How Tesla’s Carbon Credits Boost Its Bottom Line

Tesla boosts its revenue by more than $1 billion annually.

But it’s not from selling cars.

Tesla’s Carbon Credits

Tesla benefits from regulatory credit systems because it makes a ZEV (zero emissions vehicle). Given carbon credits, they sell them to others. For example, EPA rules for automakers say average fleetwide emissions, starting with 2023 models, have to sink by 8% annually until 2026. Then the required reduction increases to 11% per year fleetwide for 2027 models through 2032. To comply with the EPA mandate, auto manufacturers of ICE (internal combustion engine) vehicles purchase credits from Tesla (and others).

During 2024’s first nine months, at $1.7 billion, 43% of Tesla’s net income came from carbon credits. Since 2012, credits added a whopping $32 billion to its bottom line:

Sources of Carbon Emissions

Among U.S. economic sectors, transportation is a top carbon emitter (2022):

Then, breaking it down further, air travel is at the top of the list with cars in second place:

Our Bottom Line: Pricing Carbon

As economists, we know that a price can give value to a commodity. Through a price on carbon, emissions laden items become more expensive. A carbon tax and carbon credits (also called cap and trade) are two ways to price carbon emissions.

The World Bank has a carbon pricing dashboard:

By pricing carbon emissions, we create a cost of production. As economists we know that raising the cost of production shifts our supply curve to the left. Consequently, the price rises and the quantity we demand sinks:

Returning to where we began, we can ask whether Tesla will continue to benefit from regulatory credits. With the dip in Tesla’s 2024 sales, its regulatory credits become increasingly important.

My sources and more: Thanks to Axios for inspiring today’s post. From there, Carbon Credits had more of the details about Tesla while a past econlife looked at carbon taxes. Then, with the bigger picture, this essay from Our World in Data came in handy. But, if you really want the facts, here is the California system.

Please note that our featured image is an AP Photo/Michel Euler.