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In a landmark decision on climate change and energy, President Barack Obama will announce tough new vehicle gas-mileage standards on Tuesday, the first ever national limits on greenhouse-gas emissions.

The new policy, which was worked out between Washington, state governments and the auto industry, will require automakers to meet a minimum fuel-efficiency standard of 35.5 miles a gallon by model year 2016 — four years earlier than Congress currently requires. Not only could the move potentially kick-start the sputtering U.S. auto industry, while saving the equivalent of some 1.8 billion barrels of oil, it also raises hopes that the Obama Administration will be able to forge a compromise on the tricky matter of a national cap on greenhouse-gas emissions. "It's an enormous breakthrough for national legislation," says Vickie Patton, a senior attorney for the Environmental Defense Fund. "It ends years of polarization on extraordinarily difficult issues and leaves us with a sense of progress." (See the 50 worst cars of all time.)

The plan settles a dispute between the state of California and the Environmental Protection Agency (EPA) that dates back to George W. Bush's White House. Under the Clean Air Act, California has the right to enforce air-pollution standards that are tougher than the rest of the nation's rules — provided the EPA gives it a waiver. In the past, such waivers had been all but automatic — but when California tried to pass stricter emissions standards for vehicles, the Bush EPA balked, setting up a string of legal battles. California pressed its right to green its millions of cars and trucks; U.S. automakers claimed that if California could go its own way, the result would be a patchwork of different fuel-efficiency standards around the nation, making business all but impossible. (See the top 10 green stories of 2008.)

When Obama came into office in January, he promised that the EPA would review California's waiver requests. But instead of simply giving the green light to California, Obama will also largely incorporate the state's proposed rules into a new and tougher fuel-economy standard for the entire nation. The new rules will tighten fuel-efficiency requirements more slowly than California had wanted — to give the auto industry time to adjust — but ultimately the nation's automakers will end up meeting the same standards as California by model year 2016.

All cars will need to get an average of 39 m.p.g., and trucks will need to get 30 m.p.g. — roughly 30% more fuel-efficiency than they get today. "The ramp up will be a different path than California's, but it's a national program, so you'll get emissions reductions at a rate higher than California," says a senior White House official, who provided a background briefing on the condition of anonymity.

Between now and 2016 the new rules will save 900 million metric tons of greenhouse gases — the equivalent of taking 170 million cars off the road. "This is a win-win because it reduces global-warming pollution and will reduce costs for consumers because they will have to buy less gasoline," says Daniel Weiss, the director of climate strategy at the Center for American Progress, a left-leaning think tank. "This is unprecedented and historic."

What's most notable about the proposed regulations — and what gives environmentalists hope for further action on climate change — is Obama's apparent success in bringing the U.S. auto industry to the table. Automakers have fought long and hard against tougher fuel-economy standards, claiming such rules would raise the cost of vehicles and that consumers have shown little preference for more fuel-efficient models. But major auto executives, such as General Motors' new CEO, Fritz Henderson, are expected stand alongside Obama at the White House on Tuesday when the President makes his announcement, signaling their support. "It will establish a single national standard that will provide predictability and certainty for the auto companies in meeting regulations," said Democratic Michigan Senator Carl Levin in a statement.

Of course, with the federal government pouring billions into U.S. automakers like GM, those executives may have little choice but to get on board. And there are still nagging concerns that new fuel-economy standards alone won't be enough to wean Americans from their gas guzzlers. Since gas prices fell during the recession, consumers' appetite for compacts and hybrids has dwindled, and sales of large SUVs are once again ticking upward. If gas prices stayed relatively low between now and 2016 — which is unlikely — automakers could end up producing cars and trucks that Americans won't be eager to buy.

But the White House argues that the new rules will still give American drivers the latitude to buy heavier cars and trucks if they want. The White House official said that each vehicle class will have its own tighter standard, meaning that automakers won't be able to get away with balancing lots of gas-guzzlers with a few highly efficient cars. "It preserves consumer choice to buy any type of car, but all cars will be cleaner," the official said. (See the history of the electric car.)

The newly proposed regulations will still have to go through the usual period of commenting, and there's always a chance that such a fragile coalition of politicians, greens and auto executives could collapse. But the very fact the White House brought — and kept — everyone at the table offers some hope as the much tougher battle over carbon cap and trade boils in Congress. "President Obama made the creation of a clean-energy economy a key aspect of his domestic agenda, and he's fulfilling that," says Weiss. It's a good start — but there's still a long road ahead.

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• In what will be the first ever national limits on greenhouse-gas emissions, President Obama will issue tougher gas-mileage standards for all cars and trucks