Carbon labels – an automaker’s road to net zero

Carbon labels in vehicles

Amid rising climate advocacy, carbon labels can become a key component of automakers’ net zero strategies.

Have you noticed a green leaf on Google Maps navigation? A couple-years old feature, this marker indicates to the commuter the most energy-efficient route among all alternatives.

It is a great example of how the consumer is empowered to take decisions based not just on cost and time, but also the environmental impact. It is also important to remember that  the COP27 goal to limit global warming is at 1.5° Celsius and tailpipe emissions account for about 15% of total global CO2 emissions.

This got us thinking about the cradle-to-grave emissions of a car, and most importantly, the cradle-to-showroom emissions. The latter starts from the extraction and transportation of raw materials, manufacturing of components, assembling the cars, to finally transporting them to the dealer showrooms.

Challenges along the way

Putting carbon labels on vehicles is not an easy task.

Will a potential car buyer be interested to know the cradle-to-showroom carbon label of one car versus another when deciding which one to buy? Today, maybe not; but definitely in the near future.

We have a precedence in the food industry where carbon labelling is becoming popular and expected to be a key factor in a buyer’s purchasing decision. Some restaurants, for example, have started putting the climate footprint per kg against the items on their menu. Swedish food company Oatly and UK’s meat substitute brand Quorn have carbon labels on their products.

Automakers, however, have three main challenges in the carbon label journey. The first is the complexity of the automotive supply chain. Executives mostly struggle to gain complete visibility of their supply chains owing to the globally dispersed network of thousands of parts spanning across multiple tiers of suppliers.

Second, the transition to electric vehicles (EVs) from internal combustion engines (ICE), along with the push toward connected and autonomous vehicles (CAVs), is leading to a rapid evolution of the supply chain network, with newer players and sources of material coming in.

The final challenge pertains to the reporting requirements of emissions. A company’s greenhouse gas (GHG) emissions are classified into three scopes. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect ones from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. While Scope 1 and 2 emissions are mandatory for a company to report, Scope 3 – which accounts for more than 70% of the carbon footprint – is mostly optional as suppliers are not mandated to share their data with the original equipment manufacturers (OEM). This leaves a gaping hole in the process and makes it difficult to measure supply chain emissions. 

Measure emissions better

Climate goals are one of the top priorities of automakers for the last decade.

A typical passenger vehicle in the US emits about 4.6 metric tons of carbon dioxide per year, which is just tailpipe emissions data. And this number would go up substantially if we were to account for carbon emissions from a car’s entire life cycle. Here are a few pointers on how OEMs can drive the measurement of cradle-to-showroom emissions to lead the change toward carbon labelling and Scope 3 emission reporting:

Establish the foundation – This covers the identification of relevant categories of emissions for the OEM, including the 15 categories of Scope 3 emissions outlined in the GHG Protocol. An exploratory screening process with high-level data, which is data at an aggregated or approximation levels, can help establish the GHG contribution in each of the categories and prioritize data collection. Separate calculation methods can then be used for calculating emissions for each activity based on data availability, quality, costs involved, relevance, and size of emissions.

Ensure completeness first, refine later – Work with an agile mindset, use appropriate approximations or secondary data for the identified data gaps and strive to build a complete picture. Transparency is the key to stakeholder confidence and data quality improves as companies report those numbers year after year, fixing issues which may have gone unnoticed in the previous cycles. 

Leverage supply chain visibility and resilience initiatives – This includes leveraging frameworks from initiatives that were started by the OEMs during the post-pandemic semiconductor shortage aimed to identify car components with semiconductors and establish visibility of the Tier N suppliers.

Bring in the ecosystem play to co-create:

With key component suppliers – Establish a shared vision with an operating model of shared ownership to track, manage, and communicate data on the emissions. This would enable a common understanding of each other’s data along with a view of the outcomes and incentives to drive the collaboration. Early success stories with one supplier can help onboard other suppliers.

With start-ups – Accelerate the journey by leveraging startups that have solutions for Scope 3 reporting rather than starting from ground zero. Build quick proofs of concept (PoCs) and fast-track experimentation.

With other ecosystem players – Engage with the wider ecosystem, including environment disclosure platforms such as CDP (formerly known as the Carbon Disclosure Project) and forums promoting co-innovation like Innovate UK and The Catapult Network.

Embrace new technologies – Use blockchain to improve data trust and traceability, graph technologies for supply chain network visibility and intelligence, AI-ML for data imputations, and cloud for solution hosting.