In an unprecedented attempt to unravel years of climate policy, US President Donald Trump has launched a renewed offensive against electric vehicle mandates and state-level emissions rules. His move sets the stage for a bitter legal clash with clean car advocate California and its allies. On top of that, the two Chambers of Congress have already cleared the path to eliminating the current EV incentive.
At the heart of the dispute is President Trump’s decision to revoke California’s authority to set its own vehicle emissions standards. The Golden State has held this power for decades, thanks to federal waivers.
Those waivers, originally granted by the Environmental Protection Agency (EPA), have underpinned California’s leadership in green transport policy. And it didn’t remain an isolated case. It enabled 17 other US states to follow this example. Collectively, they represent around 40% of the American car market.
‘Wildly unrealistic’
Five days ago, Trump signed a resolution rolling back California’s landmark 2035 ban on new gasoline and diesel cars, labelling the move toward full electrification “wildly unrealistic”. His decision prompted an immediate backlash: California, joined by ten other states, launched a lawsuit challenging the legality of the revocation. In their defense, they cited long-established legal precedent under the Clean Air Act.
Rescuing Americans
“If California is prevented from enforcing these vehicle emission standards, it will result in the loss of significant economic and public health benefits, costing California taxpayers an estimated $45 billion in preventable health care costs,” a press release stated. Meanwhile, Governor Gavin Newsom has reaffirmed the state’s ban on gas cars, portraying the federal intervention as an act of overreach.
The row is emblematic. It embodies a wider ideological tug-of-war between the Republican-controlled federal government and the Democrat-led states. Trump’s allies claim they are rescuing Americans from costly and impractical climate mandates. “It is the federal government, not the states, that should establish vehicle emissions standards,” Trump stated in his resolution, adding that a patchwork of differing rules was “unworkable”.
California, the world’s fourth-largest economy, sees things differently. Their officials argue that the right to set higher environmental standards is not only legally justified but also essential, particularly in a state where air pollution continues to exact a heavy toll.
Around a quarter of all new vehicles sold in California are already zero-emission, and its policies have long served as a blueprint for national standards. For carmakers, it is practically the only state where hydrogen vehicles are sold.
Upending Biden’s heritage
The federal slam doesn’t stop at emissions. The Department of Transportation is also seeking to weaken fuel efficiency goals set under the Biden administration.
The Environmental Protection Agency, which Trump ally Lee Zeldin now leads, has signalled it will revisit emissions regulations for both light and heavy-duty vehicles. To compound matters, several states have sued the Trump administration for withholding billions in funding earmarked for the country’s electric vehicle (EV) charging network.
Meanwhile, Congress is embroiled in budget negotiations that could completely upend what remains of Biden’s green industrial strategy. The Republican-led House has passed a bill to kill off tax credits for new and used electric vehicles and phase out incentives for domestic battery manufacturing.
Senate version even worse
The genie, that has already escaped the bottle, is growing in force. The version from the House of Representatives, which backed a bill that would gradually phase out the subsidy by the end of 2026, while adding a new $250 annual levy for EV drivers, left some slack. But it has been overhauled by the Senate. The latter takes a more abrupt tack. Its proposal would terminate the credit just 180 days after the bill is signed into law – a six-month countdown for buyers and manufacturers alike – and replace it with a watered-down incentive: a tax deduction for car loan interests.
But that’s not the worst for car makers, who still depend heavily on such EV incentives to sell electric cars. The Senate bill’s most contentious element is the immediate closure of the so-called “leasing loophole,” which had allowed automakers to apply the tax credit to leased vehicles that didn’t meet the programme’s strict criteria. That mechanism, once a quiet workaround, is now set for swift abolition.
As Congress races to finalise the wider tax and budget package ahead of the self-imposed 4 July deadline, the fate of the Clean Vehicle Credit remains deeply uncertain. What was once a bipartisan tool to steer America’s car industry toward a lower-carbon future has become the latest casualty in a battle over climate, industry, and the role of the state.
And for carmakers, beyond the mounting competition from Asia, there’s the costly complication of navigating a patchwork of global markets, each pushing its own technology pathway.
