New CAFE ruling aims to lower car costs under Trump policy shift

On June 6, 2025, the US Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) issued a final interpretive rule titled “Resetting the Corporate Average Fuel Economy Program.” Released under US Transportation Secretary Sean P. Duffy, the rule marks a departure from fuel economy regulations under the previous administration.

At the core of the rule is a legal clarification. NHTSA asserts that including electric vehicles in setting fuel economy standards violates federal law. The agency points to the Energy Policy and Conservation Act of 1975 and the Energy Independence and Security Act of 2007, which guide how “maximum feasible” fuel economy standards should be determined. According to NHTSA, these laws prohibit the inclusion of EVs as compliance tools in standard-setting calculations.

The new rule does not change existing fuel economy targets. Instead, it defines the agency’s interpretation of its statutory limits and outlines a path for aligning future standards with that interpretation.

Clarifying the limits of regulatory authority

The rule’s legal argument hinges on a strict reading of federal statutes. NHTSA argues that fuel economy standards must be based on technologies that are widespread and accessible, rather than heavily subsidized or policy-preferred innovations like electric vehicles. By excluding EVs from feasibility assessments, the agency positions itself as returning to what it considers congressional intent.

The rule also addresses fuel efficiency programs for medium- and heavy-duty trucks, aiming to create consistency across vehicle classes. It underscores NHTSA’s authority to enforce compliance while resetting the legal framework for future rulemaking.

A changing landscape for automakers

Automakers stand to gain flexibility from the rule. By decoupling fuel economy standards from EV requirements, manufacturers may find it easier to balance compliance with consumer demand, particularly for larger vehicles such as trucks and SUVs.

This change could also alter investment decisions. Carmakers may allocate more capital toward improving combustion engine efficiency or lowering production costs, rather than focusing on EV credits. The result could be a more varied product mix and a potential reduction in average new vehicle prices. That is a key goal of the Trump administration’s energy policy.

This rule does not revise any standards today but sets the foundation for those to come. NHTSA plans to issue new fuel economy standards that comply with the interpretation in this rule. The process will include a full rulemaking cycle, including public comment.

Future litigation is likely. Courts will be asked to determine whether NHTSA’s interpretation aligns with the intent of existing energy laws. The outcome may define how flexible federal agencies can be in interpreting legislative language, especially when technological innovation is involved.

Sources:
U.S. Department of Transportation