California has been fighting the federal EPA over the issue for years.
The EPA decision Tuesday to granted California a formal waiver clears the way for the state to implement a 2004 state pollution law to combat global warming. The Bush administration repeatedly rejected the waiver request, which was required by the federal Clean Air Act.
The California regulation requires automakers to increase the fuel economy of cars and trucks sold in the state by 40 percent over the next seven years, to an average of 35.5 miles per gallon by 2016.
The EPA decision had been expected since President Barack Obama in May announced plans to implement a national requirement similar to the one in California. But the federal waiver for California sets the stage for the national program. At least 14 states already have said they want to follow California's lead once the EPA gives a green light.
Automakers fought California on its emission requirements for years in the courts and in lobbying the Bush administration in Washington. But last May, automakers went along with Obama's proposal for national regulations to speed the development of more fuel efficient automobiles and trucks.
Higher fuel efficiency reduces the amount of carbon dioxide, the leading greenhouse gas linked to climate change, that is released from tailpipes.
On Tuesday, automakers reacted cautiously to the EPA decision.
"We are hopeful the granting of this waiver will not undermine the enormous efforts put forth to create the national program," said Dave McCurdy, president of the Alliance of Automobile Manufacturers in a statement. He said a national requirement to cut greenhouse gas emissions from motor vehicles "moves us towards a policy that ensures that consumers in all 50 states have access to highly fuel efficient vehicles at an affordable price."
Auto companies had worried about a patchwork of stage regulations on climate-altering vehicle emissions.
But environmentalists said the decision to give California the go-ahead for putting into place its emission requirements was long overdue and essential for developing the national program.
"This is putting the federal seal of approval on California's leadership in cleaning up global warming pollution from our cars, SUVs, pickups and minivans," said David Doniger, director of the Climate Center at the Natural Resources Defense Council. He said the action was needed to implement the "peace treaty" between car makers and those seeking tougher fuel economy standard reflected by Obama's announcement in May.
Obama proposed a requirement to increase the fuel economy of cars and small trucks to 35.5 miles per gallon by 2016, an improvement of about 40 percent over what vehicles achieve on average today, similar to what California has wanted. Congress in 2007 had called for a 35 mpg requirement by 2020.