What support for public policymakers to pilot and foster low-carbon transition?

Written by: Lisa Bertrand (Business Developer – ACT Initiative) & Romain Poivet (Climate project Manager), ADEME 

To follow a 1.5°C-consistent pathway, the consensus upon which the Paris Agreement relies, fossil fuel production needs to decrease worldwide by roughly 6% per year from now until 2030. Countries are instead planning an average annual increase of 2%[1]. As of early November 2020, government stimulus and recovery packages (COVID-19 funds) had committed nearly five times more to high-carbon sectors, such as fossil fuel extraction, aviation, and car manufacturing (USD 878 billion), than to low-carbon industries, such as electric vehicles, energy efficiency, and renewable energy (USD 179 billion).[2] Public money for high emitters sectors should only support the deep decarbonisation of their activities if we are to make significant progress towards a carbon neutral economy.

Policymakers need to support the low carbon transition by reducing existing government support, including public finance investment, consumer and producer subsidies, for carbon intensive industries. Moreover, policymakers can reallocate this support with conditionalities to industries that can trigger decarbonisation ripple effects on key economic sectors that need major demand shifting. The automotive manufacturing sector is key to many economies and, by truly implementing low carbon business models, can get to that tipping point of low carbon energy demand the electric utility and oil and gas sectors need to see to decarbonise.

Automobile is the dominant mode of personal transportation and transport is responsible for about a quarter of all emissions from fossil fuel[3]. Automobile manufacturing is a complex multi-tiered industrial supply chain, therefore, policymakers should make informed investment decisions to ensure best impact. The Automotive Benchmark from the World Benchmarking Alliance[4] (WBA), provide relevant quantitative and qualitative indicators on 30 influential companies worldwide to assess how these key economic actors are delivering on their climate ambition.

Powered by the ACT- Assessing low-Carbon Transition[5] methodology, WBA’s Automotive Benchmark    provide data that can be used to pilot ambitious low carbon transition policies. Indeed findings demonstrate that while 16 companies out of the 30 sample set manufacturing processes targets (scope 1 and 2), only 5 have set fleet emissions targets fully aligned against a well-below 2° scenario. Beyond target commitment, 26 companies derive 90% or more of sales from internal combustion engine (ICE) with a total low-carbon vehicle share for the whole sample at 2.3% in 2019 compared to the 6.2% required by the Paris Agreement aligned pathway for this sector.

Cooperation between car manufacturers and electric utilities are delivering new business models with high growth and deployment prospects including development of low-carbon infrastructure (Ionity charging network owns by BMW, Daimler, Ford, Volkswagen and Hyundai-Kia), car sharing schemes, manufacturing mass low-carbon vehicle or retrofit of current ICE vehicles. Corporate publicly available data also shows bundled offering of energy generation, storage, electric vehicle and mobility as a service (Honda, Mitsubishi, Tesla), attempt to follow the principles of circular economy (Renault). Policymakers could support related manufacturing processes in the recovery plans, which would ultimately drive growth in green electricity generation, decrease demand for oil production and even reduce demand for new resources with relevant circular economy policies.

However, corporate disclosure need to improve to include forward looking plans and both automotive manufacturer and energy industries needs to lobby towards policies that favours the uptake of these low carbon business models. Interestingly, there is no correlation between disclosure of climate ambitious targets and significant move towards low carbon business models. Volkswagen, who has the highest-sales volumes globally, has science-based targets approved but only 1.2% of its vehicles sold are low carbon. On the other hand, Chinese BYD (Build your Dreams), who went from 4% in 2014 to 47.9% in 2019 low-carbon vehicles share of total sales, is building a portfolio of diverse low-carbon products including EV and PHEV passenger vehicles, electric businesses, light rail and trams, batteries and solar panels. Lack of disclosure did not prevent the company to take the first position for sold product performance against most established companies.

Indeed, in China, the government has pledged USD 15 billion to national railway development, and has committed to build more battery charging and swapping facilities and promote wider use of “new-energy” automobiles (NEV subsidies).[6] This could lead to collaboration opportunities with companies from the energy and transport sectors in order to solve key issues around charging infrastructure and low carbon electricity. Meanwhile in Europe Union, regulation moves towards 95gCO2/km emissions standard hence Europe seeing low average fleet emissions compared to other regions but not directly addressing the need to shift from selling passenger car to low carbon mobility as previously mentioned.

One of the strengths of ACT methodology is that reference scenarios can be adapted enabling analysis of local contexts. Indeed, by benchmarking against regional or national decarbonization sectoral scenarios, ACT assessments of companies provide insights for policymakers to adapt public policies accordingly in order to tackle strategic barriers and leverage public funding. For instance, investment in new production lines, workers’ capacity building, factories adjustments, but also automotive value chain activation is required to accelerate and deliver at scale the production shift from ICE vehicles to electric ones and to support low carbon mobility business models. Undeniably, such transformations will necessitate an appropriate economic and political context.

The crossover between WBA’s Corporate Human Rights Benchmark and the Automotive Benchmark 2020 shows no correlation between a company’s relative performances on either benchmark. This raise concern as a “just transition”, which needs to see climate and human rights issues addressed simultaneously, is a requirement of the Paris Agreement and resonates with the UN Build Back Better concept. This is crucial as companies move towards electric vehicles market and only nine automotive companies out of 30 sample disclose any information relevant to responsible mineral sourcing.

Finally, this findings being based on publicly available data, and despite some companies taking part in the process of data validation, policymakers with support from NGOs can signal their need for more reliable information from companies to inform their policy design. ACT methodologies are publicly available and the initiative, supported by the French government, is willing to support WBA’s engagement with policymakers and NGOs, including awareness raising and training, to provide them with the means to pilot decarbonisation locally.

[1] SEI, IISD, ODI, E3G, and UNEP. (2020). The Production Gap Report: 2020 Special Report.

[2]Cuming 2020. These estimates do not include the European Council’s intention to direct 30% of the Recovery Fund (EUR 750 billion) and Multi-Annual Financial Framework (EUR 1.074 trillion) funding to achieving climate targets (European Council 2020). This proposal still requires approval by the European Parliament and specification in terms of areas of spending, which may also include natural gas projects.

[3] “Energy Technology Perspectives: Mobilising Innovation to Accelerate Climate Action”, IEA, 2015

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