Ford’s closure of its Geelong manufacturing plant on Friday is part of a broader story about Australia’s manufacturing sector. But one side of this story has so far been overlooked: the role of Australia’s lax attitude to vehicle emissions.

Globally, car manufacturers are taking climate action seriously by significantly improving fuel economy, in turn reducing a car’s CO₂ emissions.

Repeated policy failure and a marked reluctance by the Australian car industry to shift from manufacturing mostly high CO₂-emitting vehicles contributed to Ford ending operations. The Australian car industry ignored the elephant in the room.

This effectively contradicts former-Treasurer Joe Hockey’s assertion that climate change has no impediment on economic growth, as Australia gets left behind in a world embracing action on climate change.

Warning signs

In 2008, the international community launched the Global Fuel Economy Initiative (GFEI) to facilitate and promote large reductions of greenhouse gas emissions by establishing a global target to improve fuel efficiencies. The target included a 50% improvement in vehicle fuel economy in new light duty vehicles by 2030. The GFEI offered to assist successive Australian governments in the development of better fuel policy.

European car manufacturers made slow progress and continued manufacturing larger high-performance vehicles. But in 2009, the European Parliament introduced CO₂ emission standards of 130 grams of CO₂ per km by 2015 and long-term target of 95g CO₂ per km by 2021.

By 2013, 80% of global passenger vehicle sales were subject to CO₂ standards. Complementary economic measures were introduced to support the standards by influencing consumers into choosing low CO₂-emitting vehicles.

Australia left behind

In 2005, the Australian car industry adopted voluntary targets of 222g CO₂ per km by 2010. This wasn’t in line with international standards and masked the poor fuel efficiency of locally manufactured vehicles as shown in the chart below.

With voluntary standards, the local car industry was under no pressure from the government to improve its fleet’s fuel efficiency. The Australian car industry failed to meet the target. Average emissions from cars manufactured in Australia in 2010 were 247g per km – 11% higher than the voluntary target.

In April 2012, the Australian government mandated that 100% of all Commonwealth vehicles would be Australian made. This explicitly excluded acquiring vehicles on the grounds of “environmental considerations, such as fuel efficiency”.

In 2013, the government announced a Productivity Commission review of the industry that would examine international competitiveness, exports, trade barriers and long-term sustainability. At this point the local car industry announced its decision to abandon manufacturing in Australia. As a result, the commission didn’t examine the impact of climate policy measures on the local car industry, although it did suggest that environmental policies could serve as a barrier to international trade.

Industry actors also criticised other measures such as vehicle or excise taxes that it said would impede Australian exports.

For example, Ireland’s 36% vehicle tax on new light passenger vehicles with emission greater than 225g per km would apply to most Australian-made vehicles. Such measures support emission standards, and are imposed on all vehicles sold (whether imported or manufactured domestically) for the protection of the environment. They have been effective in shifting consumer demand to fuel-efficient vehicles.

Under the rules of the World Trade Organization national governments can ban imports that do not comply with product standards, if they do not constitute non-tariff barriers. To meet this exception, the policy must be measurable (such as an excise tax based on CO₂ emissions), apply to all goods sold (domestic and imports), and contribute to the fight against climate change.

The adoption of regulatory standards and supporting economic instruments, meant car manufacturers/importers will not be able to sell as many larger high CO₂-emitting vehicles. To sustain economic production runs, manufacturers will seek to sell these vehicles to countries with lenient or no standards, such as Australia, which then become “dumping grounds”.

Government and industry caught off guard

In 2014, the Abbott government supported the G20 Energy Efficiency Action Plan, which included “improving vehicle energy efficiency and emissions performance” by strengthening domestic standards in vehicle emissions and vehicle fuel efficiency. Despite the plan, there was no recommendation to introduce emissions standards in the government’s 2015 Energy White Paper.

Successive Australian governments, trade unions, and industry actors have all failed to appreciate the impact of climate action on the economic interest of the local car industry. The Australian government is now examining fuel efficiency standards and complementary measures, but will only report next year. It’s a little too late to save the industry.

Forcing the local car industry to meet similar standards would have been to its benefit and would have outweighed the costs of being shut out from the market. As more global car manufacturers began adopting emissions standards more pressure was placed on car manufacturers to remain competitive.

Car manufacturers were known to lobby their governments to adopt European emission standards to increase their competitiveness and restrict importation of high CO₂-emitting vehicles. The former Vice-Chairman on General Motors, Bob Lutz, said the fall of GM in the United States was largely a result of a terrible government policy on fuel economy, which gave its competitors, the Japanese automakers, a free pass.

The European Commission stated that if a car industry fails to embrace a shift towards more fuel-efficient vehicles, it will continue to be structurally unprepared for the future.

To compete globally, the Australian car industry had to decide whether to embrace cleaner technology to meet the standards of its importers, or abandon the export market. Unfortunately for the workers, Ford chose to close its operations on October 7, and GM Holden and Toyota will close by the end of 2017.