The Obama Administration last week released a Notice of Proposed Rulemaking (NPRM) requiring passenger cars and light trucks to achieve a minimum fuel economy standard of 54.5 miles per gallon (mpg) by 2025. This standard would be achieved through a combination of new Corporation Average Fuel Economy (CAFE) standards issued by the National Highway Traffic Safety Administration (NHTSA) and new Greenhouse Gas (GHG) emissions standards issued by the Environmental Protection Agency (EPA).

The proposed fuel economy standard is a major component of the Administration’s strategy to develop a national energy policy and reduce GHG emissions. In 2010, the Administration issued a rule implementing the first phase of its plan to raise fuel economy standards for passenger cars and light trucks to 35.5 mpg by 2016. The current proposal, which would apply to Model Years 2017-2025, would raise fuel efficiency and GHG standards annually and ultimately result in a fuel economy standard of 54.5 mpg by 2025.

According to documents released by NHTSA, passenger cars and light trucks currently account for 60 percent of GHG emissions from the transportation sector. The Administration estimates that its NPRM will save Americans $1.7 trillion in fuel costs, or $8,000 per vehicle, and reduce oil consumption by 2.2 million barrels a day by 2025.

Although the concept of federally mandated fuel economy standards has faced opposition in the past, the Administration’s NPRM is supported by the Auto Alliance, which represents major domestic and foreign auto manufacturers, the United Auto Workers, and environmental groups such as the Environmental Defense Fund due to the flexibility it would provide to manufacturers to meet the new standard and the reduction in GHG emissions it is estimated to achieve.

For instance, the NPRM would extend the ability of manufacturers to acquire credits for exceeding minimum fuel economy standards and to apply those credits to models within its fleet that fail to meet the standard or sell them to other manufacturers. The NPRM would also allow manufacturers, for the first time, to count fuel consumption savings through improvements to air conditioning units and to receive credit for expanding the use of hybrid electric technology in light trucks. In addition, the Administration notes in its NPRM that manufacturers will have time to improve upon existing technologies and to refine and test new technologies to improve fuel efficiency before the proposed fuel economy standards take effect in 2017.

Auto manufacturers also support the Administration’s NPRM because they support the adoption of a national fuel economy standard that provides direction to the states and reduces regulatory burdens. The State of California, for instance, which has its own fuel economy standards, worked with NHTSA, EPA, manufacturers and other stakeholders to develop the Administration’s NPRM, and plans to allow manufacturers to comply with revisions it is making to its standards in December as long as they meet the federal standard.

Notably, the Administration’s NPRM is opposed by the National Automobile Dealers Association (NADA), which argues that it will increase the average price or a new car or truck by $3,000 and hurt sales. NADA believes that the federal government should provide incentives to spur demand for more fuel efficient vehicles rather than impose mandates.

The Administration’s NPRM for fuel economy standards will be open for public comment for 60 days after it is published in the Federal Register. NHTSA and the EPA also plan to hold three joint public forums on the rule before it takes effect to solicit further public input. The forums will be held on January 17, 2012, in Detroit; January 19, 2012, in Philadelphia; and January 24, 2012, in San Francisco. Although the comment period and public forums are meant to solicit general feedback from the public, NHTSA and EPA are particularly interested in receiving comments from auto manufacturers about the recordkeeping and reporting requirements in the rule. The agencies plan to issue a final rule by July 31, 2012.