The 411 on MPG: How the US regulates fuel economy for cars and trucks. (It's complicated)

Trying to explain how the U.S. government regulates motor vehicles is no easy matter: There are scores of standards involving recalls, mandatory testing and equipment, crash reporting and more.

How the federal government regulates fuel economy − how many miles per gallon of gas a manufacturer's new cars and light-duty trucks are expected to get − and how that impacts greenhouse gas emissions that cause climate change is every bit as complicated, if not more so.

That's because, over the years, a series of laws passed by Congress, as well as lawsuits and actions taken by states (especially California) have moved in various and not-always-complementary directions, just as automakers and environmentalists have sparred over what is technologically feasible or economically practical. In recent years, different presidential administrations have brought their own agendas, for or against tougher standards, to bear.

It's a significant problem, though, given that about 30% of greenhouse gas emissions come from transportation sources, and the vast majority of that comes from cars and trucks.

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So, if you're confused about all this − and what "CAFE" standards are or "two-cycle testing" or how the "petroleum equivalency factor" comes into play (and it does), here's a relatively simple, by-no-means comprehensive rundown of how this particularly overgrown branch of the bureaucracy operates.

Back to the '70s and the oil embargo

How did all this get started? As with so much that affects the auto industry, you have to go back to the oil embargo of the 1970s. With gas prices skyrocketing, Congress became understandably alarmed that the fuel efficiency of new cars being sold in the U.S. had actually dropped from about 16 mpg in 1965 to 13 mpg in 1973.

Congress passed the Energy Policy and Conservation Act of 1975, which was later amended by the Energy Independence and Security Act of 2007, requiring the government − specifically the National Highway Traffic Safety Administration (NHTSA) − to set what are known as Corporate Average Fuel Economy (CAFE) standards for each auto manufacturer selling cars in the U.S.

They're intended, by statute, to improve fuel economy by setting targets for up to five new model years of new cars (and, now, trucks too). As of 2022, the mpg standard was 35.8 on average across both passenger cars and light-duty trucks. By 2027 that's expected to be in the range of 48.4 mpg under the most recent proposal.

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There are lots of rules that go into setting those standards: For instance, they are to be set at the maximum feasible level when considering the available technology and economic practicability. They're also based on the various "footprints" an automaker's new models represent − that's basically how much space on the road they take up. Larger vehicles get lower mpg standards, smaller ones get higher ones.

An average "target" is set by NHTSA estimating what models an automaker will be selling in a given year and what fuel efficiency standard they should be likely to hit across their entire fleet of vehicles, though there is a minimum standard for passenger cars based on industry-wide mpg figures.

And those standards can and do get tweaked slightly based on up-to-date figures for automakers' responses, new fuel efficiency data and the makeup of their fleets.

So, if you look at, say, the estimated average target for General Motors under the aggressive CAFE proposals NHTSA is currently considering for model years 2027-2032 (though as a statutory matter, they can only mandate them through 2031), it's 43.8 mpg on average across its whole fleet in 2027 rising to 51 mpg in 2031. But GM sells a lot of trucks and sport-utility vehicles with bigger footprints (and that aren't considered passenger cars); Honda, on the other hand, is expected to hit an average of 52.8 mpg in 2027 rising to 60.1 mpg five years later.

Nationally, the whole fleet of new cars would be expected to hit 55.7 mpg in 2031 (and a recommended 57.8 mpg the following year).

You can imagine how much research and modeling goes into estimating what kind of cars an automaker is going to be selling nearly a decade from now and how far they should be able to go on a gallon of gas. But it's a lot more complex than just that.

For instance, NHTSA's not allowed to consider all-battery electric vehicles (EVs) as having no mile-per-gallon ratio, even though they effectively don't use gas: Instead, there is a petroleum equivalency factor (PEF) that attempts to translate the energy an EV does use into what that would look like if it were gasoline.

The Department of Energy, which sets that figure, recently proposed dropping the PEF significantly, with environmentalists saying it was too high and allowed automakers to use it to skirt the standards and avoid penalties; Detroit automakers say if that stands, it will cost them billions at a time they've been investing in new EV plants.

Do the standards accurately reflect fuel efficiency?

NHTSA ultimately determines what a vehicle's (and ultimately a fleet's) average mpg is by using the Environmental Protection Agency's (EPA) two-cycle testing of cars and trucks, which weighs urban driving emissions against those measured in highway driving, (55%-45% if you're interested). EPA, by the way, uses more tests to determine official fuel mpg standards that show up on vehicle labels.

No one should expect that the CAFE standard accurately represents what any individual make or model actually achieves in terms of miles-per-gallon, however. They're actually about 20%-25% higher (meaning the vehicle uses more gas) than the real-world mpg, according to the EPA (which, again, uses more tests to make that determination, which is why it's on the label).

Why the difference? Because federal law requires the same test be used that was used in 1975 when setting CAFE standards and that was the two-cycle test.

If an automaker's fleet-wide average of new cars and trucks doesn't meet the standards in a given year, the manufacturer is fined: The current cost is $16 per 0.1 mpg under the standard for every vehicle in an automaker's fleet (though any automaker can have three actual fleets − one for domestically made passenger cars, another for imported ones and a third for light-duty trucks; the distinction between domestic cars and imported ones means different standards as to what is technologically feasible and economically practical can be considered).

An automaker can, however, use credits earned by surpassing the standards in other years − even in future years, by clawing back penalties after the fact − against those charges or through other credit-earning measures (like, say, having high-efficiency lights or a car that shuts off while idling). Automakers can even trade credits among themselves if they like.

How much can penalties come to? In 2019, Stellantis, when it was still Fiat Chrysler, paid more than $79 million, though it's notable that all the fines totaled over the last half-century have only been about $1.5 billion. That speaks to the overall success of the CAFE program in hiking mpg standards: Passenger cars have gone from getting about 20 mpg overall in the late 1970s to higher than 40 now; light trucks haven't come nearly as far, and are still under 30 mpg overall, but have still risen dramatically.

Hold on, we need more agencies to be involved

So, you can see just how complicated that is, but it's going to get even more so because besides determining, for NHTSA, just how well cars and trucks approximately perform in terms of fuel efficiency, the EPA has its own role in setting automobile standards, specifically in terms of the greenhouse gases they emit, including carbon monoxide, nitrogen oxides and particulates.

The history of how the EPA got into the business itself is complicated, but here it is in a nutshell: Basically for a long time, the agency didn't regulate greenhouse gases from cars and trucks until a lawsuit brought by Massachusetts and several other states, which was decided by the Supreme Court in 2007 in a 5-4 vote, said it had to do so under the Clean Air Act or explain why these gases weren't harmful to public health.

For the most part since then, NHTSA and the EPA have worked in tandem in terms of setting auto standards, even though they come at it under different laws and with different rules. For instance, EPA can and does consider the penetration of battery-powered EVs into the national fleet and what impact that could have overall on greenhouse gas emissions. And EPA has its own powers to go after violators − Volkswagen ultimately agreed in 2016 to pay up to $14.7 billion to settle allegations it used software that allowed it to cheat on emissions tests. Toyota two years ago agreed to pay $180 million for alleged Clean Air Action violations.

One big difference now between NHTSA and EPA, however, is that in their most recent proposals for cars and light-duty trucks beginning with model year 2027 is that each agency released their own rules, with EPA largely abandoning mpg standards − which makes sense given that EVs are expected to be a much-bigger player in the future − and instead concentrated on standards for how much pollutants, typically measured in grams released per mile, could be released by a manufacturer's fleet, ratcheting it down each year.

The current proposal on the table, for instance, calls for an industry-wide average target for cars and light-duty trucks in terms of carbon dioxide emissions of 82 grams/mile in model year 2032 − or a 56% reduction from the current standards for 2026. So while the EPA isn't saying automakers have to switch to EVs, as a practical matter there isn't any other widely adopted technology that is likely to get them to hit that standard without doing so.

Where California comes in

Finally, there is one other major player in this regulatory game: the state of California, or, more specifically, that state's Air Resources Board (CARB). Under the Clean Air Act, California has, via the EPA, a waiver to adopt its own stricter standards for greenhouse gas emissions from automobiles.

Why should California get special treatment? For one, it had already been working to fight air pollution − unsurprisingly, given the smog seen historically in some of its cities − prior to the Clean Air Act's adoption. The waiver has been a bone of contention for a long time now, however, given that it effectively requires automakers to make vehicles to California's standards (since it doesn't make financial sense to make different models of the same vehicle) and other states (17 of them to date, Michigan's not one of them) have been allowed to adopt the same standards under the law.

Former President Barack Obama first proposed NHTSA, EPA and California getting on the same page in terms of increasing fuel standards back in 2009, though that took a few years to finalize. But that wasn't the end of the story.

Under former President Donald Trump, California's waiver was rescinded as he proposed rolling back mpg standards. Then, under President Joe Biden, the waiver was reinstated and standards increased again, for model years 2024-2026 last year. So CARB continues to have a lot to say about where the standards are set in the future. And CARB also continues its push to require all new passenger cars, trucks and SUVs to be zero emission by 2035, with manufacturers required to hit certain increasing EV sales targets each year.

Biden, by the way, also signed an executive order calling for half of all new car sales to be zero emissions by 2030, though it's non-binding. CAFE standards and EPA's regulations are far more likely to impact EV sales.

But back to California and its waiver: Ohio and 16 other Republican-led states have sued in federal court, saying the waiver is unlawful and at odds with the laws authorizing NHTSA to set fuel efficiency standards and should be thrown out. CARB says that's wrong, pointing out, as it has many times before, that NHTSA and the EPA haven't had any trouble to date in harmonizing their rules with California's and that, if anything, it spurs on the federal government to do more to address climate change.

Don't be surprised if that case ends up before a U.S. Supreme Court now dominated by conservative justices, however, which could, theoretically, completely rework the current system − complicated as it is.

Contact Todd Spangler: tspangler@freepress.com. Follow him on X @tsspangler.

This article originally appeared on Detroit Free Press: MPG standards: How the US regulates fuel economy in cars and trucks