Electrifying Europe: Navigating the Decarbonisation of Transportation

Focus on climate change is intensifying across Europe, with recent studies highlighting the need to act now on the climate crisis. Most European nations have centred their fight against climate change around decarbonisation as they look to play their part in working towards the global target of limiting global warming to less than 2°C by 2100.

The European Climate Law obligates EU countries to cut greenhouse gas emissions by at least 55% by 2030 (compared to 1990 levels), with a longer-term goal of making the EU climate neutral by 2050. Similar targets are in place outside of the trade bloc, with the UK committing to more stringent interim carbon emissions targets as it also strives to reach net zero by 2050.

With figures from the International Energy Agency showing that transport makes up nearly a quarter of Europe’s emissions, decarbonising transport will be indispensable to reaching climate neutrality. Tackling emissions in this hard-to-abate sector will require huge investment and significant behavioural changes, with its repercussions resonating throughout the European economy.

The current state of play

Headline figures show a downwards trend in greenhouse gas emissions (GHG) across Europe in recent years. If sustained, this will leave Europe well-placed to meet medium- and long-term climate goals. So why do current GHG projections fall so short of government targets?

The answer comes from looking into where the current gains have been made. So far, most emissions reductions have come from closing coal power stations to clean up energy supply. Emissions from other sectors (such as transport and heavy industry) have proved much harder to shift. As more stringent climate targets approach, action in these sectors will need to step up.

Why is transport so difficult to decarbonise?

The Carbon Disclosure Project claims that transport relies on oil for more than 90% of its energy. Substituting oil with less-emissive fuels like electricity is one of the main pillars of Europe’s plan to tackle transport emissions, with both the EU and UK implementing plans to ban the sale of internal combustion engine (ICE) vehicles by 2035.

Key targets, proposals and policies:

• Cut emissions from cars by 55% and from vans by 50% by 2030, compared with 2021 (EU)
• Zero emissions from new cars and vans by 2035 (EU)
• Ban sales of new petrol and diesel vehicle from 2035 (UK)
• All new cars and vans sold must be zero emissions by 2035 (EU & UK)
• New trucks and buses must cut their emissions by 45% compared with 2019 levels by 2030, 65% by 2035 and 90% by 2040 (EU)

Norway’s “polluter pays principle” has paved the way for an electric car sales share of 88%, but what is the secret to its success?

In Europe, Norway leads the way in terms of electric vehicle (EV) adoption, with the country well-placed to achieve its ambitious target of 100% new EV sales by 2025, thanks to a cocktail of financial incentives:

• Increased taxes for ICE vehicles
• Lower taxes for zero-emission vehicles
• Fast charging stations on all main roads
• Access to bus lanes for zero-emissions vehicles

Norway's remarkable shift to EVs showcases the transformative power of policy reform, providing a blueprint for other developed nations across Europe. Incentives aimed to encourage EV adoption and proposed mandates to increase penalties for companies that are holding back the transition are a positive step towards the change require. However, more aggressive policy reform is needed to break down current barriers to production and adoption, particularly in major European economies like Italy and Spain, where high buying and running costs are holding EV ownership rates down.

Who stands to benefit from the EV revolution?

EV manufacturers

Companies with established EV manufacturing operations are the clear winners. With 30 million cars zero-emission cars expected on European roads by 2030, EV production faces a golden opportunity to expand and innovate.

Tax benefits and purchase incentives continue to boost demand for EVs from an increasingly eco-conscious consumer-base, with Germany leading the way in Europe in terms of current EV manufacturing output. However, import competition is fierce, with China staying in the fast lane owing to its access to more advanced technologies throughout the EV supply chain.

The ability of Europe to reduce China’s competitive advantage in EV manufacturing will be key to determining how much European EV manufacturers benefit from the transition. Import tariffs on Chinese EVs is one option, though given its current dependence on China, Europe must tread carefully to avoid any retaliation. Creating supply chain partnerships with other countries and continents, particularly emerging economies, is likely the best path for European EV manufacturers to walk down if they’re to realise the significant growth potential that lays in front of them.

Battery manufacturers and suppliers

Batteries are the most valuable component of any EV, with the scaling up of battery production key to unblocking supply chain bottlenecks. The European Battery Alliance aims to ensure that Europe is self-sufficient for 90% of its battery needs by 2030. Demand for battery raw materials will continue to skyrocket – demand for lithium is set to climb by more than 1,000% – so if battery manufacturers can secure reliable sources of raw materials, the sky is the limit.

Renewable electricity providers

Europe’s transition to EVs will place significant strain on the electricity network, with electric cars on Europe’s roads needing 150GW of electricity capacity by 2050. Europe can’t achieve net-zero transportation unless these needs are met by low-carbon electricity sources. While the entire energy value chain will benefit from greater demand stemming from the push for EVs, renewable electricity generators are central to ensuring sufficient and reliable sources of clean energy required for the transition.  

Charging infrastructure providers

To facilitate growth in vehicle ownership, the European Commission anticipates a need for around 3.5 million publicly accessible vehicle charging points by 2030, with the Green Deal setting a target for 1 million charging points by 2025. With less than 400,000 in place in EU member states at the end of 2022, nations face a race against time to ensure that their roads are equipped for the transport revolution.

The EU and the UK have each introduced legislation to ensure the supply of charging infrastructure in new buildings, creating opportunities for strategic partnerships with building contractors. Outside of public-sector funding, accelerated EV adoption is key to encouraging private investors in search of commercial returns. This will help solve the chicken-and-egg dilemma that’s previously stood in the way of Europe’s EV revolution.

Which industries need to evolve?

ICE vehicle manufacturers

Car manufacturers slow to adapt to the shift to EVs will keep losing ground to more agile competitors. Europe’s largest car manufacturers continue to produce hundreds of millions of ICE vehicles each year, with carmakers warning of factory closures if the transition away from ICE vehicles occurs too quickly.

Incentives aimed to encourage EV adoption and proposed mandates to increase penalties for companies that are holding back the transition will make ICE vehicle manufacturing less profitable than EV manufacturing towards the end of the decade, forcing ICE vehicle manufacturers to pivot operations towards EV production.

Oil and gas sector

Road transport accounted for almost half of oil consumption in OECD countries in 2022 – but the International Energy Agency sees the use of oil for transport fuels going into decline after 2026. This presents a threat to the entire oil and gas supply chain.

Companies in the oil and gas sector will have to reduce the carbon intensity of their operations if they’re to avoid collapse, with developments in carbon capture and storage (CCS) technologies likely to be particularly influential. Oil and gas businesses should also look to continue diversifying into renewable energy, hydrogen power and sustainable biofuels to protect their revenue streams.

What solutions are there for other modes of transport?

While the electrification of cars is at the centre of European transport’s decarbonisation efforts, reducing emissions from other modes of transport is equally important.

Key targets, proposals and policies

• Net-zero carbon emissions from aviation by 2050 (UK)
• 70% of fuel uploaded at European airports to be sustainable aviation fuel (SAF) by 2050 (EU)
• EU’s Emissions Trading Scheme to be extended to cover carbon emissions from all large ships entering EU ports (EU)

The aviation and maritime sectors will need to step up their efforts to improve efficiency by using more renewable and low-carbon fuels. The UK has recently launched a “Jet Zero” consultation, which commits to net-zero emissions from aviation by 2050, but many believe this is just a pipe dream. Currently available SAFs are costly and haven’t been tested on long-haul flights, placing doubt on their viability as an alternative to current fuels.

Without significant technology developments, it’s likely to take a sustained reduction in the total number of flights to curb emissions from aviation. Policymakers and the aviation sector are likely to favour developments in SAFs as an alternative to this, given the impact of obstructing growth in the aviation sector on both airlines and the wider economy.

Aviation is just one of a number of industries with an interest in sustainable fuels; ocean shipping and road freight are also reliant on development in biofuels. Collaboration between these industries to find mutually beneficial solutions is likely to be the best way to achieve decarbonisation goals and ensure sustainable growth.