Trump’s EPA is targeting key vehicle pollution rules. What that means for carmakers

Vehicles drive along a highway Wednesday, July 30, 2025, in Cincinnati. (AP Photo/Joshua A. Bickel)

DETROIT — The U.S. Environmental Protection Agency’s plan this week to relax rules aimed at cleaning up auto tailpipe emissions is the latest Trump administration move to undo incentives for automakers to go electric.

As part of a larger effort to undo climate-based governmental regulations, the EPA on Tuesday said it wants to revoke the 2009 finding that carbon dioxide and other greenhouse gases endanger public health and welfare. That would cripple the legal basis for limiting emissions from things like power plants and motor vehicles.

U.S. President Donald Trump’s massive tax and spending law already targets EV incentives, including the imminent removal of a credit that saves buyers up to US$7,500 on a new electric car.

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The tax law approved in early July also includes another provision that will hit Tesla and other EV makers in the pocketbook — repealing fines for automakers that don’t meet federal fuel economy standards.

Automakers can buy credits under a trading program if they don’t meet the mileage standards. EV makers like Tesla, which don’t rely on gasoline, earn credits that they can sell to other carmakers. The arrangement has resulted in billions of dollars in revenue for Tesla and millions for other EV makers like Rivian.

That is all set to go away under the new law.

Trump has also challenged federal EV charging infrastructure money and blocked California’s ban of new gas-powered vehicle sales.

It adds up to less pressure on automakers to continue evolving their production away from gas-burning vehicles. And that’s significant because transportation — which also includes ships, trains and planes — is the sector that contributes the most to planet-warming emissions in the U.S.

Push and pull on tailpipe and mileage rules

Stringent tailpipe emissions and mileage rules were part of the Biden administration’s pledge to clean up the nation’s vehicles and reduce use of fossil fuels by incentivizing growth in EVs. EVs do not use gasoline or emit greenhouse gases.

The Trump administration and the auto industry have said both rules were unreasonable for manufacturers.

Automakers could meet EPA tailpipe limits with about 56 per cent of new vehicle sales being electric by 2032 — they’re currently at about eight per cent — along with at least 13 per cent plug-in hybrids or other partially electric cars, and more efficient gasoline-powered cars that get more miles to the gallon.

The latest mileage targets set under the Biden administration required automakers to get to an average of about 81 kilometres per gallon for light-duty vehicles by model year 2031, and about 35 miles per gallon for pickups and vans by model year 2035.

But U.S. Department of Transportation Secretary Sean Duffy pressured the National Highway Traffic Safety Administration earlier this year to reverse the rules, and has recently said Biden’s inclusion of EVs in calculating them was illegal. NHTSA will likely reset or significantly weaken them.

The fines that are going away

Then there are the fines that automakers will no longer face for falling short on the fuel economy rules.

“With the signing of the One Big Beautiful Bill, new penalties for automakers not complying with an illegal fuel economy standard designed to push EVs will be zero,” NHTSA spokesman Sean Rushton said in a statement.

Some legacy automakers have paid hundreds of millions of dollars in penalties for not meeting them. Just last year, Jeep-maker Stellantis paid US$190.7 million for model years 2019 and 2020, and General Motors paid US$128.2 million for the 2016 and 2017 model years.

Automakers that didn’t meet the standards could also instead buy credits from carmakers that did — or even surpassed them — such as Tesla. That provision earned Tesla US$2.8 billion in 2024 — revenue it will no longer see.

Elon Musk sharply criticized the big tax-and-spending bill in June, saying it “gives handouts to industries of the past while severely damaging industries of the future.” Tesla did not immediately respond to a request for comment on the law’s effect on those credits.

The agency wrote to carmakers earlier this month informing them the penalties wouldn’t be issued from the model year 2022 onward. Some automakers confirmed receiving the letter but declined to comment further.

Experts say without them, the law “invites automakers to cheat on government fuel economy rules by setting fines to US$0, ensuring consumers will buy more gas guzzlers, pay more at the pump and enrich Big Oil,” said Dan Becker, director of the Center for Biological Diversity’s Safe Climate Transport Campaign.

Ann Carlson, an environmental law professor at the University of California, Los Angeles, and a former acting NHTSA administrator under Biden, called it a “stunning decision” for NHTSA to essentially forgive the fines from 2022 onward. She said it amounted to a windfall for companies that chose to pay penalties rather than produce more efficient cars.

Carlson said backing away from future fines also “poses a dilemma for auto manufacturers who may feel bound to comply with the law, even if there is not a financial consequence for failing to do so.”

Where auto manufacturers go from here

It takes a while for carmakers to shift their product lines, and experts say automakers might be locked into their technology and manufacturing decisions for the next few model years. But changes could come for model year 2027 and beyond, they said.

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EVs aren’t as profitable as gas-engine cars, so automakers may make fewer of them if they no longer have to offset emissions from their gasoline models. Already, some automakers have pulled back on their ambitions to go all-electric with a slower pace of EV sales growth.

“Automakers also know every presidential administration eventually comes to an end, so they won’t abandon their EV development efforts,” said Karl Brauer, executive analyst at iSeeCars.com. ”But they will reduce their near-term efforts in this area.”

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Alexa St. John, The Associated Press