← Shift Key with Robinson Meyer
Shift Key with Robinson Meyer
The Outdated Economics Driving Trump’s Car Standards Rollback
00:39:31
Rob talks about the consumer response to fuel economy with Yale’s Kenneth Gillingham, then gets the latest Clean Investment Monitor data from Rhodium Group’s Hannah Hess.
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- [00:00]
A
This episode of Shift Key is brought to you by the Yale center for Business and the Environment. Want to accelerate your career in energy? Explore online certificate programs from our sponsor, the Yale center for Business and the Environment. Whether you're designing, policy unlocking, financing or developing impactful projects, Yale's online clean energy programs equip you with tangible skills and powerful networks and you can continue working while learning in just five hours a week. Propel your career, expand your network and make a difference. Learn more about their 10 month financing and deploying clean energy program or their 5 month clean and Equitable Energy Development Program by checking out the show notes or heading to CBEY Yale. Edu to learn more. Listeners of Shift Key get an exclusive offer, use referral code HEATMAP26 and get your application in by the priority deadline for $500 off tuition to one of Yale's online certificate programs in clean energy. Transform your career, your and the energy landscape. Head to CBY Yale EDU to learn more CBey Yale EDU that's CBey Yale EDU. It is Friday, February 20th. The Trump administration made two big changes at the Environmental Protection Agency last week. The first, which we talked about last show, was that it revoked the Endangerment finding, which is the key legal document that allows the EPA to regulate carbon dioxide and other greenhouse gases. The second is that it revoked what are sometimes called the clean car rules. These are the EPA's greenhouse gas rules for cars and light duty trucks. Now this second change was a big deal and in some ways I think a bigger deal than maybe the amount of attention that it got because it's part of a multi front war on fuel efficiency standards from the Trump administration. It maybe hasn't gotten a lot of attention, but by the end of this year, the US Will probably not regulate fuel mileage or vehicle efficiency in any way. We'll essentially be back to the days of the early George W. Bush administration when automakers could sell as many Hummers as they wanted. Now, the repeal effort legally from Trump relies on a number of economic arguments. The most important of these is the EPA's argument that it will save the public more money than it costs to roll these rules back. The EPA says we'll get about $1.3 trillion worth of benefits from this rollback. Now, some of the assumptions behind this finding are contested and some are ideological. Some are, I think, wrong, but some are just outdated. So today I wanted to talk to an economist about one of the most important claims in the Trump repeal and why it is no longer in touch with the economics literature. We'll also chat about the broader set of economic arguments the Trump administration. Our guest today is Ken Gillingham. He's a professor of economics at Yale and a former senior economist for energy and the environment at the White House Council of Economic Advisors. My conversation with him is coming up. And then in the back half of the show, I talk to Hannah Hess, an associate director at the Rhodium Group, about new data on how clean energy investment in the United States held up through the end of last year and why. It's kind of a tale of two industries in America right now. The clean electricity sector is booming while the electric vehicle supply chain is falling apart. So in this episode, it's all about cars and EVs and how we regulate them. The US call it our Car Talk episode. And it's all coming up today on Shift Key. Ken Gillingham, welcome to Shift Key.
- [03:41]
B
Pleasure to speak with you, Robinson.
- [03:44]
A
So the Trump administration comes out with its big greenhouse gas endangerment finding repeal last week. It's kind of like a two part document as we talked about in the past episode. So on the one hand, it's an argument that the EPA should not regulate greenhouse gases as dangerous pollutants. But then the second part of it is an argument basically entirely about tailpipe greenhouse gas standards, about whether the EPA should be regulating greenhouse gases that come out of cars and trucks. And the EPA argues, as you might expect, that it shouldn't. I will say that the second Trump administration, just like the first Trump administration, has to put out a fairly lengthy analysis of why it has reached this conclusion. And even though the president, during his press briefing announcing this change called global warming a giant scam, that fact does not feature in their analysis. They take a different approach. They also, as they did in the first representation, actually cite your work all across the analysis. They love to cite your work on the greenhouse gas standards. So can you just give us a sense of what did you think about the analysis that you've seen from the Trump administration and their legal justification for rolling back the vehicle rules so far?
- [05:00]
B
Right. It was a very simplistic analysis in many respects. They simply took the 2024 analysis that was done under the Biden administration, EPA, and they made a set of tweaks. These tweaks happened to have enormous ramifications. The biggest one, of course, is removing the endangerment, finding and eliminating greenhouse gases. That is an enormous one. But there are other tweaks that they made. They changed the expected future gasoline price. They changed how they value Future fuel savings when people buy a more efficient car.
- [05:39]
A
Can you walk us through a little bit more? So what are the most important of the tweaks that they made and kind of what message are they trying to send with those tweaks?
- [05:50]
B
Well, one message they're sending is that greenhouse gases don't matter, other air pollutants don't matter. And that's an obvious message. This has been talked about a lot. The other message they're sending is that consumers, when they're buying a car, make a decision and fully value the future fuel savings. When you make that assumption, you're basically saying that consumers fully value the future fuel savings. And because they're already incorporating the benefit in their decision, they get no benefit from a rule that nudges them into a more efficient car. Those both are pivotal. Either of those two would change the net benefits of the rule. And they're both huge, many, many millions of dollars, trillions of dollars.
- [06:39]
A
When I started out as an environmental reporter, there was this idea about energy efficiency rules, and I think especially efficiency rules around cars and trucks, which, to be clear about what a greenhouse gas standard is, when you're talking about cars and trucks, it really just is a type of energy efficiency rule. And the idea that I heard from researchers, from economists is that you need some kind of efficiency regulation because this is a market failure, because consumers don't take into account all the literal monetary benefits they're going to get from buying a more efficient appliance or a more efficient car when they make the purchase. It just doesn't factor into their calculus. And so you need the government to kind of push appliance makers or push car makers toward more efficient products, because otherwise, not only are you going to have consumers maybe not fully maximizing their welfare, so to speak, by buying, you know, more gas guzzling cars than they should, but also, like, as a country, you're going to consume much more gas, and that means that gas prices are going to be higher. And that means even people who make more efficient vehicle purchases are going to have to pay more for gas. Right. It's this big systematic problem. What I was not aware of is that the economics literature about that finding and that idea has kind of shifted under our feet a few times over the past decade. And that while that might have been the state of the art in 2008, it had kind of changed by the middle of last decade, and now it might have changed again. So can you just update us on, like, first of all, was my summary correct? And second, then, like how did economists change their mind?
- [08:25]
B
Yes, your summary is spot on. It's been long understood that when regular people, anyone goes to a store, consumers go to a store and buy a more efficient appliance or buy a more efficient car, that they appear to value only to some degree the future fuel savings or energy bill savings they would get from the more efficient appliance or more efficient car. This is often called the energy efficiency gap. People have written on it for years. In the car context, there's a long standing understanding in the industry, as well as from National Academy's reports and other sources, that consumers value roughly 2.5 to 3 years somewhere in that ballpark of future fuel savings when they purchase a car, why don't they value the rest of the. Well, people usually attribute it to some behavioral feature of the way we make decisions, which often people use the word inattention. So for example, they might be inattentive to those future fuel savings and really be focusing on just a few attributes of the cars.
- [09:35]
A
We kind of assume that consumers, they buy a new car for a decade or for 12 years. I think the average car on the road now is something like 13 years old. But when they buy the car, as you were saying, they're only thinking of that first three and a half years. And so all the fuel savings from the back seven or the back nine just don't factor into their kind of internal vehicle purchasing function at all.
- [10:00]
B
That's right. And that's how people had thought about it, that people really paying attention to the first two and a half or three years and ignoring the remaining nine or so years in that life of the car. And that provides a motivation for policy. If you truly have people who don't value those future fuel savings, they're certainly going to value it when they go to the pump and fill up their car with gasoline. There's no question about that. Everyone agrees that they value it at the time that they're actually filling up their car with gasoline. But they might not have valued it when they were making that car purchase. That's kind of fundamentally a strong and longstanding motivation for fuel economy standards. So it may not be surprising that the Trump administration, in trying to rescind the standards, attack that head on and tried to effectively roll that assumption back, as well as rolling back the environmental greenhouse gas endangerment finding.
- [10:50]
A
This has changed a little bit. So back maybe around the time of the first Trump administration, the economic literature had shifted somewhat on this question. So let's just roll the clock back to 2015 or 2016. At that point, the Obama era standards had been in effect some time. Where was the field of economics thinking about the efficiency gains from efficiency based regulation in cars?
- [11:19]
B
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 them 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.
- [11:53]
A
And I should say that neither the CAFE standards, which are come from the Department of Transportation and regulate fuel mileage, nor the EPA greenhouse gas standards which regulate, you know, the number of the amount of tons of carbon that come out of the car related 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 $1,000 or $1,200 a vehicle on average. Now that was. Consumers saved that over the life of the vehicle, many times over. But if consumers are already taking into account those efficiency gains, then like that trade off that the rules kind of force 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? Like what methodology were economists using to say actually consumers take all the fuel savings into account when they make a purchasing decision?
- [12:50]
B
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.
- [13:35]
A
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 that's exactly right.
- [13:51]
B
Conceptually, you could see it as in the Prius context, the price of the Prius incorporated all of those future fuel savings over the expected life of the vehicle.
- [14:03]
A
That is interesting because it is true that when you look on Carvana or something, or you look at the cars.com app, two places that I have spent some amount of time in my life, you do see that Prius used Prius prices are like, much higher than sedans of similar size. I mean, it's a Toyota too, so it gets a kind of premium in the used market anyway. But there is some kind of premium that people assign to cars that get better fuel mileage. So do economists still think this? Like, do you think that consumers take into account all of those fuel savings when they buy a new car?
- [14:35]
B
Not all of those fuel savings. So I think your questions are a really great one. It's consumers definitely value to some degree future fuel savings. There's no question about that. Everyone sees it. You can see it in the Prius, although it is a Toyota does higher retail values, but you can see it across the board. The question is how much of those future fuel savings. You go back to the original literature that said 2.5 years or 3 years, that would indicate that there's a substantial undervaluation of the future fuel savings you could get over the life of the vehicle. More recent evidence has started to come to the conclusion that the previous evidence that 2.5 or 3 years was much closer to being correct than the early 2010 articles. And there are two reasons for this. One reason for this is that the newer articles are using updated empirical designs, more careful statistical approaches. I want to emphasize it's not easy to estimate this parameter. There are a lot of other variables that influence how people make decisions about cars in terms of all the other attributes of the vehicles, but also the brand, the timing, the gasoline price, all of these things matter. Expectations about gasoline prices matter. It's. These are. This is a very difficult parameter to estimate. So there have been, I would say, improvements in the empirical design of recent studies that I think have helped. That's the first one. The second reason why we generally are seeing different estimates is that people are being a little bit more careful about whether they take the average of a ratio or the ratio of averages. It's a subtle point and seems quite minor. Fundamentally, the valuation of those future fuel savings is a ratio we're talking about. Do they value 50%? Do they value 90%? Do they value 100%? That is a ratio in the sense of they value the amount that they value over the total amount of future fuel savings. That needs to be handled very carefully in empirical designs. When you correct for that, some of the old studies had to have no problem, but some of them did have some problems. When you correct for that, you actually end up getting similar numbers in some of the previous studies to what we're finding in the newer studies.
- [17:04]
A
Yeah, basically we've swung all the way back. So literally there was a mathematical error in some of these studies and how they calculated the percentage of how much people valued the fuel savings. And if you correct for that error, then you swing right back to where the literature used to be.
- [17:21]
B
I'm not going to say negative things about my fantastic co authors and friends, but that's how science evolves. That's how we continue learning.
- [17:30]
A
What kind of assumptions did the Trump administration make about fuel prices in its proposal? I mean, does it think that fuel prices are going to get more expensive? Because part of the whole calculus of these rules is that basically yeah, people like saving fuel when oil is cheap, but they really like saving fuel when oil is expensive. Do they include some predictions about whether, you know, gas is going to get more or less expensive in their rulemaking?
- [17:57]
B
Well, in the proposed rule for the EPA vehicle greenhouse gas standards, they made one of the assumptions that is one of my favorite assumptions in the entire rule. They arbitrarily said because there's an energy dominance agenda that fuel prices were going to be much, much lower and thus the benefits from future fuel savings are going to be much, much lower. To their credit, that was entirely unjustified, would never hold up in court and they removed it in the final rule. In the final rule they're using within reason but very low fuel price alternative fuel baseline from the Energy Information Administration. And so they still are using a lower number than one might argue, but it's no longer quite as egregious as it was in the proposed rule.
- [18:40]
A
You had a relatively important paper on the CAFE standards is a few years ago at this point and about how the fuel efficiency standards kind of inter related with the used car market that I continue to think is this really interesting finding that kind of maybe helps people understand why fuel economy is a tough thing to regulate, a very important thing to regulate, but still has these tough follow on effects you might not predict. Can you just describe it to us for a second?
- [19:07]
B
So about 10 years ago, Hyundai and Kia stated that their fuel economy was much higher than it actually was. And then suddenly on one day they restated their fuel economy. We had transaction price data and we could immediately see how transaction prices for those cars that had their fuel economy restated changed relative to prior as well as relative to other vehicles in Hyundai and Kia, as well as other similar models by other automakers that did not see this change in their stated fuel economy.
- [19:39]
A
And what did you find?
- [19:41]
B
We found that consumers undervalue fuel economy. It's actually not too far from the, it's right in line with the two and a half to three year payback period. So about a 23 or 30% undervaluation. So people value about 23 to 30% of future fuel savings, which means that there's still 70 to 77% that they don't value.
- [20:05]
A
There's a few different things that have happened in the fuel economy rules lately, and I think it's actually worth putting them all together. So, you know, the US Regulates the efficiency of its internal combustion vehicles in two ways. Basically we had the EPA greenhouse gas standards, those regulated greenhouse gases coming out of tailpipes. But then we also had this much older set of standards from the Department of Transportation called the CAFE standards, which regulate the collective fuel economy of new vehicles. And I think what people may not have realized is that the Trump administration has basically effectively eliminated both of these programs. The one big beautiful bill act reduced the penalties for the CAFE standard, the Department of Transportation the older standard, to zero. So automakers will not be fined for violating the CAFE standards on the one hand. On the other hand, the EPA is now in the process of trying to repeal not only the greenhouse gas standards for vehicles, but in fact the idea that it should regulate greenhouse gases altogether. Is there any precedent for the US not having fuel economy or engine efficiency or gas mileage standards of any kind of in the historical record? And like, what could we predict will happen from the fact that the US Will now no longer have standards of this kind, at least for the next few years.
- [21:29]
B
So you're completely correct that as of now we effectively do not have standard or as of the finalizing of the CAFE rule, I should really say, because there are two pieces here. Congress in their one big beautiful bill eliminated the penalties for violating the CAFE standard, which is corporate average fuel economy standard. In addition, they came out in December with a proposed rule which made the increase in the standard so minimal that it's effectively non binding. So there is actually an increase in the standard. And legally I think they felt they had to do that. But it's, it's basically a minimal increase. So there will be non binding by non Binding. I just mean they're ineffective, they're not, they're not doing anything.
- [22:14]
A
And crucially, that really kills the trading market. Right, because the way that EV companies like Tesla, but now like Rivian and Lucid too, made a good deal of their regulatory income. And for Tesla, some key early profits was by selling credits from their cars, like regulatory credits from their cars to GM to Nissan, to these producers of these big gas guzzling cars. So they've killed a key revenue driver for the all electric automakers as well.
- [22:43]
B
That's right. The proposed rule eliminates something that economists have been pushing for, which is to allow for trading that came about from Republican. Republican economists actually were the ones who made that happen initially. And the trading lowers the costs of compliance. And so they eliminated it, which also is a shot below the bow for all of the EV companies because now they are no longer going to make money from this trading. So it's an additional hit there. So you're completely right that with the finalization of the CAFE rule, as expected in the next few months, we'll enter a phase with effectively no standards on cars. We have been there in the past. You can go back to before there were standards, before the oil Crisis in the 1970s and cars were very big and very inefficient. Cars are actually bigger today, but they were very inefficient. Extremely inefficient. There also are periods, long periods, especially in the 80s, when standards stayed pretty flat. And here I'm talking about corporate average fuel economy standards before 2009 when the EPA vehicle greenhouse gas gas standard was implemented. So corporate average fuel economy standards, when they were flat, basically we didn't see much improvement in fuel economy, minimal improvement in fuel economy for years on end.
- [24:03]
A
And did things get worse or they just kind of stayed flat?
- [24:06]
B
Stayed flat? They stayed flat. There was technology improvement during this time. Just all that technology improvement was poured into increasing horsepower, increasing acceleration, et cetera.
- [24:18]
A
I find this to be one of the most interesting conversations about the whole deal here because people do look at these standards of the past 10 years and they say, look, cars have gotten bigger during that time. Horsepower has gone up because of that. We actually haven't seen some of the efficiency gains that we once anticipated seeing at the moment the Obama standards were put into place. Basically the increasing size of vehicles mostly has kind of eaten into some of those gains. But it seems to me that we see horsepower improvements and we see vehicles get bigger during periods of time when there are no standards and fuel economy does not improve and so if we see horsepower improvements and we also see vehicles get bigger and fuel economy does improve, that suggests the fuel economy standards actually did work at least a little bit.
- [25:07]
B
It is all about what would have happened otherwise. And I think you're hitting it on the nose here that we would have seen even potentially larger vehicles and even potentially less efficient vehicles had it not been for the standards. So I think that it's simply false to say that the standards didn't do anything because horsepower has gotten larger, because cars have gotten heavier, which is true. Cars have gotten heavier, horsepower has increased. A lot of it is a switch to SUVs and light trucks. That is an ongoing. And crossovers, that is an ongoing shift, but that would have happened anyway. There are features of the design of standard standards that may lead to, if you have a lighter standard or more relaxed standard for certain types of vehicles, such as SUVs and light trucks, that provides an incentive to sell SUVs and light trucks. That design feature may have enhanced the upscaling, but the automakers make more money on the big vehicles they were going to upscale anyway.
- [26:07]
A
Here's the last question, which is when you look at the assumptions in the rulemaking, when you look at the errors, you know that agencies have to do this cost benefit analysis when they make a rule change. And without getting too into the weeds, the agency has to prove to the courts, to the American people, that when it changes a regulation, either strengthening a regulation or weakening a regulation, as the Trump administration is doing here, that the benefits of that change exceed the costs.
- [26:33]
B
Can I just interrupt there? There is a possibility that you can have a net negative benefit policy. You just need to justify it from other legal pathways. Historically in the courts, it has been very difficult to win a court case when net benefits are negative.
- [26:49]
A
So perfect entree. Then when you look at the assumptions made by the Trump administration in their cost benefit analysis, do you believe that if they were updated to reflect more accurate assumptions, that the benefits would still exceed the cost of the rule?
- [27:04]
B
Oh, far from it. The benefits would be very negative. In fact, even in some of their own scenarios, the net benefits are negative. So it's pretty clear that the net benefits would not be positive from this rule. I'm sure they know this. The decision to rescind the rules was made before the analysis and the analysis had to follow.
- [27:24]
A
Well, as the legal fight over these rules keeps developing and the economic discussion of the assumptions made in the legal documents, we will keep in touch with you. Ken Gillingham, thank you so much for joining us on ShiftKey.
- [27:36]
B
It was a pleasure. Thank you.
- [27:40]
A
This Week's episode of ShiftKey is brought to you by the great Yale center for Business and the Environment. Are you ready to accelerate your career in energy? Yale's Financing and Deploying Clean Energy Certificate Program is a transformative online certificate program that delivers real world skills and connections to drive immediate impact impact. It's offered by our sponsor, the Yale center for Business and the Environment. And this comprehensive 10 month program will build your expertise in clean energy policy, technology, project finance and innovation. The program's different because it's designed for working professionals. It's fully online, it uses just five hours a week, and through it you'll gain advanced knowledge, build a powerful network and stay active in your career while you learn. I should add, I go to the CBEY annual conference every year in New Haven. It's an awesome event. It's a great group of people and they're plugged in all across the sector. I'm always glad that I went. And right now, listeners of Shift Key can get an exclusive offer to this program. You can use referral code HEATMAP26. That's HEATMAP26. And get your application in by the priority deadline for $500 off tuition to one of Yale's online certificate programs in clean energy. You can transform your career, your community and the energy landscape and save $500. That's awesome. Head to cbey yale.edu to learn more. Check out the show notes CBEY Yale Edu. That's cbey Yale Edu. And joining us now is Hannah Hess. She's an associate director at the Rhodium Group. Hannah, welcome to SHIFT Key.
- [29:19]
C
Thank you so much. I'm excited to be here.
- [29:22]
A
So every quarter, the Clean Investment Monitor, which is a project of the Rhodium Group and MIT center for Energy and Environmental Policy Research, has published this summary of all the investment that happened across the clean energy economy over the past quarter. Which means that at this point it's a pretty good data source. And give us guide to what's been happening in the clean energy economy since the Inflation Reduction act era, or at least since the IRA era began. The Q4 2025 report just came out. Can you give us the top line of what it found? Sure.
- [29:56]
C
So we've been tracking clean investment since about a year after the IRA passed. But our baseline of data goes all the way back to the first quarter of 2018. We find that in Q4, clean investment softened a little bit after a record high Q3 2025 that was largely driven by people purchasing EVs. When we zoom out and look at the full year 2025, we find that it was a record year for clean investment, up 5% from 2024.
- [30:31]
A
So Q3, huge quarter driven by EV purchases. And that's probably driven especially by the expiring of the IRA demand side tax credits for EV purchasing. Q4 a little soft. One thing I saw in the report was that Q4 2025 is like the first quarter really in the data set, that was softer than the quarter a year earlier, right?
- [30:56]
C
Yeah. So Q4 is the first instance in our tracking of negative quarter on year growth in clean investment. So since the beginning of this data set, every time we look back at the level observed in the same time period the previous year, it would be an increase even when there was some fluctuation from quarter on quarter. And so that would tell us overall this segment is still strong. And it's a good sign that clean investment continues to expand. But that Trend ended in Q4 2025, when investment declined 11% from the level that was observed in the last quarter of 2024. New project announcements also softened. So in addition to tracking how much investment is occurring in the construction of new facilities and in those consumer purchases of clean technologies like EVs, heat pumps, rooftop solar, we're also looking at what developers are doing, how much new projects they're announcing each quarter. New announced manufacturing projects totaled 3 billion in Q4 2025, which was down 48% both from the previous quarter and year on year. And that $3 billion of new manufacturing projects is the lowest quarterly level since Q4 2020. Looking at the full year, announcements for new manufacturing projects were down 26% compared to 2024. So all of these are just signs that the manufacturing segment, which is largely driven by the EV supply chain, is weakening.
- [32:37]
A
I want to talk more about that, but can you zoom out for a second and just tell us what is encompassed by the term clean investment? Like what sectors are we talking about and what sectors maybe are we not talk about here?
- [32:50]
C
So the Clean Investment Monitor tracks investment in three segments of the economy. That's clean tech, manufacturing. So within the EV supply chain, it's batteries, it's vehicle assembly, it's critical minerals processing projects. We also track the manufacturing of solar components, wind components, and electrolyzers for hydrogen. We have a second segment that's energy and industry and that lumps together clean electricity, solar storage, wind, as well as industrial decarbonization projects, which is a much smaller segment that's Investments in clean products like clean cement and clean steel, as well as sustainable aviation fuels and hydrogen production. And then the final segment of clean investment we call retail, and that's small businesses and household purchases of clean technologies. That's for the most part EVs and also heat pumps and distributed solar. The thing weaving all of these technologies together is that they were all incentivized by the Inflation Reduction Act. But broadly we just say investments in the manufacture and deployment of emissions reducing technologies.
- [34:05]
A
What drove the decline in investment last quarter? And a decline not only in real investment, but in investment momentum in the number of announcements people are making. What drove that?
- [34:17]
C
So EV purchasing fell off a cliff compared to Q3 2025. And because those retail segment purchases, just like the overall US Economy, consumer spending drives most of the clean investment. That was a big dip. But what I view as a more concerning trend is this is the fifth consecutive quarter of decline in clean manufacturing investment. And announcements of new manufacturing projects were exceeded by cancellations of new manufacturing projects. So that's the pipeline shrinking. And that is concerning for not only what's happening in Q4, but when we look out for the next couple of years. What does the clean tech manufacturing supply chain look like? What does the US Workforce for clean tech manufacturing look like? Lots to unpack there.
- [35:13]
A
The Detroit based automakers for GM and Stellantis announced a $50 billion charge combined on their EV investments over the past few months. And we've seen a number of them announce that they're like big flagship projects like Blue Oval City from Ford in Tennessee are going to be reoriented from building EVs and batteries to building like large internal combustion vehicle trucks in the data. Does it seem like these big, by the largest kind of final assembly automakers are driving the bulk of these cancellations? Or are you seeing weakness like down further in the supply chain where it's these individual, you know, parts makers or component makers who make up the, you know, actual bulk of the industrial economy who are now experiencing trouble. It's not just these big, you know, charismatic firms at the top.
- [36:13]
C
When I look at all of the cancellations that occurred in clean tech manufacturing in 2025, ranked from the highest value to the lowest value top three, General Motors, Stalanis, Ford. But then we see Goshen Freyr, Battery Core Power, some smaller battery manufacturing projects that while they're not at the 3 or 4 billion level, they really do add up to this record high cancellations that we saw in 2025. I think an important way to contextualize the cancellations also is just to say that when we zoom out, 97% of all the canceled investment in 2025 was in the EV supply chain. That's a total of $22 billion of canceled projects, and that exceeded the $21 billion of announced projects. So this is really a broader story, I think, than just those big three automakers.
- [37:16]
A
So that's the bad news. Was there any good news in the data from last quarter?
- [37:22]
C
I would love to share a little bit of good news, and that is that clean electricity is holding up better than manufacturing. Solar and storage are really the workhorses when it comes to clean investment. One thing I think is important when you look at this story is to note that the pullback that we're seeing in clean investment isn't across the board. Investment in clean electricity was $101 billion over the course of 2025, and that's up 18% compared to the previous year. We lumped together clean electricity and industrial decarbonization, but clean electricity was 96% of that total. Also, I think it's important to call out that While we saw $9 billion canceled in the last quarter, that was in a pool of $22 billion worth of new investment announcements. So the pipeline of clean electricity is continuing to grow. And I think that's a really important story here.
- [38:24]
A
Yeah, I mean, this is what we see at Heatmap too. Investment in EVs, at least in the near term, has really collapsed. I mean, the EV story is just not what it was a few years ago. But the electricity story is popping off. It is crazy. I mean, it's all about data centers. Right. And it's all about demand growth. At least that's what we observe from our end. Maybe you've seen something different, but like the solar storage story is just enormous.
- [38:50]
C
Truly. Yeah. Solar and storage is the leading driver within energy and industry. In just the last quarter, we saw $18 billion worth of utility scale solar and storage installations, which was up about 10% from the same time last year.
- [39:06]
A
Cool. Well, thank you so much for joining us on Shift Key.
- [39:10]
C
Thank you, Rob. It's been really nice to talk.
- [39:14]
A
Shift Key is a production of heatmap News. Our editors are Ghislaine Goodman and Nico Loricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our music is by Adam Kramolow. See you next week.