The Outdated Economics Driving Trump’s Car Standards Rollback

It hasn't attracted as much attention as you might expect, but President Donald Trump has essentially killed all fuel economy rules on cars and trucks in the United States.

By the end of the year, automakers will face virtually no limits on how many huge gas guzzlers they can sell to the public — or what those purchases will do to domestic oil prices. But is the thinking driving this change up to date?

On this episode of Shift Key, Rob is joined by Kenneth Gillingham, a professor of environmental and energy economics at Yale. They chat about how the economics profession changed its mind about fuel efficiency rules for cars and trucks — and then recently changed its mind again. They also debrief about what the Trump rollback gets right and wrong in its key economic assumptions and how that might affect its reception.

Then Rob chats with Hannah Hess, an associate director from the Rhodium Group about new Clean Investment Monitor data that shows the U.S. clean energy economy was a “tale of two industries” in Q4 2025.

Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap News.

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Here is an excerpt from their conversation:

Robinson Meyer: Let’s just roll the clock back to 2015 or 2016. At that point, the Obama-era standards had been in effect for some time. Where was the field of economics thinking about the efficiency gains from efficiency-based regulation in cars?

Kenneth Gillingham: That’s a great question. A series of papers came out in the early 2010s, either as working papers initially, and then they were published in those subsequent years. So if you were asking even me around 2015, I would have said, well, it does appear that consumers do value a lot of the future fuel savings and perhaps nearly all of the future fuel savings. If that is the case, that pulls out one of the key motivations for fuel economy standards or vehicle greenhouse gas standards that save fuel: It makes it harder for those standards to look to have positive net benefits.

Meyer: And I should say that neither the CAFE standards, which are from the Department of Transportation and regulate fuel mileage, nor the EPA greenhouse gas standards, which regulate the number of the amount of tons of carbon that come out of the car, like the truck tailpipe — they’re not cost free, right? They cost — I mean, at least as of the time of the first Trump administration — they cost like, they added to the cost of vehicles by about a thousand dollars or $1,200 dollars a vehicle on average. Now, consumers saved that over the life of the vehicle many times over. But if consumers are already taking into account those efficiency gains, then that tradeoff that the rules kind of forced consumers in maybe weren’t worth it.

Before we move on to where we are now, just staying in this 2015 zone, how did the literature reach this conclusion? What methodology were economists using to say, actually, consumers take all the fuel savings into account when they make a purchasing decision?

Gillingham: It’s a great question. So conceptually, they were looking at prices and quantities of vehicles. And they were looking at cases where you had, for some reason, the efficiency was improved, so there was some way, some exogenous way that efficiency was improved. And then looking at how the prices on the market re-equilibrated. And in particular, this was used for used cars. So much of the early 2010 literature that we’re talking about here brings in used cars and new cars. But importantly, it is including used cars and looking at how used car prices change with efficiency changes. Some of the literature was new cars as well, but they were generally finding relatively high valuation ratios.

Meyer: Give us an example. Is this like consumers, when they were buying a Prius, took into account all the fuel savings from that Prius as compared to like, say, a Toyota Tacoma, like the Prius price included this premium for fuel efficiency?

Gillingham: That’s exactly right.

You can find a full transcript of the episode here.

Mentioned:

From Heatmap: Trump’s One Big Beautiful Blow to the EV Supply Chain

Clean Investment Monitor’s U.S. Q4 2025 Update

This episode of Shift Key is sponsored by ...

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Music for Shift Key is by Adam Kromelow.