HOW MANDATORY TRANSPARENCY SHIFTED CONSUMER DECISION MAKING AND PRODUCT INNOVATION IN THE MOTOR INDUSTRY

  • by Ramon Arratia, Sustainability Director, Interface
  • Sep 24, 2013
  • 0 comments

It’s not often the motor industry is held up as a sustainability success story. But thanks to the European Union’s commitment to mandatory disclosure of tailpipe emissions, it’s the automotive sector that is showing how transparency can drive reductions in environmental impacts.

 

The EU requires vehicle manufacturers to clearly show the greenhouse gas emissions generated when a car is driven (in grams of carbon dioxide per kilometre, gCO2/km) in all their advertising and at the point of sale. This enables consumers to make informed decisions based on credible and comparable environmental criteria, rather than subjective claims or eco-labels. As a result, it’s driving product innovation among car manufacturers as they compete to offer lower tailpipe emissions and it’s helping policy makers implement smarter legislation based on one consistent metric across the industry.

 

For a long time the European car industry had no incentive to design vehicles that would emit less CO2 into the atmosphere, so emissions from road transport in Europe continued to rise. The EU has adopted a two-pronged approach to stimulate change.

 

First, the Car Labelling Directive in 1999. This requires that a label on gCO2/km must be attached to a car or displayed clearly near each new model. Because it is focused on one consistent and robust metric - rather than the varying and often opaque information that most ‘eco-labels’ are based on - this created consistency and transparency while enabling the consumer to get used to the metric and base buying decisions on it.

 

Today even non-experts know that 160gCO2/km is too much and that 100gCO2/km is pretty good. This new consumer literacy and awareness has promoted a shift in focus of the motor industry. While previously they have focused on their own manufacturing processes, they are now encouraged to tackle the most significant environmental impacts from their products – tailpipe emissions while they are in use.

 

The Car Labelling Directive laid the foundation for a change in consumer habits. But it did not in itself usher in a big reduction in tailpipe emissions. What has made the real difference has been the second prong of the EU approach. This time, the EU adopted a top-down strategy - focusing on manufacturers, not consumers. In 2009, it introduced a regulation requiring manufacturers to decrease average tailpipe emissions across their EU portfolios to 130gCO2/km by 2015 and 95gCO2/km by 2020.

 

Any manufacturers not meeting these targets, will be fined. If the average CO2 emissions of a manufacturer’s fleet exceed its limit in any year, the company has to pay an excess emissions premium for each car registered. This amounts to €5 for the first g/km it exceeds the target, €15 for the second g/km, €25 for the third g/km, and €95 for each subsequent g/km.

 

With the prospect of such significant financial implications, the impact of this regulation was immediate. In 2008 the average gCO2/km for car emissions in the UK had been 158, but by the end of 2009 it was already down to 149.5 and by 2011 it had dropped to 138. Within just one year of the regulation coming into force, the UK car industry had achieved a reduction in tailpipe emissions of more than 5%, compared to just 2.2% in the eight years up to 2006, when voluntary self-regulation was in place.

 

The EU sensibly made the timetable for this mandatory target long enough to allow companies to make the widespread changes required to meet it. There now seems little doubt that manufacturers will meet the EU-wide target of 95gCO2/km by 2020.

 

That’s the beauty of the market: tell it what you want to achieve and it will usually find a way to do it. To do this effectively, three key elements must be in place: a clearly measurable metric that relates to the most significant life cycle impact of a product; a transparent way of communicating this metric to consumers; and a regulatory framework that pushes consumers to make the right choice. Together, smart regulation and informed consumer decision making drives product innovation based on competition.
You might ask why this approach that’s working so well in the car industry hasn’t been adopted for other industries. The answer? It will be. It’s already in the pipeline for buildings, energy-using products and power suppliers. So be prepared for mandatory transparency to come to a sector near you – soon.
 

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