Greenhouse Gas Credits Don't Help the Environment -- Or Consumers
By Merrill Matthews
General Motors Co. and Fiat Chrysler have a plan to survive a Democratic president.
The auto giants have spent millions of dollars buying greenhouse gas credits from Tesla. The government grants these credits to car manufacturers for exceeding the Environmental Protection Agency's greenhouse emissions targets, improving fuel efficiency, or selling electric vehicles.
These credits are meant to reward "green" companies. But manufacturers can sell their credits to other carmakers, which enables them to emit more greenhouse gas than the EPA allows. GM and Chrysler want to stock up on these credits in case the next president tightens emissions regulations.
In other words, by selling off their carbon credits, Tesla could help other companies exceed emissions standards.
The Environmental Protection Agency sets emissions standards for major car and truck manufacturers and gives greenhouse gas credits to companies that sell zero-emissions vehicles. If a manufacturer doesn't need the credits immediately, it can hold on to them or sell them to other manufacturers.
Tesla has made a lot of money selling these credits. The company has sold $1.7 billion worth of regulatory credits to other car manufacturers since 2012. And plans to sell more. Last year, Tesla reported "$216 million in first-quarter revenue from the sale of regulatory credits," and "disclosed...that it had booked $140 million in deferred revenue related to credit sales."
But here's the dirty little secret: carbon credit transfers have little impact on the amount of carbon released into the atmosphere.
Major auto manufacturers still make all the trucks and SUVs that consumers really want. They then offset their carbon emissions by handing money over to Tesla in exchange for carbon credits. With a simple transaction, credits designed to reward green companies become "get out of jail free" cards for everyone else.
Automakers who purchase carbon credits offset their expenses by raising prices. So middle- and low-income customers indirectly subsidize rich people's Teslas. And since the government offers electric car manufacturers a taxpayer-funded $7,500 tax credit in hopes of encouraging the sale of electric vehicles, consumers directly subsidize Tesla as well.
Carbon credits have encouraged some manufacturers to scale back emissions, with disastrous results. Last September, GM CEO Mary Barra announced the company would cut up to 14,000 jobs and scale back five plants in an attempt to "move to an all-electric future."
But all those cuts may be for naught. To stay in business, car manufacturers have to please consumers -- not the government. And consumers still want gas-powered cars. As long as that remains the case, auto manufacturers will keep shelling out for Tesla's carbon credits, raising costs for consumers without lowering emissions.
As a spokesman for Fiat-Chrysler said: "Until demand catches up with regulatory requirements, and there is regulatory relief, we will use credits as appropriate."
That's good news for Tesla -- not so much for American consumers.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation. Twitter: @MerrillMatthews.
