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(Adds more details, background, reaction)
WASHINGTON, July 12 (Reuters) - The Trump administration said late on Friday it was issuing final rules to suspend a 2016 Obama administration regulation that more than doubled penalties for automakers failing to meet fuel efficiency requirements.
Congress in 2015 ordered federal agencies to adjust civil penalties for failure to meet Corporate Average Fuel Economy requirements to account for inflation, and in response, the National Highway Traffic Safety Administration issued rules to eventually raise fines to $14 from $5.50 for every 0.1 mile per gallon of fuel that new cars and trucks consume in excess of the required standards.
Automakers protested the hike, saying it could increase industry compliance costs by $1 billion annually. After a group of states and environmental groups filed suit, the Trump administration began the process in 2018 of formally undoing the Obama regulation.
NHTSA said in a statement late on Friday it "is faithfully following the intent of Congress to ensure the penalty rate is set at the level required by statute" and added it "expects that this final rule would significantly reduce the future burden on industry and consumers by up to $1 billion per year."
The Alliance of Automobile Manufacturers, a trade group representing General Motors Co, Volkswagen AG , Toyota Motor Corp, Fiat Chrysler Automobiles NV and others, had said it could increase industry compliance costs by $1 billion annually.
Late on Friday, Gloria Bergquist a spokeswoman for the group, praised the decision saying NHTSA's "own model clearly shows the significant economic harm that such a dramatic and unjustified increase in penalties would have on auto manufacturers, workers, and ultimately consumers." She said the prior administration had "failed to take into account the significant economic harm that would result."
Automakers argued the increases would dramatically raise costs, since they would also boost the value of fuel economy credits that are used to meet requirements.
In September 2017, three environmental groups and some U.S. states including New York and California sued NHTSA for putting the Obama rules on hold.
Some automakers historically have paid fines instead of meeting fuel efficiency requirements - including some luxury automakers like Jaguar Land Rover, owned by India's Tata Motors , and Daimler AG.
In February, Fiat Chrysler told Reuters it paid $77 million in U.S. civil penalties in 2018 for failing to meet 2016 model year fuel economy requirements.
The move comes as NHTSA and the Environmental Protection Agency are working to finalize a rewrite of the Obama administration's fuel efficiency requirements through 2026 in the coming months.
In August 2018, the administration proposed freezing fuel efficiency requirements and stripping California of the right to set its own vehicle-emissions rules.
The final regulation faces a multi-year legal battle that could leave automakers in limbo about future emissions and fuel-efficiency requirements.
The Obama-era rules called for a fleetwide fuel-efficiency average of 46.7 miles per gallon by 2026, compared with 37 mpg under the Trump administration's preferred option.
Last month, 17 major automakers urged a compromise "midway" between the Obama-era standards that require annual decreases of about 5% in emissions and the Trump administration's proposal.
Reuters reported in April that officials expect the final rule will include a small increase in yearly fuel-efficiency requirements. (Reporting by David Shepardson Editing by Jacqueline Wong)