Recently, several Italian and European media outlets have reported that Tesla “sells CO2 credits,” creating confusion about what actually happens and the market mechanisms used to promote decarbonization in the automotive sector. Let’s clarify this important topic to understand how regulatory mechanisms work and their impact on the industry.
What Does Tesla Actually Sell?
Tesla does not sell CO2 credits. This is a fundamental misunderstanding.
What Tesla sells are regulatory certificates tied to the production and sale of zero-emission vehicles, such as ZEV Credits (Zero Emission Vehicle Credits) in the United States. In Europe, Tesla leverages its compliance surplus under fleet average CO2 emissions limits, allowing other automakers to avoid heavy fines.
Let’s break down the differences between the main instruments involved:
CO2 Credits
These are part of the voluntary carbon market and are used to offset an organization’s direct or indirect emissions through projects that reduce or absorb CO2, such as reforestation or renewable energy initiatives.
However, they are not limited to voluntary markets: some regulatory systems also allow their use. For example, until Phase III of the EU ETS, CO2 credits could be used up to a certain percentage. It is hoped that such mechanisms will be reintroduced in the future to increase system flexibility.
Emission Allowances (EU ETS)
These are part of the European cap-and-trade system (EU ETS), which covers regulated sectors such as energy, heavy industry, and aviation. They are tradeable rights to emit one ton of CO2 equivalent and have no connection to vehicle sales. Tesla does not operate in this area.
ZEV Certificates and European Compliance
In the United States, Tesla generates ZEV Credits, rewards for marketing zero-emission vehicles. These certificates can be sold to other automakers that fail to meet ZEV requirements established by the California Air Resources Board (CARB).
In Europe, the system focuses on fleet average CO2 emissions limits (e.g., 95 g/km). Thanks to its fully electric fleet, Tesla generates a compliance surplus that it can sell to other automakers, such as FCA (now Stellantis).
USA vs. Europe: Two Approaches Compared
✔️ In the USA, the ZEV credit system adopts an incentive-based approach:
Automakers that exceed regulatory targets can generate surplus credits, representing an economic and market advantage. The costs of non-compliant companies become revenues for innovators.
This model encourages innovation, creating opportunities for manufacturers investing in zero-emission vehicles.
⚠️ In Europe, the approach is more punitive:
Automakers exceeding emission limits must pay hefty fines. These funds are channeled into EU programs and managed through community funding. However, the sanction-based system has two major flaws:
It is not technology-neutral: It favors specific technologies over others instead of letting innovation emerge freely based on efficiency and competitiveness.
It offers no incentives: There is no direct reward for manufacturers exceeding zero/low-emission vehicle production targets, effectively penalizing innovators.
Furthermore, there is a real risk that funds collected through fines may be allocated to projects with limited climate efficiency or that lack a direct connection to decarbonizing the automotive sector, thereby slowing down the ecological transition.
Why Does This Distinction Matter?
Confusing CO2 credits with regulatory certificates can lead to a misunderstanding of the mechanisms incentivizing the transition to zero-emission vehicles. While the American ZEV system rewards innovation, Europe’s punitive model risks hindering the development of new technologies.
It is also essential to discuss the efficiency of how European fines are used. If these resources are not allocated to genuinely impactful climate projects, the effectiveness of the system itself could be undermined.
Conclusion
Tesla often finds itself at the center of debates, not only for its technological leadership but also for its role in regulated markets. Understanding the differences between CO2 credits, emission allowances, and ZEV certificates is crucial to accurately assess the company’s contribution to the ecological transition.
✅ Europe should consider adopting a more incentive-based system, like the U.S., to accelerate the adoption of zero-emission vehicles and foster innovation in the automotive sector. Moreover, it should avoid collapsing the automotive industry with policies and instruments characteristic of planned and dirigiste economies, at the expense of free markets and innovation.
What do you think? Share your opinions in the comments or contact us to explore how market mechanisms can help decarbonize your business!
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