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UPDATE 2-U.S. appeals court tosses Trump bid to roll back fuel efficiency penalties

(Adds state reaction, automaker reaction)

WASHINGTON/NEW YORK, Aug 31 (Reuters) - A U.S. appeals court on Monday overturned the Trump administration’s July 2019 rule that sought to suspend a regulation that more than doubled penalties for automakers failing to meet fuel efficiency requirements.

Automakers had protested the hike adopted in 2016 by the Obama administration, saying it could increase industry compliance costs by $1 billion annually. The U.S. Court of Appeals for the Second Circuit in a 3-0 decision on Monday said the National Highway Traffic Safety Administration (NHTSA) did not make a timely decision to reconsider the penalties.

NHTSA declined comment.

Congress in 2015 ordered federal agencies to adjust a wide range of civil penalties to account for inflation. In response, NHTSA issued rules to raise fines to $14 from $5.50 for every 0.1 mile per gallon new cars and trucks consume in excess of required standards.

A group of states and environmental groups challenged the Trump administration decision.

California Attorney General Xavier Becerra said “the Trump Administration sought to make these penalties meaningless.”

Sierra Club senior attorney Alejandra Núñez said the decision means the “Trump Administration cannot give away polluting passes to automakers who lag behind on meeting standards required by law.”

Automakers argued the increases would dramatically raise costs, since they would also boost the value of fuel economy credits used to meet requirements. A spokesman for a group representing major automakers said they were reviewing the decision.

Some automakers historically have paid fines instead of meeting fuel efficiency requirements - including some luxury automakers like Jaguar Land Rover and Daimler AG.

In October, Fiat Chrysler Automobiles said it faced a $79 million U.S. civil penalty for failing to meet 2017 fuel economy requirements after paying a $77.3 million penalty for 2016 requirements.

Environmental groups urged the administration to retain the increase, noting U.S. fuel economy fines lost nearly 75% of their original value because fines had only been increased once - from $5 to $5.50 in 1997 - over 40 years.

Separately, 23 states challenged the administration’s decision to require 1.5% annual increases in vehicle efficiency through 2026 - far weaker than the 5% increases adopted under Obama. (By Jonathan Stempel in New York and David Shepardson in Washington Editing by Chizu Nomiyama, Bill Berkrot and David Gregorio)

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