NHTSA finalizes MY2024-2026 Corporate Average Fuel Economy standards

On May 2, 2022, the National Highway Traffic Safety Administration (NHTSA) published their new, stronger, corporate average fuel economy (CAFE) standards for model years (MY) 2024-2026 originally announced April 1. The final rule adopted more stringent standards than proposed and will increase fuel economy at a rate of 8% year over year (YoY) for MY2024-2025 and a rate of 10% for MY2026 vehicles. By MY2026, the revised standards will require an industry-wide fleet average of about 49 miles per gallon (mpg) for passenger cars and light-duty trucks, marking the strongest fuel economy standards to date. The rule takes effect on July 1, 2022. 

More stringent than the proposed rules, the final rule revises standards from the previous administration and increases fleetwide average requirements by 12 mpg for MY2026 compared to MY2021. NHTSA estimates that the standards would result in reduced consumer fuel costs by about $140 billion for new vehicles sold by 2030. Moreover, the final rule estimates the overall fleet average of CAFE levels achieved under the final rule to be:

  • 2024: 43.5 mpg
  • 2025: 45.4 mpg
  • 2026: 48.4 mpg

NHTSA CAFE standards provide fuel economy targets for the entire fleet of new vehicles, and separate targets for passenger cars and light trucks. The industry-wide average fuel economy achieved in MY2029 could increase to about 50 mpg under the final standards. The estimated breakdown for the average of CAFE levels required under the final rule is higher for passengers cars than overall fleet and light trucks, and increases by about 10 mpg from MY2024-2026. 

The final rule also revises the minimum domestic passenger car standards from the proposed targets as follows:

  • MY2024: 44.3 mpg
  • MY2025: 48.2 mpg
  • MY2026: 53.5 mpg

The finalized standards do not significantly change the structure of the CAFE program and are still based on vehicle footprint, which is separate for passenger cars and light trucks. Changes to the compliance flexibilities largely mirror the U.S. Environmental Protection Agency (EPA) and include:

  • Incentives for full-size pickup trucks: Extending the CAFE full-size pickup truck incentives for MYs 2023 and 2024. Manufacturers can combine both the incentives for alternative fueled vehicles and full-size pickup trucks FCIVs when complying with the CAFE program for these model years. In addition, vehicles may receive a 10 g/mi performance-based credit for MY2017-2021 if the CO2 emissions level does not increase. NHTSA also finalized the reinstatement of incentives for strong hybrids and overperforming vehicles by 20% for MY2022-2025.
  • Off-cycle menu technologies: Increasing the benefits manufacturers can claim for off-cycle menu technologies from 10 g/mile to 15 g/mile and adding definitions of active transmission warm-up and passive cabin ventilation for MYs 2023-2026. Credits established under the 5-cycle and petitioning pathways do not count against the menu cap.
  • Credit Template: Issuing a new template to clarify the required costing information for credit trades. The effective date for the credit transactions template is September 1, 2022.

These new CAFE rules are in parallel with the rapidly-growing electric vehicle market, which Department of Transportation (DOT) and NHTSA staff acknowledged to be another key priority of the administration. In the final rule, NHTSA acknowledges that many auto manufacturers have rolled out new higher fuel economy and electric vehicle models since MY2020 and increasingly advanced vehicles are expected in the future. As a result, NHTSA indicates that the CAFE standards should be viewed as part of a “much larger conversation about the future of the U.S. light-duty vehicle fleet, the increasing and obvious need to move away from fossil fuels for reasons of national and energy security, and the evidence of a changing climate that is emerging on an almost daily basis.” Importantly, in developing the final rule NHTSA considered and accounted for both California’s zero-emission vehicle (ZEV) mandate, and its adoption by a number of states, and the California Framework Agreements with five OEMs, as well as other legal obligations automakers will meet during these model years. NHTSA justified this consideration by recognizing that EPA recently reinstated California’s waiver of preemption to enforce its GHG emissions standards and ZEV program. In the final rule, NHTSA indicated that “the clear planning by industry to migrate toward more advanced technologies provide corroborating evidence of the practicability of more stringent standards.” These new standards, combined with NHTSA’s recent higher CAFE penalties rule, will undoubtedly influence the CAFE credit market and likely increase potential demand for credits.

This final rule is one of a number of revised regulatory standards that are consistent with President Biden’s Executive Order (EO) from August 2021 calling on DOT to develop fuel economy standards for passenger cars and light duty trucks for model years 2027-2030, as well as medium and heavy-duty fuel efficiency standards beginning as early as model year 2027.  NHTSA has the authority to set rules for five years at a time, but the final rule did not indicate which model years (beginning with MY2027) will be included in the next rulemaking.  If a challenge is sought, petitions to review the new CAFE standards must be timely filed in the United States Court of Appeals pursuant to the Energy Policy and Conservation Act (EPCA), NHTSA’s source of CAFE authority.

 

Authored by Latane Montague, Joanne Rotondi, Susan McAuliffe, Hannah Graae, and Allisa Newman.

Contacts
Latane Montague
Partner
Washington, D.C.
Joanne Rotondi
Partner
Washington, D.C.
Susan McAuliffe
Counsel
NW Washington, D.C.
Hannah Graae
Senior Associate
Washington, D.C.
Allisa Newman
Associate
Washington, D.C.

 

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