Fueling The Conversation, Week of January 5rd, 2026
When Congress passed Corporate Average Fuel Economy Standards (CAFE) in 1975, it was an attempt to uphold American energy security in the wake of the Arab oil embargo. Mandating fuel efficiency would reduce fuel use and therefore reduce our dependence on oil imports. But a funny thing happened along the way — the United States became the number one producer of oil in the world. Instead of declaring victory and repealing the law, politicians hijacked the program to advance a climate agenda, morphing CAFE into an electric vehicle (EV) mandate that gradually increased costs for consumers looking to purchase new vehicles.
CAFE, alongside tailpipe emissions standards and tax credits implemented by the Inflation Reduction Act, contributed to raising average new vehicle transaction prices to above $50,000 for the first time ever, according to Kelley Blue Book. By forcing automakers to meet fleetwide fuel economy standards that are unattainable without replacing internal combustion engine (ICE) cars with EVs — which are $9,359 above the industry average — CAFE decreases the supply and raises the price of cars people actually want and need.
The added cost of vehicles isn’t an issue of mere convenience; it threatens the livelihood of millions of working Americans for whom a few extra thousand dollars could mean forgoing medical treatments or extra tutoring for their children. This is the case for Nelcy Grande, who relies on her car to get from house to house as she operates her own cleaning business. With the profits she earned, she was able to achieve her dream of sending both of her daughters to college. Without private, gasoline-powered transportation, Nelcy would have been forced to limit her client base to just those homes that she could reach via bus or rail.
The dreams of many Americans like Nelcy were set to become even harder to reach under President Biden. The Biden administration mandated an increase of fuel economy standards by 2% each year for new cars from 2027 to 2032 and new passenger trucks from 2029 to 2031. As I wrote previously, “By combining these exorbitant fuel economy mandates with generous taxpayer-funded subsidies for EVs and EV technology, the Biden administration would have effectively forced automakers to fully electrify more than half of all vehicles sold in the U.S. by 2032.”
Thankfully, the Trump administration decided to step up and deliver “a win for American families and automakers” by making CAFE standards more manageable. According to the White House, Biden’s standards would have raised the average cost of a new car by nearly $1,000 compared to the cost under the revised standards, which is estimated to save American families $109 billion in total over the next five years.
In a notice of proposed rulemaking, the administration amends light-duty vehicle fuel economy standards for model years (MY) 2022-2026 and 2027-2031, with standards increasing by 0.5% per year through 2026 and 0.25% per year through 2031. Alongside decreased fuel economy standards, the rulemaking eliminates the inter-manufacturer credit trading system, which worked as a giveaway to EV-intensive manufacturers by allowing them to profit from the unworkability of the standards for most automakers. Furthermore, it rightfully ignores the fuel economy performance of battery-powered EVs and “dual-fueled vehicles” utilizing electricity, projecting “that the amended standards would correspond to the industry fleetwide average for all light-duty vehicles of roughly 34.5 miles per gallon (mpg) in MY 2031.”
These revised standards are far from perfect. Because the average fuel economy for cars and light trucks is 24 and 18 miles per gallon, respectively, automakers still need to supplement their fleets with vehicles aimed at satisfying the mandate rather than meeting consumer demand. But they’re an important recognition that the Obama-Biden increases were moving in the wrong direction by creating a backdoor EV mandate and further distorting production incentives. For instance, Trump’s change will eliminate the strange distortions that created stricter standards for smaller vehicles due to the comparative leniency they face based on their “footprint.”
Bringing CAFE closer in line with statutory directives and the realities of the auto market is an important step toward bypassing the harmful effects of the Obama and Biden administrations’ de-facto EV mandates. However, fully returning consumer choice to auto markets requires Congress to get the government off the assembly line by repealing CAFE.
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Fueling the Conversation, a weekly column by IER President Tom Pyle, offers a principled take on energy events. Energy underpins all aspects of modern life, so policies that artificially limit production hurt everyday people paying to heat their homes and drive to work. “Green” groups push these policies for ideological reasons, but this column uses economic logic and hard facts to advocate for energy freedom.
