Carbon management is crucial for the automotive industry

Transportation is a daily necessity for society and businesses alike, so it’s unsurprising that there has been an increase in conversations about the emissions it produces. With stricter environmental regulations being put in place by governments around the world, the automotive industry needs to adapt its operations and supply chains accordingly.

The environmental implications of the automotive industry

Road transport is responsible for 16% of global emissions. Moreover, increased demand for SUVs contributed to a rise in global CO2 emissions more than iron, steel, cement and aluminium production combined in the last decade. While the electric vehicle (EV) transition is a positive move in the journey to net zero, it is estimated that by 2040, 60% of a vehicle’s emissions will come from material production—unless strong action is taken before that.

Around US$3.5tr will be spent every year between 2021 and 2050 on low-emission vehicles, electric charging, and hydrogen fuelling infrastructure

However, a 2022 McKinsey survey of automotive suppliers found that while 83% had defined sustainability targets, only 7% had actually implemented their carbon emissions plans. The Automotive Benchmark Insights Report from 2022 found that five of the 30 biggest car makers had no climate-focused supply chain engagement.

Why carbon management is crucial

There has been increased pressure from regulators on the automotive industry to decarbonise transport. The UK’s ban on selling any new internal combustion engine (ICE) vehicles by 2030 is an example. That means the industry must get proactive with its climate action.

With a high priority placed on EVs, focus is needed on the materials used to manufacture them. Companies that are able to identify carbon hotspots and reduce resultant emissions from their supply chain will gain a competitive edge among increasingly sustainability-driven consumers. By prioritising supply chain carbon management in alignment with government regulations, businesses will not only be able to get on track to achieve their net zero targets, but also create resilience and a cost-effective pipeline that can weather future policy changes and circumstances.

The automotive industry has gained approximately US$400bn in investment over the last decade to develop EVs—US$100bn since 2020 alone. To capture the interest of investors in an increasingly crowded market, businesses now must prove that the products they are manufacturing are more sustainable than their competitors. Having a strong carbon management strategy backed up with transparent, airtight emissions data minimises opportunities for greenwashing claims.

The critical importance of addressing Scope 3 emissions

McKinsey estimates that around US$3.5tr will be spent every year between 2021 and 2050 on low-emission vehicles, electric charging, and hydrogen fuelling infrastructure. As a result, a persistent shift in mobility norms will gradually disrupt the entire automotive supply chain.  Businesses will have to adapt their carbon management strategies as this happens.

In order to honour the Paris Agreement target, automotive businesses must address their Scope 3 emissions embedded in materials high up in their value chains and create science-based targets. To date, only 45 automotive companies have set such targets. A good place to start will be to calculate the baseline of their Scope 3 emissions and then track their yearly progress. This can further be managed by working with suppliers to commit to carbon neutrality, social responsibility programmes, and sustainable procurement practices.

However, accounting for the carbon impact of every single component of a car is a challenging task that cannot be achieved to perfection, as a modern vehicle consists of more than 30,000 components. Consequently, some car makers like Tesla are cutting out links in their supply chain by sourcing their own raw materials and investing in in-house production. This also calls for working with carbon management specialists who can deconstruct and understand the business’ supply chain and suggest areas for reducing carbon emissions and improving environmental performance.

The road to net zero

To overcome the barriers posed by the complexities of climate regulations and the automotive industry itself, a collaborative effort between various stakeholders within and also outside businesses’ supply chains is essential. Fortunately, McKinsey calculates that 97% of a BEV’s material emissions could be abated at no extra cost by 2030. Powering production processes with green electricity, recycling plastic components and using carbon-free electrolysis for aluminium extraction are some of the most cost-effective wins, it says. Moreover, about half the emissions associated with batteries could be reduced by shifting production to regions with a low-carbon grid mix.

Manufacturers must be transparent about the emissions embedded in their activities for Scope 1 and 2 internally and Scope 3, with the help of the rest of the stakeholders in their supply chain. It is also essential to educate and train their employees, designers, procurement, and other collaborators in their supply chain to help them understand the carbon impacts of their decisions and the importance of incorporating carbon targets alongside already established industry metrics such as cost and performance. Businesses might also need to rebuild their teams and partnerships to create a value chain that suits their carbon management strategies and make their supply chain more environmentally and economically efficient.

Accounting for the carbon impact of every single component of a car is a challenging task that cannot be achieved to perfection

Some car manufacturers have already shown great promise. For example, various car industry stakeholders, led by BMW, Toyota, Volkswagen, and the World Business Council for Sustainable Development (WBCSD) have jointly launched the Automotive Partnership for Carbon Transparency (A-PACT). In August, A-PACT will publish a methodology to help companies calculate the total emissions generated by automotive parts over their life cycle. Volvo-backed brand Polestar plans to launch a fully climate-neutral car by 2030 using fossil-free steel from SSAB and zero-carbon aluminium from Hydro. Used Toyota Prius batteries are being put to work powering an education centre in Yellowstone National Park, and several other manufacturers have followed suit in giving used batteries a second life.

Data

Transport and climate change are both here to stay and are interwoven. To find the right balance between the two, the automotive industry needs to pay strong attention to minimising their supply chain emissions. Technological advancement will play a vital role in this. A great starting point will be creating a concrete plan in collaboration with supply chain partners with additional support from carbon management consultants to put data at the centre of net zero business decisions.

About the author: Mauro Cozzi is Chief Executive and Co-founder of Emitwise