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The EU Road Transport Sector

with Peter Vis
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So, transport is a sector where it is difficult to reduce greenhouse gas emissions. This slide shows the share of transport emissions and you can see from it quite strikingly that by far the largest share comes from road transport, 72% in Europe, and then aviation and maritime also represent significant shares of emissions. Now, as a general rule, that would mean we should concentrate on the biggest source of emissions. So, first of all, I will dwell on road transport and then we will look at the other two sectors. This is a graph which divides by mode of transport the emission trends. And you can see from that the top line of that is aviation, the bottom line is railways.
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So, you can really deduct that different modes perform differently in terms of their greenhouse gas emissions and road transport is the second-highest line of those. So, to the right of the screen you can see straight lines that project into the future up to 2035 and those are the estimations of future evolution with the existing policies and measures that are on the books and with additional measures that are already planned but have not yet taken effect.
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But you can see that for road transport emissions and for aviation the trends are to continue increasing the emissions of greenhouse gases and that’s clearly incompatible with reducing them and eventually getting to net zero by the middle of the century for transport as a whole. So, there’s a lot of work to do. In the European Union, there’s a variety of policies that are used to reduce the emissions from road transport, existing measures that exist include taxes, especially on the fuels, and other measures include emission standards for cars, for vans and for lorries, which basically regulate the emissions of new vehicles and gradually of those new vehicles as time passes.
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These represent a bigger and bigger share of the fleet, of the existing fleet, but it’s worth remembering that a lot of emissions come from cars that are 10 years old and the lifetime of a car in the European Union is around 15 years, so they stay around a long time and the fact that new cars are being regulated still takes time to have an effect. Road pricing is used, but at the moment in Europe only for heavy goods vehicles like lorries and that is something that is a possibility for Member States to do, but not necessarily something that all Member States will do when it comes to the emissions of carbon dioxide from vehicles.
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And, finally, there are labelling requirements, for example, where if you buy a new vehicle there has to be visible labelling that explain to the purchasers what the emissions are per kilometre, so that purchasers can think about fuel efficiency as they make their choice of vehicle. In addition to those policies that exist at European level, there are a lot of national policies as well. National policies hopefully help to meet our greenhouse gas targets, but in practice sometimes the policies are not helpful to meeting our greenhouse gas targets.
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The rules about company cars are evolving very quickly in fact and they are increasingly incentivizing the purchasing of low-emissions vehicles and even zero-emission vehicles, but in practice also company cars can be a form of subsidy in a way because there are tax advantages in companies buying the cars and giving the use of those cars to their employees. So, sometimes there can be unintended consequences of those remuneration schemes where employees end up being able to use a car and have even fuel cost all covered by the business. And speed limits is something that is for national jurisdictions to determine and even local jurisdictions and is not something that will be regulated at the level of the European Union, for example.
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So, we need all levels of governance to pull in the same direction. Another historical fact is that diesel has often been taxed less than other types of fuel, petrol in particular, because it’s been the fuel used by commercial vehicles, so these sorts of things are rather anomalous in a world where we are trying to reduce our emissions and fuel discounts or reductions are things of the past, really, because we’ve got to be forward-looking and there’s something of an anachronism today.
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So, as I said, we do have standards of CO2 performance for cars. These standards are technologically neutral, they don’t prefer any particular type of powertrain, they look at the emissions emitted by the car. The standard is 95 g/Km of CO2 in 2021 and there needs to be a 55% improvement on that by 2030, and indeed by 2035 new passenger vehicles should be zero emissions per kilometre, they should have been decarbonized at least in terms of their propulsion method. This target of 95g is calculated per manufacturer and there is an adjustment for weight because you can’t expect all cars to conform to that standard.
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It’s going to be harder for larger cars, easier for smaller, lighter cars, but there is an adjustment that allows bigger cars that some people need to have, they have a slightly higher target. But overall, 95 g/Km is where we are now and there is a very clear signal in this legislation that car manufacturers must improve performance over the next decade. The test cycle has become more stringent in recent years.
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And there are flexibilities within this legislation and bonuses for cars that emit less than 50g and such cars include electric vehicles and plug-in hybrid vehicles and, of course, where there are rules, standards, where those standards are not capped there is a penalty and the penalty is very dissuasive at 95 per car, 95 per gCO2 for each car, so you know there is a substantial amount of money. What actually the legislation provides for is some degree of flexibility. I would say this, stringency is good and flexibility makes them better, makes it better because they reduce the costs.
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We must be ambitious but we must always be wary of excessively high costs and the flexibility rules are there in order to reduce those compliance costs and they enable manufacturers to group together. And the newspaper article that there is a picture of there, I took the picture myself, it shows you a car manufacturer that was, if you like, needed to have a less carbon-heavy partner with which to group and they chose to use an electric car producer in order to comply with the target.
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That’s allowed and overall it secures the same environmental outcome overall and indeed it incentivizes companies such as electric car producers to go beyond the target, they don’t try to get the 95g, they try to get zero and then there can be a benefit in going further by pairing up with another company. So, those sorts of flexibilities make things more cost-efficient and therefore I think make climate policies more affordable. Overall, Europe, there’s a line at the bottom, towards the bottom right-hand corner of that graph, the red dotted line that shows you where the EU’s CO2 targets are going by 2035.
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You can see, also, that a number of other countries, Mexico, South Korea, Brazil, the US, India, Canada, China, they are all on that graph and it shows that other jurisdictions are taking a similar approach towards improving the CO2 emissions per kilometre of light-duty vehicles. There is in other words a global trend in this direction and the European Union prides itself on being ambitious and setting the strictest targets because it’s ambitious on climate change, as simple as that. So, overall, including transport into the EU’s Emissions Trading System is a recent proposal from the European Union. There are advantages to this because clearly transport does need to do more.
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Electric vehicles are actually already covered by the Emissions Trading System insofar as the electricity generators are covered and so it’s somewhat odd that petrol and diesel cars are not being treated in the same way and so the inclusion of the fuels for road transport into the Emissions Trading System will ensure that all fuels are treated in a similar way. And this is going to be done as of 2026 initially and then there will be, there doesn’t need to be unanimous agreement in order for this law to be passed, unanimous agreement among the Member States that is, so it might well happen.
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There are sorts of, you could say as a counterargument you don’t need to include these, the road transport fuels in emissions trading because they are already heavily taxed and also perhaps the demand for road transport is rather inelastic. You might even have reservations about the fact that poorer people might have difficulty paying for higher fuel cost. There are social consequences of such measures, but there is also a revenue stream because the Emissions Trading System does produce revenues that governments can use to address those adverse social consequences and, indeed, we need to do more in transport, so including these sectors into the Emissions Trading System is going to help us do more.

Despite the success in bringing down EU greenhouse gas emissions on average, the emissions from road transport continued to increase from 1990–2019. In this video, Peter introduces the main policy challenges in the transport sector.

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Carbon Markets: Examining EU Policies for Transnational Climate Action

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