Environmental and water protection policies and their effects on the supply chain governance. The case study of the automotive industry.

Abstract:

The literature on technological change in the automotive industry identifies the increasing pressure to reduce carbon dioxide (CO2) emissions in the transport sector as a critical factor behind important technological change. In addition to the constant pressure on CO2 emissions regulations in Europe, ongoing changes in the European Union (EU) water policy framework add to the already high pressure on restructuring automotive production strategies.
In recent months, we have seen a significant push from the EU to strengthen environmental regulations and advance green technologies and industries, strongly advocating not only the digitalization of production processes but also stricter zero-pollution policies and the inclusion of pollutants of emerging concern (PECs) on the EU water policy framework’s Watch List. Amendments to the EU water policy framework have been prompted by the ongoing reduction in water resources (in quantity and quality), driven by climate change, population growth, and human activities, which have increased vulnerability to water shortages. In response, the reuse of treated wastewater (also known as reclaimed water) is actively discussed by the European Commission as part of the current policy framework, shaped by the EU Circular Economy Action Plans. All these European legislative efforts are harmonized with the EU Green Deal and the EU Water Resilience Strategy (launched in June 2025). Therefore, all EU water-related policies are focused on circularity and resilience, with particular legislative emphasis on promoting the reuse of reclaimed water.
In the case of the automotive industry, which has traditionally been locked-in into the ICE as the dominant technology, we have witnessed how technology-push policies (i.e., technology-forcing regulations) have played an important role in disrupting the path dependency of the sector and stimulating the development of cleaner technologies (Lee et al., 2011; Lee et al., 2010; Meckling & Nahm, 2018), such as electrification. Undoubtedly, environmental standards (and the financial packages to support them) have influenced the ongoing political discourse on the transition of the sector to electric vehicles (EVs). This new path creation has important consequences for the automotive and transportation sectors.
The ongoing recast of both industrial (IED) and urban (UWWTD) wastewater directives focusing on stricter discharge rules and including quaternary treatments addressing PFAS and micropollutants present in car production, as well as the recast of the End-of-Life Vehicles Directive (ELVD) by an ELV Regulation, will eminently impact the manufacturing structure of the automotive industry in Europe.
This study explores how the recast of the EU water policy framework and the ongoing discussion by the European Chemicals Agency (ECHA) on a total ban for PFAS (under the REACH regulation) would affect manufacturing in Europe and its potential effects in other automotive manufacturing countries. Building up from previous research, we use the classification of automotive countries into three groups: Core automotive countries, notable for hosting global automaker headquarters, possessing advanced R&D capabilities, and achieving high production levels; Integrated Peripheries, characterized by affordable labour and increasing vehicle production, yet struggling to attract knowledge-intensive segments of the automotive value chain; and Semi-Peripheries, which lack domestic automakers, offer skilled workforces, have high labour costs (comparable to Core automotive countries) and which are experiencing declining levels of automotive production (Mordue & Karmally, 2020; Mordue & Vallejo, 2024; Pavlinek, 2019). The research question therefore is: What are the supply chain governance effects of a potential PFAS ban and a stricter wastewater treatment requirements in Core countries?
The implications of environmental standards-push policies for local manufacturing processes and the restructuring of the global value chain remain uncertain but are nevertheless of high socio-economic relevance. The literature addressing these issues shows findings characterized by the search for new markets through the development of technologies that comply with increasingly stringent environmental rules and regulations. Insights gathered reveal significant challenges and potential shifts in investment patterns, suggesting that evolving policies may hinder aspirations for industrial competitiveness.