Lauren Pamma, Programme Director at the Green Finance Institute, probes how the UK transport sector will achieve net zero emissions by 2050
Transportation is the driver of the modern world. Yet the sector’s reliance on fossil fuels – the highest of any sector – means it accounts for 37% of global CO2 emissions (1) and is the largest contributor to UK emissions. Reducing emissions from road transport, marine, and aviation is a crucial part of tackling climate change and transitioning towards a net zero economy. It is also a transformation that will require significant investment.
How must we approach the UK transport sector?
The UK transport sector must be looked at holistically – it is a complex and inherently interconnected ecosystem. The financial solutions needed to support and enable decarbonisation require a collaborative approach across multiple sectors and value chains within the future mobility ecosystem, underpinned by a strong policy and regulatory framework. Both public and private finance have a critical role to play, and policy and investment decisions should consider the breadth of transport, including active travel and public transport.
Delivering the UK transport sector’s electric future
Road transport accounts for over half of total transport emissions, (2) making it central to the UK’s net zero agenda. For that reason, at the Green Finance Institute (GFI), we initially focused our attention on the decarbonisation of road transport, spanning three different areas: purchasing and leasing of electric vehicles (EVs), EV charging infrastructure, and battery technology.
The recently published Net Zero Review acknowledges that we must ensure vulnerable households are protected from the costs and enjoy the benefits of the transition. To ensure a just transition, EVs need to be affordable and access to charging infrastructure must be evenly distributed across society.
Battery electric vehicles accounted for 32.9% of all new car registrations in December 2022 (3) and by 2030, there are expected to be around 11 million EVs on UK roads. (4) To achieve mass-adoption and ensure EVs are affordable for all, establishing a thriving second-hand car market will be key in the coming years. Increasing access to car finance, informing drivers about the total cost of running an EV and the introduction of battery health certificates on used vehicles can help stimulate demand.
Charging infrastructure has risen by 31% in 2022 compared to 2021
Charging infrastructure has seen enormous growth in the recent years, rising by 31% in 2022 compared to 2021. (5) However, there are still challenges to overcome. Continued public sector investment into charging infrastructure will contribute to crowding in private finance to scale the availability of charging points, giving drivers confidence in making the switch to electric. Furthermore, the UK is also facing regional charging disparities, with just 3% of the UK’s total charge points located in the North East and 31% in Greater London. (6) Innovative financial solutions which enable charge points to be installed ahead of need, but not so far ahead as to become obsolete, such as utilisation-linked loans, could unlock investment.
Additionally, to support the UK’s automotive manufacturing sector, we must ramp up domestic battery manufacturing capacity to over 90GWh annually – a huge increase from the current 2GWh. There is a narrow window for the UK to seize this opportunity, which offers £24 billion to the UK economy by 2025. (7) To get there, it is critical to bring the public and private sectors together to deploy the required financing to build a battery supply chain.
The take-off of sustainable aviation
Prior to the pandemic, aviation contributed a staggering £52 billion to the UK economy (8), whilst making up 8% of the UK’s total greenhouse gas emissions. (9) Protecting the economic and social benefits of aviation is a must, but we need to remove its carbon contribution if we are to meet the UK’s net zero target.
Currently, the only proven decarbonisation option for medium and long-haul flights – which account for 70% of global aviation emissions – is sustainable aviation fuel (SAF). In recognition of this critical challenge, the Department for Transport introduced the ‘Jet Zero Strategy’ in 2022, which included a mandate for 10% of UK aviation fuel to be SAF by 2030. However, a mandate alone cannot guarantee UK production nor secure the investment required to develop this market.
Achieving a UK SAF sector requires overcoming two core financial challenges in parallel. First is constructing a price support mechanism that will establish revenue stability, to reassure financiers on a return on investment given the differences in price between SAF and kerosene. Versions of similar mechanisms have successfully supported the development of the renewables industry. Secondly, the development of financial solutions for the rest of the supply chain. Investment in first-of-their-kind SAF technologies and production plants, and the up and downstream supply chain infrastructure will face both technological and construction risks. While the SAF mandate (which will ensure demand) and the price support mechanism (providing certainty and visibility of revenue streams) will help, these areas require tailored solutions. Additional funding and de-risking support is necessary to attract investment from mainstream finance providers.
Reaching net zero on our seas
Although cutting emissions from road transport is critical, we cannot forget the other forms of transport the world is so heavily reliant on, such as the maritime sector.
It’s estimated that around £75 billion is required over the next thirty years to transition the UK’s maritime sector to net zero. From the renewal of fleets, to the necessary infrastructure at ports for refuelling, the maritime sector holds exciting opportunities for a huge transformation that brings with it jobs, investment and growth. The private sector holds the key to unlocking this level of investment, which must coincide with coordinated policy support, and sector-wide collaboration.
Decarbonising the entire UK transport sector is a big challenge, but it presents a huge opportunity for the UK to become a leading force in this transformation. We can reach a net zero transport future by adopting a holistic approach to transportation and focusing on unlocking the financial and political barriers to adoption.
References
1. https://www.iea.org/topics/transport
2. https://www.gov.uk/government/statistics/transport-and-environment-statistics-2022/transport-and-environment-statistics-2022#:~:text=Transport%20produced%2024%25%20of%20the,road%20vehicles%20(89%20MtCO2e%20)
3. https://www.zap-map.com/ev-market-statistics/
4. https://www.greenfinanceinstitute.co.uk/wp-content/uploads/2021/12/GFI-CDRT-REPORT.pdf
5. https://www.zap-map.com/statistics/#points
6. https://www.zap-map.com/statistics/#points
7. https://www.greenfinanceinstitute.co.uk/wp-content/uploads/2022/05/Powering-The-Drive-To-Net-Zero-Report.pdf
8. https://www.sustainableaviation.co.uk/news/uk-aviation-industry-generates-60-billion-revenue-and-exports-26-billion/#:~:text=It%20contributes%20%C2%A352%20billion,8.7%20billion%20in%20UK%20tax
9. https://commonslibrary.parliament.uk/research-briefings/cbp-8826/
