Yesterday, President Barack Obama's new plan for raising fuel economy standards leaked to the press.  This mark the first time in over two decades that the standard has been raised for passenger cars.

The new standards call for passenger cars to meet a 30.2 mpg average by 2011, which represents a 2 mpg increase.  Trucks will have to meet a 24.1 mpg average.  The changes are President Obama's first steps towards fulfilling his promise of 4 percent annual increases until 2022.  President Obama wants the fleet of cars and trucks sold nationwide to reach a 40 mpg average by 2022.

The new standards are gentler on the struggling auto industry than those President Bush had proposed in 2007.  The Bush administration passed the 2007 Energy Law which will require automakers to reach a 35 mpg average fuel economy by 2020, a 40 percent increase over the current standard of about 25 mpg.  President Bush wanted to front-load much of this change, proposing the standards in 2011 be raised to a combined 27.8 mpg -- 31.2 mpg for passenger cars and 25 mpg for small trucks.

Such a plan would have cost the auto industry an estimated $50B USD in sales, as they would be forced to stop selling certain SUV models and make other changes.  With President Obama taking a personal commitment to trying to right the course of the troubled domestic auto industry, he wanted a set of increases that would not sink the already flooding ship.

The administration had relatively little time to prepare the new rules -- just a couple months -- as the rules are to be announced formally April 1 in order to give the automakers sufficient time to change their vehicle lineup plans.

In the longer term, the Environmental Protection Agency is reportedly working closely with the transportation department to draft a comprehensive set of standards increases through the 2015 model year.  The administration officials are planning to possibly adopt more aggressive increases in years to come.  One challenge is to make sure that the national standards are close to the average state standards.

President Obama recently urged the EPA to reconsider the Bush administration ruling that California could not have its own higher set of standards for fuel economy and greenhouse gas emissions.  If the decision is overturned, thirteen other states plus the District of Columbia are planning on adopting the standard.  This puts pressure on the Obama administration to adopt the standard on the national level, as automakers have complained about having to deal with state specific standards, saying it makes it too expensive and difficult to be successful.

While President Obama is leading off a decade-long program of efficiency increases with a gentler first increase than his predecessor suggested, he is also opening the door for states to adopt higher standards.  Ultimately, the decision boils down largely to economics, as additional expenses on the domestic automakers will simply be placed on the taxpayers in the form of loans, unless the government decides to let them go bankrupt.  Either way, the administration believes is preferable to adopt less severe increases now and push the more intensive increases when the industry returns to success.