9 hours ago
U.S. Senate Might Kill Automotive Fuel Economy Rules
In the 1970s, the United States faced a consequential energy crisis that exposed the auto industry's pitfalls in making fuel-efficient cars. At the time, most cars sold in the United States were anything but fuel sippers, and in some parts of the country, fuel dried up so fast that some states and municipalities had to start rationing fuel. For instance, New Jersey imposed mandatory odd-even rationing based on calendar dates and license plate numbers, prohibited sales when the car's tank was at least half full, and required a system of flags at gasoline stations to alert motorists about supplies.
Seeing that drivers around the country were struggling to get around, Congress drew up the Corporate Average Fuel Economy (CAFE) rules, which aimed to improve the average fuel efficiency of new vehicles sold by automakers in the United States. Despite Detroit automakers objecting to the rules and advocating for consumer choice, President Gerald Ford signed legislation creating CAFE standards in 1975.
A recent report from The Wall Street Journal says that the U.S. Senate is considering a change that would make federal fuel-economy rules just friendly suggestions for carmakers. This move is part of a larger tax and spending bill linked to the Trump administration, which has been referred to by both President Trump and the media as the "big, beautiful bill."
If it gets the green light, it would eliminate fines for car manufacturers who don't meet the Corporate Average Fuel Economy (CAFE) standards; a move that would seriously weaken rules that previously pushed and incentivized automakers to make cleaner-burning and more fuel-efficient cars for the market. The idea to drop CAFE fines was included in the budget plan released earlier this month by the Senate Commerce Committee, which is led by Senator Ted Cruz (R-TX). The committee claims that if enacted, this proposal could lead to modest savings for car buyers.
Under the existing rules, automakers risk fines when the average fuel economy for their entire U.S. lineup falls short of the CAFE standard of 49 miles per gallon for the 2026 model year. Industry advocates and automakers argue that the rules, which increased under the Biden administration to 50.4 mpg by the 2031 model year, have become too strict and are accompanied by more punishing fines if they don't comply.
"The combination of high penalties with the nearly impossible CAFE standards finalized during the previous administration is a major problem," said Alliance for Automotive Innovation president and CEO John Bozzella.
The proposed changes are splitting the auto industry. According to the Journal, General Motors and Stellantis support eliminating the fines altogether. Meanwhile, several major automakers, including Toyota and Hyundai, told the Journal that they support revisiting the standards but oppose the wholesale elimination of CAFE penalties.
In recent years, Detroit-based automakers like GM and Stellantis have faced the heftiest CAFE-related fines. Since 2022, GM has paid $128 million for being CAFE non-compliant, while Stellantis has paid more than $425 million for the same reasons. Automakers can buy regulatory credits from competitors to offset fines, a significant revenue driver for electric car manufacturers like Rivian and Tesla. According to Rivian's Q1 2025 shareholder letter, the makers of the outdoor-aesthetic R1T electric pickup truck and R1S electric SUV earned $157 million from selling regulatory credits to other automakers. During the same quarter, Tesla earned $447 million from the same revenue stream.
Industry advocates argue that the strict Federal regulations have created sparks of innovation in automakers and the vehicles they sell in the U.S. Over the past decades, automakers have spearheaded the development of gas-saving tech like turbocharged engines that provide greater power than the higher displacement engines they replace, automatic gearboxes with seven, eight, nine, 10 or more gears, as well as start-stop engine technology that automatically shuts off at stoplights to conserve gasoline.
"Automakers have proven time and time again that without strong and enforceable fuel-economy standards, many of them will leave proven, popular, and cost-effective technologies like hybrids sitting and gathering dust on the shelf," Consumer Reports policy analyst Chris Harto told the Journal.
I do agree with the idea that strict regulations breed innovation. Although some technologies like continuously variable transmissions and start-stop engine technology can be annoying, on the other hand, you get some cool stuff like Honda's VTEC and BMW's tunable, turbocharged engines in its current M3 and M4.
However, like any new measure introduced, it needs to clear the Senate parliamentarian's review to qualify for budget reconciliation, which allows Senate Republicans to pass budget bills with a simple majority instead of the usual 60 votes. It also has to be mainly about financial matters and must be approved by the House. We'll have to wait and see.
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