NHTSA finalizes significantly increased fuel economy civil penalties

NHTSA has reinstated the penalty amounts it originally proposed in 2016, effective for the 2019-2021 model years (MYs).  The penalty for those MYs is $14 for each 0.1 mile per gallon (mpg) that a manufacturer’s performance falls short of the CAFE standard, which is then multiplied by the number of vehicles in the manufacturer’s fleet to determine the full civil penalty amount.  For MY 2022 and beyond, the penalty is $15 for each 0.1 mpg.  This is the first CAFE civil penalty increase since 1997; the previous penalty was $5.50 per 0.1 mpg.

The increases stem from a 2015 law, the Federal Civil Penalties Inflation Adjustment Act Improvements Act, which mandated that federal agencies make an initial “catch-up” adjustment and then annual adjustments to the civil monetary penalties they administer, following a specified  procedure and formula.

The NHTSA rule separately increases the maximum penalty per 0.1 mpg that NHTSA is allowed to establish for CAFE violations.  Following the multipliers in the 2015 statute, the penalty cap under the CAFE law is adjusted from the current maximum of $10 for each 0.1 mpg to $25 for 2017, $26 for 2018, $27 for 2019-2021, and to $29 for 2022.  This means that the new penalties of $14 and $15 per 0.1 mpg are within the statutory maximum penalties the agency is permitted to impose.

Pursuant to the 2015 law and its adjustment procedures, the agency will continue to adjust CAFE civil penalties, and the CAFE penalty cap, in subsequent years.

The final rule withdraws the January 2021 interim final rule that would have delayed applicability of the new penalties to MY 2022.  NHTSA rejected claims of retroactivity, noting that the 2015 statute specifically recognized that increased penalties could apply to violations occurring before the increase, where the penalties are assessed after the date of the increase, and that automakers have been aware of the MY 2019 penalty applicability since the 2016 final rule.  NHTSA pointed out that some manufacturers had in fact relied on the December 2016 final rule in their planning, and that there was a financial incentive to do so given the value of credits would increase dramatically with the increased civil penalty.  The agency noted the argument that delayed application of the increased penalty would impact future compliance because manufacturers would be incentivized to hold credits for later years when the higher rate would apply.  NHTSA stated that it lacks discretion to consider manufacturers’ planned use of credits in determining when to apply the increased penalties, but nonetheless noted that the effects of credit use timing decisions could cascade in future years as credits are time-shifted.

NHTSA also rejected arguments that it had discretion under the 2015 statute to consider economic impacts such as COVID-19 or supply chain shortages after the initial catch-up adjustment to the CAFE penalty.  The agency therefore did not and will not consider such effects in future annual adjustments.

The civil penalty rule is expected to be published in the Federal Register soon, and will take effect 60 days following publication.

Please click here to access a PDF of the final rule.

Authored by Latane Montague, Joanne Rotondi, Susan McAuliffe, Hannah Graae, and Allisa Newman.