Automakers are vastly underestimating their emissions. Here's what to do about it

With the advent of policies such as the European Union’s corporate sustainability reporting directive (CSRD), set to be phased in over a four-year period beginning in 2025, businesses across all industries are preparing to report on their emissions as never before. A crucial pillar of such policies is the normalization of reporting on Scope 3 emissions — those not directly linked to a company’s operations.

For auto manufacturers, the new requirements have highlighted an alarming amount of emissions previously unknown to much of the general public and investors alike.

“About 98 percent of the total emissions of a car manufacturer are only captured when Scope 3 emissions — primarily the use of cars — are included,” according to a 2022 report by the European Federation for Transport and Environment . 

These are not small numbers. 

Toyota, Volkswagen and Stellantis (the former Fiat-Chrysler) together are responsible for more than the combined emissions of the U.K., France and Italy, according to research published by global think tanks Carbon Tracker and Nomisma (Italian) in January.

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Source: Nomisma/Carbon Tracker

Meanwhile, in 2022, Toyota emitted 576 million tonnes of CO2, 99 percent of which came from Scope 3, with the use of its vehicles accounting for the bulk. By comparison, oil and gas giant BP emitted 340 million tonnes of CO2 across all scopes in the same year.

Reversing this tide will require deep social and economic changes that automakers have ittle control over. But there are three simple things that car companies can do, today, to get started. 

1. Close the reporting gap

Until we have an accurate picture of automakers’ direct and indirect emissions, bringing them down and investing money in the right places is impossible.

The first thing that needs to happen is a reduction in the gap between what car companies report as their emissions and what independent analyses show they are, according to Ben Scott, head of automotive at Carbon Tracker. 

“Some companies are using methodologies that aren’t, perhaps, representative of vehicle lives, as in how many miles they’re actually driven in their entire life,” Scott says.

Carbon Tracker estimates that the average carbon gap (between declared and independently estimated emissions) is 27 percent. 

Yet that figure hides some significant variability, with companies such as Ford and Stellantis accurately reporting emissions (and even over-reporting), while Honda’s independently estimated emissions are 172 percent of what the company declared. 

“So what our analysis is showing is that, actually, any kind of carbon reporting or carbon accounts you’ve done up until this point are basically worthless,” said Scott. “It’s not really worth the PDF it’s saved into.” 

2. Electrify faster

“It’s been very difficult for the incumbent manufacturers to transition,” Scott said. “They’re effectively merging two asset bases. One is producing internal combustion engine cars, which are highly profitable; the other is EVs, which are a relatively new technology and not as profitable.”

Companies have a fiduciary duty to maximize profits for shareholders, and so in the short term bringing EVs to market is a balancing act of reducing emissions while reaching  financial targets. 

The success of companies such as Tesla and BYD, however, shows that an all-electric model can be lucrative.

“Pivoting to being 100 percent EV manufacturers is an option,” Scott said. “The Tesla Model Y is one of the top selling cars, not just EVs, in the world, and that’s because they don’t have to worry about their legacy business.”

Despite this, companies such as Toyota are still refusing to commit to an all-EV future. Toyota chairman Akio Toyoda described the approach as “multi-pathway,” focusing instead on hybrids and the future possibility of hydrogen fuel-cell vehicles.

The Science Based Targets initiative, to which Toyota was a signatory, has updated its guidance for automakers: “Now, when setting science-based targets, automakers should also commit to the international Zero Emission Vehicles (ZEV) Declaration and pledge to work towards the phase out of new Internal Combustion Engine (ICE) cars and vans by 2035 in leading markets, and globally by 2040.”

Under that framework, any automaker banking on a hybrid future will no longer be validated by SBTi when the time comes for a target review.

With the prices of EVs for consumers the cheapest they’ve ever been and new tailpipe emissions legislation from the Biden administration in the pipeline, automakers are faced with a tough choice: stay with their hybrid, incremental approach, or commit to an all-electric future.

3. Don’t dump old cars on emerging economies

For consumers in developed nations, trading in an ICE car for a newer electric or hybrid model feels like an environmentally responsible decision. But what happens to that car when developed markets no longer want it? 

Many of those old cars are sent to emerging markets, according to Matteo Craglia, co-author of New but Used: The Electric Vehicle Transition and the Global Second-hand Car Trade, a December 2023 report from the International Transport Forum. “Conventional vehicles that are sent to emerging markets are often poor quality, old, unsafe, and produce lots of air pollutants,” writes Craglia.

Nine out of every 10 cars purchased in Norway are electric, which is great news for Norwegians, but exports of used gasoline and diesel cars have doubled since the mid-2010s.

The report makes several recommendations on how the export issue can be mitigated: 

• Increase the traceability of internationally traded used cars;
• Avoid hampering the flow of used electric cars to emerging markets;
• Ensure that used cars meet clear roadworthiness criteria, including emissions performance);
• Develop sustainable transport links in emerging economies to reduce car dependency. 

“With few electric vehicles on their roads, emerging economies will struggle to develop charging infrastructure and decarbonze their own fleets,” the ITF report states, and an electrification gap between developed and emerging countries will result.” 

In the best-case scenario posited in the report, 40 percent of the vehicle fleet in sub-Saharan Africa will be electric by 2050 — far below the U.S., which is expected to reach 70 percent by then. Other scenarios estimate the EV fleet in African nations could be less than 10 percent.

Car companies need to ensure that we don’t have a two-track world where one set of countries can completely electrify and another can’t. The climate doesn’t differentiate between emissions from one country or another; only people do.