators have rejected an Obama administration-era proposal to impose dramatically stiffer penalties on carmakers that fail to meet fuel economy standards.

Carmakers currently face a fine of $5.50 for every 0.1 mile per gallon they exceed the corporate average fuel economy goal for a given year, multiplied by the number of vehicles that fall short.

The fine was initially set at $5 per 0.1 mpg after CAFE standards were enacted in 1975. The penalty has been increased only once since then, when it rose to the current $5.50 more than 20 years ago. The Obama administration, responding to a Congressional order to adjust the fines for inflation, announced the penalty would jump 250% to $14, effective with the 2015 model year.

Carmakers pressed the Trump administration to rescind the increase, complaining it applied to vehicles already sold. They also estimated the larger penalty would cost them a combined $1 billion per year in additional compliance costs.

The National Highway Traffic Safety Administration agreed in December 2016 to postpone the new rate until the 2019 model year. Last year NHTSA said it intended to cancel the Obama increase entirely because the higher fees would have a “negative economic impact.”

Environmental groups favor the higher rate. They claim inflation has made it cheaper for carmakers—especially makers of foreign luxury brands—to pay the fine than to meet the CAFE standard.