Part 1.Eden or New Jerusalem: Politicians, the motor industry and the climate emergency

This entry is part 1 of 2 in the series Climate Emergency
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UK Election Pledges 2019. Thanks to to Carbon Brief

The 2019 UK Election was remarkable. Not because it was the third General Election in four years nor because it was triggered by Brexit. But because  climate change was so high up the agenda of the main parties. Except for the Conservatives, the rest of the national contenders surprised the electorate with the level of public largesse they would spend reducing emissions and transitioning to a low carbon economy. The ambitious Labour Party pledged £400BN for a National Transformation Fund plus £250BN for a ‘National Investment Bank’. That even trumped the Green Party who only planned to spend £500BN in five years.

But with all of the different pledges on ‘Net-Zero’ emissions, phasing out petrol and diesel vehicles and setting up a national Electric Vehicle (EV’s) charging infrastructure, no party was willing to say when electric vehicles would be mandatory. That’s not a surprise as a the UK might not be a major producer of any vehicles in the future, let alone electric vehicles. Recent plant and model relocation decisions by Honda , Ford and Toyota underline the UK’s role on the periphery of existing automotive supply chains. Just as importantly, a quick look at the sales of battery EV’s in the EU15+EFTA suggests that EU car makers may force to concede more than 35% of the market, as buyers prefer US made Tesla to domestic products. So committing to a fast switch to EV’s might simply be signing up to large scale unemployment, lower government revenues, a larger trade deficit and indirectly importing emissions from the country that produces the vehicles. None of the electorate needed a PhD to know that climate change is real. Too much CO2, CH₄ and N2O, and plenty of other gases as well, cause the ‘Greenhouse Effect’ which is warming the planet. But you might need a PhD to work out how to engineer-out the Greenhouse Effect, before there’s an irreversible catastrophe, without throwing millions of people out of work and collapsing the global economy.

If you look only at automotive, it’s clear that few politicians or environmental activists recognise the economic importance of the global motor industry and the extent of income and employment dependant on the existing automotive supply chain. Taking just the EU, according to ACEA, the industry employs  a total of 13.8MN (2017) people and generates around 6.1% of all the jobs and 7% of EU GDP. 2.6MN are directly involved in manufacturing and 58% of those jobs are linked to conventional engine production, roughly 1.5MN jobs.  Most of these jobs would be removed and, without careful planning, nothing would replace them quickly. A 2018 study for the ACEA estimated that when EV’s take 25% of the market, EU total automotive jobs would fall by 4.6MN (↓33%) and by 11.1MN (↓80%), when the EV share reaches 30%. Just taking the case of the UK, a peripheral production site employing 823,000 in the total supply chain, the switch to EV’s could eliminate a similar proportion, around 660,000 jobs in the UK automotive total supply and service chain .

Not all politicians are disinterested in the automotive supply chain. Around the world they know that, even if jobs can be replaced over time, they’re not always in the same place, and not always in the same skill set.

One of the EU’s responses is the  EU Strategic Battery Alliance that will plough over €3.2BN state aid and €5.0BN private funds into setting up battery production in France, Germany, Belgium, Finland, Poland, Sweden and Italy, with production planned from 2022. Their target is 250 -1,100 GWh, enough to supply 25% 0f the global EV market, but still only employing 200,000 people across the EU. That level of re-employment would replace under 30% of the potential jobs lost in the UK alone. However, the EU strategic analysis recognizes that without significant EU-based battery production, they may not be making vehicles at all. They will be importing them, primarily from Asia with China as the dominant supplier.

Where does the money come from? ICE vs EV

Just as importantly, the politicians and activists disregard how the income is generated in automotive manufacture and what the impact of switching from internal combustion engine (ICE) to EV’s will be. As Figure 1 illustrates raw material costs will increase because of the increased usage of materials like copper, semiconductors and rare earth metals (lithium, cobalt, neodymium). One reason is that  the wiring harness on an EV is three times the length of the same component for an ICE vehicle. In an EV raw material costs are estimated to contribute 15-20 percent of the vehicle’s value (↑50%). Component supplier income faces a similar jump. If the battery is bought-in costs move from 55% to 75%, in the worst case (↑35%). In that scenario – bought-in battery – the auto makers revenue share falls from 35% to 25%. As that occurs, their margins drain away rapidly. If the fact that most EU vehicle production is currently

EU Regions where Automotive Manufacture is dominant FTI 2015 Employment Figures.

marginally profitable with ICE vehicles is taken into account, a substantial number of plants could be expected to close if EV’s with bought-in batteries were to be seen. Government incomes across the EU will be significantly reduced. In specific areas where existing manufacture is concentrated, there could be long-term economic depression. In the 14 regions listed by FTI, direct automotive employment is over 530,000. This figure should be multiplied by 3 or 4 to estimate the total job losses. In 125 industrial regions of the EU, that’s 40% of the total, automotive accounts for 10% or more of manufacturing. Fast introduction of EV’s, without alternative jobs, could lead to unemployment in industrial regions all over Europe. Yet, for all the rhetoric about ‘supply chains’ by UK politicians of all persuasions during the last three years, only one manifesto included a specific commitment to battery production in the 2019 Election.

The dearth of policies concerning the supply chain is all the more disappointing when UK battery technology and manufacturing are one of the

Who controls traction battery production today?

cornerstones of the UK government and auto industry joint-venture, the Advanced Propulsion Centre’s (APC) Capability Report strategy and the APC Technology Roadmap report. Perhaps UK politicians have not been informed that global traction battery production is dominated by China. Or that, the high cost of transporting batteries can only be avoided by manufacturing batteries close to where the vehicles are made. So, while few politicians have much to say on the roadmap to a carbon-neutral economy, the industry, with support from universities and government, does employ PhD’s and they are making practical plans for the transition.

Maybe the expectation of investors and practical managers, wherever they are in the auto industry, that politicians and environmental activists should have practical solutions are just too high. Or perhaps we should just accept that Brad Allenby had explained the gap between managers and activists way back in 2007.  He argued that there are two intellectual responses to significant technological change. One is to seek a return to an earlier ‘Eden’, a mythical place where human beings live in nature without technology, as if in the biblical Garden of Eden. If you  believe in Eden you’re in a world where people can stop the technological ‘clock’ and live in a less confused, crowded  and worrisome place. Allenby, didn’t believe it. He argued that the alternative is the ‘New Jerusalem’ vision where there is a high-technology, intensely designed environment. Both ideas are drawn from biblical roots, but they have very different economic, cultural and political implications. Perhaps the conflict between these ideas was re-played in the 2019 UK electoral manifestos?  Those who lean towards the primacy of sustainability and environmental imperatives favour the Eden solution while practical managers from industry, commerce, science and technology support the New Jerusalem world-view.

As for the aspiring political leaders, their manifestos revealed their preferences.  On transport in general, while all the parties pledged to make public transport ’emission-free’, only the Green Party hinted that its true aim was to phase out personally owned vehicles and do it by 2030. Back to the simple life, perhaps? As for the rest, while they vilified the climate impacts of the global supply chains, perhaps they recognised that they remain essential in keeping the jobs which generate the taxes that they want spend to transition to their new vision. And, even if they personally don’t yet know how to do it, there are managers, scientists and engineers across the world who already do. Part 2 of this post will reveal who they are and what roadmap they are using.

 

Series NavigationPart 2. Eden or New Jerusalem: The Roadmap >>
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