In 2017, the federal government’s Corporate Average Fuel Economy (CAFE) mandate will enter a new phase of increases that are likely to be the most dramatic in the law’s history. In order to give the automotive industry time to gear up for compliance, the Environmental Protection Agency (EPA) had been scheduled to map out its CAFE recommendations the 2017 through 2025 model years by October. That announcement faced the threat of being undermined by the California Air Resources Board (CARB), which had promised to reveal its own set of standards in March. But under an agreement announced yesterday, the EPA, NHSTA, and CARB will now announce their recommendations together by September 1, 2011.

In a joint technical assessment released last year, the three regulatory bodies agreed on the feasibility of an annual 3 to 6 percent CAFE hike, culminating in a mandate of between 47 mpg and 62 mpg for 2025. Whether CARB and the EPA would be able settle on a number somewhere within that broad range wasn’t certain. With this agreement though, there is a growing sense that the auto industry’s nightmare scenario of having to meet a patchwork of regulations from one state to the next will once again be averted.

Green Cop, Bad Cop

In 2009, President Barack Obama ended a years-long battle between California and the federal government over the state’s attempt to create a separate fuel economy mandate, by agreeing on a matching set of CAFE standards for the years 2012 through 2016. Many credit CARB’s aggressiveness with finally spurring Washington and the auto industry into action on dramatically raising the efficiency of vehicles sold in the United States.

As the nation’s largest auto market (typically representing more than 13 percent of each year’s American car and truck sales), California has enough leverage to force carmakers to meet its higher emissions and fuel efficiency standards. Had CARB chosen to go it alone in laying down an ambitious standard than CAFE ahead of the EPA decision, it would have left the feds scrambling to choose between several unattractive courses of action: ignore CARB’s numbers and effectively create two separate standards; adjust the planned CAFE schedule to keep up with California’s; or re-enter a long (and so far unsuccessful) legal battle with the state over its right to regulate vehicle emissions.

The threat of having to meet separate standards in different states around the country had CARB broken out on its own was enough to finally win the industry’s support for significant CAFE increases in the late-2000s—provided that CARB matched those standards rather than exceed them. California has since maintained its right to have an independent standard but will attempt to keep it in line with the EPA’s recommendations—provided that the agency continues to aggressively move forward.

The possible subtext of the this most recent agreement is that CARB and EPA proposals are in the same ballpark—which if the past is any indication, could mean that Washington is leaning toward a 2025 standard that is on the higher end of the 47-62 mpg spectrum.

It all sounds like wonky stuff, so what does it mean for consumers? A lot more hybrids, with a healthy dose of smaller cars, and a few more electric cars for good measure. Auto executives believe there is no practical way to bump up average fuel economy to the mid- or even high-50-mpg range without a massive shift to hybrid cars.