Automakers would be required to gradually increase fuel efficiency under a landmark U.S. government proposal that raises the fleet-wide average to 35.5 miles per gallon by 2016 and regulates tailpipe emissions for the first time.

The initiative, if finalized, would boost fuel efficiency by 40 percent over current standards, reduce dependence on imported oil, and cut carbon emissions blamed for global warming by 21 percent by 2030, Transportation Department and Environmental Protection Agency officials said on Tuesday.

President Barack Obama, speaking at a General Motors assembly plant in Ohio, said the proposal would help put U.S. automakers on a path to fuel efficiency improvements.

It will give our auto companies clarity, and stability, and predictability, Obama said of the regulation that is expected to cost industry an estimated $60 billion.

Passenger car efficiency would rise from 33.6 mpg in 2012 to 38 mpg in 2016, according to the 1,200-page proposal that is tougher than current law calling for 35 mpg by 2020.

Requirements for light trucks, including pickups and SUVs, would rise from 25 mpg in 2012 to 28.3 mpg by 2016. Vehicle emissions would have to meet a combined average of 250 grams of carbon dioxide per mile by 2016.

There would be annual increases of roughly 1 mile per gallon between 2012-16, and the plan is timed to help U.S. carmakers use billions of dollars in loans and grants aimed at helping them retool factories to make fuel efficient vehicles.

The requirements would favor smaller vehicles and, for the first time, the government would factor in the impact of other auto systems, like air conditioning, on efficiency.

GM and other major domestic automakers have starting producing cars with more efficient gasoline engines. They are also accelerating technology for hybrid and electric vehicles.

But many of the top-selling vehicles made by overseas-based companies like Toyota Motor Corp and Honda Motor Co Ltd already come close to, meet, or exceed the 2016 mileage targets.

COMPROMISE REACHED

A compromise between major automakers, the Obama administration, and environmental interests, reached in May, ended years of legal and political wrangling that had produced only incremental gains in efficiency since standards were first imposed in the 1970s.

The last time the country took these kinds of steps for energy security, emissions reductions and savings at the pump, Americans were wearing bell-bottoms, said Brendan Bell of the Union of Concerned Scientists.

The government dramatically increased its leverage over domestic automakers -- the most reluctant to boost efficiency when fuel guzzling vehicles were generating huge profits -- with bailout and bankruptcy financing earlier this year.

Consumer demand for smaller, more efficient cars skyrocketed during the U.S. government-backed cash for clunkers sales incentive program this summer. GM and Ford Motor Co reported strong sales of fuel efficient models.

The decision to add a carbon emissions standard to the fuel regulation was crucial for accelerating the overall initiative and satisfying California state officials, who sought to impose their own emissions standard against industry wishes.

GM, which is 60 percent government-owned after its bankruptcy, said the combination of efficiency and emissions rules would make it easier to manage product plans.

The plan estimates motorists would save 1.8 billion barrels of oil, about 95 days worth of U.S. consumption under the plan. Autos account for 40 percent of domestic oil use.

It would increase average new vehicle prices from $476 per vehicle in model year 2012 to $1,091 in 2016, the government said. But the Consumer Federation of America said motorists would save around $500-$650 per year at the pump if gasoline prices range between $3 and $4 per gallon. U.S. gasoline prices currently average $2.58 per gallon, according to the Energy Department.

The administration has provided a 60-day period for public comment before finalizing the regulation.

One consumer group long critical of industry policies on fuel efficiency, Public Citizen, said the plan was a good step but still contained loopholes that could let auto companies avoid some of the gains sought by policymakers.

(Reporting by John Crawley; Additional reporting by Deborah Zabarenko; Editing by Tim Dobbyn)

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