The market for carmaker carbon credits is in the fast lane… for now
Inside the US auto industry, the trading of carbon emissions credits has become a big business where carmakers with extra credits — like Tesla and Honda — sell millions in credits to carmakers without enough — like Fiat Chrysler and General Motors.
But with emissions law now under review, a regulatory rollback could destroy the sustainability stockpiles amassed by these carbon-credit kingpins — and reward their choking competitors.
So, how did we get here?
It started in 2012, when the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) mapped out a greenhouse gas emissions reduction plan for passenger cars.
The plan required automakers to reduce emissions each year — either by improving their own efficiency or buying credits from other companies that had already gotten their sh*t together.
Carmakers could get credits for rolling out sustainable features like efficient engines, LED lights, or improved seats — and even earn credit multipliers for launching electric cars and plug-in hybrids.
Some invested in efficiency while others just bought credits…
And now, the differences are stark: Toyota, Honda, and Nissan-Mitsubishi hold more than 1/2 of all available credits. Efficiency-focused Toyota had a total of $71.4m in credits stockpiled in 2017, while gas-guzzling Jaguar Land Rover had a balance of negative $575k in credits.
This imbalance opened the door to trade between carmakers, turning emissions into a huge expense for some carmakers and a source of revenue for their competitors-turned-creditors.
An example: Last year, Tesla — which is cruisin’ with credits as an electric automaker — sold $420m worth of credits to competitors including General Motors and Fiat Chrysler.
The carmaker credit could soon crash
Under the original plan, the emissions program was supposed to continue through 2025, which would have allowed continued trade in credits.
But the White House wants to eliminate emissions credits and freeze emissions standards starting in 2020, which would cause carmakers like Tesla — which has cashed in roughly $2B in credit-based revenue since 2010 — to lose lots of revenue.
In July, Honda, Ford, VW, and BMW partnered with the state of California in a voluntary emissions agreement that would preserve the credit system despite a federal freeze — setting the stage for a continuing carbon credit clash.