The road to carbon neutrality entails a significant shift in sourcing and production strategies for automakers and their battery suppliers.

The transportation sector's objective to curtail greenhouse gas emissions has evolved beyond merely addressing emissions during vehicle operation. The focus has broadened to encompass a life cycle assessment perspective, spanning the extraction of minerals used in vehicle production to the recycling process. This comprehensive approach aims to assess and manage GHG emissions at every stage of a vehicle's life and acknowledges the environmental impact from raw material extraction to end-of-life considerations.

The elephant in the room in this quest is the electric vehicle battery supply chain. A new forecast by S&P Global Mobility shows that battery cells account for 43% of the total carbon footprint of materials used in an EV. The research identifies that, in the cell's overall carbon footprint, cathode active materials account for the highest portion of the overall cell carbon footprint at 58%, followed by anode active materials and cell assembly at 14% each. Additionally, the research shows that lithium iron phosphate chemistries have a higher overall carbon intensity than nickel cobalt manganese chemistries. This adds another dimension to portfolio management since some original equipment manufacturers turn to lithium iron phosphate as a low-cost, higher-volume solution. The forecast covers the CO2 equivalent for cathode active materials, anode active materials and battery cells from a cradle-to-gate perspective.

Evolving regulatory requirements

The regulatory winds of change are also gathering around battery carbon accounting. The European Council adopted a new battery regulation that strengthens sustainability rules for batteries and waste batteries. The new rules aim to improve the internal market for batteries and ensure fairer competition through safety, sustainability and labeling requirements, which include mandatory information on the carbon footprint of batteries. The new rules require battery manufacturers selling in Europe to calculate and report the total carbon footprint from the battery life cycle, starting July. This data will be used to set a maximum CO2 limit for batteries produced and sold in Europe in 2027.

China, which has one of the highest emissions per kilowatt-hour of battery produced, implemented its GB/T 34014-2017 regulation; this assigns a mandatory traceability code involving carbon footprint information for EV traction batteries throughout their life cycle. The Japanese government is also said to be preparing mandates for EV-makers in the country to calculate and report CO2 emissions from the production of batteries from 2024.

Regional advantage

Europe has the lowest CO2 emissions per kilowatt-hour, mainly due to the high percentage of renewables in its energy mix. China, which will likely continue being the biggest battery manufacturer, is also taking the initiative to switch to renewable sources, prompted by the GB/T 34014-2017 regulation. Our forecast indicates that Chinese initiatives, marked by the implementation of GB/T 34014-2017 will help bring China's battery carbon footprint during battery assembly below the global average by 2026. Average CO2 emissions for battery assembly in Greater China are expected to drop to fewer than 5 kg/kWh in 2030 from 12.59 kg/kWh in 2022, a marked improvement that will put the region back on the competitive front foot. China's progress in just a few years is stark; the country is expected to race ahead of Japan and South Korea, while North America's progress will be much more measured.

The carbon neutrality of an OEM is directly affected by the carbon footprint of its battery value chain. Our data indicates that OEMs with a higher dependency on Europe for battery production are expected to have much lower carbon intensity than the global average in 2030 compared with the current scenario. However, there are substantial regional variations in the carbon emissions associated with OEMs' battery cells. In Europe, cell manufacturers are actively working to diminish their carbon footprint, contributing to the broader objectives of OEMs.

What's the opportunity cost?

A regulatory shift is making it necessary for OEMs to evaluate the sources of GHG emissions in their supply chains and industrial sites. Many have started including climate requirements in their component purchasing agreements, with an eye on capturing cradle-to-gate emissions. Automakers' carbon-reduction targets will heavily depend on the efforts of their battery suppliers, especially in key areas such as raw materials sourcing, process innovations and the use of renewable energy in cell manufacturing.

S&P Global Mobility's research reveals that if the battery manufacturing industry can execute planned steps to achieve carbon neutrality according to their respective targets, the carbon footprint could be reduced by 31%, or about 79 million metric tons of CO2 equivalent emissions, by 2030. The estimate is based on a forecast of battery cell production increasing from about 537 GWh in 2022 to 3,363 GWh in 2030. On a per kilowatt-hour basis, CO2 emissions are expected to be reduced to 52 kg/kWh in 2030 from 75kg/kWh in 2022.

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