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Carbon pricing, cars and carmakers

Every day, Thomson Reuters touches millions of automobile aficionados around the world, including people who design vehicles, regulate their safety, invest in automakers, provide tax advice to them, sue and defend manufacturers and suppliers, and, in the case of the 2015 Frankfurt Auto Show which is currently underway, marvel at the sleek lines, speed and agility of the concept cars that offer unique and wonderful views of a future of which we all want to be a part. In the next few days were running a series of blog posts that will provide glimpses into the professional lives of our customers touching the auto industry, through proprietary data, insights and expert analysis that only Thomson Reuters can deliver.

Emissions have been one of the hot topics this week at the Frankfurt Auto Show, right alongside the newest concept cars. Volkswagen AG’s disclosure that it provided inaccurate data to the EPA and other regulators on its diesel engine emissions has moved the markets and made news. The world’s largest automaker ordered its US dealers to immediately halt sales of diesel-powered cars and Martin Winterkorn resigned as CEO.

But the emissions footprint of automakers extends beyond the tailpipes of its cars. Automobile manufacturing itself is a carbon intensive industry, both through its use of materials like steel and aluminum, and the consumer use of its vehicles which are largely fueled by fossil fuels. It’s hard to imagine, but the world currently has 1.2 billion vehicles, and that will grow to 2.0 billion in 2035 according to one forecast.

Carbon pricing – assessing a cost per unit of carbon emissions – is currently being considered or implemented in several forms around the world, including carbon taxes and so-called “cap-and-trade” arrangements. It is emerging as a useful tool for managing the total carbon emissions associated with an industry by encouraging or incentivizing reductions. The Thomson Reuters Sustainability blog together with BSD Consulting and with the help of the Thomson Reuters ESG (Environmental, Social & Governance) database will publish a new report on carbon pricing in October, which details how companies can use a carbon price to lower greenhouse gas emissions and their operational, reputational and regulatory risk.

A preview of the coming report shows that just one1 of the world’s three leading automakers has currently disclosed a carbon price – General Motors (GM). GM and Volkswagen recently declared significant annual emissions of, respectively, 327 and 330 million tons in Fiscal Year 2013, and of those, 97% were Scope 3, which come from their supply or value chains, e.g. from either the use of vehicles or purchased goods and services. (See below2 detailing definitions for direct and indirect emissions).

The use of a carbon price by the automobile industry can have a significant impact on emissions by adding incentives for automakers to consider the price and risk of carbon as part of their capital investment decision making process. In this schema, higher carbon vehicles essentially equate to greater risk for the business due to regulatory and reputational factors. The current news with emissions measurement and tampering is a case in point. A well-implemented carbon pricing scheme favors lower carbon-intensive vehicles (i.e. hybrids, electric, natural gas and hydrogen fuel cell) compared to relatively heavy, high consumption petrol-fueled trucks and cars. A realistic carbon price of at least $40/ton would also affect the materials and supply chain used in constructing vehicles in terms of how and where parts are sourced, with a bias towards less carbon-intensive sources.

The complete report, “Carbon Emissions & Pricing on the Horizon” by John Moorhead and Tim Nixon, will examine carbon pricing issues across the Top 50 Global Companies, and will be published in October at

1. CDP’s recent report indicates that General Motors is using a carbon price of $5/ton;

2. The Greenhouse Gas (GHG) Protocol defines direct and indirect emissions as follows:

  • Direct GHG emissions are emissions from sources that are owned or controlled by the reporting entity.
  • Indirect GHG emissions are emissions that are a consequence of the activities of the reporting entity, but occur at sources owned or controlled by another entity.

The GHG Protocol further categorizes these direct and indirect emissions into three broad scopes:

  • Scope 1: All direct GHG emissions.
  • Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat or steam.
  • Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc.
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