WASHINGTON, March 19 (Reuters) - The Biden

administration on Tuesday handed Detroit automakers a major win

by easing proposed rules that would have forced them to scale

back production of gas-guzzling vehicles or face billions of

dollars in fines.

The Department of Energy decision, first reported by Reuters

on Monday, significantly slows the phase-out of existing rules

that give automakers extra fuel-economy credit for electric

vehicles they currently sell. The real-world impact of the

complex regulations has been to help U.S. automakers meet

federal standards for fleetwide fuel efficiency while they

continue selling highly profitable gasoline-powered pickups and

SUVs.

The rule is part of a larger set of Biden administration

regulations being released starting this week, after intense

discussions with automakers who have said they could not meet

initial proposals for a much more aggressive EV transition.

Those proposals called for much stricter emission standards with

the goal of pushing EV market share to 67% of all new cars sold

by 2032 from less than 8% last year.

The Detroit Three produce even fewer EVs as a share of their

overall sales; Stellantis ( STLA ), which owns the Jeep SUV

and Ram pickup brands, currently sells almost no EVs in the

United States.

President Joe Biden's retreat on the aggressive EV push

comes as his 2024 re-election campaign faces a potential

must-win scenario in the battleground state of Michigan, the hub

of the U.S. auto industry and much of its unionized workforce.

His Republican opponent, Donald Trump, has charged that Biden's

policies will kill auto jobs and aid China's surging

electric-vehicle industry.

Environmentalists have long criticized the Energy Department

rules for assigning unrealistically high fuel-economy values to

electric vehicles, which are then figured in to fleetwide

averages under federal Corporate Average Fuel Economy (CAFE)

rules. The higher figures assigned to EVs help offset the values

of gas-guzzling vehicles.

The current rules, for instance, credit the Ford F-150

Lightning electric pickup as getting the equivalent of 237.7

miles per gallon (mpg). The administration's original proposal

last year would have reduced that to 67.1 mpg, a more realistic

estimate of its real-world efficiency compared with a

gasoline-powered F-150.

The original Biden administration proposal would have

lowered such "petroleum-equivalent fuel economy" ratings for EVs

by 72% in 2027. The final rule will instead gradually reduce the

equivalency ratings through 2030 by a total of 65%, giving

automakers more time to adjust.

The industry cheered the Energy Department announcement.

John Bozella, chief executive of the auto trade group Alliance

for Automotive innovation, said the earlier proposal would

"perversely disincentivize the production of battery electric

vehicles" by scaling back EV fuel-economy credits that helped

automakers meet federal regulations.

The new federal rules will govern all automakers selling

U.S. vehicles but the biggest impact will be on the Detroit

Three because of their heavy reliance on sales of large trucks

and SUVs.

Automakers and the United Auto Workers union have also

raised alarms that the administration's prior proposal could

have resulted in U.S. automakers facing $10.5 billion in CAFE

fines through 2032 for not meeting fuel-economy requirements.

General Motors ( GM ) would have faced $6.5 billion in

fines, followed by Chrysler parent Stellantis ( STLA ) with $3 billion,

and Ford $1 billion through 2032. The National Highway

Traffic Safety Administration is set to propose final revised

CAFE rules this spring.

The Biden administration's final auto tailpipe emissions

standards and related rules, including the Energy Department

regulation announced on Tuesday, will give automakers more

leeway to continue selling combustion vehicles, including

gas-electric hybrids, through 2030.

Separately, the Environmental Protection Agency on Wednesday

will unveil revised 2027-2032 vehicle emissions requirements

that will also soften the blow to automakers by easing proposed

rules through 2030 and then ramping up requirements through

2032.

EPA forecast last year the rules would result in automakers

building 60% EVs by 2030; the final rules may allow automakers

to build 50% EVs or less in 2030.

Ford, Toyota ( TM ), Stellantis ( STLA ), Honda ( HMC ) and

Hyundai have reported increased sales of hybrid and

plug-in hybrids in recent months. GM and Volkswagen

are considering adding U.S. plug-in hybrids, reversing earlier

plans to go all-electric, executives have said.

Automakers, auto dealers and the UAW called the original EPA

plan unrealistic.

Climate action groups and Tesla have urged the

administration not to water down the EPA's initial proposals and

instead impose stricter rules.

The National Resources Defense Council (NRDC) and Sierra

Club had urged EV mileage rating reductions after the Energy

Department left them unchanged for two decades. They argued high

ratings meant a "relatively small number of EVs will

mathematically guarantee compliance without meaningful

improvements" in overall fleet efficiency.

Pete Huffman, senior attorney at NRDC, cheered the Energy

Department's decision to eventually end higher EV ratings even

though it slowed the phase-out.

"The automakers' free ride is over," he said, adding that

changes "will curtail automakers' use of phantom credits they

used to keep selling gas-guzzlers."