General Motors Co. and Fiat Chrysler have a plan to survive a Democratic president.
According to news reports, the auto giants have spent millions of dollars buying carbon offset credits from electric carmaker Tesla. The government grants these credits to car manufacturers that over-comply with the Environmental Protection Agency’s greenhouse emissions targets, improving fuel efficiency, or selling electric vehicles.
These credits are meant to encourage companies to lower carbon dioxide emissions. But manufacturers with a surplus such as Tesla can sell their credits to other carmakers, which enables credit purchasers to emit more greenhouse gas than the EPA allows.
If a manufacturer doesn’t need the credits immediately, it can hold on to them or sell them to other manufacturers.
GM and Chrysler want to stock up on these credits in case the next president tightens emissions regulations—which virtually every Democratic candidate is threatening to do.
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 even 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,” according to Bloomberg News.
Here’s the dirty little secret behind this carbon credit scheme: 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 this simple transaction, credits designed to reward companies for reducing carbon emissions become “get out of jail free” cards for everyone else.
But there’s another problem. Automakers that purchase carbon credits offset their expenses by raising prices. So middle- and low-income customers indirectly subsidize higher-income people’s Tesla purchases. And since the government offers electric car manufacturers a taxpayer-funded $7,500 tax credit in an effort to encourage more people to buy electric vehicles, consumers directly subsidize Tesla as well.
However, government pressure to be greener can have collateral damage. 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.”
To be clear, GM is making this move to an all-electric future not because that’s what consumers demand, but because that’s what the government wants. The manufacturers can either spend millions of dollars buying carbon offsets or they can spend millions of dollars building more electric cars that few consumers are willing to pay for. Either way, the carmaker loses money.
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.”
Defenders of the EPA’s standards say they are working because car and truck emissions reached a record low and fuel efficiency a record high in 2017. But consumers want better fuel efficiency out of their trucks and SUVs because that saves money—and they only want it if it doesn’t compromise passenger safety. Better fuel efficiency also reduces carbon emissions.
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 but having little impact on carbon emissions.
That’s good news for Tesla, not so much for American consumers.