Automakers spent the past decade promising an all-electric future, yet the market is now rewarding companies that keep refining combustion engines instead of abandoning them. Behind that pivot sits a complex web of carbon credits, regulatory carve-outs and tax incentives that let gasoline powertrains look cleaner on paper even as they keep filling showrooms. I want to unpack how those mechanisms work, and why they are giving internal combustion a second life just as many expected the electric era to dominate.
The carbon-credit safety net under the “EV era”
Regulators built modern climate policy around the idea that carmakers would steadily cut tailpipe emissions, but they also gave industry a flexible toolkit of credits and offsets that could soften the blow. Those tools range from tradable allowances for overcompliance to technology-specific bonuses for things like efficient air conditioning, which can be worth figures such as 18.8 g of carbon dioxide equivalent in regulatory accounting. On spreadsheets, this lets a fleet of trucks and SUVs look significantly greener without fundamentally changing the engines that power them.
At the same time, global decarbonization scenarios still assume that battery vehicles will eventually dominate, with some projections showing electric models rising to 63 percent of sales by 2035 as part of broader automaker decarbonization efforts. The paradox is that those long term targets coexist with short term incentives that reward incremental tweaks to combustion platforms. Carbon credits were meant to bridge the gap between today’s engines and tomorrow’s batteries, but they have also become a cushion that makes it easier for companies to slow walk the transition when EV demand stumbles.
Detroit’s pivot back to gas and what it signals
The most visible sign that the electric moment has cooled is the way Detroit has shifted its strategy. After years of splashy EV announcements, traditional manufacturers are now leaning back into gas powered cars and trucks, a move that investors have rewarded as Ford and GM project stronger profits from familiar platforms. The market reaction suggests that, for now, shareholders trust incremental efficiency gains and regulatory maneuvering more than a rapid, capital intensive overhaul of the product mix.
Consumer behavior is reinforcing that calculation. Reports of An American slowdown in EV sales describe buyers balking at higher sticker prices and patchy charging infrastructure, while noting that Meanwhile vehicle prices are even higher for electric models than for the broader market. When customers hesitate and Wall Street cheers a return to combustion heavy lineups, it becomes easier for executives to argue that they can meet climate obligations through credits, offsets and efficiency tweaks rather than a wholesale break with gasoline.
California’s frameworks: tightening rules, widening loopholes
California has tried to push against that gravitational pull by locking manufacturers into long term agreements that ratchet down emissions. The Framework it negotiated with major automakers adjusted the pace of required greenhouse gas cuts, changing the original year over year reduction from 4.7 percent to 3.7 while still tying companies to the state’s GHG and zero emission vehicle programs. That compromise illustrates the political balancing act: regulators want ambitious climate progress, but they also respond when industry argues that the original glide path is too steep.
Those voluntary deals did not disappear when federal policy shifted. A later set of framework agreements committed participating companies to stay on course with cleaner cars consistent with their internal plans for the lifetime of the agreements, regardless of changes in Washington. Separate legal analysis notes that Five major automobile manufacturers, including BMW of North America, Ford, Honda, Volkswagen Group of America and Volvo, agreed to reduce greenhouse gas (GHG) emissions annually through model year 2026. These arrangements keep pressure on combustion fleets, but they also formalize the role of credits and flexible compliance pathways that let gas engines survive as long as they keep getting cleaner on paper.
Six automakers, one state, and a binding future for combustion
The durability of those California deals matters because they bind companies even as national politics and consumer demand shift. Reporting on the lingering impact of the agreements notes that Six automakers remain locked into years old contracts that require them to improve vehicle efficiency through the 2026 model year, regardless of any loosening at the federal level. That means their combustion lineups must keep hitting progressively tougher targets, which in practice pushes them toward more aggressive use of credits, hybridization and other compliance tricks.
From a climate perspective, binding agreements with a state as large as California can be a powerful lever, because manufacturers rarely build one set of vehicles for a single jurisdiction. Yet the structure of these contracts still leans heavily on the same accounting tools that underpin carbon markets, allowing companies to bank overcompliance in some segments and spend it in others. The result is a regulatory environment where gas engines are not outlawed, but instead are forced into a kind of negotiated diet, shedding emissions gram by gram while credits and offsets smooth out the rough edges.
How 45Q and carbon capture keep engines in the game
Tax policy is now reinforcing that dynamic by subsidizing technologies that promise to neutralize emissions from combustion rather than eliminate combustion itself. Under the federal 45Q incentive, companies in the automotive value chain can qualify for credits if they invest in carbon capture and storage projects that meet specific thresholds, a structure that has been pitched as a way for the industry to start your engines with carbon credits in the United States and internationally. In practice, that means a manufacturer can keep selling combustion vehicles while pointing to captured tons of carbon dioxide elsewhere in its portfolio.
The idea that carbon capture could “save” the internal combustion engine has moved from theory into mainstream debate, with industry voices discussing whether large scale deployment could offset tailpipe pollution. Conversations on programs such as Autoline After Hours have framed the question in stark terms, asking if investments in capture infrastructure can extend the life of gasoline and diesel technology. I see a risk that generous credits like 45Q encourage companies to prioritize financial engineering over product transformation, treating captured carbon as a license to keep building engines rather than a bridge to cleaner propulsion.
Engineering the “cleaner” combustion car
Even without offsets, engineers have squeezed remarkable efficiency gains out of internal combustion, and that progress is central to the argument that gas engines still have a future. Industry experts emphasize that “the very first tool that the manufacturers have to diminish fuel consumption, to diminish pollutants and emissions” is to refine the engine itself, a view captured in a Sep feature that also highlights a poll of stakeholders who see a future ripe with possibilities for combustion technology. From variable compression ratios to advanced turbocharging and cleaner fuels, the technical playbook for reducing emissions without abandoning pistons is thick.
Major groups are investing accordingly. A company like Stellantis publicly touts its multi energy strategy, pairing electric models with increasingly efficient gasoline and hybrid powertrains across brands such as Jeep and Peugeot. When regulators award credits for each incremental gram of carbon dioxide avoided, these engineering gains translate directly into compliance headroom that can be spent on larger vehicles or slower EV rollouts. The more sophisticated the combustion engine becomes, the more room automakers have to argue that they are meeting climate goals without forcing every customer into a plug.
Global headwinds for EVs and the EU’s retreat from a hard ban
The regulatory picture is also shifting outside the United States, as policymakers confront the economic and political costs of a rapid electric transition. In Europe, officials have moved to ease the planned 2035 ban on internal combustion cars, responding to industry concerns about competitiveness and jobs. Reporting on that debate notes that Growth of battery cars in China has been fueled by state assistance and ferocious competition among Chinese automakers, a combination that has left European brands warning they could be undercut if forced to abandon combustion too quickly.
Those global pressures feed back into corporate planning. When European regulators signal flexibility on combustion and Chinese rivals surge ahead in batteries, Western manufacturers have an incentive to hedge their bets, keeping engine programs alive while they sort out supply chains and cost structures for EVs. The more uncertain the policy horizon becomes, the more attractive it is to lean on carbon credits and efficiency gains as a way to claim climate progress without locking into a single technological path.
The EV slowdown and the persistence of hybrids
Market data from multiple regions now points to a cooling in pure battery demand, even as overall electrification continues. One account of the recent year in sales describes A clear global trend in which automakers slow their EV plans significantly, while stressing that they are not giving up on the technology. That nuance matters: companies are stretching timelines, not abandoning targets, and in the gap they are leaning harder on plug in hybrids and efficient combustion models that can generate credits at lower cost.
In the United States, the same reporting that highlights an EV slowdown also notes that But while plans are being delayed, they are not being scrapped, which leaves room for a prolonged period of technological coexistence. Hybrids and plug in hybrids, in particular, are attractive because they allow automakers to claim substantial emissions reductions and earn regulatory credits while still selling vehicles that rely heavily on combustion. In that environment, carbon accounting becomes as important as engineering in determining which technologies thrive.
What the decarbonization math really rewards
When I look across these policies and market signals, a pattern emerges: the decarbonization math often rewards relative improvement more than absolute transformation. Analytical work on automakers’ decarbonization efforts frames the challenge as an irresistible force of climate necessity meeting the immovable object of consumer preference and industrial inertia. In that clash, carbon credits, flexible standards and technology specific bonuses act as lubricants, allowing the system to move without seizing, but also reducing the pressure for a clean break with combustion.
That does not mean the electric transition is doomed, or that carbon credits are inherently flawed. Properly designed, they can steer capital toward the fastest and cheapest emissions cuts, including in sectors like heavy industry where alternatives to combustion are scarce. The risk in the light vehicle market is that generous credits, softened standards and new tools like 45Q combine to create a comfortable middle path in which gas engines keep evolving, EVs keep inching forward, and the hard choices about phasing out fossil fuels are deferred. For now, the internal combustion engine is not being dragged into retirement by the EV era; it is being rebranded, reengineered and, with the help of carbon credits, kept very much on the road.
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