Sources confirmed details of a document posted on a government website confirming the department submitted the proposal to the Office of Management and Budget for review. Sources briefed on the matter said the proposal could be unveiled as early as next week.
The rules, negotiated with automakers by former President Barack Obama's administration in 2011, aimed to double average fleet-wide fuel efficiency to about 50 miles per gallon by 2025 and included significant annual increases in automaker requirements. Automakers now want changes, citing lower gasoline prices and a shift in consumer preferences to larger vehicles.
The sources said the proposed rule, to be made available for public comment, will include a series of alternatives but the preferred alternative will be to freeze requirements at 2020 levels through 2026.
Advocates of stricter standards, designed to limit emissions of greenhouse gases, criticized the Transportation Department proposal. U.S. Senator Tom Carper said a draft shows the administration's preferred alternative would result in Americans using 206 billion more gallons of gasoline through 2050 versus the current standards.
The lengthy proposal will assert that a 1975 federal law preempts states from imposing emissions rules.
Environmental Protection Agency spokesman Jahan Wilcox said the EPA and the National Highway Traffic Safety Administration jointly developed the rule and sent it to OMB. He declined further comment ahead of the review.
The final proposal could be changed during the inter-agency review process.
This month, California and 16 other states backing tougher rules filed suit to challenge the Trump administration's April decision to announce plans to revise the rules.
Automakers have previously told the Trump administration that they support continued increases in mileage standards through 2025.
Automakers at a May 11 meeting with President Donald Trump urged him to try to reach agreement with California. The following week, California Air Resources Board chief Mary Nichols met with administration officials.
Senator Dianne Feinstein, a California Democrat, said this week regulators "owe it to the American people to work with California and save the fuel economy standards."
After the Trump meeting, General Motors chief executive Mary Barra held a new round of meetings this month with Transportation Secretary Elaine Chao and EPA Administrator Scott Pruitt.
Honeywell International Chief Executive Officer Darius Adamczyk also met earlier this month with Chao, the company confirmed. He discussed "next generation technologies, specifically mobile air conditioning refrigerants, that were innovated and are manufactured in the U.S. to help American automakers meet auto emission standards."
A person briefed on the NHTSA proposal said it will address impacts of fuel efficiency increases on the economy, auto industry, environment and safety and is expected to assert that the rollback will have significant economic benefits.
Reporting by David Shepardson.