COP26: what does it mean for the Automotive industry?

The 26th Conference of the Parties (COP) or United Nations Climate Change Conference is being held in Glasgow these days and will last until the 12th of November.

The meeting of representatives from 197 countries is expected to define new improved measures to fight climate change compared to those of the 2015 Paris Agreement. This is referenced as the so-called ‘ratchet mechanism’ establishes a new accord every five years (which was delayed in 2020 due to the pandemic).

The main goals of the previous one in Paris (UNFCCC), signed a little later in 2016, were:

• Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;

• Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production;

• Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

What appears clear is that the world is on course to exceed the limits established during the 2015 conference, so further and more binding actions are requested this time. Where previously countries were not asked to provide a roadmap or framework of how these targets would be achieved, this time it will not be the case. This meant presenting a Nationally Determined Contribution plan or (NDC), and it is around these well-defined measures, the new targets ambitions, and the negotiations going on behind closed doors that the success of COP26 will be measured.

The European Union and the UK pledged to reach net-zero carbon emissions by 2050, as did the United States, the second biggest polluter in the world. As for developing countries, realistic targets have usually been set for a later date. Particular attention has been paid to China and India, respectively the world’s first and third biggest polluters who set their targets to 2060 and 2070.

COP26 AND THE AUTOMOTIVE INDUSTRY SUSTAINABILITY

Road transport accounts for 10% of the global emissions, and the change toward electrification that is seen as the issue solution for the mobility sector is underway. Despite the increasingly faster diffusion of EVs though, the transition is not advanced enough to meet the Paris Agreement goals.

To reach such targets COP26 proposes different measures:

• Countries and states: ensure that all new car and van sales are zero-emission vehicles by 2035 in advanced markets, and by 2040 in developing ones; put in place policies to accelerate the uptake of zero-emission cars, vans, buses, and trucks.

• Vehicle manufacturers: sell only zero-emission vehicles (EVs or FCEV) by 2035 or earlier.

• Fleet-owning businesses: achieve a fully zero-emission fleet by 2030 or earlier; join the EV100 initiative.

• Civil society: build support for all of the above measures.

A report by Peter Campbell et al. at Financial Times, however, claims that the deal is not getting much traction as some major automakers and governments including the US, Germany, and China are refusing to sign it. The hesitation from some governments would be the major factor stopping automakers to agree as well. In general also, the uneven deadlines for ICE phase-out that would hinder the penetration of certain automakers into developing markets, concerns over the sourcing of electricity from coal, and the exclusion of the synthetic-fuel option would be other reasons for these institutions to delay the agreement.

*Source: COP26

These targets, in fact, while extremely important, are not all there is to it. In the automotive industry, it is not just about the cars’ powertrain, but also the production, the supply chain, and energy production. The biggest task for many countries is to decarbonise the energy sector.

*Data Source: Climate Watch

According to Bloomberg, 33% of China’s CO2 emissions come from the energy sector which is also its biggest source, followed at 30% by the construction sector. In the context of its NEV sector rapid expansion and already within the largest automotive market in the world, this means an increasing demand for energy that as of now is created in most part through coal-powered plants, despite China leading in terms of renewable energy. The government has just started the construction of a 100-gigawatt renewable energy site that will be among the biggest in the world.

Renewable along with nuclear and hydrogen will be the main sources of China’s energy in the road to 2060.

*Source: International Energy Agency (data for 1990-2040); Tsinghua University (2060 estimates) via Bloomberg