In-depth analysis of the automobile industry (1)|Key points and examples of carbon emission management in the automobile industry

In recent years, global attention to climate change has been increasing. Government regulation, supervision and policy support, emission reduction pressure from stakeholders such as consumers and investors, and the endogenous demand for corporate development have promoted the development of automobile companies. Develop in the direction of lower carbon, environmental protection and sustainability. Cars are transforming towards electrification and cleaner fuels. Major car manufacturers have also set net-zero emission targets. Carbon emission management is becoming an important tool for car companies and industry chain suppliers to achieve carbon neutrality/net-zero emissions.

01 Global automotive industry moves towards carbon neutrality

As a pillar industry of the national economy, the scale of my country's automobile industry has ranked first in the world for 14 consecutive years; the number of automobiles exceeds 300 million, ranking first in the world; automobile export volume has surpassed Japan, ranking first in the world. Our country's new energy vehicles have gradually formed a global leading trend. However, while the automobile industry strongly supports the rapid economic and social development, it also brings huge pressure for carbon emission reduction.

According to statistics, global road transportation emissions account for 11.9% of total carbon emissions, 60% of which comes from passenger travel, and 40% comes from road freight. In 2022, my country's vehicle operation carbon emissions will account for approximately 1% of the total carbon emissions of society. 8%, accounting for 80% of the transportation sector3.

In recent years, the world's major economies have successively released carbon-neutral development visions. More than 150 countries around the world have proposed carbon-neutral development goals (swipe the picture below to view the situation of each country), and more than 20 countries and regions have proposed fully electric vehicles. goals. Green and low-carbon development has become a common choice for the global automotive industry to move towards carbon neutrality.

Under the "dual-carbon" goal, green and low-carbon development has become an inherent requirement for the high-quality development of China's automobile industry. The "14th Five-Year Plan for Circular Economy Development" has identified "comprehensive life-cycle management of automobiles" as one of the six key actions from 2021 to 2025. The "Action Plan for Peak Carbon Emissions before 2030" proposes that the proportion of new energy clean power transportation vehicles should reach about 40% by 2030. Therefore, accelerating the green and low-carbon transformation of the automotive industry is not only an important support for implementing the national "dual-carbon" strategy but also an inherent requirement for the high-quality development of the industry.

The automotive industry has the characteristics of a long industrial chain, broad coverage, and numerous related industries. In addition to its own production chain, it is also highly related to industries such as mining, manufacturing, energy production and supply, and transportation. Therefore, decarbonization in the automotive industry can drive the low-carbon transformation of related industries, making it an important battleground for China's dual-carbon transition.

02 Three Steps for Low-carbon Transformation in the Automotive Industry

To achieve carbon neutrality, the low-carbon transformation of automotive companies can be achieved in three steps: commitment, action, and tracking reporting.

Commit: Develop a carbon-neutral development strategy and make a commitment to carbon neutrality. Establish and transition to a sustainable new development model, integrate carbon neutrality goals into the company's development strategy, assess decarbonization status and potential, and establish scientific carbon targets (such as SBTi) and a carbon neutrality roadmap.

Today, more and more companies are incorporating ESG performance into their decision-making processes, and low-carbon development is an important indicator of their environmental (E) performance. Therefore, developing a carbon-neutral-oriented corporate development strategy can achieve the integration of environmental value and business value. As shown in the graph below, car companies such as BMW, Audi, Mercedes-Benz, Volkswagen, BYD, Geely, and others have set emission reduction targets.

[Graph: Examples of emission reduction targets set by car companies including BMW, Audi, Mercedes-Benz, Volkswagen, BYD, Geely, etc.]

Source: 2030 Automotive Sustainability White Paper

BMW Group is committed to achieving carbon neutrality by 2050. In order to reach its decarbonization goals, the company has developed a clear roadmap. BMW Group focuses not only on its own operations but also on the entire value chain, including production, supply chain, product usage, logistics, dealerships, and non-production sites, to drive emissions reduction.

Source: BMW Group China Sustainability Report 2022

Geely Holding Group has committed to achieving carbon neutrality in its operational aspects no later than 2040. The group has also set carbon reduction targets for its various brands. Volvo, a subsidiary of Geely, plans to make all new car models fully electric by 2030. Its ambitious plan to achieve climate neutrality by 2040 has been approved by the Science Based Targets initiative (SBTi). [Click here to learn more about SBTi.]

Source: Geely Holding Group 2022 Sustainability Report

Action: Implementing the commitment to carbon neutrality is crucial. From commitment to results, taking action is the only solution. The focus areas for many automotive companies include using clean energy, improving materials and processes, managing green supply chains, implementing low-carbon operations, and carbon offsetting.

For example, Mercedes-Benz has presented its "2039 Vision" and accelerated the transition to "fully electric" vehicles. They have taken measures in product development, supply chain, production processes, vehicle operations, and recycling and waste management. In 2023, they partnered with Baosteel to incorporate low-carbon aluminum materials in their automotive products to reduce the carbon footprint. They have also developed a battery lifecycle management strategy and implemented digital technologies for end-to-end battery traceability. Additionally, they have initiated sustainable financing projects, among other efforts.

Source: Mercedes-Benz Group-China Sustainable Development Blue Book 2022-2023

Track & Disclose: Tracking low-carbon development performance and disclosing reports are essential. It involves scientifically accounting for the company's carbon emissions and conducting quantitative assessments. Regular tracking of low-carbon development performance and disclosure of reports are crucial. By complying with policies (such as environmental information disclosure requirements) and trade regulations (such as CBAM and new battery laws), companies can showcase their latest progress to stakeholders and establish a responsible corporate image.

As shown in the graph below, Geely Holding Group disclosed the carbon emissions data for Scope 1, 2, and 3 in its 2022 Sustainable Development Report.

[Graph: Carbon emissions data (Scope 1, 2, and 3) disclosed by Geely Holding Group in its 2022 Sustainable Development Report.]

Source: Geely Holding Group 2022 Sustainability Report

Reducing carbon emissions across the entire value chain is a crucial goal for BMW Group's sustainable development by 2030. In its 2022 Sustainable Development Report for China, BMW Group disclosed the carbon emissions data for Scope 1, 2, and 3, as well as a carbon footprint distribution chart for 2022. The product usage phase under Scope 3 accounted for over 75% of carbon emissions. BMW is taking measures to reduce carbon emissions during the usage phase of its vehicles by establishing a charging network and offering green charging services.

Source: BMW Group China Sustainability Report 2022

Whether it is a vehicle's carbon footprint verification or a corporate organizational level carbon emissions inventory, automobile companies need corporate carbon emissions data as basic support to carry out low-carbon transformation. To manage supply chain carbon emissions, it is also necessary to trace upstream or further to energy supply or raw material extraction.

03 Differences in carbon management priorities between fuel vehicles and new energy vehicles

The basic life cycle stages for both conventional fuel vehicles and new energy vehicles include material production, vehicle manufacturing, vehicle usage, and recycling.

However, there is a difference in carbon emissions between the two. For conventional fuel vehicles, the majority of carbon emissions (around 80%) occur during the usage phase, while emissions from material production and vehicle manufacturing account for only 20%. As new energy vehicles become more prevalent, the primary source of carbon emissions will shift from the usage phase to the production phase. The proportion of carbon emissions from materials and manufacturing processes, especially battery production, in the total lifecycle emissions of electric vehicles may increase from the current 20% to 85%.

Therefore, carbon emissions management for conventional fuel vehicles primarily focuses on the usage phase, while carbon emissions management for new energy vehicles pays more attention to the production phase, particularly battery production.

04 How to determine the scope of carbon emissions accounting?

To manage carbon emissions in the automotive industry, the first step is to quantify the emissions. This involves conducting carbon footprint assessments for automotive products or carbon emissions inventories for automotive companies. The initial and crucial step is to determine the accounting boundary/scope.

From the perspective of the traditional vehicle life cycle, which includes "production-usage-end-of-life recycling," it can be divided into fuel cycle and material cycle. Specifically, the fuel cycle consists of the acquisition phase (including the extraction, transportation, and production of primary energy) and the operation phase (fuel consumption during vehicle operation). The material cycle includes the extraction and transportation of raw materials, manufacturing and processing of automotive materials, vehicle and component manufacturing, as well as component replacement and end-of-life recycling processes during vehicle usage.

As shown in the above graph, the carbon emissions throughout the lifecycle of automotive products involve various industries such as mining, manufacturing, energy supply, and transportation. With the global efforts to address climate change and the implementation of China's "dual-carbon" strategy, the transition to electrification centered around new energy vehicles and the low-carbon transformation of traditional power systems centered around internal combustion engines have become the trend. The integration of the new energy sector with the automotive industry has also become more closely intertwined.

Considering the perspective of corporate carbon emissions, the carbon emission boundaries at the organizational and operational level for automotive companies such as BMW and Volkswagen typically include emissions generated from car assembly manufacturing, vehicle distribution, and operational activities. The supply chain level of carbon emissions also includes emissions associated with upstream procurement of critical raw materials, core components, and other goods or services. The entire industry chain level of carbon emissions calculation also needs to consider the vehicle usage phase and end-of-life recycling and reuse phase. Correspondingly, achieving carbon neutrality at the organizational level, supply chain level, and entire industry chain level requires reducing and offsetting the carbon emissions generated in the respective phases and stages.

From the perspective of product carbon emissions during the entire life cycle of a vehicle, if we want to calculate the carbon footprint of automobile products from "cradle" to "grave", in addition to 1) the automobile assembly, production and transportation and distribution processes, we should also account for 2) other The upstream production of core components and the more remote production process of key raw materials; and 3) carbon emissions during the production, transmission, distribution, and use of fuel/energy used in the vehicle operation stage; it should also include 4) the vehicle disassembly and recycling process carbon emissions produced.

05 Conclusion

While various automobile companies have set emission reduction targets or carbon neutrality/climate ambition plans, many of them have only committed to achieving carbon neutrality at the operational level. The path to carbon neutrality in the supply chain and the entire industry chain is still challenging.

Currently, Chinese automobile companies have relatively weak methods and data collection for carbon accounting in the value chain. Most companies calculate the carbon footprint of automobiles by matching the material weight information in the bill of materials (BOM) with corresponding material background data. However, automobiles consist of a large number of components, and some components may even have multiple suppliers. Furthermore, the accuracy and granularity of data provided by suppliers vary, posing significant challenges for the coordinated management of carbon data in the industry chain.

For the complex lifecycle of automobiles, it is a shared challenge for the entire automotive industry chain to accurately account for, monitor, trace, and manage the product carbon footprints of both the vehicle manufacturers and the supply chain enterprises. This requires linking data from upstream and downstream of the industry chain and updating the factor library in a timely manner to meet supervision, regulatory requirements, and the disclosure of carbon information in compliance.

In the future, in-depth articles in the automotive industry will bring you more industry solutions.



[3] 汽车产业绿色低碳发展路线图1.0