Greenify #50: Autos and transport, a turning point?
February 17, 2023
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📌 Fact of the week
The G20-backed International Sustainability Standards Board on Thursday approved the first global company sustainability rules.
Hottest news of the week…
Regulation 🗃 – ICEs, is it officially over?
What happened: This week, two news came out on European regulations regarding road transport emissions. The first one, fairly expected, is that the European parliament has officially signed a deal which requires car makers to become carbon neutral by 2035 and bans the sale of Internal Combustion Engine (ICE) vehicles by the same year. The second one, less expected, is the EU proposal to cut bus and trucks’ emissions by 65% across the same time span and by 90% by 2040, a plan that left many disappointed.🤔
Zoom out: Road transport is responsible for ~12% of global GHG emissions and 20% of the European emissions, hence we are not talking peanuts here. We will briefly discuss the proposal for trucks; for more detail on the ICE vehicles’ sales ban, read our “Comment of the week” below. The common belief is that heavy road transport is a difficult sector to decarbonise, as you need giant batteries to move heavy trucks and hydrogen technologies do not seem to gain real momentum. That is probably why, despite trucks and buses account for ~50% of the total ~12% of road transports’ emissions, regulators decided to propose softer regulations for the time being. However, as Bas Eickhout (a green MEP) pointed out, if we go so slow with bus & trucks, who knows how long it will take to decarbonize ships and planes, a more challenging sector.⏲️
Business 💰 – The IRA effect ft. Ford
What happened: Ford Motor Co has announced its plans to invest $3.5 billion to build an electric vehicle battery plant in Michigan. It will partner with Chinese company CATL, who will license technology to Ford to produce batteries in the U.S. as well as providing technical assistance. The plant, which should come online in 2026, targets to supply enough batteries to power 400,000 EVs per year. 🚗
Zoom out: Three very interesting points in our view. 1) The IRA seems to be working. In Ford’s management own words, the IRA “was incredibly important” to Ford’s decision to establish manufacture in the U.S., as generous incentives can propel the company towards its 8% margin ambitions on EV operations. 2) The announcement comes at a time when diplomatic relations between the U.S. and China are at historical lows, and we would be curious about what the Chinese government thinks about CATL’s role in America’s reshoring efforts. 3)Ford’s plan also coincides with another interesting news, as Tesla has recently agreed to make 7,500 of its chargers available for all electric vehicles by the end of 2024. 🔋
Innovation 💡 - Recycling renewables
What happened: Wind turbine manufacturer Vesta announced it has found a way to recycle plastic used in wind turbine blades. Epoxy, the type of plastic used in wind turbines, is known as “thermoset plastic” due to its ability to withstand extreme conditions. The process works first by separating epoxy from other materials forming the blade, such as glass and carbon fibers. After that, epoxy is then broken again into its chemical components, ready to be reused in the manufacture of a new blade. 🌪️
Zoom out: Plastic waste is one of our planet’s biggest problem. Of all the plastic consumed, only 9% gets recycled, with the vast majority, 79%, ending up in landfills. Vestas technology, which would allows massive savings on landfill plastic, however, has yet to be tested at industrial scale. Additionally, there are questions on the amount of times epoxy can effectively be recycled; with wind turbines’ averaging 20 years of life, it would be interesting to evaluate how many years of plastic savings would recycling warrant. For more info, click the link! ♻️
Deep dives of the week…
Chart of the week - Heat pumps, exponential growth?
This week, we borrow Azeem Azhar’s chart of the week showcasing sales of heat pumps across different European countries. For those less familiar, heat pumps are heating systems which run on electricity, hence more environmentally friendly than traditional gas boilers. On top of the environmental side, heat pumps also help to save on ongoing energy consumption and costs, provided they are: a) well installed and suited for the building, and b) electricity prices are not too prohibitive vs. gas prices. In recent years, we have seen a big spike in heat pump sales: although the increase was initially driven by government subsidies, we think the war in Ukraine has played a significant part in the most recent uptake, as gas prices skyrocketing through 2022 supported heat pumps in becoming increasingly more convenient.🚀
Source: Exponential View, Azeem Azhar
Company of the week - NextTracker, a solar IPO!
Nextracker, leader in solar trackers production, i.e. instruments that enable solar panels to follow the sun as it moves, just landed on the Nasdaq under the ticker symbol “NXT”. Solar trackers can increase output by up to 1/3, with some companies claiming a 40% higher output in some regions! The company has grown rapidly in the past few years thanks to the boom of solar installations, which went from ~40 GW installed in 2013 (year the company was founded) to the ~200GW installed in 2022. The IPO allowed the California-based company to raise $638 m, reaching a valuation of $3.5B, slightly higher than what previously expected! ☀️
Comment of the week - What we think about banning ICE vehicles’ sales by 2035
We believe the argument should be split in two: a GHG emission perspective and an economic one.
GHG emission perspective: This one is the easy topic – there is no doubt that EVs are what we need to decarbonise the automotive industry. It has been proven ages ago, and the graph below by the IEA could solve your final doubts if you are still unsure. Yes, this does not change when taking into account the undeniable obstacles around the mining of critical materials for batteries. Innovation in battery manufacturing, materials sourcing, and battery recycling will help us overcome existing obstacles.👍
Economic perspective: Now onto the more controversial topic, what will be the impact on the European economy? Will this ban create massive deindustrialization in European countries? Let’s start from some certainties:
China is the undisputable leader across almost every step of the battery value chain, so we expect European car manufacturers will be forced to try and learn or alternatively have Chinese technologies licensed to them.😬
12-years is an enormous time span, if used well. In 2011, only ~60k EV were registered worldwide, compared to the ~7.5m estimated in 2022. Probably back in 2011 no one would have expected EV manufacturing capacity could do a 110x in 12 years. Let’s not forget that this was achieved with no particular regulatory pressure on the back of manufacturers, so why doubt of their capacity now that they have another 12 years and regulation is forcing them to shift? 💪
The risk of deindustrialization and a big wave of unemployment in the sector can only be fully mitigated by public investments. Look at what the Inflation Reduction Act (IRA) has brought in the US, the tax incentives for both manufacturers and buyers of EVs will probably lead to a boom in the industry and every week we hear of multi-billion investment from car makers in the US, most recently Ford, as discussed in our “Business” news. 💸
Therefore, in the writer’s opinion, the regulation is painful but needed.
As the IPCC (the most authoritative body studying climate change) tries to remind us in every report, it is not enough to cut emissions at some point along the road, we need dot cut them ASAP if we want to reverse global warming . Therefore, European manufacturers, consumers, and other stakeholders should call for large public investments to build a real local EV supply chain rather than waste time arguing whether EVs are the right solution…🤷♂️
Source: IEA
👋 See you next Friday, for the best sum up of this coming week!
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Awesome article 🙌🌍