Tesla has requested that the Second Circuit U.S. Court of Appeals reinstate vehicle emissions regulations set by the Obama administrated but delayed by the Trump administration. If successful, the regulations would more than double fines for automakers that fail to meet fuel efficiency standards.
The Trump administration pushed back activation of the fuel efficiency requirements set by the Corporate Average Fuel Economy (CAFE) regulations until the 2022 model year. In court filings, Tesla said that the delay was “unlawful” and “diminishes the value of performance-based incentives that electric vehicle manufacturers, such as Tesla, accrue under the standards.”
The filings also say that the delay has impacted the trade in what is commonly known as “carbon credits”, in which corporations that fail to meet limits in pollution levels set by regulations can buy “credits” representing tons of carbon from corporations that make the upfront investment to exceed the regulations. Tesla says that the trade in carbon credits has been negatively impacted by the delay in the regulations and especially impacts the company and its consumers by lowering the value of credits that it can generate by making electric rather than gasoline-burning vehicles.
Although the Biden administration says it supports higher standards, it says that the National Highway Traffic Safety Administration needs more time to study Trump’s actions in relation to the regulations in question. The Justice Department says that Tesla has not established that it faced irreparable harm due to the delay in the CAFE regulations. Lobbyists employed by other automakers also oppose immediate action.
At the state level, consumers can get tax incentives and rebates for the registration of a new electric vehicle like Tesla’s models. California, for instance, has several incentives including the possibility of up to $1,500 in rebates offered by a collaboration between utility companies and the California Air Resources Board. Tesla is simply pushing for improved fuel efficiency standards to be restored at the federal level.
These incentives, plus Tesla’s ramping up of production capacity, may have helped Tesla post a record year for vehicle deliveries in 2020. It delivered 499,550 vehicles last year, just short of its goal and helping it post its first profitable year. It also reported the sale of $1.58 billion worth of carbon credits in 2020, which certainly didn’t hurt.
Are Carbon Credits Harmful?
Some environmental advocates have criticized the trade in carbon credits as harmful because it allows corporations to dodge the need to invest in “greener” operations and pay those who already have made the investment to exceed regulatory standards instead.
A large gas and oil company like France’s Total can brag that its liquified natural gas is carbon-neutral because it buys carbon credits from a ten-year-old wind farm in China. The wind farm has already made the investment in renewable energy. Total hasn’t and probably won’t bother for as long as it can buy the wind farm’s “excess” carbon savings.
As recently as March 9, Yale Environment 360 author Fred Pearce wrote that the carbon credit trade allows decade-old “green” energy projects like that wind farm in China to effectively soak up additional residual revenue for windmills that would have operated anyway. It allows oil companies like Total to dodge their responsibility for carbon emissions that contribute to climate change.
Until the system that allows for the carbon credit trade is changed to force more corporations to make the investment, Tesla alone can sell $1.58 billion in carbon credits in a year because its cars can run on clean renewable energy sources like hydroelectric and wind power instead of “dirty” non-renewable gasoline. It has incentive to push for increased fuel efficiency standards in vehicles through avenues like the Second Circuit U.S. Court of Appeals so that it can increase revenue made through the sale of carbon credits.