Editing order confirmation email in Drupal 7 Commerce
I the end, I had to install the Mime Mail module. My site uses gmail for the site's email, so I had to use Mime Mail together with SMTP module.

The emails render html tags and tokens as needed.

For someone who might experience the similar issue, here is how I configured the Mime Mail witih SMTP:

In admin/config/system/mailsystem scroll down to the "New Class" fieldset. Create a new class using MimeMailSystem for format() and SmtpMailSystem for mail(). Use that newly created class for the "Site-wide default MailSystemInterface class.

I'm still not completely satisfied with this solution as I was hoping to make Commerce Message to work. If someone ever gets to respond to this I would be thankful for the answer.