Raising Ambitions: A new roadmap for the automotive circular economy CIRCULAR CARS INITIATIVE BUSINESS MODELS CLUSTER DECEMBER 2020 In Collaboration with Accenture Strategy Contents Foreword Letter from Accenture Strategy and the World Economic Forum Introduction 1 In a nutshell: driving industry transformation 2 There is an urgent need for circular business models 3 Making sense of circularity: proposed definitions, measurements and levels of circularity 3.1 Definition of a circular car value and efficiency 3.2 The five levels of circularity a proposed taxonomy to gauge and guide progress 4 Next stop, a mobility revolution: pathways, solutions and business models 4.1 Transformation pathways key strategies towards circularity 4.2 Identified solutions and enablers concrete actions for circularity 4.3 Case studies 5 Raising ambitions for a circular cars agenda 6 Next steps for the Circular Car Initiative Appendix: Solutions and pathways Contributors Acknowledgements Endnotes 3 4 5 7 9 12 13 15 19 20 23 25 27 29 32 41 42 43 Cover: Getty Images 2020 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. Raising Ambitions: A new roadmap for the automotive circular economy 2 Foreword The car has given us freedom. It has accelerated trade and made an indelible mark on modern culture and lifestyles. But cars are also responsible for 10% of greenhouse gas emissions and a large share of global steel, aluminium, plastic, rubber, glass and increasingly battery material consumption. It is now time for a revolution in automotive sustainability. The World Economic Forum and the World Business Council for Sustainable Development (WBCSD) jointly formed the Circular Cars Initiative to accelerate this transformation. The Initiative takes a systemic approach accounting for the build phase as well as the use phase to automotive sustainability. It looks at how technology and business levers can maximize the resource value of the car, minimize life-cycle emissions and unlock new opportunities. Within the Circular Car Initiative, 40 companies from the automotive value chain, several research institutes, international organizations, governmental bodies and think tanks are charting the course towards a zero-emission future through new technology, materials innovation, efficient vehicle usage and full life-cycle management. We wish to thank Accenture under the leadership of Wolfgang Machur and Alexander Holst, and McKinsey under the direction of Fehmi Yksel and Eric Hannon, for their in-depth analysis and thought partnership on these topics. We are also appreciative of EIT Climate-KICs Sira Saccani and Kirsten Dunlop, and SYSTEMIQs Matthias Ballweg, Tillmann Vahle and Martin Stuchtey, for joining early on and for their ongoing work on policy recommendations. We also would not have come to this point at the end of 2020 without the leadership of Levi Tillemann at the World Economic Forum. The “circular car” is now on its way to becoming a core component of the automotive future. Thomas Deloison Director Mobility, World Business Council for Sustainable Development Christoph Wolff Global Head of Mobility and Member of the Executive Committee, World Economic Forum Raising Ambitions: A new roadmap for the automotive circular economy 3 Letter from Accenture Strategy and the World Economic Forum The automotive sector has integrated circular economics into its business practices for decades. But now is the time to raise ambitions on the sectors approach to circularity to effectively address climate change and resource depletion. For the world to experience less than 1.5C of global warming, the automotive industry needs to target around a 50% reduction in absolute carbon emissions by 2030. In the same period, we expect mobility demand to increase by 70% globally. Circularity and electrification will be the core strategies that enable the industry to decarbonize and prepare for this increased mobility demand. Circularity means using cars more efficiently, shifting to fleets and coordinating value ecosystems more effectively. All of these aspects of circularity can add value for the industry and for society, and enhance the broader ecosystem that humans inhabit. Original equipment manufacturers (OEMs) have already set ambitious roadmaps towards carbon neutrality in the next two decades. We expect circularity to become a major element of this transformation. Companies need to chart their individual paths and learn to optimize and orchestrate the full- value ecosystem and vehicle life cycle. The Circular Cars Initiative (CCI) represents the first organized industry effort to systematically address the opportunities and challenges of circularity with an eye towards fundamentally remaking automotive value chains and business models. Accenture has been honoured to support the Forum and the participating companies on this journey towards a circular automotive economy. This report proposes a taxonomy of five levels of circular cars and four major strategies for industry transformation before detailing a variety of necessary solutions for circular business models. Over the coming months and years, we expect multistakeholder pilot projects and public-private collaborations to move the vision of the Circular Car Initiative into reality. Axel Schmidt Senior Managing Director, Global Industry Sector Lead Automotive, Accenture Levi Tillemann Lead, Circular Cars Initiative, World Economic Forum Alexander Holst Managing Director, Sustainability, Accenture Strategy Raising Ambitions: A new roadmap for the automotive circular economy 4 Introduction The term “circular car” refers to a theoretical vehicle that has maximized materials efficiency. This notional vehicle would produce zero materials waste and zero pollution during manufacture, usage and disposal which differentiates it from todays zero-emission vehicles. While cars may never be fully “circular”, the automotive industry can significantly increase its degree of circularity. Doing so has the potential to deliver economic, societal and ecological dividends. Indeed, the convergence of technology, environmental and economic megatrends is propelling the modern automotive industry towards just such a transformation. The Circular Cars Initiative has assembled a broad coalition of participants from the automobility ecosystem committed to leading this transformation and increasing the environmental sustainability of global mobility by harnessing the power of new technologies, materials and business models. Sustainable cars must be powered by green electricity; 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 Raising Ambitions: A new roadmap for the automotive circular economy 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 Raising Ambitions: A new roadmap for the automotive circular economy 6 In a nutshell: driving industry transformation 1 To achieve a circular economy transformation, the industry requires a common language and roadmap. The aim of this report is to lay a foundation for future discourse on automotive circularity by providing a framework for understanding circularity within the automobility ecosystem. Achieving circularity is a complex endeavour. In order to clarify the path forward, this study lays out a five-level taxonomy for circularity (0 = no circularity, 5 = net positive impact). This report also identifies business models that will generate more mobility and less waste in the future. Based on current technology, we see the opportunity to reduce carbon emissions by up to 75% and resource consumption by up to 80% per passenger kilometre by 2030. 1 Circular cars will be a key building block for a low-carbon mobility system and are critical to achieving a 1.5C scenario. They can help to serve growing mobility demand while at the same time reducing resource consumption to a level that is truly sustainable. Business models address a core aspect of this transformation. Simply improving vehicle use could yield dramatic reductions in carbon emissions per passenger kilometre. Combine this with optimized vehicle lifetime, increased materials recycling and clean energy, and automotive emissions could plummet in the years and decades to come. A circular car should also be a good business case, as it maximizes resource and carbon efficiency, the two key performance indicators proposed by this report. There are four main transformation pathways to increase circularity. These are centred on energy, materials, lifetime and use. This report examines business models and strategies for achieving circularity through the lens of each of these transformation pathways. The industry has made carbon neutrality a core objective. Already most automotive materials are recyclable. Cars are built to last and to be repaired. These are all important aspects of circularity. But the industry must go further. The value chain needs to be fundamentally reimagined to minimize lifetime carbon emissions and resource consumption. This is a decadal transformation, which ecosystem players must address together. Overall, the key recommendations for industry, the value-chain ecosystem and policy-makers are as follows: Create a common framework for guiding and measuring progress towards circularity. This framework should raise industry ambition from merely “do less harm” to building a sustainable global economy. Realign the profit motive for the automobility ecosystem away from selling products towards selling mobility and other services. Create data standards, reporting frameworks and transparency measures that allow for the rationalization of vehicle design development, life-cycle management and end-of-life processing. Secure policy support for systemic transformation. Circular cars will be a key building block for a low-carbon mobility system and are critical to achieving a 1.5C scenario. They can help to serve growing mobility demand while at the same time reducing resource consumption to a level that is truly sustainable. Raising Ambitions: A new roadmap for the automotive circular economy 7 Report overview towards a taxonomy for the circular carFIGURE 3 Levels of circularity Measures No circularity Product decarbonization CO 2 Classic make-use-waste mentality 5 5 4 1.5 150 150 100 50 20 0 5 5 4 1.5 150 150 100 50 20 0 0 Resource efficiency Carbon efficiency Life-cycle CO2e emissions (g) Passenger km CO2e linked to product Materials Component production and assmebly End-of-life treatment CO2e from use time Energy generation emissions Exhaust-pipe emissions Average # of passengers in the vehicle Km driven over life cycle Passenger km Non-circular material in the car Average # of passengers in the vehicle Km driven over life cycle Non-circular resource consumption (g) Non-circular scrap Non-circular inflow/outflow determined by: Total mass of the vehicle Total scrap Remanufactured inflow/outflow Recycled inflow/outflow (with downcycling factor) Source: Accenture Strategy. Notes: 1) including replacement components; 2) calculation analogous to non-circular material in the car Raising Ambitions: A new roadmap for the automotive circular economy 14 The five-level taxonomy proposed here for automotive circularity ranges from single-owner use and disposal (Level 0) to an aspirational goal of an automobility ecosystem that has net positive impacts (Level 5). The levels describe vehicles that are part of an increasingly circular automobility system. Each level can be determined based on characteristics of both the product and its use. Thus both the producer and the owner of the car are responsible for achieving circularity. The five levels of circularity a proposed taxonomy to gauge and guide progress 3.2 Five lev