Feds more than double fuel economy penalties after seven-year delay
Washington — The National Highway Traffic Safety Administration plans to dramatically increase penalties for carmakers that fail to meet federal fuel efficiency standards in model years 2019 and later.
Under the rule signed Thursday and soon to be published in the federal register, the fine for noncompliance will increase from $5.50 for every 10th of a mile per gallon an automaker goes over the federal limit to $14 for model years 2019 to 2021. The rate will increase to $15 for model year 2022.
It's the first time automakers will pay increased penalties for falling short of fuel economy standards since 1997. Congress approved the increased fines to make up for inflation in 2015, but former President Donald Trump delayed its implementation and a legal battle ensued.
Car companies that exceed fuel economy standards or implement other fuel-saving technology can accrue credits to sell to other automakers that don't meet the standards. Tesla Inc., the leading EV producer in the U.S., makes millions of dollars on sales of such credits.
Increasing the penalty rate beginning in model year 2019 "would have, at most, a more positive impact on the quality of the human environment" by forcing manufacturers to use built-up credits to meet requirements for those years, the rule says.
"Lacking such credits in future years, manufacturers would be more likely to make improvements to the fuel economy of their fleets... (and) may cause manufacturers to more rapidly implement fuel-saving technology."
The decision is a victory for Tesla which has pushed the federal government to reinstate the increased fines, while traditional automakers have fought the increase.
The Alliance for Automotive Innovation, which represents most major automakers operating in the U.S. except Tesla, estimated in 2016 the increase would cost the industry more than $1 billion every year.
Only three manufacturers — Tesla, Subaru Corp. and Honda Motor Corp. — met fuel economy standards based on their vehicle performance in 2020, the most recently-available data.
The Alliance has fought for years for an increase in penalties to not be applied retroactively, CEO John Bozzella said in a statement.
"It would be a better outcome for the environment, manufacturers, workers, and consumers if these financial resources were invested in electric vehicles, batteries and charging infrastructure instead of disappearing into the general fund of the Treasury," he said.
Environmental groups praised the decision and cheered the new rule as an end to the seven-year fight over increased penalties.
“Automakers have already gone to court twice to avoid paying inflation-adjusted fines, and they have lost twice,” said Joanne Spalding, chief climate counsel for the Sierra Club. “Any challenge to this rule is destined for the same fate, and the Sierra Club and its allies will be there to enforce fundamental protections against dirty and dangerous pollution from fossil fuel vehicles.”