updated 5/4/2007 1:25:16 PM ET 2007-05-04T17:25:16

A key Senate panel on Friday proposed raising fuel efficiency requirements on all vehicles, including tractor trailers and large trucks, in an attempt to respond to concerns about energy security without crippling the domestic auto industry.

Sens. Daniel Inouye, D-Hawaii, and Ted Stevens, R-Alaska, released legislation that would achieve a nationwide fleet fuel economy average of 35 miles per gallon by 2020 for passenger cars, pickup trucks and sport utility vehicles, about 40 percent higher than the current average of about 25 mpg.

Following 2020, cars and trucks would need to show improvements of 4 percent a year in efficiency. But the Transportation Department would have leeway on the standards if the industry cannot meet the rules.

Medium duty and heavy duty trucks, which are used in trucking and construction, would also need to make fuel economy improvements of 4 percent a year beginning in 2011.

The Senate proposal would also eliminate, by 2009, the credit that Detroit’s automakers receive for selling “flexible fuel” vehicles capable of running on fuel blends of up to 85 percent ethanol. Environmentalists have opposed the loophole because they say few people actually use E85 ethanol in their flex-fuel vehicles.

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