Flexible CAFE Standards: Biden Administration Adjusts Proposal to Ease Pressure on Car Manufacturers

The Biden administration is allowing car manufacturers to produce more gas- and diesel-powered vehicles while still complying with CAFE regulations. The U.S. Department of Energy has adjusted its fuel economy standards proposal for electric vehicles due to a decrease in sales of battery-powered vehicles. This decision will make it easier for carmakers to continue producing internal combustion engine vehicles without exceeding corporate average fuel economy (CAFE) limits.

The industry and the United Auto Workers union pushed for these changes to avoid facing hefty fines for not meeting the stricter standards. As sales of electric vehicles decline and production decreases, the government is enabling manufacturers to focus on building internal combustion engine vehicles while still staying within the CAFE limits. The initial proposal to lower petroleum-equivalent EV fuel economy ratings by 72% in 2027 has been revised to 65% and will be phased in gradually through 2030.

This decision will give carmakers the flexibility to prioritize building gas- and diesel-powered vehicles while still maintaining compliance with CAFE regulations. The Alliance for Automotive Innovation and the United Auto Workers union advocated for these relaxed standards, highlighting the potential financial burden that tougher requirements could impose on companies. Following the announcement, shares of Detroit’s Big Three automakers, General Motors Co., Ford Motor Co., and Stellantis NV, saw an increase in value.