4. Cleaner fleets: The key to decarbonising transport

Abstract

New propulsion technologies for vehicles and low-carbon alternative fuels make the greatest difference in reducing transport emissions between the Current and High Ambition scenarios. This chapter describes policy commitments and actions (“Improve” measures) that can lay the groundwork for the transition to zero-emission vehicles and fuels. Specific sections analyse the transition to clean road vehicles, the challenge of decarbonising aviation and maritime transport and the importance of accounting for regional differences.

In Brief

Ambitious timelines for zero-emission vehicles and alternative fuels must be met

A future where clean vehicles and fuels are commonplace is attainable. To reach the Paris Agreement goals, governments must implement policies to improve vehicles and the fuels that power them, and set very ambitious timelines for this transition. They should prioritise policies that interact with and multiply the benefits of measures to manage transport demand and encourage shifts to cleaner transport modes.

Accelerated actions on clean vehicles and fuels account for three-quarters of the difference in emission reductions between the Current Ambition and the High Ambition scenario. But implementation depends on policy support and funding, and also calls for greater cross-sector collaboration and co-ordination.

Progress on cleaner vehicles is already evident in many countries. A transition is clearly underway, with governments in some regions already making firm policy commitments. In fact, the world may have already reached the peak number of internal combustion engine (ICE) passenger vehicles in the 2020s, even under the Current Ambition scenario (which assumes countries honour existing commitments).

Several leading markets have set a target to sell only zero-emission vehicles (ZEVs) by 2035 for new passenger cars. This is not enough to decarbonise road transport: more governments and vehicle types must follow suit. The High Ambition scenario assumes all governments reach 100% ZEV sales targets for new vehicles by 2050. As the purchase-price gap between ZEV and ICE vehicles closes, policy incentives will need to become more targeted to achieve a more equitable transition.

Understanding fleet renewal rates and the global used-car trade can help policy makers identify interim measures for decarbonisation in different contexts. Governments will need to take a different approach to decarbonising larger vehicles such as buses and heavy-goods vehicles. Electric powertrains for heavy vehicles can maximise operational cost savings due to lower running and maintenance costs.

The aviation and maritime sectors are hard to decarbonise. The cost of CO₂ emission reductions is high and the pace of technological improvements slow. Alternative fuels will need to be more widely available and cost-competitive with conventional fuels. This requires targeted policy interventions.

Exemptions from fuel taxes for aviation and shipping work against the sector’s goal to decarbonise. They should be discontinued. Carbon pricing will play a crucial role in addressing and removing these structural impediments. Closing the price gap between conventional and low- and zero-carbon fuels could also create sources of revenue for investments in the necessary infrastructure for decarbonisation.

Nevertheless, aviation and maritime transport will not decarbonise overnight. To maximise economy-wide emission savings, policy makers must prioritise alternative fuels in contexts where other measures (including full electrification) are not feasible, particularly given the competition for alternative fuels between industries.

Policy recommendations

Set targets and collaborate across sectors to decarbonise all vehicle fleets.
Target incentives and introduce access restrictions in cities for high-emitting vehicles to increase the uptake of zero-emission road vehicles.
Deploy public charging infrastructure to increase the pace of adoption.
Use pricing measures to improve the commercial viability of low-carbon alternative fuels.

The global transportation sector will need to implement a combination of technology improvements and measures to manage transport emissions and meet the goals of the Paris Agreement. This chapter looks specifically at what is needed to translate commitments to transition to cleaner fleets into meaningful actions, and the potential opportunities and challenges of this transition.

Using the popular “Avoid, Shift, Improve” paradigm, the chapter explores the transition to clean road vehicles, for both the passenger and freight transport sectors. It then moves on to examine the challenges involved in decarbonising the aviation and maritime transport sectors. For an analysis of (“Avoid” measures) and mode shift (“Shift” measures) measures, see Chapter 3.

Even under the High Ambition scenario, specific local contexts will limit the level of transformation using “Avoid” and “Shift” policies alone. Therefore, “Improve” policy commitments, focused on reducing vehicles’ and vessels’ reliance on fossil fuels, will be critical to decarbonisation. Adopting clean technologies and changing the energy sources to renewable alternatives is also essential, and will require cross-sector collaboration.

Improving vehicles and fuels: Take action now

The ITF Transport Outlook tracks the global transport sector’s carbon dioxide (CO₂) emissions over time. Figure 4.1 shows the total projected emissions from different vehicle types up to 2050 under the two policy scenarios explored in this report (see Chapter 2 for full descriptions).

Road transport vehicles – including passenger cars, two- and three-wheelers (2&3Ws), buses, light goods vehicles (LGVs) and heavy-duty vehicles (HDVs) – account for the majority of transport emissions under both the Current Ambition and High Ambition scenarios (see Figure 4.1). This dominance is most pronounced in urban areas for passenger transport and freight transport modes.

Measures that encourage shifts to cleaner transport modes are most feasible in urban contexts, where various mode choices are available. However, urban emissions only account for 32% of overall passenger CO₂ emissions and 28% of freight CO₂ emissions. Longer trip distances and non-urban transport contexts, where aviation and maritime modes dominate, have fewer options for mode shift policies.

The modelling for this edition of the Outlook also shows that, in the non-urban context, most commodities are already transported using the most cost-effective means (see Chapter 3). Therefore, efforts to decarbonise transport outside urban contexts will rely heavily on the evolution towards cleaner vehicles and fuels.

As governments start implementing policies to shift towards cleaner vehicles, aircraft and vessels, emissions from some vehicle types will start to decrease even under the Current Ambition scenario, but not at the pace required to reach the necessary emission reductions. As outlined in the policies making up the High Ambition scenario, a wider and accelerated adoption of cleaner fleets will be critical.

The pace at which the global fleet transitions to cleaner vehicles will rely on the availability of technology, which varies for different vehicle types. However, it also depends on the renewal rate of the existing vehicle fleet, investment in supporting infrastructure (e.g. electricity grid reinforcements and charging infrastructure), and strong regulatory measures or incentives to promote cleaner vehicles.

Figure 4.1. Emissions by vehicle type under the Current Ambition and High Ambition scenarios, 2019-50

Policy makers considering more ambitious or accelerated actions to decarbonise their transport sectors also need to account for energy and technology supply-chain interdependencies. The global energy mix primarily relies on fossil energy and must move towards clean energy. In addition, grid reinforcements will be required, to ensure sufficient additional capacity is in place to support electrification.

Significant volumes of raw materials – particularly critical minerals for batteries – will be needed to meet the demand for technologies enabling the transition to cleaner fleets. Both the timing and levels of investment in mining, critical material production and manufacturing of clean energy technologies will therefore be crucial to the feasibility of the vehicle fleet transition (ITF, 2021[1]).

Transitioning to clean road vehicles: Essential and attainable

In both policy scenarios explored in this edition of the Outlook, road vehicles have the highest share of CO₂ emissions for the passenger and freight sectors, accounting for 71% of transport emissions in 2019 (see Figure 4.1). Trips by passenger cars and buses make up the majority of passenger activity in urban and non-urban contexts. Passenger cars account for 33% of emissions – the largest share of all vehicle types. Buses, by comparison, only account for 7% of emissions, despite supporting significant passenger demand. HGVs account for 23% of emissions in the transport sector, the second-most of any vehicle type. LCVs, by comparison, have a much smaller share of road emissions (6%).

The electrification of vehicles will play a decisive role in decarbonising transport. Increasing the share of zero-emission vehicles (ZEVs) reduces the carbon intensity of transport activities because they emit fewer emissions over their lifecycle than conventional powertrain technologies that use fossil fuels. Even with the current global average electricity mix, the lifecycle carbon intensity of electric vehicles is approximately 40% lower than fossil fuel-powered vehicles (ITF, 2021[1]).

Policy measures to support the transition to ZEVs (for example, measures aimed at decarbonising electricity grids) can help to drive further reductions in transport emissions. However, such policies must also tackle the effects of other emissions associated with a vehicle’s lifecycle. These include emissions caused by fuel production and distribution, manufacturing processes and end-of-life disposal.

“Peak ICE” for passenger cars is in sight

Internal combustion engine (ICE) vehicles continue to form the majority of the passenger car fleet worldwide. However, many countries have already implemented policies that support an accelerated uptake of cleaner cars. One specific measure involves setting targets for low- and zero-emission passenger car sales. Based on existing policy commitments, ZEVs should make up one-quarter of the global passenger car fleet by 2035.

While the pace of adoption of cleaner vehicles varies by region, the global peak in ICE passenger car sales may have already been reached (see Figure 4.2). Although vehicle fleets should continue to grow under both scenarios, it is notable that the share of ICE vehicles in the global passenger car fleet is not expected to grow if current ambitions are met. By 2050, under the Current Ambition scenario, one-half of all passenger cars worldwide will be ZEVs. By contrast, under the High Ambition scenario, the share of ZEVs in the global passenger car fleet rises to more than 80% (see Box 4.1).

Box 4.1. High Ambition scenario assumptions about zero-emission vehicle adoption

The results in this chapter assume that all newly manufactured vehicles entering emerging economies will be zero-emission vehicles (ZEVs) by 2040, in line with the Global Fuel Economy Initiative’s highly ambitious zero pathway (Cazzola et al., 2021[2]). This pace of change assumes a lag between developed and emerging economies in reaching 100% of ZEV sales and recognises that not all countries will be able to transition at the same pace.

In many emerging economies, second-hand vehicles originating from developed economies make up a large share of newly registered vehicles entering the fleet each year. A recent report by the United Nations Environment Programme examined the second-hand vehicle import regulations of 146 countries worldwide, including provisions on bans, age limits, emissions standards and fiscal measures. Of the countries studied, 61 (mostly in Africa) had no import restrictions at all. A further 18 countries restrict the age of imported vehicles, with a maximum age limit of 9-15 years (UNEP, 2020[3]).

This Outlook assumes that used vehicles are exported to emerging economies with an average age of 15 years. This means a significant share of ZEV adoption in emerging economies will occur through second-hand exports from developed economies. Particularly strong growth in travel demand in emerging economies means that many sales will be for additional vehicles entering the fleet rather than replacing old vehicles through fleet turnover. This leads to a rapid growth in the share of ZEVs in the fleets of emerging economies. However, the global trade in used vehicles and its impacts on zero-emission technology uptake is generally poorly understood.

At the time of writing, work is underway at the ITF to better understand the scale of the used-vehicle market and its impact on the uptake of electric vehicles in emerging economies.

Figure 4.2. Global passenger car fleet by powertrain under the Current Ambition and High Ambition scenarios, 2019-50

Several assumptions underpin the High Ambition scenario. One is the assumption that governments implement their policy commitments and that the 2030 Breakthrough Goals (see Chapter 1) are largely met. One of these goals is to reach 100% ZEV sales for light-duty vehicles (LDVs) in four leading markets (the People’s Republic of China, the European Union, Japan and the United States) by 2035. Achieving this goal would result in a 30-40% share for zero-emission LDVs by 2035.

Of the leading markets identified in the 2030 Breakthroughs, only the EU has a policy aligned with this target: an agreement to phase out the sale of ICE vehicles by 2035 as part of the “Fit for 55” legislative proposals (EC, 2022[4]). The United States has an interim target of 50% sales share by 2030, which is included in the Current Ambition scenario. In April 2023, this target was increased to 60%. Japan also has a sales share target for 2035, but its policy includes non-plugin hybrid-electric vehicles, which are not classed as ZEVs (METI, 2020[5]).

Regarding sales shares, China and the EU are far ahead of other markets. China’s passenger car fleet accounts for 73% of passenger cars in the East and Northeast Asia (ENEA) region. Sales of electric vehicles (EVs) already accounted for over 20% of total passenger cars in China in 2022 (EV Volumes, 2022[6]), a target initially expected to be reached in 2025 (Chinese State Council, 2021[7]). Meanwhile, the EU has also surpassed its 2025 target (European Environmental Agency, 2022[8]). The four leading markets identified in the 2030 Breakthroughs collectively accounted for over half of new passenger car sales in 2021 and have the power to accelerate the global ZEV transition through economies of scale.

Despite a handful of outliers (e.g. Canada, Korea and Norway), EVs accounted for just 1-3% of the passenger car fleet in 2022 in the remaining regions. Even in regions with supportive policies to accelerate the adoption of battery-electric vehicles (BEVs), there remains a lag in the pace of adoption needed to reach the level of decarbonisation set out in the High Ambition scenario. The current trajectory lacks the necessary ambition and concrete interim targets or defined pathways at a global level to achieve the emission reductions needed to reach the Paris Agreement target (UNFCCC, 2021[9]).

Based on current policy commitments, ICE vehicle sales after 2035 will primarily occur in emerging economies, entrenching a two-tier global passenger car market. This finding reflects limited policy support and a range of challenges related to grid reliability, purchasing power and charging infrastructure. Therefore, the transition to cleaner fleets will require interim measures in emerging economies. These measures include replacing old fleets, controlling second-hand imports, and introducing vehicle emission standards (where they are not already available).

A singular focus on passenger cars to transition to cleaner fleets is not a panacea. It can introduce other problems such as significant space consumption and congestion in the urban context. ZEV adoption in the urban passenger fleet is faster for cars than other vehicles (including 2&3Ws and buses). This is because policy incentives focusing on accelerating the adoption of BEVs for passenger cars have succeeded in many regions and form part of many countries’ Nationally Determined Contributions (see Chapter 1).

As the gap in purchase costs between BEVs and ICE vehicles closes, blanket applications of purchase incentives for EVs should be reconsidered, as they may not align with the goals of a more equitable transition. Lower-income consumers tend to be more sensitive to price and may rely more on private vehicles for access to work opportunities. Progressive rebate levels based on income can have more equitable outcomes. They may also be more cost-effective than other types of incentives (DeShazo, Sheldon and Carson, 2017[10]).

While policy measures that aim to accelerate the adoption of cleaner passenger cars in urban contexts are important, they should complement measures that decrease passenger car use, such as parking and access restrictions. Policy makers might also consider purchase incentives for 2&3Ws, which have successfully increased their shares of the urban vehicle fleet in some contexts and consume less urban space. Similarly, the demand for electric bicycles (e-bikes) can be more elastic compared to ZEVs. Therefore, purchase incentives for e-bikes may also be more cost-effective and equitable than similar incentives for passenger cars (Bigazzi and Berjisian, 2021[11]).

Collective and mass transit fleets offer an opportunity to advance lower-emission vehicles

Under the Current Ambition scenario, emissions from all urban modes (except passenger cars) are expected to increase due to increasing demand. However, while emissions from collective and mass-transit modes (i.e. passenger trains and buses) will increase, they deliver significantly lower CO₂emissions per passenger-kilometre than passenger cars. Buses are three times as efficient as passenger cars on this metric, while passenger trains cause seven times fewer CO₂ emission per passenger-kilometre.

Around 30% of global track-kilometres are already electric (UIC, 2022[12]; RailwayPro, 2021[13]). However, fossil fuels power most of the world’s bus fleets (see Figure 4.3). The main policy commitment targeting the decarbonisation of buses is a global memorandum of understanding (MOU) endorsed by more than 25 countries to reach 100% ZEV sales share for medium- and heavy-duty vehicles by 2040 (TDA, n.d.[14]). Other national and sub-national governments have committed to procuring only zero-emission public fleets. For example, a co-ordinated sub-national programme in India has sanctioned the procurement of over 5 000 electric buses, making it one of the largest markets for this type of ZEV (UITP, 2020[15]).

Latin America is also working towards cleaner bus fleets, with many cities accelerating their deployment of zero-emission buses, notably Santiago, Chile (Galarza, 2020[16]) and Bogotá, Colombia (Bedoya, 2021[17]). Nevertheless, based on existing commitments to transition to zero-emission fleets globally, only about one-quarter of global buses are expected to be battery-electric by 2050 (see Figure 4.3). Therefore, the Current Ambition scenario is far behind the 2030 Breakthrough target for buses, which sets a goal of 100% ZEV sales by 2030 in four leading markets (China, the EU, Japan and the United States). To reach the emission-reduction targets under the High Ambition scenario, buses must transition to low-emission and ZEV fleets.

Figure 4.3. Global bus fleet by powertrain under the Current Ambition and High Ambition scenarios, 2019-50

Public and regulated collective modes offer policy makers direct pathways to influence fleet renewal with lower-emission vehicles and stricter vehicle standards for shared fleets. Urban bus fleets are a prime candidate for the transition to cleaner fleets. Specifically, these fleets are ideal for direct electrification due to their intensive and predictable daily usage. In addition, centralising the charging infrastructure for urban bus fleets is beneficial in dense and space-constrained urban settings.

Given the potential for electric urban bus fleets, the High Ambition scenario assumes over 80% of buses globally can be electric by 2050, resulting in significant decreases in emissions from these fleets in the urban setting. Achieving this goal entails introducing purchase incentives and more stringent emission standards for urban buses. These measures can be paired with infrastructure investments to improve operations in urban environments, such as dedicated lanes and other transit priority measures.

Given the share of passenger trips undertaken using informal public transport in emerging economies, replacing very old vehicles will significantly affect emissions. Therefore, scrappage schemes can accelerate the shift towards cleaner vehicles in these contexts. In addition, economic growth should lead to a shift to more formalisation of transport modes. This shift will bring urban bus fleets under the purview of regulation and standards that will enhance their emission performance.

Policy makers can also improve access to finance for fleet renewal by co-ordinating procurement, as was demonstrated in India, and targeting purchase incentives to savings and credit co-operatives or other small and micro-enterprises operating informal transport fleets. In non-urban settings, policy levers for decarbonising passenger transport activity are far more reliant on transitioning to a cleaner vehicle fleet due to the limited availability of alternative transport options. Policy incentives should target short- and long-distance coach operators in these contexts to renew their fleets.

Transport authorities can incorporate more stringent emission standards, and sustainability and emissions-related criteria, in procuring public and regulated collective vehicles. In concession agreements, they can also offer financial incentives to operators for deploying lower-emission vehicles or stipulate minimum requirements for the vehicles used by the successful bidder (ITF, 2020[18]).

Licensing regulations for taxis, private hire or shared fleets can also include emissions standards. For example, in the United Kingdom, Transport for London (TfL) has incorporated a “zero-emission capable” (ZEC) requirement for taxis licensed since 2018 and has phased out the licensing of diesel vehicles as taxis. Between 2018 and 2021, TfL licensed over 4 000 new ZEC vehicles, accounting for nearly 30% of the private vehicle hire fleet. As of 2023, all new private hire vehicles are expected to be ZEC (TfL, 2020[19]). A permitted maximum age of a vehicle used as a taxi is 15 years.

TfL has also introduced grants to support drivers in purchasing lower-emitting vehicles and is working with partners to install over 300 public rapid charging points (TfL, n.d.[20]). In Belgium, the Brussels-Capital Region has incorporated an “Ecoscore” in its regulations governing carsharing (Government of the Brussels-Capital Region, 2013[21]).

There is scope for a quiet low-carbon revolution in freight activity

Decarbonising road freight has received less attention than passenger transport modes, but the ingredients are now in place for a quiet revolution in low-carbon logistics. Commercial vehicle operators primarily decide whether to replace their fleets with new vehicles based on financial grounds. EV technologies have developed so that many operational use cases will likely soon be cost-competitive with conventional fossil-fuel-powered vehicles.

The electrification of road freight is likely to begin with small vehicles and scale up gradually to the largest heavy trucks (see Figure 4.4). In many applications, LCVs produced at scale can already be cost-competitive with conventional diesel vehicles, given current battery prices (ITF, 2020[22]). Their operating conditions, which include high annual mileage and predictable range requirements, make them suitable for adopting electric powertrains, particularly in urban environments and over shorter trips. Electrification can maximise operational cost savings since running and maintenance costs are significantly lower than conventional vehicles.

In Europe, electric vehicles with a mass of more than 7.5 tonnes are likely to reach total cost of ownership (TCO) parity with conventional diesel vehicles in the 2030s (ITF, 2022[23]). However, policy measures to reduce barriers to adoption must be in place to solidify confidence in the transition and reduce uncertainty. The 2030 Breakthroughs set a sales target of 100% for HGVs by 2040 in leading markets (China, the EU, Japan and the United States). A total of 25 countries have signed the global MOU for medium- and heavy-duty vehicles, which mirrors this target (TDA, n.d.[14]).

The High Ambition scenario assumes that leading economies which have not yet signed the global MOU meet similarly ambitious targets and that all other countries meet the targets with a 10-year lag to account for contextual barriers. The result is a faster uptake of zero-emission freight vehicles in the High Ambition scenario compared to the Current Ambition scenario (see Figure 4.4).

Figure 4.4. Global shares of zero-emission heavy-goods vehicles and light commercial vehicles under the Current Ambition and High Ambition scenarios, 2019-50

With the appropriate policy action to solidify the business case for low-carbon road freight, ZEV uptake can accelerate its pace, as assumed in the High Ambition scenario. Policies to achieve the High Ambition scenario include purchase subsidies, road-user pricing measures, and carbon and fuel taxes. These policy instruments will need to evolve at different stages of the transition.

In the early stages, purchase incentives and road-toll exemptions for ZEVs can increase initial uptake and kick-start economies of scale to reduce purchase costs. These measures should also target smaller owner-operated enterprises to offset ZEVs' higher upfront purchase costs. In the urban context, freight activity overwhelmingly relies on motorised vehicles, even for first- and last-mile deliveries. Demand is also expected to grow, meaning that incentives for ZEVs will need to be balanced with urban space regulations to shift the activity towards zero-emission 2&3Ws and cargo bikes (see Chapter 3).

In later stages of the transition, policy instruments can shift towards measures that more proactively discourage the continued use of ICE vehicles, or ban new ICE sales altogether, to reach government-proposed targets. In addition to regional or national policies for phasing out the sale of new ICE vehicles, urban authorities can adopt measures to encourage faster adoption of cleaner vehicles.

Restricted access zones – also known as low-emission zones (LEZs) or environmental zones – limit the access of certain vehicles to specific areas to reduce pollution and other environmental emissions. Vehicles entering LEZs must meet certain emissions criteria or standards, depending on the design and objective of the zone.

A new generation of zero-emission zones (ZEZs) will emerge in the upcoming years as countries enact national regulations to promote the adoption of ZEVs in cities. In the past, the main objective of such zones was often to reduce pollutant emissions (e.g. particulate matter) by encouraging decreased traffic and renewed fleets (Ellison, Greaves and Hensher, 2013[24]). In the future, they can include reducing CO₂ in their focus to bring about vehicle fleet changes.

These policies, if enacted by urban authorities, can achieve dual benefits: reducing congestion that may result from the lower costs associated with operating ZEVs and prioritising collective and shared modes in urban environments. Chapter 5 goes into further detail regarding the co-benefits that can be achieved with cleaner vehicle fleets in urban environments.

Charging and refuelling infrastructure: Make or break

The pace of deployment of charging and refuelling infrastructure could create a bottleneck in the transition to cleaner vehicles and will require stronger commitment and investment from policy makers. Globally, there were approximately ten electric LDVs per publicly available charger in 2021, and just over 2.4 kilowatts of available electricity per EV. The global growth in charging infrastructure has mostly been driven by the high deployment of publicly available fast chargers in China (IEA, 2022[25]).

Installing an EV charging point can take up to one year, or much longer for fast chargers. As greater policy support leads to increases in BEV sales, there is, therefore, a risk of a growing gap between the number of BEVs on the roads and the number of publicly available charging points. While home-based EV charging will be an important part of the solution to this problem, public charging options will be necessary to reduce range anxiety.

Various governments have committed to investing in the necessary EV charging infrastructure through capital and operational subsidies, public-private partnerships, and developing regulations and pilot programmes. As a result, over 1.8 million publicly available EV charging points were already in place worldwide in 2021 (IEA, 2022[25]). However, reinforcing the electricity grid to support the expanding EV charging network will take time, as most countries still only have less than half of the power output required by 2030 to support electric fleets (Rajon Bernard et al., 2022[26]).

Deploying charging infrastructure also requires a network approach, including comprehensive standards and policy and process co-ordination across jurisdictions (e.g. between the transport, land-use and energy sectors). It will be important to ensure that infrastructure rollout does not delay the uptake of cleaner fleets. Therefore, policymakers must increase their understanding of user and operator requirements when planning for and funding EV charging solutions (ITF, 2022[23]).

For larger vehicle classes and longer-distance freight activity, the range requirements make charging solutions more complex. For other vehicles, including passenger cars, urban bus fleets and LCVs operating in urban environments, overnight charging can be sufficient. For public transport authorities and freight operators in these contexts, depot and warehouse charging can suffice. Instead, policy makers could target incentives at small and medium-sized enterprises, which may be slow to install infrastructure due to the capital costs involved (ITF, 2022[23]).

Where depot and warehouse charging are inadequate to meet the range needs, en-route public charging infrastructure will be required. Wired stationary charging is the most widely available option, but this may pose challenges for operations and delay the transition for long-distance coaches or freight operators who require flexibility in their operations. Charging infrastructure along vital corridors serving trips in non-urban settings will accelerate the transition to ZEVs.

For example, the US Federal Highway Administration (FHWA), through its Alternative Fuels Corridor (AFC) programme, designates an inter-state network of facilities for charging or refuelling vehicles using alternative fuels (e.g. EV charging or hydrogen refuelling). Through the AFC programme, the FHWA can work with public and private partners to deploy refuelling infrastructure in places that require collaboration between several jurisdictions. The programme also takes a network approach to providing refuelling infrastructure, which can alleviate range anxiety for users considering switching to ZEVs (USDoT FHWA, 2021[27]).

The European Commission’s proposed alternative fuels and infrastructure regulation (part of the “Fit for 55” package) also includes mandatory requirements for recharging and refuelling infrastructure for road vehicles. Co-ordinated cross-jurisdictional approaches to deploying charging infrastructure can address major barriers that may otherwise delay the accelerated uptake of ZEVs. These barriers include grid capacity, complex permitting processes, land-use designations, and funding constraints.

Some jurisdictions are also considering electric road systems (ERS), which allow for the transfer of electricity between moving vehicles and the road, due to their potential benefits (in terms of reduced battery sizes for heavy-duty vehicles) and efficiency (compared to stationary charging). China, Europe and the United States are all testing different types of ERS. The capital costs of such systems are high but could potentially be the lowest cost technology pathway compared with high power stationary charging (Rogstadius, 2022[28]).

Recouping these costs will depend on the rate of utilisation of ERS. Cross-sectoral collaboration with the energy sector and across jurisdictions will be a prerequisite to successfully deploying ERS. As an example, France is exploring a national ERS roadmap, which would be similar to the network approach of the FHWA’s AFC programme (Ministère de la Transition écologique, 2021[29]).

There is a potential financial risk of low utilisation in the early stages of ZEV adoption. Public road authorities can also explore concession agreements with private entities for ERS design, financing, construction, operation and maintenance to address this risk. Such agreements could be paired with road-pricing measures to finance the infrastructure, modified to target users of the ERS. The financial implications of deploying EV charging infrastructure are described further in Chapter 6 of this report.

A way to go: The challenge of decarbonising ships and aircraft

The aviation and maritime sectors are considered “hard-to-decarbonise” due to the high costs of emission-reduction measures and their comparatively low technological readiness. Furthermore, most emissions produced by ships and aircraft occur on long-distance journeys, which are difficult to electrify and require high-density fuels.

The aviation sector accounts for 14% of global transport emissions. Passenger and freight emissions from aviation are linked: nearly half of all air freight is transported in the fuselages of passenger aircraft (JADC, 2021[30]). By 2050, in the Current Ambition scenario, emissions from aviation are expected to decrease by 24% (see Figure 4.5). The main reason for this is the significant improvement in the carbon intensity of the fuel mix assumed in the Current Ambition scenario.

The Current Ambition scenario includes assumptions based on highly ambitious policies to decrease the carbon intensity of fuel, notably the EU’s “ReFuel EU” policy and the Sustainable Aviation Fuel Grand Challenge in the United States. The policies envisage a massive scale up in the share of low carbon aviation fuels in their respective regions. These ambitious policies and continuing energy efficiency improvements to new aircraft are able to more than offset the strong increase in demand. The High Ambition scenario applies similar levels of ambition in decarbonising aviation fuels globally, rather than being limited to the UCAN and European regions.

While the maritime sector does not produce a significant share of global passenger emissions, it accounted for 29% of freight emissions in 2019. Under the Current Ambition scenario, maritime freight emissions will increase by 35% by 2050. (see Figure 4.5). These estimates are derived from a voyage-based assessment, which allocates emissions from the port of origin to the port of destination for shipping voyages. Increasing transport activity in the sector is the prime driver of these changes.

Figure 4.5. Aviation and maritime freight transport emissions under the Current Ambition and High Ambition scenarios, 2019-50

Efforts to decarbonise the aviation and maritime sectors are expected to rely on the large-scale adoption of alternative low-carbon fuels, especially over longer distances (IEA, 2020[31]). Examples of such fuels include biofuels compatible with existing infrastructure and electrofuels (e-fuels), which are currently only in the early stages of development. Scaling up the production of alternative low-carbon fuels through targeted policy support will decrease costs and thus increase market penetration by reducing long-term uncertainties.

However, the emission-saving potential of alternative fuels depends on their production pathways. In the case of alternative fuels from biogenic pathways (biofuels), the carbon footprint needs to include indirect changes in land use, together with the electricity required for hydrogen production. For e-fuels, which are produced using electricity, the carbon intensity of the electricity mix determines the e-fuel’s carbon footprint. Sourcing the carbon feedstock (e.g. direct air capture) and producing hydrogen (e.g. water electrolysis) require large amounts of energy.

Properly regulating the carbon intensity of alternative fuels will therefore be crucial to ensuring net emission savings compared to fossil fuels. Policy makers also need to introduce so-called additionality criteria to ensure the installation of new renewable energy capacities for hydrogen production rather than allocating existing green electricity, which would deteriorate the carbon intensity of the energy mix (ITF, 2023[32]).

Finally, there will be significant competition for alternative fuels between industries. To maximise economy-wide emission savings, policy makers must prioritise alternative fuels when cost and technology barriers make other technologies (e.g. electrification) unfeasible.

A significant constraint affecting the transition to zero-emission fleets for the aviation sector is the availability of technology that can be deployed at the scale required. The commercial viability of alternative fuels and energy sources is a more significant constraint for the maritime sector. To transition these sectors towards zero-emission futures, policy makers must explore a range of measures that can accelerate the development of technology solutions while targeting demand. Examples of such measures include investment in research and development, fuel-blending targets to reduce the carbon intensity of fossil fuels, and carbon-pricing measures to reduce the price gap between fossil fuels and alternative fuels.

Sustainable aviation fuels will be a mainstay of emission reductions

The aviation sector acknowledges that it needs to decarbonise. Both industry groups and governments have pledged to reach net zero by 2050. Representatives of the world’s major aviation industry associations and largest aircraft and engine makers have done so via the 2021 “Commitment to Fly Net Zero 2050” declaration (ATAG, 2021[33]).

Meanwhile, governments have signed up to the 2022 International Civil Aviation Organisation (ICAO) long-term global aspirational goal for international aviation (ICAO, 2022[34]; IATA, 2021[35]). This net-zero goal is ambitious; reaching it will require several emission-reduction measures, including adoption of low-carbon drop-in fuels, more efficient aircraft and operations, novel propulsion technologies, carbon pricing and offsets for residual emissions (ITF, 2021[36]; ITF, 2023[32]).

The industry expects most emission cuts to come from sustainable aviation fuels (SAFs), which are liquid drop-in fuels compatible with existing aircraft. SAFs are produced from biomass or synthetically from hydrogen and captured carbon using a power-to-liquid (PtL) process. The most market-ready of the various types of SAFs are those produced using first-generation bioenergy. Such fuels could provide an emission-reduction option for the short term if produced from sustainable feedstock. Advanced bioenergy and PtL pathways generally offer larger emission savings but are in an earlier stage of technological development.

Today, SAF costs amount to many multiples of the costs of conventional kerosene, and the supply of SAFs also remains limited. This is why SAFs currently comprise less than 0.01% of the aviation fuels market (ITF, 2023[32]). Nevertheless, industry and policy announcements indicate a strong increase in the coming years. For example, the European Commission is preparing legislation that would lead to an 85% market share for SAFs by 2050 (European Parliament, 2022[37]).

The United States has an even higher target, and the government plans a full transition to SAFs by 2050. This is reflected in the assumptions for both policy scenarios in this edition of the Outlook. The High Ambition scenario also assumes increasing shares of cleaner fuels in compliance with more ambitious global SAF uptake (see Figure 4.6).

Figure 4.6. Share of aviation passenger-kilometres by propulsion technology and fuel type, High Ambition Scenario, 2019-50

Hydrogen- and electric-powered aircraft use novel propulsion technologies and could complement conventional aircraft fuelled by SAFs in decarbonising the sector. Hydrogen aircraft can either use hydrogen combustion turbines (similar to conventional jet engines) or onboard fuel cells to convert hydrogen to electricity to propel the aircraft. Due to technological limitations, they are only viable for short- to medium-haul flights and are less likely to substitute for long-haul flights (see Box 4.2).

Several manufacturers are working on both hydrogen propulsion technologies and electric aircraft, which could enter the market in the 2030s. Although these technologies are currently unavailable, existing analyses estimate that under the High-Ambition scenario’s rate of technology development, the maximum range of a hydrogen aircraft capable of transporting 165 passengers could be 3 400 kilometres, while the range of a battery-electric aircraft carrying 19 passengers could be 350 kilometres (Mukhopadhaya and Graver, 2022[38]; Mukhopadhaya and Rutherford, 2022[39]).

The High Ambition scenario explored in this edition of the Outlook also assumes an ambitious rate of technological development. Under this scenario, by 2050, hydrogen aircraft could account for an estimated 8% of global medium-distance passenger-kilometres and 4% of short-distance passenger-kilometres. Meanwhile, under the same conditions, battery-electric aircraft could account for 18% of short-distance aviation passenger-kilometres (see Figure 4.7). These figures cover a high share of flights, but only a small share of energy use and emissions in the sector, most of which come from long-distance flights.

However, the High Ambition scenario does not account for several challenges associated with novel aircraft propulsion technologies. These challenges increase uncertainty about when such technologies will become available. For example, airports would need to be equipped with new refuelling infrastructure to service aircraft fitted with such technologies. Implementing the technologies themselves could also require adaptations to current operating practices (ITF, 2023[32]).

Figure 4.7. Share of aviation passenger-kilometres by propulsion technology, fuel type and trip distance under the High Ambition scenario, 2050

Incentives can assist the SAF industry in delivering the emission savings needed to reach the aviation sector’s 2050 Net-Zero objective. Supporting an early scale-up of production and deployment can promote cost reductions today to assist mass adoption tomorrow. Strict requirements for transparent emission savings and other sustainability criteria would help safeguard the environmental performance of SAFs. In addition to their low-emission profile, SAFs provide opportunities for industrial development and increasing fuel-supply resilience. Countries investing in SAF production can create value at home and evolve from fuel importers to exporters (ITF, 2022[40]).

A switch to more efficient aircraft will complement the switch to SAFs. New aircraft generations are usually 25-30% more efficient than previous generation models. Airlines generally invest in more efficient aircraft to reduce fuel costs, while aircraft manufacturers introduce improvements, particularly in more efficient engines (Eurocontrol, 2020[41]). Improving the efficiency of existing aircraft technologies will remain important even as the market share of low-carbon fuels increases. This is because more efficient aircraft buffer against fuel cost increases related to the more expensive SAFs.

Reducing fuel use can prevent feedstock supply bottlenecks for SAF production. Improving aircraft operations can also reduce emissions from the sector. For example, pooling responsibility for air-traffic control between countries can support more direct flight paths. This operational improvement could reduce fuel use in Europe alone by 9-11% (Eurocontrol, 2020[41]).

Box 4.2. Modelling novel propulsion technologies and fuels for aviation

First presented in 2019, the ITF’s non-urban passenger model simulates the development of transport activity, mode shares and carbon dioxide (CO₂) emissions for intercity and regional transport to 2050. The model divides the world into almost 1 200 zones, each with a city’s airport or airports at the zones’ centre. It then estimates passenger numbers, passenger-kilometres, mode combination, energy consumption and CO₂ emissions by mode for each zone and all routes between zones. The model covers the following transport modes: air, bus, ferry, rail and road (including cars and motorcycles). For air and ferry-based transport modes, only intercity activity data is available.

The model undergoes constant updates and improvements. For this edition of the Outlook, it has been adapted to better represent the use of novel propulsion technologies such as electric- and hydrogen-propelled aircraft, and sustainable aviation fuels (SAFs). The prospects for electric and hydrogen aircraft depend heavily on developing the respective technologies and costs. The availability of cheap renewable electricity and green hydrogen are prerequisites for scaling up both technologies.

Electric and hydrogen aircraft technological limitations, fuel efficiency and capital expenditure for aircraft replacement are crucial factors determining which conventional flights become replaceable. Carbon taxes also increase the cost advantage of electric and hydrogen aircraft over kerosene use in conventional aircraft. The prospects for SAFs depend on government and industry mandates that progressively enforce the use of fuel blends in routes supplied by conventional aircraft.

For each air route, the model assesses the optimal propulsion technology and fuel type every five years in three steps:

1. It verifies that the route complies with the technological limitations of electric and hydrogen aircraft (range and passenger capacity per flight).

2. When SAF mandates exist at the route origin, it updates the fuel cost of conventional aircraft to account for the added cost of using SAF.

3. It evaluates whether the fuel cost of conventional aircraft and carbon taxes exceed the costs associated with electric and hydrogen aircraft (capital expenditure and fuel costs). If so, new aircraft replace conventional ones on all flights that operate on the route.

The High Ambition scenario explored in this edition of the Outlook reflects more advanced aspirations for technology deployment, fuel mandate implementation, carbon taxation and evolution of fuel costs. In the High Ambition scenario, battery technology for electric aircraft reaches 500 watt-hours per kilogramme (Wh/kg), allowing 19-passenger aircraft to operate routes of 350 kilometres and 90-passenger aircraft to cover 300 kilometres by 2050 (Mukhopadhaya and Graver, 2022[38]).

Meanwhile, hydrogen aircraft with a capacity for 165 passengers and a range of 3 400 km are assumed to become available in 2035 (Mukhopadhaya and Rutherford, 2022[39]). However, high fuel costs relative to conventional kerosene (Mukhopadhaya and Rutherford, 2022[39]) and additional capital expenditure requirements compared to conventional aircraft could delay the widespread adoption of hydrogen-powered aircraft until 2050 (Fuel Cells and Hydrogen 2 Joint Undertaking, 2020[42]).

Access to low-carbon alternative fuels will be critical for shipping

Like the aviation sector, the maritime sector and its international regulator, the International Maritime Organization (IMO), recognise the need to reduce emissions from shipping and associated activities. The IMO’s emission-reduction strategy, adopted in 2018, with a level of ambition of at least 50% lower absolute emissions by 2050, compared to 2008 (IMO, 2020[43]). The strategy identifies short-, medium- and long-term candidate measures to reach this level of ambition. Several other measures to improve new ships’ energy efficiency have been in place since 2015, becoming more stringent every five years, while voluntary guidance on operational measures aims to improve efficiency.

The IMO also agreed on additional measures in 2021, including a technical requirement to improve the energy efficiency of existing ships and requirements for reductions in the operational carbon intensity of existing ships. However, the emission reductions resulting from these additional measures are not expected to be significant. They are not likely to contribute to efforts to reach the level of ambition stipulated in the IMO Initial GHG Strategy (ITF, 2022[44]).

The High Ambition scenario assumes a cleaner maritime fleet, achieved via the complete adoption of low-carbon alternative fuels for all shipping activity, in line with the 2030 Breakthroughs goal for 2050. It also assumes that 15-20% of shipping will be electric-powered, expanding on existing electrification projects in short-sea shipping and coastal shipping activities.

Like the aviation sector, the maritime sector must rely on a combination of measures to achieve the emission reductions outlined in the High Ambition scenario. These measures include low-carbon drop-in fuels, investments in zero-emission propulsion technologies (including wind power), onboard energy-efficiency measures, retrofitted vessels, and investments in port infrastructure. Policy makers will need to consider alternative fuels' availability and carbon intensities, the commercial viability of zero-emission ships, and the costs of supporting port infrastructure.

Although not yet widely used, there is increasing interest among shipping companies in low-carbon and alternative fuels. These include biofuels – widely used in road transport and compatible with existing technologies and infrastructures – and synthetic fuels produced from PtL pathways. While the latter can also be compatible with existing infrastructures and technologies, they are much costlier than other fuels and only at an early stage of technological readiness. Policy makers could explore fuel-blending mandates for drop-in fuels to ensure low-carbon alternative fuels are increasingly used in shipping and begin incentivising synthetic fuel development through support for research and development.

Methanol, which has been trialled in several pilot projects, is another promising application of low-carbon alternative fuels. It is compatible with modified conventional engines on its own or in conventional diesel blends. The IMO approved methanol in its Interim Guidelines for Low Flash Point fuels. Various shipping companies have ordered methanol vessels, and the fuel is available through existing infrastructure in various ports globally. However, given current production levels and techniques, the lifecycle emissions of methanol would be higher than conventional shipping fuels (ITF, 2023[32]).

These alternative fuels will only significantly contribute to decarbonising the maritime sector if the energy required for their production comes from low-carbon sources. Given the current high carbon-intensity of the production of these fuels, policy makers can play a role in addressing the production challenges. For example, increasingly stringent fuel standards could be introduced as part of a combination of measures to incentivise the use of alternative fuels. The FuelEU Maritime standard is one example and is similar to a proposal for a global fuel standard presented to the IMO (ITF, 2022[44]).

Policy makers can also work with private actors to establish an evidence base for new technologies and identify opportunities to bring feasible options to scale. For example, in 2015 the Norwegian government and shipping companies formed a public-private partnership, the Green Shipping Programme (GSP), to act as a test bed for decarbonising shipping. The programme has completed various pilot projects and continues to develop an evidence base for scalable solutions (Green Shipping Programme, n.d.[45]).

Another challenge in accelerating the uptake of low-carbon alternative fuels is the rate of renewal for vessels. Ships have lifetimes of up to 25 years, meaning that a significant share of the vessels in service today are likely to still be in service in the next decade (ITF, 2020[46]). As such, the low commercial viability of zero-emission ships can create a bottleneck that slows the uptake of zero-emission fuels and technologies. Ensuring all ships have access to zero-emission fuels will require policy support in the form of investments and adjustments to port infrastructure to accommodate the transition.

More specific examples of required adjustments include deploying new bunkering infrastructure, electric charging systems where battery-powered ships can operate, and energy supply infrastructure. Port infrastructure costs are expected to be high; therefore, the timing of investments will need to be co-ordinated to help facilitate the uptake of low-emission ships. Ship owners must also retrofit existing ships with energy-efficient technologies and make them zero-emission-ready.

Training for seafarers in the handling of new fuels and technologies will also be needed as port of any strategy to decarbonise the shipping sector. Hundreds of thousands of seafarers could need some level of extra training for the new fuels and engines that would be introduced. However, uncertainty about the future of shipping fuels is delaying the sector being able to start the training. Despite this, it is still possible to begin preparing training establishments for future needs in recognition that, regardless of the fuels, there is a “general trend towards “higher-skilled” seafarers” being needed in the future (Kaspersen, Kalsen and Helgensen, 2022[47]; Maritime Just Transition Task Force, 2022[48]).

Policy makers will need to work with private actors to mitigate some of the costs of the transition and can play a crucial role by providing cross-jurisdictional support for technical design requirements. A combination of measures will be needed to accelerate the decarbonisation of the maritime sector. Given the rate of fleet turnover, fuel standards and technical and design measures to improve the efficiency of ships should be combined with market-based measures, which can improve the cost-competitiveness of alternative fuels.

Pricing and regulation will play crucial roles in decarbonising hard-to-abate sectors

In the short term, in addition to increasing production capacity for low-carbon alternative fuels, policy measures can focus on closing the price gap between these fuels and high-carbon fuels. Carbon pricing, in particular, can reduce price differences in the aviation and maritime sectors, in which fuels are currently generally exempt from taxation. Furthermore, existing carbon-pricing schemes often exclude shipping or are limited to regional flights (ITF, 2020[46]; ITF, 2021[36]).

So long as fuel tax exemptions (a form of subsidy) remain in place for aircraft and ships, alternatives to current conventional fuels are at a disadvantage. These exemptions run counter to the goal of decarbonisation and should be eliminated. Carbon pricing can also generate significant revenues. When paired with more stringent targets for low-carbon fuel production, it can encourage improvements in the fuels and fleets used in the aviation and maritime sectors (ITF, 2022[44]; ITF, 2021[36]).

Carbon-pricing schemes for the aviation sector exist at the national and regional levels. However, as shown by the example of the EU’s Emissions Trading System (ETS), the success of such schemes depends on establishing the correct price; under-pricing carbon will not produce the desired impetus for change (ITF, 2021[36]). The modelling for this edition of the Outlook, which suggests that under-pricing air travel compared to other modes results in a slight increase (0.2 percentage points) in aviation’s mode share, supports this lesson.

Any established carbon price needs to be adequately high to be effective and support the further development of alternative fuels, especially in a carbon pricing scheme’s early years (ITF, 2021[36]). A global approach to pricing instead of regional or multilateral taxation would avoid market distortions. It would also reduce the risks of production activities being transferred to regions with less stringent climate policies or of planes carrying excess fuel on board “to avoid refuelling in countries with higher fuel costs, [which leads] to excess fuel burn and CO₂ emissions” (ITF, 2021[36]).

For the maritime sector, a global pricing scheme implemented by a body such as the IMO would minimise the effect of pricing on relative competitiveness. It could be more palatable than national or supra-national schemes that include shipping (ITF, 2022[44]). Shippers will also need access to low-carbon fuels, and infrastructure for refuelling, and recharging will be required at ports.

An additional benefit of introducing global maritime carbon pricing is the opportunity to allocate revenues to these actions, particularly in small island developing states and least-developed countries highly exposed to the effects of climate change. Revenues from carbon pricing can also help increase production capacities for low-carbon alternative fuels and technologies (Dominioni and Englert, 2022[49]).

The IMO is currently considering several carbon-pricing proposals that address the revenue gap created by the maritime sector’s exemption from carbon taxes. These proposals were evaluated as part of the ITF’s Common Interest Group on Decarbonising Shipping (see Box 4.3). Carbon pricing mechanisms designed as so-called feebate schemes (to reward early adopters of zero-emission operations), as well as regulations related to technical design requirements for ships, and standards for low-carbon fuels, could form a comprehensive suite of measures (ITF, 2022[44]). Introducing a feebate system in the short term would be especially beneficial in addressing the challenge of commercial viability for new technologies and alternative fuels.

Box 4.3. The ITF’s Transport Decarbonisation: Driving Implementation Project

The ITF project “Transport Decarbonisation: Driving Implementation” (DT Implement) aims to help identify ways to cut carbon dioxide (CO₂) emissions in three hard-to-decarbonise areas of transport: aviation, shipping and heavy-duty road freight. Their successful transition to low-carbon (and, ultimately, zero-carbon) operation is vital to achieving the international community’s climate goals.

Decarbonising these three areas will require approaches that differ from those available for other transport modes. Unlike urban demand management, or electrifying household cars, these hard-to-abate sectors face more significant challenges to achieving a cost-effective transition. There is debate over which emission-reduction technologies to pursue for these modes, and some are not yet ready for implementation. Therefore, policy support and international co-operation to decarbonise these modes effectively is crucial for success.

The work for the DT Implement project is carried out by three Common Interest Groups. These are country-led stakeholder fora focusing on one mode of transport each. The Common Interest Groups bring together experts from governments, industry, the research community and non-governmental organisations. Through peer-to-peer exchange, the groups will help identify areas of agreement and where further work needs to be done.

The aim is to set common priorities in research and innovation that will support the decarbonisation of aviation, shipping or heavy-duty road freight, and to facilitate the deployment and commercialisation of relevant solutions. Common Interest Groups are open to ITF member countries, other invited countries, industry and major transport stakeholders. Currently, 31 countries take part in the three Common Interest Groups.

The DT Implement project is part of the ITF’s wider Decarbonising Transport initiative. It is funded by the European Commission.

Source: https://www.itf-oecd.org/dtimplement.

Mind the differences: Why regional disparities could delay decarbonisation

Europe and UCAN have historically produced the highest share of transport emissions but are now beginning to decouple their passenger transport emissions from the associated transport activities (Saidi Kais, 2016[50]). They have also made ambitious policy commitments to transition to ZEVs. As income and population grow in low-income and low-middle income countries, so will demand for travel. Without higher policy ambition and support to transition to cleaner fleets in these regions, emissions will continue to grow.

To reach the Paris Agreement target, the decoupling of transport activity and emissions must happen sooner in all regions and transport sectors. The difference in emissions between the two scenarios is greatest in low and low-middle-income countries. This indicates how much greater a change they have to divert from the current trajectory to achieve the objectives of the High Ambition scenario (see Figure 4.8).

Policy makers have an opportunity to bridge this gap with targeted action. Urban contexts continue to provide some of the best opportunities for the transition to cleaner fleets. For example, collective fleets, typically within the direct control of public authorities, make it possible to optimise charging infrastructure (ITF, 2021[1]).

Financial support from development partners will play a role if global decarbonisation is to be achieved. High capital costs remain a challenge for the transition, compounded by the difficulties in attracting investment due to perceived risks. The perceived institutional and regulatory capacity of recipient countries can demonstrate the financial viability needed to attract institutional investment (OECD, 2022[51]). For example, the co-ordinated procurement of electric buses in Chile, Colombia and India can demonstrate supportive regulatory frameworks and project implementation capacity.

Similar approaches can be pursued in other contexts, provided there are accessible funding sources. Public climate finance is instrumental in improving large investments' financial viability and mobilising private finance. In 2010, the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) adopted the goal of raising USD 100 billion annually to support climate action in emerging economies across all sectors.

The annual target was due to run until 2020 but has since been extended until 2025. So far, the funding target has not been reached in any single year. However, the global transport sector has received 17% of the finance available for climate mitigation, while the energy sector has received a further 46% (OECD, 2022[51]). In 2016-20, lower-middle-income and upper-middle-income countries were the main beneficiaries of climate financing allocations, typically for “shovel-ready” projects with associated revenue streams.

Figure 4.8. Passenger-kilometres compared to passenger carbon dioxide emissions by region

This focus on “shovel-ready” projects can create barriers to access for low-income countries, which may experience institutional constraints and require adaptation activities such as capacity building before committing to larger-scale projects. Many countries have identified the lack of technical and staffing resources as barriers to regularly reporting on funded activities. This, in turn, creates a lack of transparency and becomes another barrier to accessing funds.

In these contexts, climate financing should also focus on enabling local actors to develop comprehensive plans and prioritisation frameworks that identify “quick-win” projects when funding is available (OECD, 2022[51]). Policy makers in these contexts can benefit from various tools to guide investment decisions in their transport sectors and establish the groundwork to access funding (see Box 4.4).

The decoupling of freight emissions from transport activity is more complex due to the role of international trade on production- versus consumption-based emissions. That is, emissions from freight can be associated with where goods are produced, or where they are consumed. It is worth noting that historical data shows that the elasticities for emissions and output have been reducing in recent years (on the production side), particularly in countries with national policies aimed at decarbonising their economies (Gail Cohen, 2018[53]).

As a result, emissions in emerging economies are lower than, or comparable to, those of developed economies when they were at the same level of development. However, the barriers are greater in countries with larger shares of their gross domestic product (GDP) dependent on primary and secondary sectors, such as extraction and manufacturing (Gail Cohen, 2018[53]). Nonetheless, ambitious policies in emerging economies and low-carbon technologies can chart less carbon-intensive development pathways in the future.

Box 4.4. Life-cycle analysis of passenger transport modes in India

As part of its Decarbonising Transport in Emerging Economies and NDC Transport Initiative for Asia projects, the ITF has developed a life-cycle assessment (LCA) tool for the Indian transport sector. The tool can be used to estimate the energy consumption and greenhouse gas (GHG) emissions associated with different modes of transport. It takes into account vehicles’ characteristics, powertrain technologies, energy vectors, manufacturing and disposal, and the infrastructure required to operate them.

In a recent joint study, the ITF and the World Bank investigated the extent to which India’s battery electric vehicles (BEVs) are clean, and the impacts of the energy mix and local operating conditions on GHG emissions across different modes (ITF/World Bank, forthcoming[54]). The study analyses 25 passenger BEV and internal combustion engine (ICE) transport modes, including two- and three-wheelers, private cars, taxis, metro and bus models that cover urban and intercity travel.

Preliminary results from the study suggest that manufacturing can contribute up to approximately 37% of life-cycle GHG emissions in the case of BEVs, due to the emission intensity of battery manufacturing. At the same time, if India achieves its current clean energy policy goals, the GHG emissions of BEVs will be lower than ICE variants across vehicle types.

Furthermore, three-wheelers offer the maximum percentage (roughly 57%) of per-vehicle GHG savings by transitioning from ICE to BEV. In addition, the GHG emissions per passenger-kilometre generated by new ICE urban buses on a lifecycle basis are lower than even BEV variants of cars, taxis and private motorcycles. In other words, in India, investments in ICE and BEV buses are likely to deliver more GHG savings than the electrification of cars and two- and three-wheelers.

The study highlights another practical application of the tool: namely, the way in which it can be used to assess the implication of a given transport mode on energy consumption and related emissions. The insights from these results provide evidence to guide policy-making and investment decisions in the transport sector.

Source: https://www.itf-oecd.org/ndc-transport-initiative-asia.

Policy recommendations

The pace at which the global transport fleet can transition to zero-emission technologies relies on a co-ordinated approach across sectors. The success of this approach will determine the extent to which the High Ambition scenario is achievable.

Set targets and collaborate across sectors to decarbonise all vehicle fleets

The global energy mix primarily relies on fossil energy but will need to move towards clean energy. In addition, grid reinforcements will be required to implement the additional capacity needed to support electrification. Meeting the demand for technologies needed to transition to cleaner fleets depends on a significant supply of raw materials – particularly critical minerals for batteries. Ensuring sufficient capacity to transition the vehicle fleet will depend on the timing and level of investments in mining, critical material production and manufacturing of clean energy technologies. Higher-ambition policies will also require cross-sector co-ordination, considering the energy and technology supply chain interdependencies.

Target incentives and restrict access for high-emitting vehicles to increase the uptake of zero-emission road vehicles

Decarbonising road transport is challenging in different regions due to grid reliability, purchasing power, insufficient charging infrastructure, and limited policy support. This means that not all countries can achieve the decarbonisation objectives at the same pace. A comprehensive combination of policy instruments, which evolve as the transition progresses, will be necessary.

In the early stages of the transition, as the gap in purchase costs between BEVs and ICE vehicles closes, blanket incentives can support early adopters of clean vehicles. In later stages, these incentives could give way to more targeted solutions, such as income-based progressive rebates (e.g. for passenger cars, 2&3Ws and e-bikes) for example, which should be designed to have more equitable outcomes. However, further work will be needed to develop effective and equitable incentives. Purchase incentives for freight vehicles can also target smaller owner-operated enterprises to offset the higher upfront purchase costs of vehicles. Access-restriction policies and differentiated road-user pricing would then be longer-term measures.

In urban contexts, the focus should be on introducing incentives aimed at collective and shared fleets and their supportive infrastructure to reduce congestion caused by passenger cars. Transport authorities can incorporate more stringent emission standards and sustainability and emission-related criteria in procuring public and regulated collective vehicles. Restricted access zones, for example, limit the access of certain vehicles to specific areas to reduce pollution and other environmental emissions. These policies can achieve dual benefits: reducing congestion that may result from the lower costs associated with operating ZEVs and prioritising collective and shared modes in urban environments.

An equitable transition will require a better understanding of barriers in different contexts. Emerging economies can combine co-ordinated procurement and scrappage schemes with targeted incentives for small and micro-enterprises operating informal transport systems. Understanding fleet renewal rates and the global trade in used vehicles can help policy makers identify interim decarbonisation measures that do not risk locking in sub-optimal solutions for specific contexts.

Deploy public charging infrastructure to increase the pace of adoption

Insufficient publicly available charging infrastructure can delay the adoption of ZEVs. Investments in public EV charging networks can reduce range anxiety and encourage the adoption of ZEVs, particularly for freight activities and long-distance non-urban travel. However, the existing grid capacity, complex permitting processes, land-use designations and funding constraints present obstacles to the deployment of charging infrastructure. Policy makers will need a better understanding of user and operator needs when planning for and funding charging solutions.

A network approach will be necessary, including comprehensive standards and policy and process co-ordination across jurisdictions. The electricity grid will need reinforcing to support the rollout of charging infrastructure, which will also require cross-sectoral collaboration. Public roads authorities can also explore concession agreements with private entities to address the potential financial risk of low utilisation in the early stages of ZEV adoption. These agreements (e.g. for the design, financing, construction, operation and maintenance of public EV charging infrastructure) could be paired with road-pricing measures to finance the infrastructure, modified to target users of the infrastructure.

Use pricing measures to improve the commercial viability of low-carbon alternative fuels

In the aviation sector, the novel aircraft propulsion technologies that will drive the shift to cleaner fleets are still in the early stages of development, and uncertainties persist regarding their range and scalability. Similarly, although technological readiness is not as significant a factor in the maritime sector, the commercial viability of zero-emission vessels is still a significant barrier.

These two sectors will rely on adopting low-carbon alternative fuels to decarbonise. However, this poses a dual challenge regarding production capacity and wide-scale application. The high energy required for their production must come from low-carbon sources to make these alternative fuels potential candidates for decarbonisation. Collaboration with the energy sector will therefore be imperative in reducing the carbon intensity of fuel production.

Industries will also compete for access to alternative fuels. Policy makers should prioritise the use of these fuels in contexts where technologies such as electrification are not feasible. This will help maximise economy-wide emissions savings. Finally, measures to promote cleaner fleets and the widespread adoption of low-carbon alternative fuels will not be effective so long as direct and indirect subsidies for fossil fuels exist. Carbon pricing measures will play a role in resolving this conflict by closing the price gap between conventional and low-carbon fuels.

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