NHTSA proposes major reduction in fuel economy standards for vehicle model years 2022 to 2031

The US Department of Transportation (DOT) has again proposed to revamp the Corporate Average Fuel Economy (CAFE) program, seeking to markedly reduce the stringency of existing fuel economy requirements for passenger vehicle fleets manufactured for sale in the United States.

On December 5, 2025, the DOT National Highway Traffic Safety Administration (NHTSA) published a notice of proposed rulemaking (NPRM), entitled the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule III for Model Years 2022 to 2031 Passenger Cars and Light Trucks” (SAFE III). The NPRM proposes a “complete reset” of the CAFE program, first established by Congress in 1975. DOT estimates that the proposed standards would reduce the “upfront cost” of a new vehicle by an average of approximately $900 in 2031, compared to the projected cost under existing standards.

If adopted, SAFE III would substantially reduce fleet average fuel economy requirements for passenger vehicles (including light trucks) for ten model years (MYs) and make a number of far-reaching structural changes to the CAFE program.

The timing of adoption and application of new standards and program modifications is uncertain. NHTSA will accept public comments on the CAFE proposal through January 20, 2026. Based on the proposal’s length and complexity, the anticipated volume of comments, and previous experience setting CAFE standards, it may take a number of months for NHTSA to finalize new standards. Further, once standards are finalized, they likely will be subject to judicial challenges whose resolution could take an additional year or more.

This alert provides a high-level initial summary of the CAFE proposal and related policy changes. A future alert will discuss legal issues and questions raised by the proposal.

Substantially reduced stringency of fuel economy standards

The CAFE proposal would significantly lower passenger vehicle fuel economy requirements for vehicles produced in model years 2022 through 2031. This would require unprecedented retroactive change to standards for completed model years 2022 to 2025 and effectively through MY 2026. As those vehicles have already been produced (MY 26 production will be largely complete when final standards issue), revised standards will have little to no effect on vehicles produced in those years. However, if adopted, those revisions would substantially change the baseline for determination of future standards. NHTSA has also indicated that, going forward, it will not seek to enforce the more stringent standards that have been in force from MY 2022 to the present. There are significant legal questions regarding the permissibility of the proposed retroactive changes.

Expressed in terms of estimated miles per gallon (MPG), the proposed new standards would require a combined industry fleetwide estimated average of approximately 34.5 MPG in MY 2031.[1] As illustrated by the following table, that final year standard would be much lower than the estimated average under current standards (50.4 MPG in MY 2031) and nearly 6 MPG lower than those adopted by the first Trump Administration for MY 2026 (five years earlier).

Model year	Trump I Administration estimated minimum fleet average (SAFE II)	Biden Administration estimated minimum fleet average	Trump II Administration proposed minimum fleet average (SAFE III)
2026	40.4 MPG	49.1 MPG	30.4 MPG
2031	N/A (Rule covered MYs 2021 to 2026)	50.4 MPG	34.5 MPG

 

Key proposed changes to CAFE program and standards setting

The dramatically reduced stringency of the proposed standards is driven by two fundamental changes: a reduced stringency base level for MY 2022 and reduced rates of increase for subsequent years. Changes to each of those core components are the result of a number of significant changes in CAFE policies and factors used to determine “maximum feasible” fuel economy levels, including changes to assumptions regarding technology adoption rates, costs, and other variables; vehicle population considered; model inputs and calculations; technical factors; and cost-benefit analysis. Notable proposed changes include:

• Removing electric vehicles and plug-in hybrids from the baseline fleet. At least since 2012, NHTSA has considered the imputed fuel economy of existing battery electric and plug-in hybrid electric vehicles in determining fuel economy levels of the baseline fleet, used as the starting point for calculating CAFE standards for later model years. This proposal is based on a changed interpretation of ambiguous statutory provisions. Exclusion of those fuel-efficient vehicles would significantly reduce the level of that starting point.


• Eliminating the consideration of manufacturers’ use of compliance credits (earned when a manufacturer exceeds applicable fuel economy requirements for a fleet in a model year, which may be applied toward compliance of manufacturer’s other fleets or to prior or future MYs) in evaluating feasibility of fuel economy standards.


• Reclassifying many light trucks (e.g., SUVs, pick-up trucks) as passenger vehicles, and calculating a single set of standards for that expanded category of passenger vehicles, starting in MY 2028.


• Ending consideration of off-cycle and air-conditioning efficiency improvements for standard-setting purposes, beginning in MY 2028 vehicles.

Starting from the reset MY 2022 level, the proposal would increase the stringency of standards by 0.5 percent annually through MY 2026, by 0.35 percent for MY 2027, and by 0.25 percent annually for the remaining four model years through MY 2031. Those rates of increase stand in stark contrast to the pace of annual increases under existing standards set by the Biden Administration. The chart below shows the difference in annual stringency increases between current standards and the preferred standards of the NPRM (divided into existing passenger car and light truck standards for purposes of comparison).[2]

Passenger car stringency rates of change (current)	NPRM passenger car preferred standard (alternative 2)	Light truck stringency rates of change (current)	Light truck proposed standard (NPRM alternative 2)
MY 2023:           1.5% MYs 2024-25:    8%/year MY 2026:           10% MYs 2027-31:    2%/year	MYs 2023-26:    0.5%/year MY 2027:           0.35% MY 2028:           0.25% MYs 2029-31:    0.25%/year	MY 2023:           1.5% MYs 2024-25:    8%/year MY 2026:           10% MYs 2027-28:    0%/year MYs 2029-31:    2%/year	MY 2023-26:   0.5%/year MYs 2027:       0.7% MY 2028:         0.25% MYs 2029-31:  0.25%/year

 

Elimination of credit trading between manufacturers

Starting in MY 2028, NHTSA will no longer allow vehicle manufacturers to sell credits (earned for exceeding fuel economy standards) to other manufacturers. Such “credit trading” has provided an alternative path to compliance for some manufacturers and facilitated the growth of electric vehicle manufacturers selling in the US. The NPRM opines that credit trading has “resulted in a windfall for EV-exclusive manufacturers” and diverted other manufacturers’ capital from investments to improve the fuel economy of their fleets. The proposal would abolish credit trading in order to “encourage manufacturers to provide for steady improvement across their fleets over time.” To provide vehicle manufacturers with a transition period to adjust their compliance plans, the proposed rule would defer the termination of credit trading to MY 2028.

Alignment with other Trump Administration policy changes related to auto emissions, fuel economy, electric vehicles, and use of fossil fuels

The proposed changes to the CAFE program are part of a broader effort by the Trump Administration and Congress to reshape federal energy, environmental, and transportation policies. That larger initiative aims to curtail or eliminate policies and regulations those policymakers view as inappropriately seeking to force a rapid transition from fossil fuels to electricity and alternative fuels as primary sources of power for transportation and industry in the US. With respect to transportation, many of those changes are intended to reverse Biden-era policies aimed at reducing greenhouse gas emissions (GHG) and reliance on fossil fuels to power vehicles. Related major changes to federal motor vehicle regulations proposed or implemented in 2025 include:

• Repeal of the State of California’s authority to issue more stringent auto emissions standards. In June 2025, Congress used the Congressional Review Act (CRA) to disapprove Clean Air Act (CAA) preemption waivers (issued by the Biden-era Environmental Protection Agency) that authorized the State of California (and other states that adopt California standards) to issue and enforce auto emissions standards that are more stringent than federal standards issued by EPA. See H.J.Res.87, 88, and 89. As a general matter, more stringent auto emissions standards adopted by California and following states – to the extent they have taken effect – have become the de facto national standards. Each of the last three presidential administrations has acted to reverse the California waiver policy of its predecessor. These fluctuations have generated substantial regulatory uncertainty and serial litigation over the last decade. Whether the CRA may be used to repeal the CAA waivers is unclear, and California and others have challenged the action in federal court.


• Elimination of tax credits for EV purchasers and fines for CAFE non-compliance. On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. The law:


• Eliminated federal EV purchase tax incentives: Effective September 30, 2025, the law terminated the clean-vehicle income tax credits created by the Inflation Reduction Act. Credits that are no longer available include $7,500 new-EV and $4,000 used-EV credits for purchasers of those vehicles, as well as a number of other clean-vehicle and energy incentives.


• Eliminated civil monetary penalties for failure to meet federal CAFE standards: Congress reset the monetary penalty for failing to meet fuel economy targets to $0, removing a key financial incentive for compliance with federal fuel economy standards. The revision has retrospective application, effectively limiting assessments of monetary penalties for non-compliance for vehicles produced from MY 2022 forward. The elimination of this enforcement risk has received relatively little attention, but it may serve as a more material policy change than revisions to the standards themselves.


• Proposed rescission of GHG endangerment finding and mobile-source GHG standards. On August 1, 2025, EPA proposed to rescind its 2009 endangerment finding, which serves as the foundation for regulation of vehicle GHG emissions under the CAA. If adopted, and sustained against court challenge, this watershed change would remove the legal basis for federal GHG standards for new light-, medium-, and heavy-duty vehicles and engines. Following receipt of public comments and August 2025 hearings, the proposal is now under EPA review. See Proposed Rescission of Endangerment Finding.


• Streamlined review of deregulatory actions. In late October 2025, the influential federal Office of Information and Regulatory Affairs issued a memorandum titled, “Streamlining the Review of Deregulatory Actions,” intended to implement and operationalize the Trump Administration’s deregulatory agenda guided by prior executive orders (e.g., EOs 14192, “Unleashing Prosperity Through Deregulation,” and 14219, “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’” Deregulatory Initiative). This direction and guidance will facilitate additional deregulatory actions by DOT and other federal departments.

Potential effects of the proposed rollback of CAFE standards: Continuing uncertainty?

The SAFE III NPRM may signal a major recalibration of US fuel economy standards for the next several years. Fuel economy standards and their application are a significant factor affecting the development, design, and production of motor vehicles and equipment sold in the United States. The proposed changes are substantial and would result in large reductions in required fuel efficiency. A summary chart in the NPRM suggests that fleetwide average fuel economy achieved for MY 2022 would satisfy the new standards through the end of MY 2027, and the level already achieved in MY 2024 would exceed the standard required for MY 2031.[3]  Although the summary does not state whether it takes into account the effects of other changes to the CAFE program, it may suggest that manufacturers will not be required to make overall increases in their fleets’ fuel economy into the next decade.

The ultimate legal and practical effects of a final rule remain to be seen, however. Each of the last four presidential administrations has sought to make substantial changes to vehicle fuel economy and emissions standards and policy. Beginning with the first Trump Administration, each successive administration has sought to repeal and replace the standards of its predecessor. Development, promulgation, and court defense of those standards have taken years in each case. The result of this high-stakes regulatory badminton has been continuing uncertainty for the auto industry. The uncertainty is compounded by statutory requirements limiting standards to no more than five model years (posing a challenge to the NPRM’s standards covering ten years) while simultaneously requiring at least 18 months lead time before a model year standard may take effect.

Because of the industry’s long design, development, and production cycles (often five to seven years), such uncertainty makes planning and investment decisions difficult and can impose substantial costs in an industry that operates on fairly narrow margins. The industry, its customers, and the US economy might benefit from longer-term stability and predictability of CAFE standards.

Congress may have rendered these concerns largely moot. The OBBBA enacted last summer effectively eliminated monetary penalties for failure to meet CAFE standards going forward, and DOT has indicated it will not seek penalties for non-compliance from MY 2022 to the present. This eliminates the financial cost of non-compliance – and, with it the primary compliance incentive. That statutory amendment also will likely spell the end of compliance credit trading, well before the NPRM’s proposed termination for MY 2028.

The period for public comments on the NPRM is scheduled to close on January 20, 2026. NHTSA recently announced it will hold a public hearing on the proposal starting on January 7, 2026.

If you have questions or would like assistance evaluating the proposed changes or providing comments, please contact one of the authors or your usual DLA Piper contact.

 

_{[1] NHTSA standards are based on vehicle footprint formulas and do not prescribe fleet average MPG requirements. Actual average MPG of compliant fleets will vary depending on several factors, including the mix of vehicles manufacturers produce and timing of vehicle design changes. The NPRM would also revise the mathematical functions that define target vehicle footprint curves.}

_{[2] The chart is derived from NPRM Table I-1, which refers to current standards as the “No-Action Alternative.” See SAFE III NPRM 90 Fed. Reg. 56438, 56446.}

_{[3] SAFE II NPRM Table I-2: Estimated Required Average and Estimated Achieved Average of CAFE Levels (mpg) for Passenger Cars and Light Trucks, Preferred Alternative. 90 Fed. Reg. 56438, 56448.}