Electric Vehicles

Authored by: Caroline Holmund

In 2017, more than half of new cars sold in Norway were electric or hybrid, making it the first country globally to reach this landmark. In total, 52.1% of the new car sales in the country met these requirements, up from 40.2% a year earlier. While a historic moment for the fight against fossil fuels, don’t hold your breath for more countries to follow anytime soon. Oslo used careful market manipulation to achieve this goal. While Norway is one of the most expensive places in the world to purchase a new car, incentives and large tax breaks for Electric Vehicles (EVs)—such as not paying import tax and VAT and parking for free—have made them a no brainer for many consumers.

Norway is also uniquely positioned to promote electric vehicles in terms of its natural resources. The country has a sizeable hydropower reservoir capacity of 85 terawatt (TWh), and 98% of its energy already comes from renewable sources.

While Norway is undoubtedly ahead of its peers when it comes to the adoption of EVs, other countries are planning to follow in its footsteps and promote electric cars—even if the road will be long. The UK, for example, has indicated that it will seek to ban the sale of diesel and gas fueled cars by the end of 2040. China, the world’s largest auto market, has announced as well its intent to end “production and sales of traditional energy vehicles.”

It’s clear that demand for EVs will only increase in the coming years, marking a fundamental shift in the global market. What’s more, this market shift towards eco-friendly vehicles won’t just be about cars, but also what they are made of, meaning that greater emphasis on the sustainability for carmakers’ supply chains is inevitable.

In December 2017, for example, 10 of the world’s largest car manufacturers, including BMW and Volkswagen, met in Brussels and pledged to address the myriad ethical and environmental issues around their use of raw materials. This means that commodity producers, from the aluminum industry to copper producers will be placed under increased scrutiny.

For some companies, this is not unwelcomed. Norwegian aluminum producer Norsk Hydro is already offering two new aluminum alloys marketed as “certified low carbon”, one of which is made from at least 75% recycled aluminum. Likewise, Russian aluminum producer Rusal uses Siberian hydropower plants to power its smelters. The result is a CO2 footprint of just 4 tons per ton of aluminum produced, a figure three times lower than the industry average of 12t. By 2020, Rusal plans to power all its smelting plants by hydroelectricity, up from 90% currently.

But globally, not all countries and producers are recognizing the likely seismic impact this industry trend will have and how crucial low-carbon aluminum will be to the EV story. Just look no further than the United States. It’s true that U.S. car manufacturers are slowly coming around to the idea that electric vehicles are here to stay. General Motors plans to introduce two more EV models over the next 18 months, and 20 within six years. Ford has formed a dedicated division to help direct investments towards EVs. But Washington, however, is showing a remarkably shortsighted approach to making sure that its producers stay competitive on the increasingly crowded EV market.

To begin with, the Trump administration’s fixation with fossil fuels, and coal in particular, will only harm the shift to EVs. While burning less fuel to power cars, the U.S. will end up burning more coal to power the recharging stations, thereby offsetting CO2 emissions from tailpipe to smokestack. Vehicles are already America’s biggest carbon dioxide source, as their emissions have increased by 2% year on year.

Next, Trump and the Environment Protection Agency are not just keen on tearing up vehicle emissions standards, but are also putting carmakers access to aluminum—a material key for reducing the weight and fuel consumption of cars—at risk. America’s aluminum industry is in dire straits due to Chinese oversupply, which has depressed global aluminum prices. In retaliation, Trump has proposed tariffs on Chinese steel and aluminum imports and has started Section 232 investigations on the effects of imports on national security.

But even if it was meant to protect American aluminum producers, not even the industry was entirely happy. In fact, the industry itself urged Washington that any remedy should be “designed to specifically address Chinese overcapacity and its effects, while avoiding unintended consequences for U.S. production and jobs.”

This is an important point, as Section 232 investigations can place a global moratorium on the imports of aluminum, leaving many U.S. aluminum producers that have moved abroad or depend on imports of raw material out in the cold. First, tariffs would interrupt the free-trade flows required to fulfill American aluminum demand fueled by car producers and other sectors. Second, given U.S. dependence on aluminum imports for its industries, the tariffs will impact other global aluminum producers as well. Put simply, in punishing China, the U.S. is punishing many of its global suppliers.

Examples range from Rusal and Norsk Hydro to Rio Tinto, Canada’s largest aluminum producer. Canada accounts for more than half of U.S. aluminum imports, and Rio Tinto possesses a deeply integrated supply chain across North America. The company sends 75% of its smelter output across the border, but, fearing business losses and negative effects on the North American manufacturing base, pressed for a negotiated solution to the impasse with Beijing at a Congressional hearing in June 2017.

However, whether Trump will heed these lessons remains to be seen. Making the wrong moves will greatly impede the U.S.’ ability to react to a changing automobile market increasingly conscious of environmental effects—and building coal power plants and slapping tariffs are definitely not the road to Norway.

Caroline Holmund is a Contributor to Diplomatic Courier Magazine.