Vehicle Energy Performance Act of 2025

Bill Number

H.R. 1293

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-02-13: Referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2026-05-04T14:56:32Z

AI-Generated Summary

Purpose of the Legislation

The Vehicle Energy Performance Act of 2025 aims to encourage higher fuel efficiency in new passenger cars and light trucks by offering tax credits to buyers of high-efficiency vehicles and imposing fees on manufacturers of low-efficiency ones. It amends the Internal Revenue Code of 1986 to create financial incentives and penalties tied to a vehicle's "energy performance," which is based on its combined fuel-economy rating (a measure of miles per gallon of gasoline equivalent). The goal is to promote energy conservation and reduce fuel use starting with model year 2027 for credits and 2029 for fees.

Key Provisions

• Tax Credit for High-Efficiency Vehicles (Section 30E):
• Provides a refundable tax credit of up to $5,000 for purchasing or leasing a new "qualified high energy performance motor vehicle" (passenger cars or light trucks with above-median fuel economy from the prior model year).
• Credit amount is calculated proportionally: It scales based on how much better the vehicle's fuel economy exceeds the prior year's median, relative to the gap between the median and the best-performing vehicle from that year.
• Applies to vehicles made starting model year 2027; must meet Clean Air Act standards, federal fuel economy rules, and safety requirements.
• The credit is refundable (can exceed tax owed and result in a payment) and can be transferred to the dealer at purchase, reducing the vehicle's price, but with required disclosures (e.g., via window sticker) and certifications to prevent double-claiming.
• Special rules include basis reduction for the vehicle (lowers its depreciable value), recapture if the vehicle no longer qualifies, and ineligibility for vehicles used outside the U.S. or certain leased ones.
• Inflation adjustment: The $5,000 cap increases annually after 2027 based on cost-of-living changes, rounded to the nearest $100.
• Reporting: Manufacturers must report fuel economy data annually starting 2026; the Treasury publishes median and best performances by December each year.

• Low Vehicle Energy Performance Fee (Amends Section 4064):
• Imposes a fee on manufacturers for each "low energy performance vehicle" (below-median fuel economy) sold, up to $5,000, calculated similarly to the credit but for underperformance.
• Applies starting model year 2029 to passenger cars and light trucks.
• Exceptions: No fee for heavy commercial vehicles (over 8,500 pounds gross weight), ambulances, police/emergency vehicles, or government-use emergency vehicles.
• Inflation adjustment: The $5,000 cap increases annually after 2029 based on cost-of-living changes.
• Replaces the existing "Gas Guzzler Tax" and updates related tax code references (e.g., changing headings from "gas" to "fuel").

• Updates for Dual-Fueled Vehicles (Amends Title 49, U.S. Code):
• Mandates EPA to calculate fuel economy for electric/gas or diesel dual-fueled vehicles using a formula based on real-world data for gasoline/diesel vs. electricity use, starting model year 2026 (previously optional after 2015).
• Requires EPA to review and update this formula every 3 years.
• Enhances vehicle labeling and consumer information booklets to include multi-day average fuel economy for mixed-fuel use, with percentages based on real-world data.

• General Rules:
• Vehicles must comply with federal air quality, fuel economy, and safety standards to qualify.
• Treasury, in coordination with the Department of Transportation (DOT) and EPA, will issue regulations within 1 year of enactment.
• Applies only once per vehicle (tracked by VIN) and interacts with other tax credits (e.g., business credits under Section 38).

Significant Changes to Existing Law

• New Credit System: Introduces Section 30E, a novel rebate based on relative fuel economy performance (vs. absolute thresholds in prior credits like the clean vehicle credit under Section 30D). It excludes vehicles eligible for Section 30D unless elected otherwise.
• Replaces Gas Guzzler Tax: Overhauls Section 4064 from a flat tax on vehicles under 22.5 MPG to a scaled fee up to $5,000 for below-median performers, with broader exceptions and inflation adjustments. Updates tax code headings and cross-references.
• Dual-Fueled Calculations: Makes EPA's fuel economy formula mandatory (not optional) and data-driven, extending from model year 2026; adds detailed labeling requirements under fuel economy laws (Sections 32905 and 32908 of Title 49).
• Reporting and Display: Requires annual manufacturer reports and public Treasury data; adds credit amount to vehicle window stickers.
• Tax Integration: Allows the credit against alternative minimum tax and treats business-use portions as general business credits.

Potential Impacts

• On Government Agencies: Increases administrative workload for IRS (processing credits/fees), EPA (fuel economy testing/labeling), and DOT (coordinating standards); generates revenue from fees to offset credit costs, potentially reducing federal fuel consumption and emissions.
• On Citizens: Buyers of efficient vehicles save up to $5,000 (via credit or price reduction), incentivizing greener purchases; low-efficiency vehicle prices may rise as manufacturers pass on fees, affecting affordability. Promotes broader market shift to fuel-efficient options, lowering long-term fuel costs and environmental harm.
• On International Relations: Minimal direct impact, but could influence global auto trade by pressuring foreign manufacturers to meet U.S. efficiency standards; aligns with international climate goals without trade barriers.
• Broader Effects: Encourages industry-wide fuel economy improvements, potentially cutting U.S. oil imports and greenhouse gas emissions; fees/credits may generate neutral or positive fiscal impact depending on adoption rates.

Main Stakeholders Affected

• Vehicle Manufacturers: Must report data, improve designs to avoid fees and qualify for credits; impacts production costs and competitiveness (e.g., U.S. vs. import makers).
• Consumers and Buyers: Individuals purchasing/leasing new vehicles from 2027 onward benefit from or pay indirectly for efficiency-based incentives/penalties.
• Auto Dealers: Handle credit transfers, disclosures, and certifications; may see sales shifts toward efficient models.
• Government and Taxpayers: Agencies like IRS, EPA, and DOT implement rules; public funds credits but gains fee revenue.
• Environmental and Energy Groups: Indirectly benefit from reduced emissions and fuel use.

Notable Legal, Constitutional, or Political Implications

• Legal: Relies on Congress's taxing and spending powers (Article I, Section 8) to influence private behavior via incentives/penalties, integrated with existing environmental (Clean Air Act) and safety laws (Title 49). Requires inter-agency coordination, potentially leading to regulatory challenges if data/reporting burdens are contested. Recapture rules and transfer limits prevent abuse but add enforcement needs.
• Constitutional: No major issues; uses established tax mechanisms without infringing on states (though states with Clean Air Act waivers are referenced). Ensures due process via disclosures and elections.
• Political: Advances energy independence and climate policy through market-based tools rather than mandates, appealing to bipartisan efficiency goals but possibly divisive as a "green tax" favoring electric/hybrid tech. Could face industry lobbying over fees or credit caps; promotes equity by making credits refundable/transferable for low-income buyers.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Casten, Sean [D-IL-6]

Cosponsors (1)

Rep. Matsui, Doris O. [D-CA-7]

Recent Actions

• 2025-02-13: Referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-02-13: Referred to the Committee on Ways and Means, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-02-13: Introduced in House
• 2025-02-13: Introduced in House

Bill Versions

• Vehicle Energy Performance Act of 2025 — issued 2025-02-13 — PDF (21 pages)