Trump administration cuts vehicle fuel efficiency penalty

The Trump administration issued a new rule late Friday to cut the penalty car companies pay if they violate fuel efficiency standards, arguing the Obama administration goofed in raising the rate.

The Transportation Department’s new rule, which will take effect in about a month, cuts the penalty by nearly two-thirds, which it predicts will save $764 million this year for the industry — and presumably consumers.

The rule applies to Corporate Average Fuel Economy (CAFE) standards, which push manufacturers to boost the efficiency of their vehicles by requiring them to meet higher miles-per-gallon rates.

Companies that exceed the CAFE rate are supposed to pay a penalty, which for years had been set at $5.50 per tenth of mile per gallon that a company’s fuel average falls short of the standard.

Obama administration officials, citing a 2015 law adjusting penalties for inflation, ordered an increase, which was slated to be $14 per tenth of mile per gallon for model year 2019 vehicles.

But the Trump administration has now ruled the Obama administration misinterpreted the law, and reversed the increase.

Transportation Department officials had proposed the reversal last year, but had to get White House Office of Management and Budget approval.

OMB issued letters Friday concurring in the department’s calculations and reasoning, finding not only that the 2015 law didn’t apply to the CAFE penalties, and even if it did, the economic impact was so large that it should have been exempt.

“The negative impact would be significant and concentrated on an important American industry, with possible further concentrated negative impacts on domestic competitiveness, regional employment, and lower income consumers,” concluded Russell T. Vought, acting director of OMB.

Changing the penalties does not affect the actual CAFE level, which is slated to be 35 miles per gallon next year.

But the Transportation Department and the Environmental Protection Agency are pondering another rules change that would reduce that mileage level.

The administration says Obama administration CAFE increases imposed in 2012 add $2,340 to the cost of owning a new car.