President Barack Obama this week kept a campaign promise that could potentially allow California and other states to set their own fuel economy and vehicle emissions standards by signing a memorandum to the Environmental Protection Agency requiring it to reconsider California's application for a waiver of federal law on the issue. Now a meeting between mid-level auto industry officials, California legislators and environmental policymakers is believed to be planned for later this week in an attempt to work out a compromise solution.

If the EPA grants that waiver from federal standards, as it is expected to do, it could create a situation where carmakers will have to tailor vehicles to meet the standards of each individual state, or meet standards so high that only small cars could be legally sold, reports The New York Times.

Such an outcome would necessitate legal action against the EPA waivers by the car companies, and therefore the compromise is being sought. The key for the industry is a coherent solution, even if that solution is tougher than current CAFE standards, according to Alliance of Automotive Manufacturers spokeswoman Gloria Bergquist. The carmakers are seeking a unified standard that “can bridge what the automakers, the federal government and the states all want,” Bergquist said.

Both American and foreign carmakers have waged a lengthy legal battle against the California Air Resources Board (CARB), which until now has been blocked from setting its own rules by the former Bush administration. President Obama sees the decision in national security terms, however, saying, "It will be the policy of my administration to reverse our dependence on foreign oil." He recognized the potential strain a piecemeal approach to emissions and efficiency regulation could put on the industry, however. "Let me be clear: Our goal is not to further burden an already struggling industry; it is to help America's automakers prepare for the future," said President Obama.

The cost to the industry of meeting the current CAFE standards has been estimated by the government at about $30.5 billion from 2011 to 2015; meeting CARB's standards on a nationwide basis would cost significantly more. That's why President Obama has suggested that if the car industry works toward meeting that goal, the government will help to cover the expense. The new administration's plan is to enact only the 2011 fuel efficiency standards by March 31, leaving the ensuing years and interim targets to be developed with input from all sides.

CARB chairwoman Mary Nichols expects more litigation, not conciliation, however. “Without a change in attitude or direction on their part, we expect the carmakers to sue,” said Nichols. Nevertheless, she also recognized CARB's willingness to allow a federal law to control, provided it meets similarly stringent standards to the California law.

While the U.S. government has thus far implemented its own fleet-wide fuel efficiency standard of 35mpg by 2020 for carmakers (plus an interim mandate of 31.6mpg by 2015), California is planning to implement its own target of 36.8mpg by 2016. The issue has been a major headache for carmakers as California represents the single biggest market for new vehicles in the whole of North America. To make matters worse, 13 other states plan to copy the stricter mandate.

The new memorandum signed by President Obama will order the Environmental Protection Agency (EPA) to reconsider the Bush administration’s past rejection of the CARB application. While it stops short of directly ordering the Bush decision reversed, the agency’s regulators are now widely expected to do so after completing a formal review process.

The decision to direct the EPA to reconsider the issue of fuel efficiency regulation is part of an overarching goal of improving energy efficiency throughout the economy. President Obama, while cognizant of the challenges surround the issue, cast the nation's energy policy as being at a pivotal point, and presented these steps as just the first on a journey toward greater independence.