Navigating Carbon Challenges: The Automotive Industry’s Path to a Green Future

Introduction: In today’s global wave of green development, the automotive industry stands at a critical juncture. Faced with increasing carbon emission challenges, the industry experiences significant transformation pressures while also encountering unprecedented development opportunities.

Starting January 1, 2025, the European Union (EU) mandates that the average carbon dioxide emissions from new cars sold in the region must not exceed 93.6 grams per kilometer. Additionally, the introduction of the EU’s Carbon Border Adjustment Mechanism (carbon tax) signifies that legislation on carbon tariffs has been formalized, which may impact complete vehicle products. These carbon emission restrictions by the EU also influence Chinese automotive companies, presenting both opportunities and challenges. To thrive in the EU market, Chinese manufacturers must adapt to relevant policies and regulations through technological innovation, environmentally friendly research and development, and market expansion. Moreover, the EU’s push for sustainable development and new energy vehicles opens more business opportunities and growth potential for Chinese companies.

EU Automotive Carbon Emission Regulations: In 2025, the EU set new targets for the automotive sector, aiming for a 15% reduction in average carbon emissions for new passenger cars compared to 2021, achieving an average of 93.6 grams per kilometer. With the exception of Volvo, all major manufacturers must reduce their carbon emissions to meet this target. For instance, Volkswagen and Ford may need to increase their battery electric vehicle (BEV) share by 17 to 18 percentage points. The primary aim of these revisions is to strengthen emission reduction goals further. Additionally, on April 10, 2024, the EU Parliament approved a mandatory target of 90% reduction in CO2 emissions for new heavy-duty vehicles by 2040, marking significant progress in reducing emissions from heavy-duty trucks. According to the latest regulations, manufacturers must gradually introduce cleaner vehicles to the market or face penalties. Compared to 2019, the average CO2 emissions from new heavy-duty trucks must decrease by 43% by 2030, 64% by 2035, and 90% by 2040. Urban buses will undergo a more rapid transformation, with zero-emission vehicle sales needing to reach 90% by 2030, and the sale of fuel-powered buses will cease entirely by 2035. This regulation is notably more stringent than any previous EU regulations and broadens the types of vehicles included in management, marking a solid step towards establishing world-class climate management regulations for heavy-duty vehicles.

Carbon Footprint Assessment Methods for Automotive Products: The quantification of carbon footprints in automotive products typically employs a lifecycle assessment (LCA) method. The functional unit is generally defined as the transportation service provided by a vehicle over its lifecycle for every kilometer driven, with a lifecycle distance commonly set at 150,000 kilometers. The lifecycle system boundaries of a vehicle include various stages: supply chain, internal production, usage, transport, and end-of-life recycling. Specific processes included in each stage are as follows:

• Supply Chain Stage: This encompasses raw material extraction, material smelting, and the manufacturing processes of components.
• Internal Production Stage: This involves stamping, welding, painting, assembly, and energy supply processes.
• Usage Stage: This includes indirect emissions from fossil fuel production, direct emissions from fossil fuel combustion, and emissions from maintenance activities involving battery, tire, and fluid replacements.
• Transport Stage: This covers the transportation of vehicle parts/materials from upstream suppliers to the assembly plant and the transportation of complete vehicles from the assembly plant to downstream dealers.
• End-of-Life Recycling Stage: This includes energy consumption during vehicle dismantling and crushing, as well as the environmental burdens associated with recyclable materials.

Among these stages, the usage phase is the primary source of emissions throughout the vehicle’s lifecycle. Traditional fuel vehicles generate approximately 75% of their lifecycle carbon emissions during the usage stage, while electric vehicles (including plug-in hybrids and pure electric vehicles) reduce emissions during this phase to 50% to 65%, showcasing their significant reduction in carbon output. The supply chain stage of raw material production accounts for the second-largest emissions source, representing about 20% to 50% of total lifecycle emissions. Thus, accelerating the electrification of vehicles and reinforcing carbon reduction in raw materials are effective strategies for companies aiming to implement emission reductions.

How Companies Can Address Challenges:

1. Conduct Lifecycle Assessments (LCA): The revised EU legislation specifies that by the end of 2025, a comprehensive automotive lifecycle assessment method will be established. Starting January 1, 2026, automotive manufacturers in the EU may voluntarily submit lifecycle carbon emissions data for newly registered passenger cars and light commercial vehicles. Although the EU currently does not require foreign imported manufacturers to disclose lifecycle carbon emissions data, domestic companies should prepare for such calculations as LCA becomes more prevalent across industries. The “14th Five-Year Plan for Circular Economy Development” highlights the management of the entire lifecycle of vehicles as one of six key actions in the circular economy sector during this period, indicating that LCA will gradually gain importance.
2. Accelerate Electrification and Focus on Developing New Energy Vehicles: As emission reduction policies tighten, traditional coal-powered vehicles, due to their serious exhaust emissions, have progressively deviated from the emission reduction path. Major automotive companies must promote the transition to new energy vehicles, expediting decarbonization efforts. According to data from the International Energy Agency (IEA), automakers globally are rapidly increasing electric vehicle production, with rising inventories of BEVs (Battery Electric Vehicles) and PHEVs (Plug-in Hybrid Electric Vehicles) in China, Europe, the United States, and other regions. The State Council’s “New Energy Vehicle Industry Development Plan (2021-2035)” emphasizes the development of pure electric vehicles, plug-in hybrids (including extended-range vehicles), and fuel cell vehicles as key components, while focusing on breakthroughs in core technologies and enhancing the market competitiveness of new energy vehicles. The electrification of vehicles is a crucial trend for future development, and companies must quickly strategize their decarbonization pathways and investment in new energy vehicle research and development.
3. Enhance Supply Chain Management to Reduce Carbon Emissions from the Source: Effective carbon reduction in the automotive industry requires a systematic approach across all supply chain levels. As the industry shifts toward electric vehicles (EVs), emissions during the usage phase have decreased; however, the energy consumption and emissions associated with manufacturing automotive materials (such as steel and tires) are increasing. When electric vehicles become widely adopted, emissions from the production of materials (including steel, plastics, and batteries) could account for 45% to 85% of total lifecycle emissions, especially since the carbon emissions generated during battery production make up roughly 50% of the supply chain share. Several automakers have already set lifecycle emission reduction targets and imposed carbon disclosure and reduction requirements on upstream suppliers. Therefore, companies should quickly identify key raw material and component suppliers, strengthen carbon reduction management within their supply chains, build a green ecological supply chain, and enhance source-level carbon reductions to promote lifecycle carbon reductions.

AMT Carbon Management Platform: The AMT Carbon Management Platform offers a digital solution for the automotive industry, providing a one-stop carbon management service to facilitate the green transformation of automotive manufacturers (including complete vehicles and components). The platform accurately identifies production nodes with high energy consumption and emissions, establishing a dynamic carbon emission monitoring mechanism to help companies pinpoint critical reduction areas. By employing intelligent data collection technology, the platform compiles key information such as component production data and energy consumption records in real-time, automatically generating carbon footprint reports for enterprises and products. For new energy vehicle companies, the platform supports comprehensive carbon management across the lifecycle of vehicle batteries, from mineral extraction to recycling, particularly emphasizing the tracking of carbon emissions from upstream raw materials to ensure compliance with EU battery regulations.

Conclusion: Currently, most companies have only committed to achieving carbon neutrality at the “operational level,” while the path to carbon neutrality across supply chains and the entire industry remains long and challenging. Additionally, the methods and data collection for carbon accounting in domestic automotive companies are relatively weak. For the complex lifecycle of vehicles, how to account, monitor, and trace the carbon footprint information of both complete vehicle manufacturers and supply chain companies, as well as integrating upstream and downstream data in the industry chain and updating factor databases in a timely manner to meet supervision, regulatory requirements, and compliant carbon information disclosure, is a common challenge faced by the entire automotive industry chain. Undoubtedly, in the context of accelerating decarbonization and achieving carbon neutrality, the upgrade of the automotive and related industry chains is imperative. The transition towards “net-zero emissions” is unstoppable, and market competition will intensify, with EU automotive industry carbon emission standards providing a complex and challenging environment for Chinese automotive companies. For the automotive industry, reducing carbon emissions is not only a challenge and responsibility but also an opportunity.