While Tesla boasts itself as a clean-energy company, it is also thriving by selling carbon credits to companies that have not quite figured out how to reduce their emissions. In 2023, Tesla earned nearly $1.79 billion from selling carbon credits, bringing its total earnings from such credits since 2009 to nearly $9 billion (Jennifer L, 2024) and serves as a perfect example of how the carbon credit system can be a financial game for companies with the right strategy.
Carbon credits – A commodity with a growing demand
Carbon credits are like coupons for the environment, each one represents one ton of CO₂ emissions that have been avoided or removed from the environment. The idea is that companies can purchase these credits to offset the emissions they produce, helping them meet regulatory targets or market themselves as “sustainable.”
As governments are tightening regulations around emissions, more companies are now aiming for net-zero goals, and carbon credits are being sold like high-demand stock options. In fact, the voluntary carbon market was valued at approximately $400 million in 2020, and projections suggest the sector could reach between $10 billion and $25 billion by 2030. (Carbon Credits, n.d)
However, this growth isn’t without its problems. While carbon credits promise to support green projects like reforestation, renewable energy, and carbon capture, it raises a critical question: Are these credits truly offsetting emissions, or is it just a way for companies to buy a greener reputation?
How companies profit – The mechanics of Carbon credit trading
This illustration shows how an emission trading system (carbon market) works. Imagine two factories: Emitter A and Emitter B. Each factory has a limit on how much greenhouse gas they can emit. Emitter A produces excess emissions above the allowed limit, while Emitter B produces reduced emissions and stays below its cap. To balance this out, Emitter A purchases extra emission allowances (carbon credits) from Emitter B in the carbon market, allowing Emitter A to legally continue its operations while rewarding Emitter B for reducing its emissions. In simple terms, companies that pollute less can sell their “savings” to companies that pollute more, creating a financial incentive to reduce emissions over time.
Let’s take a closer look at how businesses like Tesla make money from carbon credits and why it’s a lot more profitable than it sounds. Here are two main ways:
1) The intermediary model – buy low, sell high: Large corporations can buy credits from cheaper, smaller projects in developing countries such as reforestation in the Amazon or wind farms in rural India at a fraction of the price. These credits often cost only a few dollars per ton of CO₂ removed. Then, companies can resell them to other corporations, especially in high-emission industries like oil, gas, and automotive at a much higher price.
2) Building a green portfolio: Some companies go a step further and develop their own carbon credit-generating projects like reforestation, soil carbon storage, or methane capture so they can sell or use to offset their own emissions. Amazon, for example, spent over $100 million on carbon offset projects in 2020 to establish The Right Now Climate Fund for nature-based solutions to restore and conserve forests, wetlands, and grasslands globally (Amazon Sustainability)
The Greenwashing problem: profiting from the perception of sustainability
While carbon credits can lead to real environmental projects, they can also be a form of greenwashing, allowing companies to purchase credits that “offset” their emissions without actually changing the way they operate.
According to the Guardian (2023), the forest carbon offsets used by major corporations like Disney, Shell, and Gucci are largely ineffective and may actually worsen global warming, as over 90% of their rainforest offset credits are likely “phantom credits” that do not result in real carbon reductions. A 2020 investigation revealed that of 29 carbon credits issued by Verra, the leading standard in the carbon offset market, only 6% (or 5.5 million out of 95 million) represented actual emission reductions, with just 8 out of the 29 projects achieving any measurable emissions reductions.
The key issue here is that while companies can show off their green credentials, they might not be actually reducing their emissions in any meaningful way. If businesses keep buying carbon credits, they may have less incentive to adopt cleaner technologies or change their practices. Instead of directly cutting emissions, they can buy their way out of accountability, leading to a world where everyone looks green, but the planet doesn’t actually get any cleaner.
The future of Carbon credits: Will they really help the planet?
While carbon credits are undeniably profitable, the question remains: Are they a true solution to the climate crisis, or just another financial tool?
For the carbon credit market to become more effective, we need stricter oversight, more transparent reporting, and a global standard for verifying the actual environmental impact of projects. More importantly, businesses should move beyond offsets and focus on direct emissions reductions, or in other words, changing the way they operate rather than just buying a pass to pollute.
In the end, the carbon credit market is not inherently bad. It has the potential to fund critical green projects and incentivize companies to engage in climate action. However, as the market grows, so do the risks of exploitation.
As consumers, we have a role to play too, it is to demand transparency and hold companies accountable for their environmental claims.
Because in the end, going green should not just mean making money, it should mean saving the planet.