| Summary: | During the last decades, our environment has suffered from growing pressures due to human activity. In order to foster economic development, societies have released significant amounts of greenhouse gas (GHG) into the atmosphere. Among them, carbon dioxide from fuel consumption constitutes the most important and the automobile industry plays a major role in that fact. Hence, international institutions have been gathered with the aim of decreasing their environmental footprint through the signature of the Kyoto protocol, which led to regional regulation to tackle the issue. In Europe, the institutions have implemented the 2050 roadmap in order to deal with GHG emissions, energy inefficiency and to increase the share of renewable energies in the European energy package. A part of this plan is especially dedicated to the automobile industry and the light-duty vehicles, which account for 15% the EU’s emissions in CO2. On top of this, while the other sectors have decreased their GHG emissions by 15% between 1990 and 2007, the automobile sector increased his release by 36% during the same period. As a result, the Commission has established a very stringent carbon emission standard to erase this imbalance by two main targets: 2015 and 2021 (European Commission, 2015). However, the European automobile industry has extensively suffered from the 2008 economic crisis, seeing its production and new car registrations decline by almost 20% and 15% respectively (ACEA, 2004-2015). Yet, the sector has a tremendous social and economic importance for Europe by creating more than 12 million jobs directly and indirectly and, accounting for 4% of EU GDP (European Commission, 2015). Due to this importance, the EU’s intervention in setting the most stringent carbon emission standard worldwide creates the debate, and it is being questioned whether this plan is going to destabilize even more an already ailing industry. Those interrogations are relevant due to the economic importance of the sector aforementioned. Hence, as the global commercial interaction could be mitigated due to necessary adaptation on the behalf of foreign manufacturers, the European economy itself is generally affected as well. Moreover, the regulatory process is only halfway through its second target (2021), thus it is interesting to make an assessment of the regulation now, bearing in mind that it will be reviewed in the end of 2015. Following this one, the possibility of setting future and stricter targets will be tackled (European Commission, 2015). Nonetheless, the literature states that environmental regulation can foster economic performance (Porter & van der Linde, 1995). In this regard, our will is to determine how this directive will affect the competitiveness of the sector from a commercial perspective. First, it brings light on a possible protectionist purpose (Vogel, 2009). Then, it raises the question of the export performance of European car manufacturers (Porter & van der Linde, 1995). By basing our argument on the innovation activity, as suggested by the Porter hypothesis, we compare the theory to the current EU’s automobile industry performance. From a strategic perspective, the American automobile sector will be set against the European one with the aim of contrasting the impact of two levels of stringency regarding passenger cars. It led us to three main conclusions. Firstly, the regulation stringency appears to be a trade barrier for non-European countries. Due to the non-standardization of the emissions standards, foreign car manufacturers have to make additional investments in order to adapt their products to the European requirement and be able to sell on the market. Indeed, while they could only abide with their domestic policy, they have further compliance costs to put on. Moreover, they could lose in economies of scale and increase the production cost per unit. As a result, the regional regulation has a global impact on the automobile industry that affects the performance of international producers on the noteworthy European market as much as on their market. Secondly, this raise in emission standards has forced European manufacturers to adapt their vehicles in order to pollute less through the development of new engines which are more fuel efficient. As a result, the aggregate R&D activity in the European automobile sector has been stimulated. Indeed, a positive trend is observed in R&D investment, R&D growth and R&D intensity along the 2010’s. The latter recovered quickly in the post-crisis period which allowed Europe to reach in 2014 the level of innovative activity of its historical peak year, 2007. Moreover, the patent applications are extensively dominating the rest of the world with an amount of 60% for the EU. The weak Porter hypothesis seems to be confirmed. Thirdly, a correlation between the innovation boost and the exports performance of the EU seems likely. Indeed, the three first nations (Germany, Japan and the USA) in patent applications also have the best records in worldwide exports. Focusing on the EU, it accounts for 44.85% of the global exports while producing 60% of the patents. On a national level, Germany confirms this trend since it has the most important share in exports from the EU and is clearly the backbone of the European automobile industry. However, this study has only a strategic perspective. It only aims at understanding the interaction between environmental regulation, innovation and trade flows. Yet, an empirical analysis would allow determining and measuring this relationship more accurately. Moreover, the paper limits itself to the macroeconomic level and, hence, it does not detail how firms modify their strategy at the microeconomic level. It would be interesting to settle groups of manufacturers according to similar characteristics like their origins, the number of plants they have in Europe or their historical innovative performance, in order to examine how firms react more specifically. Furthermore, considering that the program on carbon emissions from passenger cars is only halfway through its Target 2021, all the effects from the regulation have not been carried out, especially in regard of the R&D investments it generated. Another study would be necessary when this phase of the program is over in order to verify if the results being found here are consistent on the longer run. Through this study, it has been shown that environmental and economic purposes are theoretically aligned, and even that the first one can positively influence the second one. However, the possibility of a free-trade agreement between the EU and the USA will definitely be a game-changer. As a matter of fact, this will harmonize all the policies between the two economic regions, including the carbon emission standards. Hence, trade flows will theoretically be fostered as firms have access to a larger market and it probably will improve European manufacturers’ performance through sales increase. Hence, this raises the following question: how should the environmental issues and economic performance be balanced? Should we lower our carbon emission standards to make it easier for American firms to exports in Europe? Should they adapt their regulation to our standards? Master [120] en sciences de gestion, Université catholique de Louvain, 2015
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