CAFE Fuel Economy Standards: Targets, Credits, and Penalties

Corporate Average Fuel Economy standards, known as CAFE fuel economy standards, require every automaker selling vehicles in the United States to meet minimum fuel efficiency levels averaged across its entire fleet each model year. The National Highway Traffic Safety Administration sets those targets based on vehicle size, and for model year 2026 the agency projects they will translate to an industry-wide average of roughly 49 mpg for passenger cars and light trucks combined.¹ The program has been in place since 1978, but two recent changes reshaped it: Congress eliminated all civil penalties for non-compliance in July 2025, and EPA repealed its parallel greenhouse gas emission standards for vehicles in February 2026.

Who Writes the Rules

NHTSA, part of the U.S. Department of Transportation, writes and enforces CAFE standards for passenger cars and light trucks and sets separate fuel consumption standards for medium- and heavy-duty trucks and engines.² The program rests on the Energy Policy and Conservation Act of 1975 and was overhauled by the Energy Independence and Security Act of 2007, which authorized credit trading and required all standards past 2020 to be set at the “maximum feasible” level.³

Federal law requires the Secretary of Transportation to weigh four factors when setting each year’s targets: technological feasibility, economic practicability, the effect of other federal vehicle standards on fuel economy, and the nation’s need to conserve energy. Standards must be published at least 18 months before the model year begins.⁴

Which Vehicles Are Covered

CAFE regulates two categories: passenger cars and light trucks, which the statute calls “non-passenger automobiles.” A passenger car is any vehicle designed primarily to carry ten or fewer people. Light trucks cover pickups, SUVs, minivans, and similar vehicles that fall outside that definition.⁵

The dividing line between regulated light-duty vehicles and unregulated heavy-duty ones generally sits at 8,500 pounds gross vehicle weight rating.⁶ One exception pulls heavier vehicles back in: medium-duty passenger vehicles weighing between 8,500 and 10,000 pounds but built primarily to carry people count as light trucks for CAFE. A “work truck” in the same weight range built for hauling cargo is excluded.⁵

How Footprint-Based Targets Work

CAFE doesn’t set one mpg number every vehicle must hit. Each model gets its own fuel economy target based on its “footprint,” calculated by multiplying track width (distance between left and right wheels) by wheelbase (distance between front and rear axles), then dividing by 144 to convert square inches to square feet.⁷ Larger footprints get lower targets; smaller footprints get higher ones. NHTSA publishes two mathematical curves, one for cars and one for light trucks, mapping each footprint to a required mpg.

A manufacturer’s fleet obligation is the production-weighted harmonic mean of all those individual targets. The harmonic mean matters because it penalizes low-mpg vehicles more heavily than a simple arithmetic average would. Selling a large volume of fuel-hungry trucks pulls the fleet number down fast.

Because the fleet requirement depends on what mix of vehicles a company actually sells, the headline numbers like “49 mpg by 2026” are NHTSA projections given the expected industry mix, not fixed fleet-wide caps. If Americans buy more large vehicles, the actual required average shifts with them.⁸

Current Targets Through 2031

NHTSA’s 2022 rule increased CAFE stringency by 8 percent per year for model years 2024 and 2025 and by 10 percent for model year 2026, translating to a projected fleet-wide average of roughly 49 mpg by MY 2026.⁸ Keep in mind that CAFE test numbers run 20 to 30 percent higher than real-world fuel economy. A fleet averaging 49 mpg on the test cycle delivers closer to 34 to 39 mpg in everyday driving.

In June 2024, NHTSA finalized a slower second round covering model years 2027 through 2031. Passenger car standards rise 2 percent per year across all five years. Light truck standards hold flat for MY 2027 and MY 2028, then rise 2 percent per year through MY 2031. NHTSA projects the rule will require a fleet-wide average of roughly 50.4 mpg by MY 2031, and the minimum standard for domestically manufactured passenger cars rises from 55.2 mpg in MY 2027 to 59.8 mpg in MY 2031.⁹

How Electric Vehicles Count

Electric vehicles count toward CAFE compliance through a Department of Energy formula that converts electrical energy consumption into a gasoline-equivalent mpg. For years, the formula included a “fuel content factor” that multiplied an EV’s apparent efficiency by roughly 6.7 times, so an EV consuming energy equivalent to about 30 mpg of gasoline could be credited at over 200 mpg on paper.

In February 2026, DOE issued a rule removing that fuel content factor entirely. The updated formula uses a baseline conversion of 12,307 watt-hours per gallon of gasoline for EVs without petroleum-powered accessories.¹⁰ EVs will now receive a lower equivalent mpg for CAFE purposes, shrinking the compliance boost automakers get from selling them. Companies that leaned on inflated EV credits to offset shortfalls in their truck and SUV lineups feel the change most.

Credits: Banking, Carryback, and Trading

Manufacturers that beat their CAFE targets in a model year earn credits, which function like a compliance bank account. Under 49 U.S.C. § 32903, earned credits can be applied in two directions:¹¹

Carryback: applied to any of the three model years immediately before the year they were earned, to cover past shortfalls.
Banking forward: saved and applied to any of the five model years after the year they were earned.

Credits can also move between a manufacturer’s own passenger car and light truck fleets. If cars overperform but trucks fall short, surplus credits from one category can cover the other. Manufacturers can also trade credits with each other: a company with excess credits can sell them to a competitor that fell short, as long as the trade preserves the overall fuel savings the standards were designed to achieve.¹¹

What Happens If a Manufacturer Misses the Target

For decades, automakers that missed CAFE targets and lacked credits to cover the gap paid civil fines calculated per vehicle: a set dollar amount for every tenth of a mpg the fleet fell short, multiplied by the total number of vehicles produced. The rate was originally $5.50 per tenth of a mpg and was raised to $14 per tenth starting with model year 2019 after years of litigation over the timing.²

In July 2025, Congress eliminated CAFE civil penalties as part of the budget reconciliation bill (H.R. 1). The statute now reads “$0.00” per tenth of a mile per gallon. The Secretary of Transportation still has authority to prescribe a higher rate by regulation, but the statutory cap for any such increase is also set at $0.00.¹² Manufacturers face no federal financial consequence for missing CAFE standards unless Congress acts again.

The Gas Guzzler Tax Is Separate

The gas guzzler tax is a distinct federal charge that was not affected by the 2025 budget bill and remains in force. It applies to individual passenger car models rated below 22.5 mpg in combined city and highway testing.¹³ The manufacturer or importer pays it, but the cost is almost always passed to the buyer and shown on the window sticker. The amount scales with how far the vehicle falls below the threshold:

21.5 to 22.4 mpg: $1,000
20.5 to 21.4 mpg: $1,300
19.5 to 20.4 mpg: $1,700
18.5 to 19.4 mpg: $2,100
17.5 to 18.4 mpg: $2,600
16.5 to 17.4 mpg: $3,000
15.5 to 16.4 mpg: $3,700
14.5 to 15.4 mpg: $4,500
13.5 to 14.4 mpg: $5,400
12.5 to 13.4 mpg: $6,400
Below 12.5 mpg: $7,700

Trucks, SUVs, and minivans are exempt. A high-performance sports car rated at 16 mpg gets hit with a $3,700 tax; a full-size SUV with the same fuel economy pays nothing.¹³

Where the Rules Stand After the EPA Repeal

For over a decade, CAFE ran alongside EPA greenhouse gas emission limits for vehicles. Because burning less fuel means producing less CO2, the two rule sets required roughly the same thing, and automakers could plan for both at once.

That parallel ended in February 2026, when EPA finalized a repeal of all greenhouse gas emission standards for light-duty, medium-duty, and heavy-duty vehicles after rescinding the agency’s 2009 endangerment finding. EPA concluded that Section 202(a)(1) of the Clean Air Act does not authorize it to set emission standards in response to climate change. NHTSA’s CAFE regulations remain legally in effect, but with civil penalties at zero and EPA’s companion program gone, the federal enforcement floor for fuel economy is at its weakest point since the program began. Whether Congress or a future administration rebuilds that floor is the open question for the American auto fleet.

1
National Highway Traffic Safety Administration. USDOT Announces New Vehicle Fuel Economy Standards for Model Year 2024-2026
2
National Highway Traffic Safety Administration. Corporate Average Fuel Economy
3
Congress.gov. H.R. 6 – Energy Independence and Security Act of 2007
4
Office of the Law Revision Counsel. 49 USC 32902 – Average Fuel Economy Standards
5
Office of the Law Revision Counsel. 49 USC 32901 – Definitions
6
U.S. Department of Transportation. Corporate Average Fuel Economy (CAFE) Standards
7
National Highway Traffic Safety Administration. Corporate Average Fuel Economy (CAFE) Data Collection and Verification
8
Federal Register. Corporate Average Fuel Economy Standards for Model Years 2024-2026 Passenger Cars and Light Trucks
9
Federal Register. Corporate Average Fuel Economy Standards for Passenger Cars and Light Trucks for Model Years 2027-2031
10
Federal Register. Petroleum-Equivalent Fuel Economy Calculation
11
Office of the Law Revision Counsel. 49 USC 32903 – Credits for Exceeding Average Fuel Economy Standards
12
Office of the Law Revision Counsel. 49 USC 32912 – Civil Penalties
13
Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax