The Vehicle Energy Performance Act of 2025 incentivizes high-efficiency vehicles through tax credits and disincentivizes low-efficiency vehicles through a fee, while also updating fuel economy testing and labeling for dual-fueled vehicles.
Sean Casten
Representative
IL-6
The Vehicle Energy Performance Act of 2025 incentivizes the purchase of high-energy performance vehicles through a tax credit based on exceeding the median energy performance of the previous model year, while disincentivizing the purchase of low-energy performance vehicles through a fee on manufacturers. It also refines fuel economy testing and labeling for dual-fueled vehicles to reflect real-world usage. The tax credit is capped at \$5,000, and the low energy performance fee starts in model year 2029.
New 'Vehicle Energy Performance Act' Offers Up to $5,000 Tax Credit for Efficient Cars, Taxes Gas Guzzlers Starting 2029
The Vehicle Energy Performance Act of 2025 is shaking things up in the auto world, aiming to get more energy-efficient cars on the road. It does this with a carrot-and-stick approach: a tax credit for buying efficient vehicles and a fee for manufacturers who sell gas guzzlers.
Cash for Efficiency
This section lays out a new tax credit for folks who buy 'high-energy performance' vehicles starting in 2027. Think of it like a reward for going green (or at least greener). The credit amount is based on a formula, but the maximum you can get is $5,000, adjusted for inflation after 2027. To qualify, the car has to beat the median energy performance of the previous year's models. For example, if the median fuel economy for 2026 model year vehicles is 40 MPG equivalent, your 2027 model would have to exceed that to be eligible. The better the fuel economy, the bigger the credit. You can even transfer this credit to the dealer to lower the car's price upfront, and the amount must be displayed on the window sticker (SEC. 2).
Hitting the Brakes on Gas Guzzlers
Starting in 2029, car manufacturers will face a fee for each 'low energy performance vehicle' they sell. This is basically the opposite of the tax credit – a penalty for making cars with poor fuel economy. The fee, like the credit, is calculated using a formula, with a maximum of $5,000 (also adjusted for inflation). This part targets passenger cars and light trucks that fall below the median fuel economy. However, there are exceptions for vehicles over 8,500 pounds designed for commercial use, ambulances, police cars, and other emergency vehicles (SEC. 3).
Real-World Mileage
This bill also tackles how fuel economy is calculated for cars that run on both electricity and gas (dual-fueled vehicles). The EPA is tasked with updating the formulas every three years using real-world data, whenever possible. This means the MPG numbers you see on the sticker should be more accurate, reflecting how these cars actually perform in everyday driving. The goal is to show fuel economy for when the car runs mainly on alternative fuel, and also an average fuel economy when using a mix of fuels (SEC. 4). Imagine a rideshare driver in a plug-in hybrid: this change means they'll get a clearer picture of their fuel costs, whether they're running on electricity around town or using gasoline on longer trips.
The Bottom Line
The Vehicle Energy Performance Act of 2025 sets up a system where efficient cars are rewarded and inefficient ones are penalized. The details, including the exact median and best energy performance numbers, will be published annually by the Secretary of the Treasury. While the bill aims to push the auto industry towards better fuel economy, it will be crucial to see how manufacturers respond and how these changes affect car prices and consumer choices down the road. The reliance on government agencies to set the standards and issue regulations also means there could be a learning curve as everyone figures out the new system.