Europe - an Industrial Revolution

In Transportation – a Green Nirvana, we highlighted the push in Europe to reduce transportation emissions, mainly from passenger cars, a major factor of global emissions in the region

Setting targets for new passenger cars since 2000, the lowering of CO₂ emission standards has been phased in successfully with intermediate and long-term goals, setting Europe apart from laxer China and U.S. regulations

 

Emission targets for new passenger cars in g CO₂ / km for 2020 already were about 30% lower in the EU, compared to the U.S. and China, though China seems keen to catch-up by 2025 (the U.S. has not yet announced new targets)

Europe projects even more ambitious targets over the next 10 years, putting the region significantly ahead of the other key automotive markets by 2030

 

Europe’s rationale to press ahead is clear – transportation emissions have been trending upwards for 30 years and passenger emissions contribute about half (45%) of those emissions

However exemplary it may be, Europe’s fight of worldwide climate change will not - and cannot - measure up to the magnitude of the challenge

The rule-based European strategy may effectively do little to counterbalance global trends in transportation emissions,

• expected to grow strongly in emerging markets
• likely to level off slowly in developed markets, such as the U.S.

 

The stringency of the European ruling, rolled out through 2030, and beyond, is a blueprint for a radical transformation of the industrial core of the major European economies, which raises uncomfortable questions

Is the European Union willing to pay the price, as ambassador of climate change, of being 'ahead of the pack' ?

Job losses are bandied around as 'estimates' spread out over a decade, conveniently tweaked to buttress political agendas...until it will be too late

With high probablilty of being massive, unemployment will top governental priorities at some point mid-term, but public awareness and actual conversion schemes are lagging

Competitiveness of the major European manufacturers on global markets is at risk, weighed down by massive capital expenditures, retraining and job termination expenses

 

Green Nirvana it is not, with a long rocky road ahead

For clarity, statistics of electrified vehicles usually account for pure battery-powered electric vehicles (BEV) and plug-in hybrids (PHEV) 

Hybrids (HEV) relying on petrol, diesel or alcohol as primary fuel type and mild-hybrids (mHEV) fuelled by an internal combustion engine (ICE) are not included

 

New registrations of electric vehicles have been on the up in Europe, and spectacularly so

Registration of battery electric vehicles (BEVs) tripled in 3 years from 2019 (359 000 units) to 2021 (1 128 000 units, computed over 4 quarters since Q4-2020)

 

Including plug-in hybrid vehicles (PHEVs), market penetration for electrical cars is even more significant

• 575 000 units (BEVs + PHEVs) in 2019 – 3.5% of new registrations
• 1 420 000 units in 2020 – accounting for 12% of all new registrations
• For the first 3 quarters of 2021), the trend, at the expense of petrol and diesel vehicles, strengthened at 16.2% of registrations
• ...accelerating again in the latest known quarter (Q3-2021) at 9.8% for BEVs and 9.1% for PHEVs – totaling 18.9% of total car registrations 

While the growth rate of registrations for EVs and PHEVs is very encouraging for the most committed ‘eco-warriors’, the yawning gap in adoption rates within Europe is not

According to 2020 data :

• Northern European countries are engaged with very high market shares in Norway (75% of registrations are EVs), Iceland (46%), Sweden (33%) and the Netherlands (28%) 
• The key European markets in volume – Germany (12% EV-PHEV market share), United Kingdom (11 %) and France (10%) – followed by Spain and Italy (5%) – prove significantly less committed
• Eastern European countries - excepting Hungary at 6%)- are much further down with EV shares of 1 - 3%

 

Compared to China and the U.S.,  the European framework is notably more constraining for car manufacturers and more  ambitious 

	Standards for new passenger cars (in g CO2 /km)
	Target			Rate
	2015	2020	2025	2015-2020	20-25
China	167	120	95	-28%	-21%
U.S.	161	128		-21%
EU	130	95	81	-27%	-15%
		"Source - Greenpeace Count to Zero Sept'21

The Greenpeace study, of which the data is excerpted, argues that inconsistent regulations around the world cut manufacturers some slack 

• "carmakers' average emissions from passenger vehicles in the less regulated regions are significantly higher than they are in the stricter ones"
• CO₂ emission regulations and economic fines for non-compliance are not enforced as severely in China and in the U.S. as they are in Europe

Furthermore, comparisons are less straightforward than regulatory CO₂ /km targets suggest

In the EU, targets have been tweaked by flexible compliance mechanisms, such as  a 2020 phase-in provision to reach 95 g CO₂ /km by 2021, a 7.5 g/km super-credit budget for 2020–2022 (already exhausted by 8 out of 10 car makers) and emission "discounts" for heavier (often German) vehicles

CO₂ targets of manufacturers such as Toyota or Volkswagen have been impacted in the U.S., China and the EU by the growth of SUV sales, a global trend in consumer demand, putting SUVs in the unenviable position of second largest contributor to the increase of CO₂ emission sincz 2010, after the power sector (source IEA, 2019)

 

To actually fall in line with the 95g target in 2021, manufacturers operating in the EU will have to achieve an approximate reduction of 10 g/km

As turned out to be the case in 2020 with a spectacular increase in market penetration of EVs (+ 250% over 2019), the manufacturers may expect to comply by further electrifying their fleets, averaging out the emissions of the older vehicles of their fleets

With registration of EVs for Jan.-Sept. 2021 up approx. 40% over the previous year, the target set by EU regulators could be within reach

 

As early as 2023, the balance between industrial transformation and environmental goals remains much more uncertain

A 15% reduction in emissions within 5 years (2025) and a 37.5% reduction by 2030 (already enacted in EU regulations) will impact jobs dramatically along the entire supply chain

A 55% reduction by 2030, pencilled in a blue print of Green EU projects and "upping the ante" dramatically, implies a definitive shift to 100% electrification

 

As we will discuss in follow-up notes, environmental policies are no betting game, raising the stakes with demanding CO₂ targets again and again

Regulators will have to confront the hard part rather soon, with more questions

• how the job losses will be compensated, not only at global car assembly lines but along the entire upstream (car part manufacturers) and downstream (garage services) supply line
• how training of an older workforce in entirely new jobs (where the competitive edge of younger employees will be harsh) is envisioned
• to what extent EV imports (from China) will limit the potential of European car makers, and what to do about it 
• how much longer EV sales need to be supported by  public purse (directly or indirectly)
• if the car buying consumers will accept to trade in their trusted vehicles, once public support is phased out and considering the low adoption rates in large parts of Europe

 

In Car-tomancy 101, we hope to shed some light on projected job losses along the automotive value chain, where statistics are apparently as steadfast as the lurching swagger of a drunken sailor