Published: November 21, 2023
Passenger vehicles, a key part of the transport sector, contribute a substantial 16% to global greenhouse gas emissions.
It is increasingly evident that electrification of the automotive industry may not be sufficient to meet Paris Agreement decarbonization goals.
As a result, the auto industry may have to explore additional sustainable pathways, including net carbon-neutral production, sustainable supplier transformation, and material reuse and recycling.
Over the coming decade, every sector of the global economy will encounter a substantial challenge as they strive to align their operations with the objectives outlined in the Paris Agreement on climate change. Currently, passenger vehicles, a key part of the transport sector, contribute a substantial 16% to global greenhouse gas emissions. Reducing CO2 emissions at the tailpipe of internal combustion engines has been a key pillar of the strategy.
But even if millions of people buy battery-electric vehicles, that likely still will not be enough. In this paper, we will explore what other options automakers have.
At present, most car manufacturers are embracing a target-setting process that aligns with the goals of the Paris Agreement, and this approach is guided by the Science Based Targets initiative (SBTi). Under this framework, targets are considered science-based when they align with the latest findings in climate science — with the primary objective of achieving the Paris Agreement's goals. These goals are centered on limiting global warming to no more than 1.5 degrees C above preindustrial levels.
With that goal, most car manufacturers typically set emissions targets using the GHG Protocol's emission categories, which are:
Scope 1: Emissions originating from sources directly owned by the company.
Scope 2: Emissions resulting from the production of the energy purchased or used.
Scope 3: Emissions arising from activities for which the company holds indirect responsibility throughout its value chain.
Paris-aligned emission targets will include companywide Scope 1 and Scope 2 emissions as outlined in the GHG Protocol Corporate Accounting and Reporting Standard. Furthermore, companies must establish targets for reducing Scope 3 emissions.
If a company's relevant Scope 3 emissions constitute 40% or more of the total Scope 1, 2 and 3 emissions, they must be integrated into the near-term science-based targets.
For all companies engaged in the sale or distribution of natural gas and/or other fossil fuels, regardless of the proportion of these emissions compared to the total Scope 1, 2 and 3 emissions of the company, Scope 3 targets must be established for the use of the products they sell.
Table 1 below shows the current SBTi targets of major car manufacturers.
The path to decarbonization for each vehicle manufacturer varies as that path is influenced by factors such as carbon footprint, global operations and the target year selected to reach net-zero. The utmost priority is to guarantee that all emissions reduction goals on decarbonization are standardized with climate projections, aiming to align with the Paris Agreement's goal of limiting global warming to well below 2 degrees C.
There are four predominant sustainable pathways adopted by most car manufacturers:
Path 1: Electrification — This pathway entails a fundamental shift toward electric vehicles and hybrid powertrain technologies. We increasingly see car manufacturers investing in the design, development, and production of electric vehicles globally to reduce emissions from their fleets.
Path 2: Carbon-neutral production — Achieving carbon-neutral production involves reducing or offsetting emissions associated with manufacturing processes. In recent years, car manufacturers have been implementing energy-efficient technologies, transitioning to renewable energy sources, and implementing carbon offset initiatives to ensure that vehicle production is carbon neutral globally.
Path 3: Sustainable supplier transformation — To address emissions holistically, car manufacturers are working closely with their suppliers to reduce the carbon footprint of raw materials and components used in vehicle production. This includes selecting suppliers that prioritize sustainable practices and choosing environmentally friendly materials.
Path 4: Material reuse and recycling — Car manufacturers are shifting toward a design principle that prioritizes recyclability and reuse of components as well as recycling materials to reduce waste and avoid environmental impact. This also involves adopting circular economy principles and targets for manufacturing and end-of-life vehicle disposal processes.
Understanding how these four paths can work together is the underpinning of a case study performed by S&P Global Mobility.
In this case study, we focused on a global vehicle manufacturer with substantial sales and a global vehicle production footprint. To ensure clarity and effectiveness, the manufacturer's emissions reduction targets are divided between Scope 1 and 2 emissions together and Scope 3 emissions specifically. These targets are methodically aligned with sectoral decarbonization strategies, often drawing inspiration from the International Energy Agency net-zero scenario, which adheres to the Paris Agreement's objective of limiting global warming to well below 2 degrees C.
In accordance with SBTi criteria, targets can be articulated in absolute terms — for example, metric tons of carbon dioxide-equivalent (tCO2e) — or in intensity terms, such as grams of CO2e/passenger kilometer traveled. The specifications for targets should outline the emissions included, the chosen base year and target year, the percentage reduction and the applicable units. In general, the baseline establishes a fundamental reference point for evaluating progress toward attaining emissions targets aligned with the Paris Agreement. In this case study, we used 2018 as the baseline year.
Introducing zero-emissions vehicles in the worldwide vehicle fleet stands out as a highly effective strategy for mitigating overall CO2 emissions. This initiative is made possible through the addition of advanced technologies such as battery electric vehicles (BEVs) and fuel cell vehicles.
The strategic pathways for this car manufacturer, as illustrated in Fig. 3 below, include widespread adoption of BEVs, leading to a gradual phasing out of conventional vehicles, reaching its end by 2030. Also, the market share of plug-in hybrid vehicles and mild hybrid vehicles is anticipated to peak around 2024, followed by a gradual decline.
However, this decline is counterbalanced by a significant surge in BEV market share facilitated by additional vehicle platforms and vehicle programs. BEV sales are projected to achieve a 25% share by 2025 and a 68% share by 2030 globally, according to current S&P Global Mobility forecasts. These adjustments enhance the Paris Agreement’s emissions reduction objectives.
This degree of electrification delivers an advantageous outcome. In this case, it significantly diminishes Scope 3 category 11 in-use phase emissions from a tank-to-wheel, well-to-wheel perspective. Category 11 emissions are created from sold products and goods by the organization. It encompasses the expected lifetime emissions of all products sold during the reporting year. Also, our internal forecast assessments illustrate compelling evidence of a substantial reduction of Scope 3 category 11 emissions, as shown in Fig. 4 below. This reduction paves the way for the car manufacturer to achieve its targets by 2030, aligning with the climate goal of well below 2 degrees C.
The projected path of Scope 3 emissions for this vehicle manufacturer seems achievable. Additionally, our internal research suggests an anticipated rise in regulatory adjustments in emerging markets as they reinforce their dedication to the Paris climate goals. Since this car manufacturer has already invested in a dedicated battery electric vehicle platform, a simple solution involves a production ramp-up to meet additional market commitments aligned with the Paris goals.
The life-cycle approach measures corporate CO2 emissions across a vehicle's life, covering material procurement, production, usage, and end-of-life. Vehicle lifespan averages 150,000 kilometers but varies by country. Fig. 5 below shows the 2018 declaration of the case study of the selected vehicle manufacturer’s life-cycle emissions in its sustainability reporting.
Carbon-neutral production significantly reduces Scope 1 and 2 emissions. This vehicle manufacturer has aligned several key initiatives to achieve interim climate goals for this decade by having:
Carbon neutral production facilities dedicated to manufacture 30 passenger vehicle nameplates and powertrains.
A fully operational 11-MW solar plant from 2023.
Installed photovoltaic systems on major production facilities by 2025.
A plan to source 70% of energy for its global production plants from renewables.
In life cycle-based emissions accounting, supply chains are the second-largest source of emissions, arising from the use of materials and sourced components that contribute significant carbon footprints during their journey through the supply chain. This manufacturer's emission reduction measures are as follows:
Decreasing emissions 30% during battery manufacturing by enabling battery cell production as carbon neutral.
Reducing dependencies on electrode producers, refineries, and mines to ensure a more sustainable carbon footprint is achieved.
Adopting fossil-free hydrogen and initiating green steel production processes.
Sourcing one-third of aluminum for upcoming BEV programs from renewable energy-based production suppliers.
The limited availability of certain raw materials means meeting climate objectives can only be realized through improved material reuse, repurposing, and recycling. This automaker's adoption and integration of circular economy design principles should help with efficient resource utilization. Here are the key actions taken by the manufacturer:
Implementing a green, carbon-neutral steel supply chain making use of recycled production-line steel scrap — maximizing the utilization of secondary materials sourced from post-consumer scrap.
Achieving recovery rates of over 96% from battery materials, ensuring minimal waste.
Increasing share of recycled materials in the vehicle fleet by an average of 40% by 2030.
Replacing fossil raw materials with biomethane and pyrolysis oil sourced from recycled used tires.
Remanufacturing the existing powertrain transmission system.
Reducing total waste per vehicle by 15%.
Reducing the amount of waste disposal per vehicle by 10% per year.
It is evident from Fig. 6 that this manufacturer is not only on track to meet the 2030 target but poised to exceed the target. Key strategies include the transition to EVs, the adoption of renewable energy in manufacturing, the incorporation of recycled materials following circular economy principles, and the diligent management of supply chain emissions.
This vehicle manufacturer has based its primary approach to reducing emissions on the electrification of its vehicle fleets. However, as the journey progresses toward achieving the ambitious objectives of the Paris Agreement, it becomes evident that relying solely on electrification likely will be insufficient due to the intricate challenges involved. To achieve Paris-aligned decarbonization, the industry must explore additional sustainable pathways.
These pathways involve striving for net carbon-neutral production to minimize emissions during manufacturing and offsetting any unavoidable emissions. Furthermore, fostering the transition of suppliers to carbon-neutral materials is essential as suppliers play a crucial role in the wider supply chain's carbon footprint. Prioritizing material reuse and recycling measures will also be a key factor in reducing resource consumption and avoiding the environmental impact during the entire life cycle.
This research was prepared by and reflects the views of S&P Global Mobility, which is separate and independent from other businesses/divisions of S&P Global, including S&P Global Ratings.
