Department of Transportation Finalizes Rollback of Corporate Average Fuel Economy (CAFE) Standards for Passenger Cars and Light Trucks

On September 28, 2026, the National Highway Traffic Safety Administration (NHTSA) finalized its Corporate Average Fuel Economy (CAFE) standards for passenger cars and light trucks sold in the United States for model years (MYs) 2022–2031.  The final rule represents one of the most significant deregulatory actions of the second Trump administration.

Together with Congress’ elimination of civil penalties for CAFE noncompliance, the final rule significantly reduces the stringency of fuel economy targets set by the Biden administration and, in some respects, the first Trump administration.  It has major implications for manufacturers, suppliers, and all other segments of the automotive industry in the United States.

Background

Originally created in the wake of the fuel shocks of the 1970s, CAFE standards set minimum average fuel economy requirements that automakers must meet across their fleets of passenger cars and light trucks.  Specifically, the Energy Policy and Conservation Act (EPCA) of 1975, as amended by the Energy Independence and Security Act of 2007, requires NHTSA, acting by delegation from the Secretary of Transportation, to set CAFE standards at the “maximum feasible” level.  The agency must determine that standard after considering “technological feasibility, economic practicability, the effect of other motor vehicle standards of the Government on fuel economy, and the need of the United States to conserve energy.”

Critically, EPCA provides that when establishing standards, the agency “may not consider the fuel economy of dedicated automobiles” and “shall consider dual fueled automobiles to be operated only on gasoline or diesel fuel.”  A “dedicated automobile” under the statute is “an automobile that operates only on alternative fuel,” and “alternative fuel” in turn includes electricity.  Likewise, “dual fueled automobiles” include plug-in hybrid vehicles.

In 2022 and 2024, NHTSA under the Biden administration finalized standards for MYs 2024–2031 that were more stringent than prior requirements.  They required average fleet fuel economy exceeding 50 miles per gallon (mpg) by MY 2031, a figure that critics argued was achievable only by dramatically shifting production toward electric vehicles (EVs).  Moreover, the first Trump administration had itself set standards for MYs 2021–2026 that were more stringent than those that preceded them.

In June 2025, the second Trump administration issued an “interpretive rule” concluding that EPCA prohibits NHTSA from considering EV performance in establishing CAFE standards, setting the stage for the Notice of Proposed Rulemaking (NPRM) that preceded this final rule.  With considerable fanfare, NHTSA issued its proposed CAFE standards in December 2025.

The Final Rule

The final rule establishes revised CAFE standards for MY 2022 through MY 2031 passenger cars and light trucks.  Secretary of Transportation Sean Duffy stated that the rule “end[s] the illegal mandate that forced automakers to produce more expensive electric vehicles that American families didn’t want” and described it as “making the American dream affordable again.”  NHTSA Administrator Jonathan Morrison added that the rule “restores integrity to the national fuel economy program, balancing vehicle affordability and energy conservation goals while improving safety on our roadways.”  The key provisions of the final rule are described below.

Revised Fuel Economy Standards

The final rule reaches back to reset the MY 2022 baseline fuel economy standards and then prescribes annual increases in required fuel economy through MY 2031.  NHTSA estimates that the revised standards would achieve a fleet-average fuel economy of 34.9 mpg by MY 2031—up from 31.8 mpg for MY 2022, but substantially lower than the approximately 50 mpg trajectory established for MY 2031 under the Biden administration.  The proposed standards in the NPRM had projected approximately 34.5 mpg by MY 2031; the modest upward revision in the final rule reflects adjustments made in response to public comments.

The chart below compares the overall average fleet requirements set by the final rules issued under the last three administrations:

The revised MY 2022 baseline is a central feature of the rule.  Rather than accepting the previous starting-point standards, NHTSA has reset the baseline to reflect what it considers the maximum feasible level of fuel economy achievable by gasoline- and diesel-powered vehicles, including non-plug-in hybrids, without the effect of EV credits.  Although EPCA requires the agency to provide at least 18 months of lead time when setting a standard for a model year, the final rule explains that that that lead time does not apply when the agency is amending an existing standard to make it less stringent.  NHTSA also explained that, contrary to the agency’s past interpretations, it now believes that EPCA allows it to retroactively reduce the fuel economy requirements of model years that are already on the road.

For passenger cars, NHTSA set a MY 2022 baseline of 37.4 mpg in the final rule; for light trucks, the MY 2022 baseline is 29.4 mpg.  These baselines exclude the large fuel economy values that had previously been imputed to electric vehicles in the fleet average calculation.

The final rule also projects that most manufacturers will “overachieve” in comparison with the new standards.  For example, fleets are expected to achieve an average of 40.2 mpg for MY 2031, as compared with the 34.9 mpg standard.

Consistent with NHTSA’s June 2025 interpretive rule, the final standards are formulated based solely on the fuel economy performance of gasoline- and diesel-powered vehicles, including non-plug-in hybrids.  NHTSA has not considered the imputed fuel economy performance of battery-powered electric vehicles or the electric operation of plug-in hybrid vehicles in setting the standards, nor has it accounted for compliance credits or adjustments to test procedures for air conditioning and off-cycle technologies.  The agency’s position is that EPCA compels these exclusions: The statute’s prohibition on considering dedicated alternative fuel vehicle fuel economy means that any standard set in reliance on EV performance is unlawful, regardless of how the numerical target is framed.  This statutory interpretation, if upheld by reviewing courts, could effectively foreclose any future administration from using EV performance as a lever to raise CAFE stringency.  At the same time, EVs in a manufacturer’s fleet can be, and are, counted toward the manufacturer’s compliance with CAFE standards.

The retroactive scope of the rule—resetting standards for MYs 2022 through 2026, years that have already largely elapsed—also carries significant compliance implications.  Automakers that accumulated deficits under the Biden-era standards for those model years may find their compliance positions substantially improved under the revised, lower baselines.  Conversely, automakers that accrued credits by exceeding the prior, higher standards may see the value of those credits affected by the new framework.  NHTSA’s treatment of banked credits and existing compliance accounts under the prior standards is an area that regulated parties should examine carefully in the final rule text.

Revised Vehicle Classification Criteria

The final rule also changes how vehicles are classified as either passenger cars or light trucks for CAFE purposes, effective beginning in MY 2030.  Under prior regulations, many automakers made design modifications to classify small crossover utility vehicles as light trucks, which face less stringent fuel economy requirements.  The final rule revises classification criteria to reflect each vehicle’s intended use more accurately.

DOT projects that this reclassification will move “lighter crossovers from the light truck fleet to the passenger car fleet,” making passenger cars “the large majority of sales volumes” after MY 2030.  The final rule frames this shift as a consumer benefit: By eliminating incentives to add unnecessary equipment for classification purposes, automakers will have greater flexibility to develop hatchbacks, wagons, and smaller-footprint vehicles suited to consumer preferences.  But at the same time, many crossover vehicles previously classified as light trucks will be reclassified as passenger cars—which will in turn, make them subject to more stringent fuel economy standards than they would have been as light trucks.

Elimination of CAFE Credit Trading

Beginning with MY 2028, the final rule eliminates the CAFE credit trading program, under which automakers that exceed applicable fuel economy standards may sell their excess credits to manufacturers that fall short.  The Department of Transportation’s press release argues that this program “artificially propped up the EV industry” at the expense of traditional automakers that produce internal combustion engine vehicles.  By eliminating credit trading, NHTSA contends that all automakers will be placed on an even competitive footing and required to spread fuel-saving technologies throughout their own fleets rather than purchasing compliance credits from competitors.  At any rate, the credit trading program has already been considerably upended by Congress’s elimination of CAFE penalties in 2025.

Takeaways

The final rule has significant implications for automakers, EV manufacturers, and the broader automotive supply chain:

• For traditional automakers, the reduced stringency of the revised standards—and the elimination of credit trading beginning in MY 2028—reduces compliance costs and provides greater flexibility to produce the internal combustion engine and conventional hybrid vehicles that represent the bulk of current consumer demand in the United States. The administration contends that this flexibility will enable automakers to redirect investment from EV production lines toward more affordable, conventionally powered vehicles.  Automakers that had made capital commitments in reliance on the prior, more stringent standards—and had accumulated compliance deficits or credits accordingly—will need to assess the full picture of the revised compliance landscape across MYs 2022–2031.
• At the same time, automotive manufacturing entails a years-long production cycle and the most recent policy changes may not be permanent. Fuel economy standards, penalties, and enforcement practices could change again under future administrations and congresses.
• The final rule removes a significant regulatory driver of EV production. Under the Biden-era standards, traditional automakers faced strong compliance incentives to produce zero-emission vehicles—not only because of the CAFE standards issued during that period, but also because of the $7,500 tax credit for EVs that Congress passed in 2022.  The elimination of those incentives, and of the credit trading program that made EV-related credits commercially valuable, may reduce production of EVs as a compliance tool.  This dynamic stands in contrast to trends in other major auto markets, for example, in the European Union, more than 60% of new cars sold in 2025 were fully electric or hybrids; in China, the number was 53%.
• The final rule can be expected to face legal challenges. There are already pending cases that challenge the Biden administration’s prior inclusion of EVs in the standard setting for CAFE.  The Trump administration’s reversal of that EV position is likely to spark litigation as well.  Challengers may also contest the retroactive resetting of standards for MYs 2022–2026.
• The CAFE final rule focuses only on the fuel economy of passenger cars and light trucks. Heavier road vehicles are subject to a different regulatory regime.  NHTSA has recently indicated that it does plan to revisit the regulations governing medium- and heavy-duty trucks and engines.
• The rollback of fuel economy standards also dovetails with the EPA’s initiative to eliminate greenhouse gas emissions requirements for motor vehicles. That effort is also the subject of pending litigation.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.