Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

Carmakers can expect far stiffer penalties for falling short of federal fuel economy standards.

Yesterday, a three-judge panel of the U.S. Court of Appeals for the Second Circuit in Los Angeles unanimously overturned a year-old Trump administration move to suspend tougher fines.

Getty Images

The court’s decision reinstates a hike in the penalty from the former $5.50 to $14 per 0.1 mpg of shortfall, multiplied by the number of affected vehicles.

Losing Clout

The levies are intended to encourage carmakers to meet federal corporate average fuel economy standards set by the National Highway Traffic Safety Administration. But critics note that the CAFE penalties, which started at $5 in 1975, have been raised only once—and that was 23 years ago.

Congress recognized that inflation was eroding the clout of such fines. In 2015, it ordered NHTSA and other federal agencies to review their civil fines and adjust them accordingly.

NHTSA came up with the new $14 rate in the final days of the Obama administration and announced that the stiffer fine would apply beginning with the 2019 model year.

Compliance Options

Companies that fall short on CAFE have three options:

  • Cover the gap by borrowing credits from years when they exceeded fuel efficiency targets.
  • Buy credits from other, better-performing carmakers.
  • Simply pay the fine.

Environmental groups complained at, as inflation eroded the value of the $5.50 rate, some companies were finding it cheaper to pay the fine than engineer their vehicles to meet CAFE standards.

In defending its decision to delay the increase and then freeze CAFE fines at the old $5.50 level, NHTSA argued that its penalties don’t qualify for inflationary review. And even if they did, the agency added, the economic impact on carmakers would be harsh enough to justify reversing the increase.

The court disagreed strongly on both counts. The $14 rate, says, “is now in force.”

What’s Next?

Carmakers have estimated that the new penalty rate would raise their CAFE compliance costs by a combined $1 billion.

Now the companies and NHTSA will decide whether to take their argument to the U.S. Supreme Court.

Related Topics