Forging Ahead A materials roadmap for the zero-carbon car CIRCULAR CARS INITIATIVE MATERIALS DECEMBER 2020 In Collaboration with McKinsey circular economy principles need to govern both manufacture and use phase. Decarbonizing the carFIGURE 1 1. ICEV hatchback (level 1) with 1.70t weight (incl. repair components), 0.90t steel, 0.15t aluminium, 0.29t plastics, 200,000 life-cycle km and average occupancy of 1.5 2. BEV hatchback (level 1) with 1.90t weight (incl. repair components), 0.70t steel, 0.19t aluminium, 0.32t plastics, 0.32t EV battery, 250,000 life-cycle km and average occupancy of 1.5 3. Requires decarbonization of electricity grid with additional renewable energy as per consumption requirement by BEVs 4. Circular-economy innovations consider level 4 circular BEV (fully circular) Source: Accenture Strategy analysis BEVs use less energy in operation, but more in production Carbon emissions per passenger km 146 124 44 3 Today 1 + Adoption of BEVs 2 + Low-carbon energy for use phase 3 + Circular-economy innovations 4 Materials, assembly and end-of-lifeUse phase -98% Shifting to low-carbon electricity for the use phase helps .but only circular-economy innovations can finish the job The Circular Cars Initiative (CCI) is comprised of three main workstreams: The materials workstream, led by McKinsey, is focused on the pressing need to decarbonize materials, institute closed-loop recycling and provide materials with a productive second life capturing value that today is downcycled into other industries (see Figure 2). The business models workstream is led by Accenture Strategy. Its work lays out a series of strategies for achieving circularity. In collaboration with the World Economic Forum, Accenture Strategy has developed a taxonomy to guide the industrys progress on carbon and resource efficiency. The goal is to maximize the mobility output achieved per unit of resources and emissions expended (see Figure 3). The Forging Ahead: A materials roadmap for the zero-carbon car 5 taxonomy addresses usage, vehicle lifetime, materials and energy-related aspects of circular business models. Finally, the policy workstream is under development. It will connect the dots of this ecosystem and address the relevant policy tools to be taken onboard by governments globally. Each of these workstreams has been supported by our diverse community of stakeholder organizations, including carmakers, materials suppliers, national research institutes, non-governmental organizations (NGOs) and academic institutions. They have contributed their insights through workshops and many dozens of interviews, as well as data and feedback on this multifaceted analytical process. In addition to our analytical partners McKinsey and Accenture, CCI would also like to recognize the valuable support and contributions of our CCI co-founders at the World Business Council for Sustainable Development (WBCSD), EIT Climate- KIC and SYSTEMIQ. The Circular Cars Initiative (CCI): organizational structure and 2020 deliverablesFIGURE 2 CCI deliverables for 2020 include A five-level taxonomy for automotive circularity A materials transition tool to delineate pathways for material decarbonization in the sector Roadmaps (materials, policy and business models) outlining critical investments, milestones and policy-drivers for circularity Approach to start circularity-focused pilot projects among member companies Forging Ahead: A materials roadmap for the zero-carbon car 6 Automotive materials 1 The next hurdle in the quest for the zero-carbon car. To decarbonize the automotive industry and help reach the Paris Agreement targets of cutting greenhouse-gas (GHG) emissions 50% by 2030 reaching net-zero by 2050 a full and detailed view of the sectors emissions throughout a vehicles life cycle is required. Internal combustion engine vehicles (ICEVs) currently generate 6580% of their lifetime emissions from exhaust as the car burns fuel, and another 1822% of emissions from the production of materials (Figure 3). Because the use phase accounts for such a high proportion of emissions, the industrys focus so far has been on electrifying powertrains. A McKinsey analysis found that to achieve the 2050 net-zero goal, battery-electric vehicle (BEV) sales penetration must be close to 100% by 2040. Many countries have accordingly announced plans to ban sales of ICEVs by 2040. 2 Beyond electrifying powertrains, achieving the full potential of automotive decarbonization requires an equal focus on materials production. While BEVs can significantly reduce use-phase emissions, especially as renewables continue to expand their share of the grids energy mix, the energy- and emission-intensive production processes of automotive materials particularly batteries will place new demands on the industrys efforts to decarbonize (Figure 4). Emissions in OEMs extended value chain and under less controlFIGURE 3 3-5 18-22 5-10 60-70 100 4-6 4-8 65-80 18-22 3-5 4-8 4-6 Total life-cycle emissions 1 Logistics Production and assembly Fuel supply and exhaust-pipe Material production EOL material recovery Not addressed: Requires transparency and complex supplier management Under less OEM control and not fully addressed Under direct OEM control and currently addressed Mainly addressed by electrification of vehicles and processes paired with increased supply of green electricity Shar e of 2019 lifecycle emissions ICEV % 1. C-segment vehicle Source: NGVA, expert interviews, Decarbonization in Automotive Material Team analysis Forging Ahead: A materials roadmap for the zero-carbon car 7 1. Assumed constant range of 15,000km/vehicle per year and 10-year lifetime as baseline End-of-life emissions not considered here 2. 2018 average 120g CO2/km, target today 95g CO2/km; future assumptions: 2030 75g CO2/km; 2040 50g CO2/km; 0.10-0.16kWh/km for xEV 3. Average material emissions: ICE 3,000, EV 7,400, PHEV 5,000, HEV 4,000kg CO2 per vehicle as of model (hold constant as decarbonization in focus) 4. Current BEV, PHEV, HEV penetration in relevant regions at 48%; 2030: BEV 33%, PHEV 12%, HEV 7%; 2040: BEV 60%, PHEV 27%, HEV 13% Source: High-level estimation of Circular Cars Initiative (2020) for ambitious EV adoption scenario Emissions from material production will have higher share than other life-cycle emissions in percentage share (based on required sales volumes) 2020 4 Other emissions including use phase 1,2 Material production 3 2030 2040 65% 35% 40% 60% 82% 18% Investigation into BEV vs. ICE life-cycle and material emissions Emissions from production materials may reach 60% of life-cycle emissions by 2040 FIGURE 4 FIGURE 5 1. Reduction potential also depending on vehicle segment with smaller vehicles with typically higher emission reduction potential Source: World Economic Forum, Global Batterny Alliance, McKinsey analysis Life-cycle emission BEV life-cycle emissions could be substantially lower and depend on use of green electricity in power mix ICE (Gasoline) Life-cycle emission reduction potential depending on region 1 BEV -55 60% -22 35% -19 26% ICE (Gasoline) 1.5-2.0 x BEV Material emissions 1.5-2.0 x higher material emissions for BEV vs. ICEV due to energy-intensive battery production Materials Production Battery Use (well-to-wheel) Max. use (well-to-wheel) The higher material emissions for BEV production means that large-scale adoption of BEVs is not a panacea for the industrys decarbonization challenge. With a mass-market transition to BEVs, more than 60% of automotive life-cycle emissions would come from materials by 2040 (Figure 5). These changes will shift the balance of the automotive sectors carbon footprint to materials production creating a new challenge in the race to the true zero-carbon car The zero-carbon car: A vehicle that has reached its full potential with respect to carbon efficiency: This likely requires net-zero materials waste and net-zero exhaust pollution. While the automotive value chain may never be entirely emission- free, a net-zero car is an aspirational vision for the automotive ecosystem that can mobilize industry participants. Forging Ahead: A materials roadmap for the zero-carbon car 8 The cost-effective path to materials decarbonization 2 Full material decarbonization requires a multi-decade strategy. Key technoeconomic decision points will shape the final scope and cost. Forging Ahead: A materials roadmap for the zero-carbon car 9 Addressing material emissions will first require transparency on the most efficient and effective paths for decarbonizing materials and the costs involved. The complexities of automobile manufacturing and supply chains mean that eliminating emissions will require structural changes and significant investments of time and resources throughout the industry. To understand the costs and impact of various paths towards materials decarbonization, McKinsey developed carbon abatement cost curves detailing the amount of material emissions that can be reduced and at what costs, for both ICEVs and BEVs. Multiple paths to decarbonization are possible, some of which are mutually exclusive. Decarbonizing automotive materials is logistically complex, with long lead times. Vehicles typically take four to six years from initial concept to market. In addition, carbon-reducing or carbon-neutral material production technologies, such as electric arc furnaces (EAFs) for steelmaking, require several years for plant construction, quality assurance, scaling and regulatory approval. As such, a comprehensive view that can support individual companies goals as well as the automotive industry as a whole can help coordinate decarbonization efforts and allocate resources effectively. McKinseys material abatement cost model outlines technological levers with respect to both their carbon abatement potential and the associated changes in a vehicles material costs for various time horizons up to 2050 (Figures 6 and 7 are based on expected costs and abatement potential in 2030). The abatement cost curve: a comprehensive perspective on materials decarbonization 2.1 Understanding the carbon abatement curve: The x-axis of the abatement cost curve indicates each levers abatement potential in tons of CO2. The y-axis displays each levers abatement costs (or savings if the costs are negative) per ton of CO2 for that lever. The abatement levers shown in the abatement cost curves are colour-coded and include materials that account for about 90% of a vehicles weight and emissions. The model focuses on three main strategies for decarbonization: demand reduction, circularity and materials decarbonization. Demand reduction refers to levers that decrease demand for the total amount of material in the vehicle in the first place and is the basis input for the models calculations; circularity focuses on all levers that increase the use of recycled materials in the vehicle and the extension of their productive lifespan; and materials decarbonization focuses on technological levers that can reduce the emissions during material production (for more, see Appendix). Forging Ahead: A materials roadmap for the zero-carbon car 10 Full material abatement cost curve for ICEVs in 2030, including all levers Full material abatement cost curve for BEVs in 2030, including all levers FIGURE 6 FIGURE 7 5432 71 160 181713 151211108 96 14 Baseline vehicle emissions 4.02 tCO2 1 USD/tCO2 Internal combustion engine vehicle (ICEV) Biomass feedstock (SBR) Biomass feedstock (PP) DRI + CCS for EAF Blast furnace + CCS Increased scrap for EAF Power-to-chemicals (BR) Power-to-chemicals (PE) Biomass feedstock Cracker electrification (PP) Hydrogen-based DRI for EAFAluminium: Inert anode electrolysis + green electricity Mechanical recycling (non visual parts) Aluminium open-loop recycling Aluminium inert anode electrolysis Closed-loop recycling Pyrolysis (PP) Mechanical recycling Monomer recycling Low-carbon electricity Anode production Increase natural rubber share Increase scrap share for blast furnace Selected levers /tCO2 Simplified materials split 2 Metals Plastics Other 1. In this analysis, a premium C-segment vehicle with 1.95t vehicle weight: 1.04t steel; 0.29t aluminium; 0.10t rubber; 0.07t PP; 0.03t PE; 0.05t glass is considered 2. Metals including steel, high-strength steel, aluminium, alumina; plastics including polypropylene, polyethylene, polyamide 6; other materials including rubber, glass Source: McKinsey analysis (Team, McKinsey Decarbonization Pathways Optimizer) 16 22 2313 15141211108 1976521 18 2140 93 17 20 Full set of all possible levers: basis for selection for integrated scenario-perspective Baseline vehicle emissions 7.47 tCO2 1 USD/tCO2 Simplified materials split 2 Metals Plastics Other Battery Power-to-chemicals (BR) Power-to-chemicals (PE) Biomass feedstock Cracker electrification (PP) Biomass feedstock (SBR) Biomass feedstock (PP) Biogas-based solvent drying-cell Increase scrap share in blast furnace Low-carbon electricity anode active material Inert anode electrolysis + green electricity Precursor (steam) and calcination electrificationcathode active material Pyrolysis (PP) Mechanical recycling (non visual parts) Dry cathode coating-cell Mechanical recycling Monomer recycling Low-carbon electricity Anode production Closed-loop recycling Inert anode electrolysis Open-loop recycling Increase natural rubber share Hydrogen-based solvent drying Hydrogen-based DRI for EAF DRI + CCS for EAF Blast furnace + CCS Increased scrap for EAF 1. In this analysis, a premium C-segment vehicle with 1.95t vehicle weight: 1.04t steel; 0.29t aluminium; 0.10t rubber; 0.07t PP; 0.03t PE; 0.05t glass is considered 2. Metals including steel, high-strength steel, aluminium, alumina; plastics including polypropylene, polyethylene, polyamide 6; other materials including rubber, glass Source: McKinsey analysis (Team, McKinsey Decarbonization Pathways Optimizer) /tCO2 Internal combustion engine vehicle (ICEV)Selected levers Forging Ahead: A materials roadmap for the zero-carbon car 11 Analysis of ICEV and BEV examples based on a 2030 carbon-abatement model suggest several courses of action that automotive players and the industry could take to coordinate their decarbonization efforts: Prioritize long-term cost-savings. The abatement cost curves show several levers that could reduce embedded carbon emissions and material costs at the same time. These factors include mechanical recycling for different plastics components that could add 0.6-0.8t CO2 abatement potential if applied to a higher share of plastics in a vehicle. Beyond that, for aluminium production, inert anode electrolysis is a technology that could reduce emissions if implemented and scaled properly. As a general rule, powering many processes with green electricity offers high decarbonization potential while reducing material costs in the long term. Enable high-impact green steel technologies that come with additional costs: Decarbonizing steel will be critical. Steel c