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U.S., Canada hike car fuel efficiency, set CO2 standard

By Timothy Gardner and David Ljunggren

WASHINGTON/OTTAWA (Reuters) - The United States on Thursday finalized its first greenhouse gas emissions rules on automobiles and hiked fuel efficiency standards for the first time since the 1970s, measures Canada imposed as well.

The U.S. rules will first apply to 2012 model cars, rolling off production lines next year. They are part of President Barack Obama's goal to cut emissions of greenhouse gases by about 17 percent under 2005 levels by the year 2020.

Obama wants Congress to pass a long-delayed climate bill, but to push it along, he has also set in motion steps for the Environmental Protection Agency to begin regulating emissions from cars and large polluters like power plants.

The EPA determined late last year that emissions of the gases blamed for global warming harm human health. The agency's authority to do so has been challenged by industry groups and lawmakers in courts and in Congress. Thursday's emissions rule marked EPA's first move to cut output of the chemicals.

"We've developed a clean cars program that is a win for automakers and drivers, a win for innovators and entrepreneurs, and a win for our planet," said Lisa Jackson, the administrator of the EPA, which finalized the fuel rules with the Department of Transportation.

The efficiency rules, which car-makers knew for months were coming, require that cars and trucks get on average 35.5 miles per gallon (15 kilometers per liter) by 2016, up 42 percent from current rules, of just under 25 miles per gallon.

The EPA spelled out on Thursday for the first time that average vehicle emissions will be limited to 250 grams of carbon dioxide per mile by 2016, down from 295 grams in 2012.

Canada's government also finalized fuel efficiency rules on Thursday. Canadian Environment Minister Jim Prentice said Canada and the United States "will effectively share common standards" for limiting vehicle greenhouse gas emissions.

The two countries are working together on proposed standards for tractor-trailer trucks, which should be released in the next few months, Prentice said.

The North American auto industry is highly interlinked, and Canada has said its strategy for emissions also hinges on U.S. policy because of the two nations' integrated economies.

PATCHWORK REGULATION AVOIDED

The program will add about $52 billion in vehicle costs, but benefits should hit $240 billion, the EPA said. The savings would come in lower fuel bills and in reduced health care costs as soot and other particulate emissions fall.

The U.S. rule will save 1.8 billion barrels of oil and 960 million tonnes of carbon emissions over the life of the vehicles, equivalent to taking 58 million cars off the road for a year, the EPA said.

Oil refiners, one of the industries challenging EPA authority, slammed the rules. "Such misguided and flawed policy has the potential for devastating consequences to American consumers, businesses, jobs, and the economy," said Charles Drevna, the president of the National Petrochemical and Refiners Association.

But automakers mostly support them because they would create the first national standard for controlling car and truck emissions, superseding state plans that would have created a patchwork of regulations.

CONSUMERS GET WHAT THEY WANT

One auto dealer called the rule a victory for consumers and U.S. automakers.

"Every day customers walk into my stores asking for the same thing -- cars that go farther on a dollar. For the most part that was not an American car. Now domestic cars will become more competitive," said Adam Lee, president of Lee Auto Malls, a string of dealerships selling both foreign and domestic cars.

To meet the emissions standards, automakers are expected to improve the efficiency of traditional combustion engines and make more hybrids and cars that run fully on electricity.

The rules are expected to add an average of $950 to the cost of new vehicles, the EPA said Thursday, down about $350 from earlier projections. By 2016 Volkswagen would be hit with about $1,850 in added costs per car, nearly five times the amount Toyota would face, the agency said.

That said, a driver would save about $3,000 over the life of a vehicle when the rules are fully implemented.

The EPA will next look to limit emissions from stationary sources like power plants and factories. But administrator Jackson said no polluters would be regulated before 2011, in part to give Congress time to pass climate legislation.

"It's entirely consistent with allowing Congress, especially the Senate, time to work on a bill, we are trying to be very mindful of where they are going as we work on regulations," Jackson said.

(Additional reporting by Tom Doggett, John Crawley, Christopher Doering in Washington and John McCrank in Toronto; Graphic by Jasmin Melvin; Editing by David Gregorio)

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