Decarbonisation strategies move beyond the tailpipe

The automotive sector is highly scrutinised when it comes to decarbonisation efforts, with the OEMs in the public eye and often receiving the bulk of the focus. As a crucial, central part of the automotive industry, OEMs are continually navigating supply chain costs and carbon emissions across a wide range of manufacturers, often having to use their dominant position in the ecosystem to put pressure on reaching Scope 3 objectives. Because of this dynamic, decarbonisation of the automotive sector will need to be led by OEMs putting pressure on the Tier 1 suppliers that are directly selling the parts.

Major automotive players and their challenges

In the complex landscape of the automotive industry’s quest for decarbonisation, several key players face significant challenges. For OEMs, many are taking some action in reducing their own Scope 1 and Scope 2 emissions, but they are not progressing quickly enough at this stage to get to their objectives. An acceleration is required, not only for Scope 1 and Scope 2, but also to address the Scope 3 emissions stemming from their suppliers and vendors. They need to be exemplary and make significant changes to supply chains. That is difficult in the best of circumstances and requires being able to put pressure on their vendors to adapt, with clear ways to measure and follow subcontractor efforts. Additionally, OEMs and vendors have to work together to transform the product being developed as they shift toward green mobility solutions. The requires an additional layer of innovation and collaboration.

Tier 1 suppliers are under pressure—from OEMs, as well as from regulations or other outside expectations—to manufacture more environmentally friendly products. These products are often more expensive to produce. They are also typically using hard-to-abate products with production processes that can be energy intensive, especially if they are related to metal or moulding. With relatively limited volume compared to the steel or plastic industry as a whole, they have limited influence over supplier choices. They are working to innovate their products and materials, striving to replace existing raw materials with low or ultra-low carbon alternatives, as well as working to form partnerships for materials that cannot be replaced. But they are doing this—what amounts to a significant transform as an industry—while under scrutiny around creditworthiness and with limited capex to invest in their energy transition.

There are also outside pressures that weigh heavily on the industry. Governments, the public, shareholders, and vigilant watchdog companies and agencies focused on auto emissions exert significant influence. These external forces compel OEMs, which are then putting pressure on the Tier 1 suppliers, to accelerate their decarbonisation efforts and stay in alignment with ever-stricter regulations and public expectations.

Three main avenues to decarbonise

In the journey towards decarbonisation, players in the automotive industry are employing three distinct approaches, each targeting different facets of the carbon footprint. Manufacturing emissions for OEMs and Tier 1 suppliers represent a relatively small portion of the overall value chain, but are a critical starting point. Managing and reducing emissions directly connected to manufacturing is squarely within their control, and creates a positive public perception, setting an example for the entire sector.

Then there is upstream supply chain decarbonisation. Beyond manufacturing, a substantial portion of emissions stems from the production of car components. To address this, players are pursuing two main avenues. Firstly, there’s a shift towards utilising more sustainable materials, thereby reducing the carbon footprint associated with production. Secondly, partnerships and ecosystems are being developed around the supply chain, especially for materials like steel and plastics, to identify alternatives. These collaborative efforts aim to transform the entire upstream ecosystem.

At the same time, a profound challenge lies in transitioning the types of vehicles produced to favour green mobility solutions. It’s not merely about manufacturing hydrogen or electric vehicles; it’s about ensuring the entire lifecycle, including how energy is sourced for producing those vehicles, aligns with decarbonisation objectives and carbon commitments. This means innovation is not only required for the product design, but also for business models and vehicle lifecycle management, thinking beyond the car itself.

There is need for collaboration, not just within individual companies but across the industry. Research and development must evolve into a partnership wherever possible, as the collective effort is necessary to drive meaningful change in the automotive sector’s carbon footprint.

Automotive decarbonisation strategies

Decarbonisation strategies for the automotive sector can be split into two main categories: the OEM’s own emissions (Scope 1 and Scope 2) and their Scope 3 emissions.

For Scope 1 and 2 emissions, comprehensive decarbonisation programs can be designed to simultaneously reduce costs and carbon emissions. Strategies such as Energy Savings as a Service (ESaaS), On-Site Solar implementation, and Green Supply/Power Purchase Agreement (PPA) sourcing offer that dual benefit. These programmes, in order to best amplify the impact, need to be addressed globally—enabling accelerated progress and the generation of economies of scale.

There is a notable barrier to these initiatives in the substantial capital expenditure (CAPEX) requirements, which often do not align with the typical return on investment (ROI) expectations of the sector. Striking a balance between the internal CAPEX limitations, competition for core business CAPEX required for transformation and innovation, and the transition to cleaner energy sources is paramount. Implementing an “As A Service” model for energy assets can help the sector transition without compromising the ability to transform.

The cost and carbon savings generated through these programmes can be used to finance heat decarbonisation initiatives, which can also be delivered in an ‘As A Service’ model.

For scope 3 emissions

The intricate task of addressing Scope 3 emissions begins with supplier mapping, identifying those with the most significant impact on the upstream value chain. Assessing the potential for material replacement and the associated costs and opportunities is a crucial step. For those materials that cannot be replaced, establishing strategic partnerships with key suppliers becomes imperative.

While the shift towards new vehicle types…addresses tailpipe emissions, it’s essential to remember that the impact of the automotive industry extends far beyond the road

Innovation and the implementation of ecosystem approaches are pivotal in addressing the use phase of products, ensuring that the entire lifecycle of vehicles leans towards sustainability. Energy procurement and green electricity should also be approached globally, offering long-term benefits that can be implemented across the extensive manufacturing footprint that the automotive industry represents. Coordination across numerous sites, often numbering in the hundreds, becomes essential to tackle the complexity of the industry’s operations.

The future of the automotive industry

While the shift towards new vehicle types (electric, hydrogen, etc.) addresses tailpipe emissions, it’s essential to remember that the impact of the automotive industry extends far beyond the roads. Upstream Scope 3 emissions, encompassing the development of materials and sustainable production processes, also play a crucial role in reducing overall emissions.

In the grand challenge of automotive decarbonisation, these targeted strategies will propel the industry toward a greener, decarbonised future—fostering both economic efficiency and environmental responsibility.

About the author: Sébastien Wagemans is Managing Director, Sustainability Solutions at Engie Impact