Car Companies and Climate Change: Measuring the Carbon Intensity of Sales and Profits
Carbon dioxide (CO2) emissions from automobiles and light trucks are a major contributor to climate change, particularly in the United States and other industrialized countries. In producing different vehicles for different markets, automobile manufacturing companies vary substantially in the amount of carbon emissions that come from their products. Some auto companies rely heavily for sales and profits on vehicles that emit relatively high amounts of CO2, while others derive the bulk of their profits from vehicles that are less carbon-intensive.
This feature will compare the “carbon intensity” of the 10 leading auto companies (BMW, DaimlerChrysler (DC), Ford, GM, Honda, PSA (Peugeot Citroen), Renault, Nissan, Toyota, and VW) by measuring the CO2 emissions associated with their current sales and profits. Not only is the carbon intensity of each company important for determining the amount of CO2 emissions that enter our atmosphere, it is also an important metric for determining a company’s future financial performance. The carbon intensity of a company’s vehicles will influence the company’s ability to compete in the growing number of auto markets that have fuel economy or CO2 emissions requirements.
How do cars and trucks contribute to climate change?
While CO2 emissions arise at nearly every stage of a motor vehicle's life—including extraction of raw materials and manufacturing of component parts—it is the combustion of gasoline and diesel fuels during vehicle use that accounts for the greatest share of vehicle-related CO2 emissions. (See Figure 1.)  |
Consequently, emissions from vehicle use are where effective climate policies are most likely to focus and where auto makers have the greatest scope to establish a competitive advantage over their rivals. While CO2 emissions can be reduced at the assembly stage—as some companies are showing—potentially much greater reductions are possible in the “use phase.” For example, a 5 percent reduction in use phase emissions per vehicle on a 1996 Toyota Camry rated at 28 miles per gallon will save 3.75 metric tons of CO2 over the vehicle’s lifetime—3 metric tons from avoided gasoline combustion and 0.75 metric tons from avoided fuel production. A 5 percent reduction in assembly-related emissions will save only 0.1 metric tons of CO2 per vehicle.
Figure 1 is also revealing of the different approaches taken by regulators around the world. Climate-related policies in the European Union, Japan, Canada, Australia and California have targeted the 94 percent of emissions directly or indirectly associated with vehicle use by regulatingboth fuel production and vehicle use. In contrast, the US Administration’s voluntary climate program encourages automobile manufacturers to reduce assembly-related emissions that make up just 2 percent of overall life-cycle emissions.
Why do automotive companies have different carbon intensities?
The following five factors influence the carbon emissions associated
with auto companies:
- The three main automotive markets demand different vehicle types. Regional differences in government regulations, demographics, transport infrastructure and consumer preferences create differential demand in the various markets. (See Figure 2.) For example, in Europe and Japan, high fuel prices and smaller, more congested roads result in a strong consumer preference for small and midsized vehicles. In the United States, a greater share of light duty vehicle sales is made up of larger vehicles, including SUVs and pickups.
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- Auto companies' sales are differently distributed across the three main markets. For example, PSA's sales are exclusively in Europe while the primary market for DC, Ford and GM is the United States. The Japanese companies are heavily invested in both Japan and the United States. (See Figure 3.)
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- Auto companies produce different mixes of vehicles. With different geographical focuses, automobile manufacturers concentrate on different vehicle segments. Nearly half of the vehicles that the US-based auto companies sell are light trucks, such as minivans, SUVs and pickups. In contrast, cars make up more than 90 percent of sales for PSA, VW and BMW. (See Figure 4.)
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- CO2 emissions rates vary across segments according to vehicle size and weight. The global average CO2 emissions rate for a midsized car was 198 g CO2/km (28 mpg) in 2002, while the average SUV emitted more than 300 g CO2/km (less than 18 mpg). (See Figure 5.) On average, the emissions rates of SUVs and pickups are approximately twice those of subcompact and compact vehicles.
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- CO2 emissions rates can also be substantially different within segments. Emissions rates for midsized cars vary by 50 percent across automobile manufacturers and by 40 percent for SUVs. Within the SUV segment, Ford and GM's models are currently the most carbon-intensive, while Nissan, Toyota and Honda produce SUVs of lower than average carbon intensity. Some of this difference is due to the greater concentration of the former auto companies in the full-size SUV market, and may change as the latter release larger and heavier SUVs.
How Is Carbon Intensity Measured?
Carbon Intensity of SalesGiven the above factors, vehicles sold by automobile manufacturers in 2002 exhibit markedly different average CO2 emissions rates. In other words, companies had different “carbon intensity of sales,” which is one way to measure a company’s carbon intensity. (See Figure 6). Virtually all of PSA’s sales consist of vehicles whose carbon emissions are less than 200 g CO2/km (greater than 27.5 mpg). In contrast, DC, Ford and GM are the main sellers of high carbon-intensity vehicles.
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Not all of the difference in carbon intensity of sales is due to the concentration of auto companies in different markets. For example, DC and Ford are among the top four automobile manufacturers by vehicle carbon intensity in all three markets. (See Figure 7.) Similarly, Honda's and Nissan's fleets have below average carbon intensity in all three markets.
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Carbon Intensity of Profits
Because some segments of the vehicle market are more profitable than others, the carbon intensity of profits differs from the carbon intensity of sales. However, attributing profits to market segments is complicated by the large fixed costs in the industry and by significant general expenditures on such things as R&D and advertising.
Using profit figures obtained from leading financial institutions
and the CO2 emissions rates of the different segments, we can illustrate
the relative carbon intensity of profits. (See Figure 8.) Again,
PSA and Renault are least dependent on more carbon-intensive vehicles
to generate profits, but Ford and GM derive more than three quarters
of their profits from high carbon-emitting vehicles, because their
profits are disproportionately attributable to light truck sales.
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The assessment in this feature is a “snapshot” of where automobile manufacturers find themselves today. Naturally, data on current sales and fuel economy only indicate the current status of where companies are—not how they can, and will, respond to climate change or fuel economy regulations. However, measuring a company’s carbon intensity provides insight into how they will be positioned to compete in an increasingly climate conscious global marketplace.