“Am donating $100M towards a prize for best carbon capture technology,” tweeted Mr Musk.
Carbon capture and storage is an attempt to remove waste carbon dioxide emissions from the air to help impact climate change.
The carbon dioxide emitted at a factory or refinery is captured at its source and then stored to try and remove the harmful byproducts.
In response, several of Mr Musk’s followers who shared the tweet suggested a simple solution — plant more trees.
The prize will be connected to the Xprize Foundation, which is a non-profit that hosts public competitions to encourage technological development, reported Tech Crunch.
New president Joe Biden has placed huge importance on his climate plan and says he wants to put the US on the road to be carbon neutral by 2050.
Mr Musk, who is also the CEO of SpaceX, recently asked his 42.7 million Twitter followers how he should spend his fortune, which is now estimated at more than $201bn.
“Critical feedback is always super appreciated, as well as ways to donate money that really make a difference (way harder than it seems),” he tweeted.
In 2012, the South African-born billionaire signed the Giving Pledge initiative started by Bill Gates and promised to give away half of his fortune.
Mr Musk has publicly donated $257 million to the Musk Foundation and has said that much of his wealth will be used for space exploration and his ambition to colonise Mars.
“It’s going to take a lot of resources to build a city on Mars,” he told German publisher Axel Springer in December.
“I want to be able to contribute as much as possible,” Mr Musk said.